Azad Engineering - The Best Is Yet To Come: ICICI Securities

ICICI Securities Report

We believe that it is less than prudent to value Azad Engineering Ltd. on relative valuation at this point in time, as its growth trajectory is much steeper compared to peers.

Besides, the value of some of the orders in the public domain is still not known; hence, there is an upside risk to our existing earnings estimates in the medium term.

Given the orders, long-term contracts/agreements and roadmap worth upwards of Rs 30 billion, provided by the existing customers, we believe that four years of revenue is already covered.

Besides, management mentioned that it has visibility on the entire 95,000m2 facility due to commencement of operations from FY27, post which there is another 75,000m2 facility awaiting commencement.

In our view, both facilities will feed rapid earnings growth until FY35E. Hence, we switch over to the DCF methodology until FY35 in order to value the earnings more appropriately.

Our target price works out to Rs 2,450/share, implying an upside of 46% on current market price. We maintain Buy on Azad.

Key Risks

• Delay in approvals from OEMs

• Product concentration around air foils

• Slowdown in aerospace sector might result in lower revenue growth

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