Azad Engineering listed at a 37 per cent premium at ₹720 on the bourses on December 28, 2023 against the issue price of ₹524. The stock closed the day at the ₹677.50, a premium of 29 per cent to its IPO price.

At the issue price of ₹524, the IPO was priced at 58 times its annualised H1FY24 earnings and 366 times FY23 PAT. In FY23 its net profit was impacted by elevated finance costs. At today’s closing price of ₹677.50 per share, the stock is trading at 75 times its annualised H1FY24 earnings (473 times its FY23 earnings). With this, its H1 annualised valuation is higher than its peers such as Triveni Turbine and MTAR Technologies which trade at a trailing P/E of around 65 times. Long-term investors can wait and watch to assess sustainable revenue growth rate, stability in profitability, and the ability to scale up before considering an investment in the stock.

Business

Azad Engineering is engaged in the manufacturing of highly engineered precision-forged and machined components that are mission and life-critical. The company primarily operates in energy (87 per cent of operating revenue), aerospace and defence (9 per cent), and other segments including oil and gas and scrap (4 per cent).

Within the energy space, the company manufactures airfoils/blades, special machined parts, and combustion component assemblies for land-based turbines with applications in industrial and energy plants using different fuel types such as nuclear, hydrogen, natural gas, and thermal. Aerospace and defence products include airfoils/ blades and components for engines, auxiliary power units, hydraulics, flight controls, fuel, and inerting sections of commercial and defence aircrafts and spacecrafts, among other defence systems.

Financials

The company has been able to grow its operating revenue by 43 per cent CAGR during FY21-23 to around ₹252 crore while it reported revenue of around ₹159 crore during H1FY24. It has been able to grow its EBITDA at CAGR in line with revenue growth, thereby maintaining its margin at around 30 per cent during the last three fiscals. 

However, net profit has been quite volatile, primarily due to finance costs. Net profit reduced from around ₹11 crore in FY21 to ₹8.5 crore in FY23 while it grew to ₹28.8 crore in H1FY24. Finance cost for the company increased from around ₹5.3 crore in FY21 to ₹52.4 crore in FY23 primarily due to interest on compulsorily convertible debentures (CCDs) and optionally convertible debentures (OCDs) and premium on redemption of certain OCDs. It remained at around ₹21.8 crore in H1FY24.

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