Azad Engineering (NSE:AZAD) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Azad Engineering Limited Q1 FY 'twenty seven Earnings Conference Call. This conference call may contain forward looking statements about the company, which are based on beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr.

0:47 Rakesh Chopdar, Chairman and Chief Executive Officer, Azad Engineering Limited. Thank you, and over to you, sir. Thank you. Thank you, team SGA. Good morning, everyone, and a warm welcome to our first quarter earnings conference call for fiscal year twenty twenty seven. Joining me today is Mr. Vishnu Valpani, our role time Director Mr. Arunabh Jarjo, our CFO and our Investor Relations Advisers from Strategic Growth Advisers. Our stand alone and consolidated financial results, along with our latest investor presentation, have been uploaded to the stock exchanges and our website for your reference. To start with capitalization on global industry megatrends.

1:36 Before we review our specific operational milestones, it is critical to look at the bountiful macroeconomic tailwinds. Driving our businesses, we are currently witnessing an unprecedented synchronized high growth cycle across all sectors. In the energy domain, the global full push for energy security and the transition towards advanced gas turbines have triggered massive multibillion dollar global equipment upgrade cycles. Concurrently, the aerospace and defense sector is experienced structural supply chain shifts, driven by a global surge in aircraft demand and an intense domestic focus on defense self reliance.

2:26 These are not short term spikes. They represent structural multi ticket growth shifts. Because Azad has spent years securing strict OEM qualifications and building specialized heavy infrastructure, we are uniquely positioned at the epicenter of these dual megatrends. These powerful industry tailwinds provide a strong compounding foundation that will fuel Azad's long term scale and audible expansion for the years to come. Now a very historical nation milestone, India's first indigenous turbojet engine.

3:12 I want to begin today's call with an announcement that fills me and our entire team at Azad with immense national pride. I'm thrilled to share that Azad Engineering has successfully manufactured, assembled and delivered India's first indigenous expandable turbojet engine to the Gas Irvine Research Establishment, DRDO, and the Ministry of Defense. As highlighted in the official press release from the MOD, jet engine technology represents one of the final frontiers of sophisticated engineering. It demands a level of extreme precision, advanced metallurgical expertise and uncompromising manufacturing quality that is mastered by only a select handful nations globally.

4:07 For Azad, this milestone is a profound architectural shift. We have successfully evolved from being a precision component manufacturers into a fully integrated propulsion system player. By taking up the end to end manufacturing, assembling and integration of this complete engine assembly, we have moved right up the value chain. This significantly expands our total addressable market and firmly seals our position as an indispensable trusted partner in the India's long term aerospace and defense sovereignty. We have also been advised to prepare for a significant scale up in production volumes once the ongoing sequence of testing is completed, which will in turn accelerate development across all of India's past and future critical indigenous engine programs.

5:07 On the capacity expansion, another further added the new Baker Hughes facility. Our physical infrastructure footprint is scaling up right alongside our technical capabilities. I'm proud to report that our massive multi facility expansion road map at our Tunniki Bolanam Industrial Park is progressing exactly as planned. Following the successful commissioning of our dedicated lines for Mitsubishi, GE Power System and Siemens Energy, we hit our next major milestone recently. In April 2026, we officially inaugurated our fourth dedicated lean manufacturing facility, a state of the art 7,600 square meter facility, custom built for Baker Hughes.

5:57 Operating dedicated plants represent the deepest possible level of customer integration in our industry. It creates immense operational stickiness and provides long term multiyear supply chain visibility with global marquee OEMs. Civil construction across the remaining units at Azad Center of Excellence is a track to wrap up within this fiscal year, while we are undertaking a measured, calibrated ramp up across these new lines to satisfy stringent customer qualification schedules. We expect the more substantive revenue contributions to begin crystallizing in the second half of this financial year.

6:43 Now on the Q1 FY twenty twenty seven financial performance snapshot, our unwavering focus on operational discipline, operating efficiencies and optimized product segment mixes has enabled us to kick off the new financial year on the strongest note ever. Looking at our stand alone financial performance for Q1 FY twenty twenty seven, I'm happy to mention that we have met our guidance. Revenue from operations grew by 26.8 year on year, reaching to INR170.5 crores, up from crores in Q1 FY 'twenty six. Reported EBITDA expanded at a faster pace of 32.1% year on year to arrive at 64 crores, reflecting the modeling benefits of our operating leverage.

7:47 EBITDA margins expanded to robust 37.6%, up from 36.1% in the same quarter last fiscal. Profit after tax registered a healthy growth of 21.2% year on year to stand at 36.4%, maintaining an exceptional PIP margin of 21.3%. On a consolidated level, our revenues came in at INR172.6 crores with an EBITDA of INR64.4 crores and PAT of INR35.2 crores. Our business segment across Energy, Oil and Gas and Aerospace and Defense continues to grow symmetrically and strictly in tandem with our long term structural targets.

8:36 On the closing outlook, very important for me to give this message. As I have mentioned this earlier, FY twenty twenty six was a year of expansion, during which we undertook a wide range of foundational activities to position Azad for its next level of revenues, performance and growth. I'm pleased to report that we have already stabilized 80% of these initiatives in Q1, with the remaining major activities on track for completion by mid Q2 and full closure by Q3. Our manufacturing infrastructure is now running at full throttle and we expect this to propel Azad into its next phase of accelerated growth from Q3 and Q4 onwards.

