Azad Engineering Secures Defence Contract From Research Arm Of Drdo And Ministry Of Defense

Nation Pride Contract with GTRE

AZAD Engineering has recently secured a prestigious nation pride contract from the Gas Turbine Research Establishment (GTRE), a pioneering Research and Development Organization under DRDO (Defence Research and Development Organisation) and the Ministry of Defence, Government of India. The contract involves the end-to-end manufacturing, assembly, and integration of a complete assembled Advanced Turbo Gas Generator Engine.

This engine is a critical development for India and will be utilized in various defence applications. This milestone marks AZAD’s entry into propulsion systems, showcasing its growing presence and capabilities in the field. AZAD will play a vital role as a single source Industry Partner (IP) to GTRE for the success of this mission, with the first batch of fully integrated Turbo Engines expected to be delivered by early 2026.

Expansion of Manufacturing Capabilities

To support this significant contract, AZAD Engineering has expanded its manufacturing capabilities by vertically integrating a new, highly specialized portfolio of manufacturing and assembly for the Power Generation, Aerospace & Defence, and Oil & Gas sectors.

This vertical integration and enhancement in capability enable AZAD to offer end-to-end manufacturing for a complete, assembled Advanced Turbo Engine, creating a massive opportunity to build capacity for a complete propulsion systems solution for national and global defence requirements.

By entering the production of complete gas turbines, AZAD is set to play a more integral role in India’s defence sector manufacturing capabilities, enhancing self-reliance and contributing to Prime Minister Shri Narendra Modi Ji’s vision of “Atmanirbhar Bharat.”

Financial Performance

AZAD Engineering has demonstrated robust financial performance in FY24. The company’s revenue from operations surged by 35%, reaching Rs 340.77 crore, up from Rs 251.68 crore in FY23. This growth is supported by a notable 48% rise in adjusted EBITDA, which stood at Rs 117.45 crore, translating to an adjusted EBITDA margin of 34.5%, up from 31.6% in the previous year. Despite non-recurring expenses dropping significantly to Rs 86 lakhs from Rs 7.27 crore, the reported EBITDA soared by 61% to Rs 116.59 crore, improving the reported EBITDA margin to 34.2%.

After accounting for non-recurring finance costs and one-time other income, AZAD Engineering’s profit before tax skyrocketed by 512% to Rs 80.79 crore. The resultant profit after tax experienced a remarkable 589% increase, reaching Rs 58.58 crore, enhancing the profit after tax margin to 17.2%, a significant improvement from 3.4% in FY23. This robust financial performance underscores AZAD Engineering’s strong operational execution and strategic growth initiatives.

Energy and Oil & Gas segment grew by 30% in FY24. The energy segment continues to build capacity and win further business. Aerospace & Defence segment has delivered significant growth this year, backed by large First Article Inspection (FAI) parts cleared in previous years for key clientele

Key Financial Highlights

On the balance sheet front, the company has reduced debt due to the conversion of high-cost compulsory convertible debentures or CCDs and debt reduction using IPO proceeds. In Q4FY24, the company significantly reduced quarterly finance costs, and non-recurring finance costs pertaining to high-cost CCDs will normalize from Q1FY25. Due to changes in the product and revenue mix, consumption as a percentage of sales has increased. On a long-term basis, EBITDA is sustainable between 33% and 37%, based on the product and revenue mix.

Strategic Partnerships and Agreements

AZAD Engineering has strengthened its business development and growth through several strategic partnerships and agreements:

• Rolls Royce: Signed a 7-year contract to produce and supply critical engine parts for their Defence/Military Aircraft Engines.
• Baker Hughes: Entered into a 5-year agreement with a subsidiary of Baker Hughes for the supply of highly complex and critical components for the Oil & Gas sector. Additionally, AZAD signed a 5-year supply agreement with Baker Hughes to supply medium-high complex precision machined components for oil field services, with the contract extendable up to 3 and additional 1-year terms.
• GE Vernova: Signed a contract with the Steam Power business of GE Vernova for the supply of high-complex rotating airfoils for the Nuclear, Industrial, and Thermal Power industry. This transformative collaboration includes a phase 1 agreement valued at around USD 35 crore for a period of 7 years.

Conclusion

AZAD Engineering’s recent contract with GTRE showcases the company’s growing capabilities and expansion in the defence sector. The company’s robust financial performance, coupled with its strategic partnerships and enhanced manufacturing capabilities, positions it well to contribute significantly to India’s defence manufacturing capabilities.

Shares of the company closed at lower circuit price of Rs 1392.15, down 5% from its yesterday’s closing price of Rs 1465.40. The shares have delivered 103% returns for the year till date.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.