© IE Online Media Services Pvt Ltd
Tags:
Journalism of Courage
Since the start of the Russia-Ukraine war in 2022, the aerospace industry has faced severe disruptions. Russia’s key role in titanium supply and engine components caused global delays for commercial aviation giants like Boeing and Airbus, forcing them to seek alternative partners.
Amid this turbulence, India is emerging as a key hub in the global aerospace value chain.
One such company is Unimech Aerospace and Manufacturing Ltd (Unimech Aero), a listed firm that manufactures tools for aircraft maintenance, repair and overhaul (MRO) operations, along with precision components for leading OEMs (original equipment manufacturers) such as Airbus and Boeing.
The stock currently trades at a trailing twelve-month (TTM) P/E multiple of 65x, highlighting strong growth expectations, a differentiated business model, and long runway for expansion. Yet, the question remains: Is Unimech Aero another aerospace-and-defence hype story, or does it truly warrant a rich premium?
The commercial aircraft order backlog has reached an all-time high. While deliveries have fallen 31% over the past five years, backlogs have risen 21%. In response, both Airbus and Boeing have increased sourcing from India. According to Accel, Airbus has expanded its Indian supplier base from about 50 to 120, while Boeing’s has grown from 200 to 300.
Component supplier in the aerospace value chain
Unimech Aerospace and Manufacturing Ltd operates under two segments:
1: Aero-tooling (85% of FY25 revenue)
Under this segment, the company supplies aero-engine and air-frame tools to 19 clients. These tools are primarily used in MRO by players such as Collin Aerospace. They’re also supplied to Tier-1 engine tool licensees, engine OEMs (Pratt & Whitney, Rolls Royce), and aircraft OEMs such as Airbus and Boeing.
Consider them “precision screwdrivers”. These tools have a high entry barrier with long lead times for customer approvals, ranging from a few months up to a year. While there are no long term agreements yet, business is highly recurring, with ongoing product ramp ups per platform/programme.
According to management, customer stickiness is high due to rigorous multi-year qualification and process lock-in, i.e., recurring tooling orders tied to fleet growth and replacement cycles. Average tool lifespan ranges from 2-5 years (varies by tool type, application intensity) with ongoing replacement orders coming through as platforms mature or MRO demand spikes.
Capacity utilisation measured in man hours is 58% utilisation after more than 171% increase over March2024.
2. Precision components (15% of FY25 Revenue)
Under its precision machined parts segment, the company serves a diverse client base of 16 as of June 2025.
The portfolio includes precision parts and components and assemblies for the nuclear, aerospace, defence, and other emerging segments. While this segment currently accounts for 15% of FY25 revenues, the plan is to take this to 30% over the next 2-3 years.
The segment boasts 883 qualified SKUs, part of a company-wide total of 4,769 with 381 added in Q1 FY26, reflecting a high-mix, low-volume, customised product focus.
Qualification is rigorous, involving first article inspections and 8-10 month cycles for full approval, with defence showing quicker turnarounds than aerospace.
Do the numbers stack up?
While growth has slowed down in FY25, gross margins over the last 3 years stood in a range of 67-75% on a TTM basis, reflecting significant value addition. Similarly, operating profit margins (OPM) are healthy at 37%-38% over the same period, although OPM seems to have tapered off to 31% in Q1FY26.
According to the management, this is because of higher depreciation and higher salary costs on account of newer capacity addition which are currently operating at 58% utilisation (measured in man-hours).
The balance sheet looks strong with low debt (D/E of 0.15) and ample liquidity on account of recent IPO funds.
The growth story
In Q4FY25, management had guided for 35-40% topline growth in FY26 with an EBITDA margin expectation of 30-32%. This was expected to be backed by utilisations inching up to 85-90% over FY26, however, utilisation currently stands at 58% levels as on Q1FY26.
This growth is expected to be supported by the aero-tooling segments (85-87% revenue in FY26) primarily through new customer additions and deeper wallet share in both export and domestic markets.
With India undergoing a significant capacity expansion in the aerospace value chain, new client additions as well as getting qualified for newer platforms is likely to lead to growth in this segment.
The current order book of Rs 81 crore does not reflect significant revenue visibility, but management expects large order flows to come in Q2 and Q3.
The precision components segment is currently 15-18% of revenue, targeted to expand to 30%+ of company revenue in 2-3 years backed by new project wins (mostly from nuclear, select defence/semiconductor), but scale-up depends on long qualification cycles.
A nuclear-sized opportunity
A key source of growth for the precision components segment would be nuclear sector expansion – large pipeline of EMCCR (En Masse Coolant Channel Replacement) modernisation tenders and new nuclear reactors. Unimech Aero has submitted Rs 400+ crore bids for EMCCR with a pipeline for 10+ reactors. Each twin reactor presents a ~ Rs 500 crore opportunity, according to the management.
EMCCR is a major maintenance process for India’s Pressurized Heavy Water Reactors (PHWRs), managed by NPCIL. It involves replacing all coolant channels — tubes that carry heavy water to cool the reactor’s fuel — to extend the reactor’s life by 30-40 years after 20-30 years of use.
Unimech Aerospace is aiming to participate in EMCCR projects by supplying precision tools and equipment, contributing to India’s nuclear refurbishment and self-reliance goals in addition to growth in Indian and export defence platforms, new customer onboarding in missile/weapon systems and electronics.
What about US tariffs and other risks?
Since 89% of revenue comes from exports, the company is exposed to US tariffs.
Another risk is customer concentration. Over 85% of the revenue is contributed by three large customers and their affiliates. Any change in sourcing policy or loss of business could lead to a severe hit on the company’s business.
Additionally, global disruptions can delay procurement of raw materials, affecting production timelines.
Valuation vs vision: The investor’s dilemma
With a limited trading history, Unimech Aero offers little by way of historical valuation benchmarks. Traditional value investing frameworks, such as margin of safety, have limited relevance here. Instead, the company fits firmly into the growth investing narrative. A PE multiple of 68x reflects high growth expectations.
Yet, these expectations are not unfounded. Being a components supplier in the aerospace value chain requires stringent approvals and Unimech Aero’s position as a leading MRO/aero-engine tools supplier highlights an exciting future for the company.
However, what the company needs to deliver on is the 35-40% growth with increasing EBITDA margins leading to a disproportionate increase in the bottom-line.
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.
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