9:28 At Azad, we have never changed regular scale at the expense of our margins. Our growth is anchored entirely against firm long cycle contracts, multiyear order book visibility. We do not engage in speculative expansions. Backed by an incredibly strong growing pipeline and world class manufacturing infrastructure that is rapidly maturing. We entered the rest of FY 2027 with absolute clarity and complete execution confidence. We proudly reiterate our long term annual revenue growth guidance of over 25%, while maintaining our stellar industry leading profitability profile.

10:22 We remain dedicated to building a high moat, high resilient global precision engineering platform. I want to thank our customers, partners and our exceptional team at Azad for their relentless execution and our shareholders for their continued confidence in our journey. I now hand over to our CFO, Mr. Ronak Charju. Thank you, everyone. Thank you, Chenin, sir, and good morning to everybody. Now I will take you through a comprehensive review of our financial performance, capital structure and operating efficiency metrics for the first quarter ended 06/30/2026.

11:09 As the Chairman summarized, this quarter was marked as highly successful phase of execution. The financial data demonstrate that our front ended capacity investments are successfully translating into scalable, highly predictable revenue line. Most importantly, we are beginning to see the true power of structural operating leverage as our asset base moved through its planned stabilization curve. Let me take you through the financial highlights and operating leverage. Our stand alone financial performance for quarter one FY twenty twenty seven underscore our robust business momentum across both sequential and year on year origin. Top line and expansion, our stand alone revenue from operations reached crores, reflecting a stellar growth of 26.8% year on year basis and INR134.5 crore in quarter one FY twenty twenty six.

12:11 On a sequential basis, our revenue grew by 8.3% over 157.4 crore reported in quarter four FY twenty twenty six. This sequential growth highlights a steady acceleration in customer schedules and manufacturing deliveries right at the start of the fiscal year. Operating leverage and EBITDA growth. Our reported EBITDA grew at an impressive pace, $18.64 crores, representing a growth of 32.1% year on year basis from INR 48.5 crore in quarter one FY twenty twenty six and strong sequential jump of 10.9% from INR 57.8 crore in quarter four FY twenty twenty six. Operating margin assumptions, this outpaced growth directly expanded our stand alone reported EBITDA margin to 37.6%.

13:06 This is an expansion of 150 basis points over the 36.1% recorded in quarter one FY twenty twenty six and solid 90 bps point setup from 36.7% achieved in quarter four FY twenty twenty six. This margin progress proved that our pure play manufacturing operations are absorbing fixed corporate overhead efficiently as production is still rising, and we are confident to maintain the same in coming quarters and so. Core material margin processing efficiency. This expansion was heavily supported by our cost indigenization program. This reduction reflect our long term effort to lower core manufacturing costs by onboarding domestic suppliers and increasing backward integration through our top suite.

13:55 Let me take you through the analysis and variance on other income and net profitability. To evaluate our pure core performance accurately, it is essential to analyze the structural change within our non operating income segment occurring on account of volatile foreign currency momentum, which we saw in quarter four FY twenty twenty six because of macroeconomic environment, which is not in control of the company. The foreign currency element in other income. Other income came to INR 4 crore in this quarter, declined to a sharp moderation from INR 9.1 crore in quarter one FY twenty twenty six and substantial decrease from elevated INR 17 crore recorded in quarter four FY twenty twenty six. I must emphasize that this sequential drop is entirely a function of foreign currency dynamics.

14:45 In quarter four FY twenty twenty six, other income was heavily bloated by major non operating foreign currency gain due to macro region, as I mentioned, beyond the control of the company. In contrast, quarter one FY twenty twenty seven witnessed currency volatility that normalized the non operational tailwind. Furthermore, our treasury income is expected to moderate, as I mentioned in last call also, as we steadily deploy our cash reserves into our active factory infrastructure and machines. Net profit metrics. Our stand alone PAT grew at INR 21.2% year on year basis to INR 36.4 crore, up from INR 30 crore in quarter one FY 'twenty six. Sequentially, net profit grew at 3.5% and this 35.1% reported in quarter four FY 'twenty six.

15:37 This yield an exceptional stand alone tax margin of 21.3% versus EPS of $5.63 per share. On a consolidated metrics, our metrics remain equally strong. Consolidated revenue from operations grew at 25.9% year on year basis to close at INR122.6 crores. Consolidated EBITDA at INR 64.4 crores, yielding an operating margin of 37.3%, while consolidated debt reached 35.2%. Our key subsidiaries are performing precisely on track with our turnaround target, which we have set for AZAD. Now I'd like to give hand over to Mr. Vishnu Malpani, who is our Full Time Director, to take you through the strategic.

16:25 Thank you. Thank you, Ronak, and good morning, everyone. The Chairman, Mr. Chopdar, spoke about what July 22 meant to the nation. Our CFO, Mr. Jaju, has given you the critical numbers that drove this quarter. Let me give you the corporate view because from where we sit, the delivery of an engine was much more than a successful engineering milestone. It is a permanent upgrade in Azad's market positioning. Three things that changed on July 22. First, we moved up the value chain, global value chain by managing end to end integration and balancing of a complete propulsion system. We have broken out of the traditional component supplier tier. We have proven that AZAD can act as a primary technology integration partner for any of the global OEMs or defense needs of the country.

