Shree Refrigerations: Navigating H1 FY26 with Strategic Investments and Future Growth

Shree Refrigerations Limited, a prominent player in India's defence-oriented manufacturing of high-performance refrigeration, cooling, and HVAC systems, recently shared its H1 FY26 performance and strategic outlook. The period, ending September 30, 2025, reflected a phase of significant strategic investments, leading to a muted financial performance in the short term, but laying a robust foundation for future growth. The company, known for its mission-critical solutions for the Indian naval warships and submarines, is now aggressively expanding into high-growth sectors like data centres.

For H1 FY26, Shree Refrigerations reported consolidated revenue from operations of INR 50.39 crore. While this represented a slight year-on-year decline of 1.1%, the company's EBITDA saw a more pronounced decrease of 63.3%, settling at INR 5.66 crore. Consequently, the EBITDA margin compressed significantly by 1,907 basis points to 11.2%. Net Profit also experienced a substantial reduction of 82.1% to INR 1.49 crore, with the Net Profit Margin falling by 1,337 basis points to 2.9%. Management attributed this performance to front-loaded employee costs and increased onsite project execution for new HVAC orders, which are part of a broader strategy to build capacity for upcoming large-scale projects.

Strategic Expansion and Diversification

The company's strategic initiatives are centered on scaling manufacturing capabilities and diversifying into high-growth markets. A greenfield manufacturing facility, spanning 50,000 sq. ft. and expandable to 100,000 sq. ft., is underway. This expansion is crucial for reducing delays in Naval official inspections, ensuring faster integration, and timely delivery for defence projects. This first phase is expected to be operational by the next financial year, enabling the company to achieve revenues of INR 550-600 crore without further manufacturing capacity expansion. This move is also expected to reduce the working capital cycle and enhance quality control, directly impacting margins positively.

Shree Refrigerations is also making a significant foray into the data centre cooling market through a technology cooperation with Smardt Chiller Group, Canada, for oil-free data centre chillers. This partnership leverages the company's expertise in oil-free compressors, positioning it to cater to the rapidly expanding data centre sector. While initial contributions will be a 'trickle,' major business from this vertical is anticipated from 2028. This diversification is a strategic move to tap into new revenue streams beyond its core defence segment, which currently faces low competition.

Robust Order Book and Future Outlook

The company's closing order book stands at a robust INR 327.62 crore as of September 30, 2025, which is approximately 3.3 times its FY25 revenue. This strong order book provides significant revenue visibility for the next two to three years. The management is confident in achieving a 40-50% CAGR growth rate, mirroring the market's expansion, particularly driven by government initiatives like 'Make in India' and 'Aatmanirbhar Bharat.' The Indian Navy's aspiration to grow to 160 ships by 2030 and 175-200 ships by 2035 presents a massive opportunity for Shree Refrigerations.

Management has guided for a long-term EBITDA margin of 20-22% and aims to maintain a net profit margin of 13-15% for FY26. They anticipate margin recovery as project revenues from the expanded capacity and new orders are recognized in subsequent financial periods. Furthermore, the company benefits from a 50% capital subsidy from the Government of Maharashtra on its plant and machinery investments, providing a steady boost to the bottom line for a decade.

Operational Strengths and Competitive Edge

Shree Refrigerations' competitive strengths include its in-house manufacturing capabilities, end-to-end control over the production process, and a strong after-sales service network across key port cities. The company holds critical certifications from all three professional directorates of the Indian Navy, underscoring its naval QA-compatible quality culture. This unique positioning, combined with strategic technology partnerships and continuous R&D, allows it to offer customized HVAC, chiller, and fabrication solutions tailored to specific client needs, particularly in mission-critical applications.

Conclusion

Shree Refrigerations Limited is strategically navigating a period of significant investment and expansion. While H1 FY26 saw a temporary dip in profitability due to front-loaded costs, the company's robust order book, strategic diversification into data centres, and strong government support position it for substantial long-term growth. The management's focus on enhancing manufacturing capabilities, technological advancements, and strengthening after-sales support reflects a clear vision for sustained leadership in its specialized segments.