8 Manufacturing Facilities Will Unlock Demand In Energy, Aerospace And Defense

Key Takeaways

• Major capacity expansion and strategic global positioning enable strong revenue growth, margin expansion, and premium contract wins in key sectors.
  
• Moving up the value chain and leveraging industry trends will diversify revenue streams, improve margins, and support sustained earnings growth.
  
• Aggressive expansion, high export and customer concentration, sectoral risks, trade policy shifts, and technological advancements threaten Azad Engineering's growth, margins, and long-term stability.

Catalysts

Manufactures and sells precision- engineered components in India and internationally.

• The ongoing and significant capacity expansion-rolling out eight new dedicated lean manufacturing facilities-should unlock higher production volumes and allow Azad Engineering to capitalize on strong global demand for precision components in energy, aerospace, and defense, supporting above-trend revenue growth starting FY'27 and beyond.
  
• The company's rapidly growing order book (₹6,000 crore+), with multi-year contracts and deepening relationships from global OEMs in defense, aerospace, and nuclear power, provides reliable revenue visibility and enables better operating leverage as utilization rises, supporting margin expansion.
  
• Structural global industry trends-such as increased defense and aerospace spending and the shift towards renewable (including wind and nuclear) energy-are driving demand across Azad's end-markets; Azad's leading positioning, accreditations (e.g., EDF qualification for global nuclear power), and first-to-market status in several niches enable capture of high-value orders, positively impacting both revenue and net margins.
  
• The drive among global OEMs for supply chain diversification and 'China-plus-one' sourcing has led to major contract wins for Indian manufacturers like Azad; their cost leadership and process expertise (as detailed in margin/competitive comparisons) enable premium pricing and enhance export revenue growth even amid shifting global tariffs, protecting and potentially improving net margins.
  
• Continued movement up the value chain-from niche engineered components to full assemblies and subassemblies in aerospace and defense-will expand Azad's wallet share per customer, diversify revenue streams, and improve blended margins over the medium to long term, which should notably boost overall earnings growth.

Azad Engineering Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Azad Engineering's revenue will grow by 32.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.1% today to 22.7% in 3 years time.
• Analysts expect earnings to reach ₹2.6 billion (and earnings per share of ₹39.19) by about August 2028, up from ₹999.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 89.3x on those 2028 earnings, down from 98.2x today. This future PE is greater than the current PE for the IN Machinery industry at 32.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.64%, as per the Simply Wall St company report.

Azad Engineering Future Earnings Per Share Growth

Risks

• The company's rapid expansion-planning 8 new manufacturing facilities and deploying ₹450 crore in CapEx within 12-18 months-poses significant execution risk; challenges in scaling, hiring/training workforce, and achieving timely certifications could lead to project delays or operational inefficiencies, which may pressure earnings and net margins if not managed effectively.
  
• Azad Engineering's high export dependence (about 90% of revenue) and concentration in energy (especially thermal and gas turbine), aerospace, and oil & gas sectors exposes it to long-term risks from global decarbonization trends and stricter environmental regulations, which could structurally shrink the addressable market and impact future revenue growth.
  
• Revenue is highly concentrated with key global OEM customers; as customer concentration remains elevated and wallet share per customer is currently low (1.5–2%), any changes in procurement strategy, insourcing, or decreased order volume from these large clients could drive significant revenue volatility.
  
• Secular trends toward localization, supply chain regionalization, and protectionist policies (e.g., tariffs in major markets like the US) could increase sourcing from domestic suppliers and reduce Azad's export opportunities; although management asserts current competitiveness, ongoing trade policy uncertainty and rising tariffs pose long-term revenue and earnings risks.
  
• The company's 'build-to-print' model in precision components manufacturing may face margin compression if it falls behind rapid global advances in automation, additive manufacturing, and process innovation; insufficient investment in R&D or advanced technologies could erode its competitive edge and net margins over time as industry standards rise.

Valuation

• The analysts have a consensus price target of ₹1944.0 for Azad Engineering based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹11.4 billion, earnings will come to ₹2.6 billion, and it would be trading on a PE ratio of 89.3x, assuming you use a discount rate of 14.6%.
• Given the current share price of ₹1518.7, the analyst price target of ₹1944.0 is 21.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.