17:20 Second, the moats got deeper. Azad was placed within a highly exclusive tier of global manufacturers capable of executing complete defense assemblies. The regulatory qualification and technical barriers to entry here are immense, and they protect our business from a standard competitive pressures. Third thing that changed was our addressable market expanded. This successful execution opens long cycle monetization opportunities across domestic defense programs and international aerospace supplier chains as well. In effect, an entirely new structural growth engine for Azad happened on that day. Now let me connect that to what we build. Our physical expansion at Tuncay Bolaram Industrial Park is governed by a strict risk free mitigated asset model. We do not build speculative capacity speculative capacity, we build dedicated customer aligned infrastructure.

18:15 This quarter, our new 7,600 square meter facility for Baker Hughes commenced operations. Following the same deployment model, we have proven with each of our other customers, namely Mitsubishi, GEC Power and Siemens Energy. Why does this model matter so much to us? Because once a global marquee OEM integrates a dedicated qualified facility into their primary supply chain, shifting that business carries a huge switching cost. This is what operational stickiness means in our industry, and this is what gives us exceptional multiyear revenue and volume visibility. And we are pacing this expansion with discipline. Civil construction for the remaining units at the new plant, Azad Center of Excellence, is on track to ramp by the end of this financial year.

19:02 Machine installations are being executed in modular back to back phases, aligned strictly with the road map of our customers. You see you also see the strategy coming live in the numbers that we delivered this quarter. On a consolidated basis, our revenue from operations grew by 25.9% year on year to about INR 172.6 crores, driven by steady delivery schedules and strong operational execution across all our facilities. Aerospace and defense also registered one of the highest growth acceleration, up approximately about 38.4% year on year, reflecting our increased share of wallet with some global aviation majors and initial tailwinds from our advanced propulsion and defense system deliveries. And our energy and oil and gas vertical also grew by 21.6, driven by healthy demand across gas turbine components and operational launch of a new customer dedicated production lines. Acceleration where we are investing, resilience where we establish. This is what we are shaping.

20:06 Let me close by a section with a long view because AZAD's operating engine is designed to compound value over long cycles By scaling multiple customer dedicated plants within a single job within a single centralized geography, we are capturing significant operational synergies. This structure lets us expand operating leverage rapidly. We have built an infrastructure that is incredibly difficult to replicate. Our technological moats across sectors are widening and getting deeper. Our customer relationships are structurally locked in, and our execution framework is fully geared to deliver steady, high margin growth for years and to stay firm on the guidance that we've communicated in the long term. With that, I would like to end our speech, and we would be happy to take questions from everybody. Thank you.

21:00 Thank you very much. We will now begin the question and answer Our Our first question comes from the line of Vikas Singh with ICICI Securities. Please go ahead. Good morning, sir, and thank you for the opportunity. And first of all, very congratulation on your turbojet engine. Sir, my first question related to the turbojet engines only.

21:46 So how is the roadmap now once you have delivered the first? I believe that you need to deliver four, five different prototypes and then it will go to testing phase, etcetera. So could you give us some time line that how many years down the line or months down the line this would actually translate into the orders to us. Okay. Thanks, Prakash. This is Rakesh. So finally, yes, we have delivered the the need hour of the country. We have delivered this engine, which have been currently being imported by other OEMs. India is importing, the MOD is importing these engines for the platforms, platforms they're using. So it was very indeed a very bright moment while we delivered this engine And the GTRE, especially the DG, she herself was here to receive this engine.

22:42 And it was a very, very pride moment for us to this. So on the note, what we you know, is limited what we know as being a MONI program. They don't share much of an open things. But what what they have been told us now, this engine is under testing. The next phase of this is going to go on the weapon. I think in next four to six weeks is what we know. Okay. These are just a timeline which we were really worried about it. We have no base for it or we have nothing in written or something. So this is the next stage. We'll go on the testing on the weapon, which is four to six weeks away. And probably with that, they will have been a certification will happen, and it's good to go for production. So this is not some years story. These are few months story.

23:31 So this is this is what we have told, and we have been guided to to prepare for massive production on on these engines. Noted, sir. Sir, now that in newer plant location, we would have only three sets left in terms of either sell it for a dedicated player or utilize for the other customer. How should we look at if this engine comes in which you would dedicate one share to this engine or it would get it done by the existing segment? And my second part of the question largely related to for your growth beyond FY 2029, you need to plan the next phase of CapEx now.

24:19 If you could give us some highlight that how is our planning because market size is still pretty large and now the domestic Indian manufacturing is also getting added in your core. Yeah. Because this engine itself is a big story. Yeah. You know, the volumes what we have heard and what we have seen, this is... See, if it is a two digit volume, definitely, yes. We can manage with the existing capacity. You know, we have got so many buildings shops ready for our different customers. The best part is all the capacity what we have are fungible and can manufacture these engine components also. We don't need to really add some great capacity for a two digit volume, which is there. But what we could see is not to be the volume.

