Aeroflex FY26: Record results, and a rapid pivot into data center liquid cooling

Aeroflex Industries ended FY26 with its highest-ever quarterly and annual performance, supported by stronger operating leverage and a richer product mix. On a consolidated basis, total income rose to INR 443.29 crore in FY26, up 17.04% year on year. Profitability improved faster than revenue. EBITDA increased 26.18% to INR 99.74 crore, and the EBITDA margin expanded to 22.57%. Profit after tax (PAT) grew 5.75% to INR 55.53 crore.

Q4 FY26 was a breakout quarter. Total income increased to INR 126.46 crore, up 37.73% year on year, while EBITDA jumped 58.97% to INR 30.03 crore. Q4 EBITDA margin expanded to 23.86%, and PAT rose 57.01% to INR 17.64 crore.

The company attributed momentum to steady growth in its core hoses and assemblies franchise, improving product mix, and early traction in a new vertical: skid assemblies and flow control solutions for high-performance liquid cooling used in data centers and AI infrastructure.

FY26 and Q4 FY26 at a glance

The year was also capital intensive. Depreciation rose to INR 26.08 crore (from INR 11.27 crore), which the company linked to higher capex undertaken during the year. Despite this investment cycle, cash profitability strengthened: cash profit rose 27.95% to INR 81.60 crore.

Liquid cooling skids: early traction, capacity being built

The clearest strategic change in FY26 was the company’s entry into skid assemblies for high-performance liquid cooling applications. This is positioned as a key enabling subsystem for modern data centers, particularly as rack densities rise and AI workloads generate heat beyond the limits of air cooling.

In the investor presentation, Aeroflex disclosed skid assembly sales of 617 units in FY26, worth INR 21.2 crore. The ramp from Q3 to Q4 was sharp: volumes moved from 46 units in Q3 FY26 to 571 units in Q4 FY26, with Q4 value of INR 18.9 crore. The company noted that the skid selling price varies significantly, depending on specification, with a range cited between INR 1.10 lakh and INR 5.50 lakh per skid.

On the earnings call, management described skid assemblies as a long-term contract business, where the principal provides an annual pipeline that is converted into quarterly purchase orders. It also disclosed operational bottlenecks in scaling, particularly around design work and rigorous end-customer quality audits. Management stated it is still “slightly behind the supply as compared to the demand” due to design throughput and customer checks.

Capacity has been expanded from 2,000 skids per annum to 6,000 skids per annum. The company plans to scale this to 15,000 skids per annum by Q2 FY27, and it also discussed further expansion beyond 15,000 as an eventual goal after stabilising operations.

The management provided two useful quantitative markers on the call. First, it indicated peak utilization could be 75% to 80% once the line is stabilised. Second, it stated that at 15,000 skids capacity and about 75% utilization, the skid business could potentially generate INR 325 crore to INR 330 crore of revenue, although it also clarified that exact linkage to megawatts of data center capacity is difficult because designs and prices vary.

Mix shift and operational levers

The company’s mix evolution is visible in the product segment split disclosed in the presentation. For FY26, stainless steel flexible hoses were 52% of sales, assemblies and others 43%, and SFN skid assemblies 5%. The Q4 split showed a sharper shift with skid assemblies at 16%.

Geographically, exports remain dominant, though the domestic share increased as skid assemblies are currently sold in India. In FY26, exports were 69% and domestic 31%, versus 74% exports and 26% domestic in FY25. Management clarified that this ratio shift does not imply export decline, but reflects faster growth in domestic sales.

On operational capacity, the presentation laid out a multi-line expansion plan across hoses, assembly stations, robotic welding, and skids. Hoses capacity is planned to increase from 17.5 million meters per annum to 20 million meters by Q2 FY27, and assembly stations are planned to increase from 46 to 70 by Q2 FY27. The company also highlighted automation investment, noting 2 robotic welding lines were added in Q4 FY26. In the MD commentary, management also said it is on track to set up an automatic welding station and an annealing plant by December 2026.

Subsidiary and adjacent verticals: Hyd-Air and bellows

Two additional contributors were discussed in the concall. Hyd-Air, the subsidiary, reported FY26 revenue of INR 31.64 crore. Management said Hyd-Air utilization is around 60% and that the plan for FY27 is to increase internal consumption by Aeroflex. The stated rationale is to manufacture specific fittings and connectors in-house for high-end applications, including hose assemblies and certain data center related connectors.

Metal bellows, while still small, is positioned as a growth lever. Management stated metal bellows revenue was about INR 8 crore in FY26, with most of that traction coming in Q3 and Q4. It also said the current run-rate is around INR 12 crore and that it aims to reach 50% to 60% utilization over two to three years. At peak utilization, management indicated the metal bellows business could reach about INR 80 crore of revenue.

Financial position and capital allocation signals

Aeroflex highlighted a strong balance sheet with low borrowings. Consolidated borrowings were small, and the company referenced a robust debt-free balance sheet enabling strategic expansion. The balance sheet also shows the company holding bank balances of INR 50.66 crore, while cash and cash equivalents were INR 18.99 crore at March 2026. The cash flow statement clarified that the bank balance relates to deposits with maturity of more than three months.

The board recommended a final dividend of 20%, translating to INR 0.40 per equity share (face value INR 2).

Key risks flagged in the discussion

The concall contained a few disclosures that investors will likely track closely. Management stated its largest international customer contributes about 25% to 26% of sales, indicating customer concentration. It also described the skid assemblies business as currently tied to a single principal counterparty under an exclusive India arrangement.

Separately, management discussed an income tax demand of around INR 40 crore linked to a historical loan interest waiver (assessment year 2018-19, as described on the call). Management said disclosures were made in financials and tax returns and expressed confidence of a favourable appeal outcome, while also noting the year was reopened by the tax department.

Takeaways

FY26 shows Aeroflex operating from a position of strength: record revenue, expanded EBITDA margin, and improving cash profits. The strategic narrative is increasingly centred on higher value engineered products, with skid assemblies for data center liquid cooling emerging as the most important new driver.

The next 12 to 18 months will test execution. The company is attempting a rapid scale-up in skid capacity to 15,000 units per annum by Q2 FY27, while also navigating design throughput and demanding customer audits. If this ramp stabilises as planned, the company’s revenue mix and domestic contribution could change meaningfully, with management itself indicating a 20% to 22% contribution from skid assemblies in FY27. At the same time, investors will likely keep an eye on customer concentration and the disclosed tax demand as the company steps into a larger opportunity set.