Azad Engineering: Rolls-Royce and Boeing’s go-to Indian supplier — But is it overvalued?

The company’s stock trades at a P/E ratio exceeding 100x, reflecting the market’s confidence in its capabilities.

So what does Azad Engineering do differently, and are the valuations justified?

Azad Engineering: A dual-engine growth model

The company’s business model is strategically built around two high-entry-barrier segments: Energy and Oil & Gas (launched in 2008) and Aerospace and Defence (launched in 2017).

Both require mission-critical precision where there is no margin for error, creating a deep “zero-defect” manufacturing culture.

Energy and Oil & Gas: The stable backbone

This segment remains the company’s primary revenue anchor, contributing Rs 358.6 crore or 79.1% of the total revenue in FY25, growing 26% YoY.

Azad Engineering is a Tier-1 supplier of critical components like compressor airfoils, specialised machine parts, and critical machine parts. Its customer base consists of global giants such as GE Vernova, Mitsubishi Heavy Industries, and Siemens Energy, which collectively control about 75% of the global land-based turbine market.

The key entry barriers are the long qualification cycles for these products. Because these are critical parts that go into gas turbine engines, they have to be accurate to 5-10 microns, thinner than a human hair, which typically measures 50-120 microns.

Customer stickiness is exceptionally high, with key client engagement exceeding 10 years.

This segment’s growth is supported by a strong order book of approximately Rs 3,500 crore.

Moving up the value chain is also driving growth. A key accomplishment has been qualifying critical components for the combustion section of turbines. This is supported by significant capacity expansion, including dedicated, newly inaugurated lean manufacturing facilities for Mitsubishi (March 2025) and a GE Vernova facility (substantially completed in FY25).

At least six more lean manufacturing facilities are currently under construction.

Aerospace & Defence: The high-growth engine

This segment is the company’s designated key growth engine. It delivered a breakout FY25, with revenue surging 84.1% YoY to Rs 80.7 crore. The segment now comprises 17.9% of total revenue, up from 12.9% a year ago.

Under this segment, Azad Engineering manufactures life-critical components, including engine assemblies, APU parts, actuators, unison rings, and structural parts. These components are vital for major global platforms like the Boeing 737, Airbus A320, and A350 families. Key customers include global OEMs like Rolls-Royce and Honeywell Aerospace.

The segment’s future growth is supported by an order book of approximately Rs 1,720 crore. The rapid revenue growth is the payoff from completing long and arduous qualification cycles. With these qualifications now secure, management has highlighted that the company is shifting from development to a full-scale production ramp-up, backed by long-term contracts and deep OEM relationships.

Order book and growth

Azad Engineering’s order book now exceeds Rs 6,000 crore, more than 14x FY25 revenue.

Management indicated that the order book execution is tied to ongoing capacity expansions, including the inauguration of dedicated lean manufacturing facilities and a state-of-the-art forging plant in Tunki Bollaram, Hyderabad.

Key timelines include:

Short-term (next 12-18 months): Focus on stabilising 8 dedicated lean facilities, with 3 additional units at Tunki Bollaram going live in FY26. Capex deployment of ~Rs 450 crore in FY26 will support incremental revenue realisation from existing orders, targeting 25-30% YoY revenue growth in FY26.

Medium-term (FY26-FY27): Revenue from capacity additions (Rs 250-300 crore capex driving Rs 550 crore incremental revenue) could push annual revenue to Rs 1,000 crore. All facilities are projected to stabilise within 12 months.

Long-term (next 5-6 years): The full order book is anticipated to be realised over this horizon, aligned with contract durations and global OEM demand in energy, aerospace, defence, and oil and gas.

However, not all order books are equal.

These are not necessarily firm purchase orders with delivery timelines. While customers agree to purchase X parts at Y price, delivery windows may depend on upstream forecasts. If OEMs like Mitsubishi, Hitachi, or Rolls-Royce face production bottlenecks, Azad Engineering’s order execution may be impacted.

This matters for valuations.

Valuation

Azad Engineering is an exceptional company trading at an exceptional multiple. At 108X, the price per share of the company implies strong embedded growth, a highly moated business model, highly capable and trustworthy management, and a strong balance sheet.

Management is guiding for 30% revenue growth with potential EBITDA margins expansion, which could lead to higher EPS growth versus revenue. The company boasts 1,400+ qualified parts, and switching costs for customers are significant.

The only chink in the armour: there is no room for disappointment.

Any prediction errors or delays on the OEM’s side could see a few weak quarters.

This could lead to a sharp correction in price and saner multiples.

Note: We have relied on data from http://www.Screener.in and http://www.tijorifinance.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

Rahul Rao has helped conduct financial literacy programmes for over 1,50,000 investors. He also worked at an AIF, focusing on small and mid-cap opportunities.

Disclosure: The writer or his dependents do not hold shares in the securities/stocks/bonds discussed in the article.

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