25:05 It's two digits to four digit, we don't know. So based on that, we have to do a planning. So I think in next few weeks, we will know what exactly the volumes are, but we are prepared. We are prepared. It's two digit, three digit or four digit. And however, this engine, we have predicted is definitely what we see in the coming time. But we have other commitments, we have other businesses, which have been charged there in hand. And we are also having the priority to finish whatever the commitments have been given. So now main focus is to speed up the infrastructure, which is about to finish. As I mentioned, 80% of the infrastructure is now ready. FY 2026 was our stabilization year. Q1 was where we started the productions step by step building by building. Q2 is what we are right now talking the machines are all the spindles are fully running on full throttle.

26:04 And expectations, as again I mentioned earlier, you see that Q2 everything will be settled down and production starts coming out there. Noted. And on the capacity build up roadmap? Yes. So that is all planned. If you talk about the coming years, I'll ask Vishnu to jump in this question. And what we see is major plan is from FY 2019 is what we have to start sketching already sketched, but we have to really, you know, work on it. I'll pass on this remaining answer to the questions. So so thank you, mister Chubbhar, for this. Because we... The the idea for us is we build capacity based on the contracts that we have to deliver every year.

26:52 Now for us, we have been working on quite a few opportunities that are there right now at Azad, and we are evaluating what is the total need that we would need over the next five to six years, and we would... We are doing that planning. But as for the next couple of years, Azad has built and, you know, deployed and built capacity to cater to the next couple of years in terms of where we want to grow in terms of revenue. However, you are absolutely right in spotting the fact that there are opportunities that we are working on. So we're doing our math internally to figure out what is the capital... How much is the quantum of capital do we need and when do we actually need that. So once once that internal discussion gets closed and that loop gets closed, I think we should we should be able to maybe address this in the next quarter with far more accuracy in my view. Thank you.

27:41 Noted. And sir, if I can fit in one last question. Our mostly sales in export markets, so I presume it's a dollar denominated. So the rupee depreciation benefits is built in above EBITDA in the margins or below basically? This is below the EBITDA margin. This is not built into the EBITDA margins. Noted, sir. Thanks. That's all from my side. And again, very congratulation on the engine. Thanks, Vikas. Thank you. Thank you. Our next question comes from the line of Amit Dixit with Goldman Sachs. Please go ahead. Yes. Hi. Good morning, everyone, and thanks for the opportunity. First of all, congratulations for delivering the APGG engine.

28:28 I think it's a great achievement for the company. The two questions I have is the first one is actually on the MHI contract that we called for hot section. Now we already have given in the presentation the TAM that is for the cold section. Now hot section typically, in my view, should have much higher TAM. So wanted to understand if you are in discussion with some of your vendors for, you know, getting more such contract, extending the adjacent fees across. So I just wanted to get your thoughts on this. And given the fact that some of your global peers like and all have reported very excellent numbers, I mean, very significant growth. So yes, as you said in your opening remarks, the market looked very, very promising.

29:20 So how do you see from a growth perspective that, you know, technically, we are at a low base essentially. We have just started the aerospace part. So how do you see the growth curve for Azad growing? I mean, we have either we... You mentioned that h two onwards, the growth would be... Would go to the next level. But I just wanted to understand your broad thesis on that. Okay, Amit. I'll try to recollect the first question you have put. So the first question what you asked is on the stabilization of the hot section, the market. Now as you are aware I don't know how critical these components are. It's not... Of course, the cold section itself is is so tough to come where we are. Azad is is playing around with that. But in the hot section, definitely, other OEMs have shown super interest and asking us when is your facility ready. The beauty, the best point is the facility what we are going to, you know, setting up what we are setting up for Mitsubishi can... Is is exactly a model which will be utilized for other OEMs as well. And another good news I'll tell you is not just for the land base. It's not just for the energy. The same facility will cater the hot section of the aviation... For the aviation engines as well.

30:38 So the first point is to establish this, which is, you know, around seven seven to eight months away from from now, and then we do the qualification. While we do the qualification, we will invite other OEMs. And to be honest, we don't need to invite. They're already here. So that answers the the thing. Any other questions you have on on this, Amiji? No. No. I mean, that's fine. Just wanted to get the broad timeline. That's fine. Yeah. Yeah. And the and the b part was on actually the, you know, the growth that we are seeing in this market. You mentioned in your prepared remarks that, you know, the... Both the vectors are seeing excellent tailwinds. Now as mentioned that some of the peers, you know, how much and all they have despite being a much higher base, they have reported, like, 37.7% EBITDA margin, 50% EBITDA growth. So what is the growth trajectory for for AZAD we see?

31:31 And are there any constraints that you see at, you know, your end to grow by that number? No. No. No. Actually, it's it's a very valid and very nice question,. People who know what is subject, you know, they they will also obviously know this is not a million story. This is all a billion story. And we also know as you could name only two or three in our names. There are only two or three players in the world who have cracked this. Azad will be the next to crack this. Once this is cracked, the league itself will change. If you talk about engines, that is a different leak. Now we talk about this hot section, this itself is in a big leak. So definitely, the market is massive, and there is a long queue of the products what are required in this field, and Azad is preparing for that. So it's a very, very good situation now.

32:25 Great, sir. And on the margins, you can imagine these high cost countries like U. S. And Europe are making that healthy EBITDA margins. So definitely what would Azad make, it's a good thing to understand and guess. Great, great. That's very assuring. The second question is essentially on the working capital side. Now in Q1 FY 'twenty seven, we saw that there was a bit of increase in finance cost possibly due to the working capital needs. And now since we are in expansion mode, so I mean, I'm not asking for a for a for a timeline, but just wanted to understand that this working capital in terms of date, when we can expect it to plateau?

33:18 Yeah. We... This is. So from the finance cost side, if you see, I have already told FY twenty six present... Presentation, I have told that finance cost will going to continue because you have a biller something that is which will go into the finance cost only. So the betterment of the cash flow, operating cash flow, not on the financial cost side. And coming to the specific question of when it's quite tapered to, we are targeting H1 around 200 bps. And by H2, we are targeting in range of 160 to 180 type of days. This is largely back on the bill discounting facility where our current status days, which are around one hundred and seventy, one hundred and eighty days will go down to ninety days. That's how we look this entire situation to be unfold.

34:08 Great. Very clear. Thanks, Ronak, and thanks for the chance and all the best. You. Our next question comes from the line of Gaurav with Avandes. I have two questions. First one, again, on the ATGB engine. And the question is that as you mentioned in your opening remarks that this engine required you to do have done the metallurgy, machining, various other processes. I understand, obviously, is that AZAD right now has machining and now with the joint ventures in place, you have the surface treatment capabilities. But other capabilities, I'm assuming that those were outsourced or were done outside AZAD. So is it possible to quantify in this engine how much of the value add was by Azad in house and how much was done outside Azad?

35:07 I don't. What is this? Right? No. But we we have done everything in house. There's nothing that we have outsourced any of the parts or something. Maybe some small washer or some we have gone with the... Or some specific requirement, which Azad's capability is not able. We have gone to GTRE, and they have they have either done it in house or they have got it done by their approved sources. So it's not that we have gone out somewhere except from small washers or some kind of small machining or some kind of building operations. That's all. All right. Okay. And the second question was on the margin mix. For last two years, you're consistently doing about 37%, 38% EBITDA margin, which used to be about 30 to 35% before in the prior years.

35:59 Now you continue to guide your margins around 35% level. What I'm trying to understand is that you are doing 30%, 30% margin when you are yet to utilize the facility. So why is the conservative guidance on the margins that when when when there will be a little bit of operating leverage, which would come back from the new facilities there? Bharat, as we can see, we are consistent 30, 35 plus. But the guidance, what we are always always on it and for the calculation purpose, it's always nice to use a thirty two to thirty five window. Of course, you can see that we have been delivering precisely going above 35. But for calculation purpose and for the guidance purpose, I think 32%, 35% is a good number which we are holding for since long.

36:49 Or is it possible to kind of explain what has led to this margin gain shifting from 35% to 3738% in last one point five years? It's on processing you think what about the percentage like your big margins? Yes, it's a skill set what we are opting on the shop floor and this continuous improvement is not only last three years, we've been seeing since inception. I remember the days we were operating at 80%, 90% EBITDA. On the same product line, we are now operating at this EBITDA level. So definitely, there's some magic happening on the floor. So you mean the process engineering or it's not just process. There are many factors which we should be, if at all, I would love to take it on the floor, and I would like to demonstrate what exactly lies between these margins and where what all is lying from 18 to 35, 36.

37:43 Why don't we can see further also? So we are trying to find where we find, we'll pick it up. Understood. Understood. Got it. That's it from my side and all the best. Thanks, Bharat. Thank you. Our next question comes from the line of Subhil Gupta with Drenadra Asset Managers. Please go ahead. Good morning, sir. First of all, congratulations on the turbojet engine. So my first question is that since you'll be looking at double digit growth in these kind of projects moving ahead, as you just mentioned, What are the margins that we're looking at for similar projects? And second question is that we have signed a deal with Road Choice for a civil aircraft engine.

38:34 What is the time period for that? If you could just tell me that. Hello? I... Could you could you repeat the question number one, please? Yeah. So I'm saying that congratulations on the turbojet engine. Since we'll be looking at double digit growth in similar kind of projects moving forward, so what is the margin that we are looking at for these kind of projects? Okay. Thank you so much. Look, we have just finished. We have just made the first engine. Okay? We can never come to a costing out on the first engine. As you know, it takes a lot of time to stabilize on the... In the production. So we have been producing the first 20 engines. So it would be appropriate for me to answer this question once we have done at least five, six engines in a row, and then we can come to a a level what what we hold and how do we fare in this.

39:33 And if you could just tell me what would be the timeline for these four, five engine? I I think it's it's just, you know, not not far away, eight to twelve weeks, you can say three to four months. And it is it is it is a continuous process which we are going to see. So maybe by next next call when we see your UK or free to... You are most welcome to visit us, and we can share more details with you here. Okay, sir. Okay. And this will roll through his deal, the time for that? Yeah. So I think very soon within this quarter, I think we should be delivering the first batch of the qualification parts. It's almost finished. The first delivery is quite nearby.

40:19 Okay, sir. Thank you and all the best. Thank you. Thank you. Our next question comes from the line of Aditya Bhatia with Investec. Please go ahead. Hi, good morning team. Congratulations on a lot of positive development. My first question is on our asset base and the revenue potential from that asset base. Now in the last one point five odd years, we have undertaken a big CapEx plan. And including the Capital WIP, I think we did end the year with maybe $1,213,100 odd crore rupees of net block, maybe around 1,500 odd crore rupees of cross block. Just wanted to understand what will be the peak revenue generation capacity...

41:06 Revenue generation potential from this capacity? At what utilization we may be operating in some of the earlier shifts that we have made operational? And how would you anticipate it to be ramping up? Hi, Aditi. Vishnu here. Thank you for your question. So, Aditi, I think I will take you back to our conversation, you know, that we had. So this entire around plan that we are building is built with the mindset of building dedicated factories for all of our customers. So we are building eight plants there, and each of these plants would be dedicated to a certain customer.

41:54 Right? And what what is gonna happen there is each of these plants overall, you know, without getting into specifics at a customer level, I'd like to say that each of these plans are poised to generate at full utilization and full capacity from one fifty to, let's say, about $1.80 odd crores. Right? So that would give you a good sense of, you know, roughly about 1,200 crores out of the newer plant revenue. Right? And then as... And when we keep going, based on the contracts that we have, we will keep building capacity as well. So our our idea is to finish this plan from a civil construction perspective by this financial year.

42:40 And then while the plans are in our control, we're constantly gonna focus on improving the utilization and capacity ramp up on that. Right? But we are fully, you know, fully geared up for the contracts that we're supposed to be delivering over the next two years in terms of capacity or in terms of infrastructure. So we don't have any risk from there. Sure. Sure. Sure. That makes sense, Vishnu. And, Vishnu, we also spoke about acceleration in revenue momentum from second half. So is it because of maybe some qualifications that are pending for some of these new ships? And as they happen from second half onwards, we would anticipate a much stronger revenue momentum?

43:27 Yeah. I will get it. So... Yeah. And so what what what we... Yeah. So we could we could... We knew that this is a plant. Okay? And maybe last two or three calls, if you can recollect what I have mentioned. Like, FY '26, q four, we could we could up these buildings, got the machines in... Inside, done the foundations, you know, do the delta qualifications. And then q one was something we switched on lot of machines. Production started very slowly. The qualifications were done. Now as we speak in q two, those machines are now on full throttle production ongoing right now as we speak. Okay? And to reflect these numbers, you will see reflection from Q3 onwards, the sales what we do. And this is exactly consistently we have been guiding the market last three, four quarters what exactly is the status. So that's what what I mean is 80% done.

44:22 If these plants where the machines have been deployed, foundation done, qualification done, and these are not... This doesn't happen in one week, ten days. You know that very well. Right? So it takes a lot of time. It's in the customs, those travel plans, each and every being... Parts being reproduced, requalified. So that all is done now. It's it's it's it's... 80% is done now, and the production is switched on. So that's the whole reason we say that we see a major breakthrough coming next too. Understood. Understood. And and instead of just looking at this one year, let's say, we look at a slightly longer term picture, a a three year period, then where do you see the company's revenue number kind of settling in? Do you think that instead of this 25%, we should be looking for a much stronger growth, maybe closer to 35 odd percent on an annual basis as we'll be having capacities?

45:15 We already have certifications. We all... Already have some decent sized orders. So it's just about getting some of the formalities done, and we can scale up the business at a much faster pace. Of course, Azad. Yeah. Of course. See, right now, the reason we are guiding 25% plus because we know what situation we are in. As we shift to the next level, we'll change this guidance. Perfect. Perfect. Okay. Understood, sir. My second question is given that a lot of our contracts will be maybe dollar denominated, do we get a big benefit out of rupee depreciation? Is it a case that this year, maybe revenues get a lift of maybe seven, 8% purely on account of how ForEx numbers have moved? And to that extent, even if volume growth is somewhat similar to what we have we have we have... We we are speaking about, in revenue terms, we may end up doing lot better.

46:17 See, I I would say one thing, Azad, is that it it can be. It is not a significant number. It can be some few percentages which in large growth of this should not be really taken as an beneficiary thing or it changes the one because we also import a lot of things. Right? So we also import a lot of things. So it is it is vice versa. What we see is not a major benefit we see or a major problem to VC. So we should consider this as a normal thing. Being being, you know, natural, you can say it's a natural hedging. Sure. Sure. No. I'm saying from the perspective that our material cost is not very high. So to that extent, we don't get significantly impacted by rupee depreciation on the cost side. But we may have a disproportionate benefit on the revenue side. So which is why I I was just trying to understand that, can it really boost the revenue growth as well?

47:09 Can can it be an additional level from the perspective of this year given how sharply rupee has depreciated in the last couple of months? Aditi, this is Vishnu here. I think, see, we don't look at that largely when we're looking at business growth, etcetera. Right? Our revenue growth is a function of how capacity is coming up online because we know this is... This could be a factor for a particular quarter or for a particular year. So that is not really something that we do. But you're right to mention that rupee depreciation could probably help us to an extra $5.06 percent. That's true. But not that an important factor for us while we are planning our business. We don't look at it from that level at all. Sure. Sure. Understood. Thank you so much, team. Wish you all the best. Thanks.

47:54 Bye. Thanks, sir. Thank you. Our next question is from the line of with Lotus Asset Managers. Please go ahead. Kamrish, your line has been unmuted. Yeah. For the opportunity, and lots of congratulations to Rakesh guarantee for achieving the milestones. Sir, my first question is regard to your CapEx. Let's say, like, over the last two years, we have done a CapEx of around INR900 odd crores. So going forward, for like, say, '24, '23, '29, how would be our CapEx trend? Yeah. Hi,. Sorry.

48:46 I was on mute. So just to quickly address this. So one is our CapEx deployment in the current plant will be to bring the balance plants up and to ramp up the existing that have been operational to add further capacity to it. Right? So over the next couple years, whatever revenue or production output that we need, we are deploying capital in a phased manner to address that. So from a revenue perspective, we are tracking right to the contracts that we have to deliver over the next year. Right? And coming to the second question, yes, you're right to point out that there could be a larger CapEx requirement given that Azad is surrounded with a lot of opportunities, but this is not this is not needed for the next couple of years for whatever guided... Guidance we've given. We need them to, you know, collect these opportunities in bag and start working on them so that this could fuel the next level of growth from Azad's perspective. There is a lot of excitement, lot of opportunities that we're working on right now. And I think maybe in a quarter or so, we should be able to give a more, you know, a more comprehensive perspective that should probably address all of these things at a granular level.

50:05 Great. I appreciate that. And secondly, like you pointed out that you will guide in next quarter. But can we be looking at, like, say, investment costings and other segment? Because that also is booming in a big way and there also the margins are far superior. So can that agency be looked at in terms of investment and driving further growth? So,, I mean, sorry, I have to reiterate this, but it'll be difficult to comment on what opportunities we will be going forward next. Why don't why don't we have a meeting in person and show you the kind of opportunity that we're working on right now? But to put our pen down on a particular opportunity and talk about it would be slightly difficult on this call. However, I can only assure you that there is there is a lot of work across sectors and not just one area that you mentioned. I think there are quite a few areas where there are opportunities that are getting unlocked.

51:08 And given the bandwidth that we have, given the focus that we have, we will take the right calls, and we will be able to update you, you know, maybe in the coming call. And if there is a meeting that happens in Azad, we'll also share, you know, the developments that are coming forward in the next few quarters. Okay. And lastly, like I it may be particular to this particular quarter only, But if you see the global peers, the way they have grown, like, say, 25%, 5%, 26%, and that also in dollar terms. So were there some hiccups in terms of stabilization of new lines? Because 23, 24% growth looks to be little less given the fact that rupee depreciation has also benefited here as a lot. It it seems that dollar I we are we are not comparing the right things. Right? These companies have been building capacities or have built capacities several decades ahead of the curve. Right?

52:09 And the scale of that which they are operating, obviously, is very different than the scale that we are operating at. We are in the process of starting to run our spindles. Right? We are building capacity to address that. So for us, like, we also spoke with mister Chopra's, you know, when he was talking about the quarter that this is the stabilization that we achieved in the last year. Foundation has been set. Now we are in the... We are at the right point to gain an access to all of these growth drivers that are there in the industry and the tailwinds that are there. But you have... It'll happen in the coming few quarters. Right? But I don't I don't see... You know, there are no hiccups. I mean, just because a larger player in this space is growing at a certain rate does not mean we have hiccups. Right? I mean, they they are a... You know, they do $2,000,000,000 plus a quarter.

53:03 Right? How much are we looking at? We have done 600 crores in the full financial year. So I think it is... It's not right to compare that because capacities are online there. They have qualifications. They've been around for decades. So so I would say no hiccups, again, summarizing it, but the growth is going to unlock basis stabilization that we're doing. The foundation is laid right now, and you will see this in the coming quarters. Great, sir. And best of luck for the future. Thank you. Thank you. Our next question comes from the line of Prateek Srivastava with Nivesh Wisdom. Please go ahead. Yeah. Thank you for the opportunity, sir. So first of all, I think you guys are doing a great job, not just for shareholders, I think even for the country. Right? And I think we are very fortunate. India is very fortunate to have a company like you.

53:59 So my question, because to build a high precision engineering company, which you guys are aspiring to do with a very high mode, requires a very special kind of talent. So my question is on the talent, if you can sort of... Because you have also been... I saw that your year on year, you know, have all the the... Has also gone above 42%, like, the line item of the headcount. So can you talk a bit about the talent pool which you are hiring to create such more than such high precision engineering company which can compete with the best of the world? So thank you thank you, Prateek, for your kind words, and we really appreciate whatever you've said. Now as you rightly pointed out, I think this is this is sector that needs extremely high engineering skills, etcetera. But, you know, if you look back at how Azad was built, you know, it starts right from a founder. Right? We believe that every technical person can... You know, our founder was a high school dropout, and he's built the most, you know, the most advanced precision manufacturing company that India has today. Right? So that culture is there everywhere in our business from the bottom to the up...

55:15 To the top. Right? So you would see that we have several training programs in the organization that bring in, you know, normal diploma operators. We put them through sixty to ninety days of training. He has trained people that are now training people. Right? So so that culture is a continuous program. We've now built an engine of hiring roughly about one fifty to 200 people every month, putting them into a ninety day training program. So so this is a continuous cycle, and I think... See, we think India has the talent. Right? I think India just needs the right opportunity. So we are providing a platform to anybody who has, you know, who has engineering skills, and then we are upgrading them to suit our sector. They also... You know, when people are deployed in a sector, they shadow the senior resources, and then when they are ready, they get deployed on the real world. So that's why you would see that we have more people than what we actually require for our revenue because we are also trying to create a bench strength of people that can be quickly deployed on the floor.

56:22 Got it. Got it, sir. Thank you, sir. Thank you for the opportunity. And, again, all the very best to you in future, sir. Thank you. Our next question comes from the line of Basant Bansal with NBG Investment. Please go ahead. Yes. Thank you, team. I have a couple of questions on the P and L side. So while I see this raw material cost, so last year, it was around 12% raw material cost to sales, and now it is 5%. So can you help me understand what has attributed to this? And is it a sustainable kind of development? Similarly, the employee cost has increased from INR 29 crore to around INR 42 crore.

57:09 So can you also explain this what has led to such increase and so is the case with other expenses? Sure. I will take you through the two line item what you have asked me. First, coming to the consumption part. Consumption part has two things. One is the raw material cost and other is the process content of the WIP, what is there in the inventory. So raw material, what we are buying till last year are more or less imported. And as I told you over previous call also, we have tried to get two main qualified India, Sunflag and Starbile for few of the critical raw material grade where we are getting the benefit of the cost for one one last year. We have to help them to get qualified with the giants like GE and the Siemens, not for India, but for the global supply chain picture.

57:59 So there, we are getting the benefit of the price benefit and also transportation cost benefits since these are the local supplies which have a very less transportation cost compared to a global transportation cost when we import these materials from overseas, which is around four percent to 5% type of situation. So that is one is a lever. The other lever is also the process content because historically, we are changing our lower sales and now the quarter we have closed with INR170 crores, but we are taking a larger quarter in coming months that Mr. Chairman and Mr. Vishnu has also mentioned in their major questions and the speech. So that to put together has implemented this particular thing from that particular perspective, and we are quite confident this margin can be sustainable over coming quarters and so. And coming to your second question of employee, wish to mention in the previous questions that we don't require that much of manpower to cater to the sales what we are doing. This is for the future sales what we are targeting in quarter three, quarter four.

58:59 Our WIP cycles are around ninety to one hundred and twenty days, and we have to keep the inventory in place to cater to the quarter three and quarter four sales, where all the spindles are running for quarter three and quarter four. So that's why you see an employee cost on the face elevated, which will be normalized by coming in quarter three and four and the objection will go down over a period of time. And what about other expenses? What has lead to the increase in other expenses? Other expenses, if you see as a percentage of sales is more or less stable. I don't think it has increased. The major cost that include are the power cost, tool cost, maintenance and the job work which we do the outsourcing are the four, five major heading to that. You can go to the schedule of FY '26 once it's published to the annual report. And if you have any further questions on that, more than happy to discuss the individual line items.

59:58 Okay. Now the other question, which is more of a strategic in nature, from your opening remarks and also from the previous question answer, one gets the impression that everything seems to be good and company is moving into a very positive direction. So what are the challenges that makes you worried? Yeah. So thank you. This is Vishnu here. Sir, I think challenges are also, you know, the same. So while we are looking at doing this, this is this is... From an execution perspective, this is a complex thing. Right? Because if you if you imagine what we are attempting to achieve as an organization, our team put together, we are building factories at the same time, ramping up capacities in some hiring people, training people, growing and catering to all contracts.

1:01:01 You know? So this is a this is a really large execution thing. And for us, you know, we are trying to do everything. Right? So from our perspective, we have all the opportunities. I think it's just about stretching all of these things together. We have the right customers in in the sector. We cannot we cannot have better customers. There are... All the customers that are noteworthy in the sector are with us. We have the best long term contracts, which give us visibility over five, seven, eight years. We have capital. We have capability, and we have consistently proven that we can deliver over time. So I think it's all there. It's just about achieving each of these things. All of these things have to work together for us to achieve, you know, all the milestone that we set out. So so that, in my view, is...

1:01:49 I don't... I wouldn't see it's it's a challenge, but it's something that we are all aggressively focusing on. And, I mean, this is a this is a thing that every organization has to go through, right, when they're scaling up. So we are attempting to do that in our own way. Yeah. I understand. And the last question from my side is what is your hedging policy to hedge your, you know, export receivables? Sorry, we I haven't I didn't hear your question correctly. Can you repeat that, please? Yes, yes, sure. My question is that since you have exports, so what is your hedging policy to hedge your export receivables? Yes. To do that, we have some foreign currency loan, which will make it a natural hedge.

1:02:39 And as I mentioned that we are going for bill discounting line. So the moment we book the sales, we get the bill discount in the future. That will help us to take the natural hedge direction going forward by quarter three and quarter four. Okay. So that covers your entire export. So you have a natural hedge to cover your entire export? Entire, entire, entire. Entirely, it will be hedged by quarter four type of time. Once we have all the bill discount in cash 15 that will increase. Okay. Okay. Thank you. Thank you, Prabhu. We will thank you. That's all from my side. Thank you. Ladies and gentlemen, we will take that as a last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, gentlemen.

1:03:31 Hello. Yeah. So we'd like to thank everyone on behalf of on behalf of Azad Engineering, our chairman, our board of directors, and all of us in the team. We'd like to thank everyone for joining us today and for your continued trust. We're excited about the phase that Azad Engineering is in the quarter you've seen in the milestone on July 22 tells you where we are headed. From this point, we are only looking upwards and onwards. Thank you again. We look forward to speaking with you in the next quarter. Thank you. On behalf of Azad Engineering Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.