Azad Engineering Limited: operating cash outflow persists

Azad Engineering Limited reported a Rs 43.62 crore net operating cash outflow for the half year ended September 30, 2026, despite Rs 66.09 crore of profit for the period, as trade receivables and inventories absorbed Rs 182.99 crore and current borrowings increased by Rs 98.97 crore from March 31, 2026.

Why did Azad Engineering report negative operating cash flow?

Azad Engineering reported negative operating cash flow because increases in working-capital assets exceeded cash generated before those movements. Operating profit before working-capital changes was Rs 132.73 crore for the half year ended September 30, 2026, compared with Rs 102.95 crore in the corresponding 2025 period. That improvement did not cover a Rs 83.75 crore increase in trade receivables, a Rs 98.24 crore increase in inventories and a Rs 14.69 crore increase in other assets.

Trade payables generated Rs 10.63 crore of cash and other financial liabilities generated Rs 24.06 crore, partially offsetting asset-related outflows. Cash used in operating activities before tax was Rs 24.72 crore, followed by net income-tax payments of Rs 18.90 crore. The resulting Rs 43.62 crore operating outflow was lower than the Rs 75.89 crore outflow in the half year ended September 30, 2025.

The year-on-year comparison shows pre-working-capital operating profit rose by Rs 29.78 crore, while the cash absorbed by receivables increased by Rs 26.49 crore and the inventory outflow increased by Rs 53.80 crore. The smaller overall operating outflow in 2026 reflected changes in payables and other financial liabilities as well as lower tax payments, rather than lower receivable or inventory investment.

How much did Azad Engineering spend on capital expenditure?

Azad Engineering spent Rs 139.75 crore on purchases of property, plant and equipment, including capital work-in-progress and capital advances, during the half year ended September 30, 2026. This was Rs 167.04 crore lower than the Rs 306.79 crore spent in the corresponding 2025 period. Net cash used in investing activities was Rs 42.67 crore, compared with net investing cash inflow of Rs 34.53 crore a year earlier.

The 2026 investing outflow included the Rs 139.75 crore capital-spending payment, partly offset by Rs 91.13 crore from net maturities or placements of bank deposits and Rs 5.95 crore of interest received. In the prior-year period, deposits generated Rs 336.54 crore, exceeding the Rs 306.79 crore capital-spending outflow and contributing to positive investing cash flow.

Property, plant and equipment stood at Rs 974.80 crore on September 30, 2026, up from Rs 763.23 crore on March 31, 2026. Capital work-in-progress declined to Rs 212.49 crore from Rs 256.68 crore over the same dates. The concurrent increase in property, plant and equipment and decline in capital work-in-progress is consistent with some projects moving into completed fixed assets, although the filing does not quantify transfers.

How did Azad Engineering finance its cash requirements?

Azad Engineering generated a Rs 73.26 crore financing cash inflow in the half year ended September 30, 2026, led by Rs 87.53 crore of net proceeds from short-term borrowings. It also received Rs 50.19 crore from long-term borrowings and repaid Rs 32.74 crore, while finance-cost payments were Rs 29.78 crore. The financing inflow was higher than Rs 32.15 crore in the corresponding 2025 period.

Current borrowings rose to Rs 274.66 crore at September 30, 2026 from Rs 175.69 crore at March 31, 2026. Non-current borrowings rose more modestly to Rs 286.97 crore from Rs 280.95 crore. Total borrowings, excluding lease liabilities, were therefore Rs 561.63 crore at the half-year date, compared with Rs 456.64 crore at the March year-end.

Cash and cash equivalents fell to Rs 11.56 crore at September 30, 2026 from Rs 24.59 crore at March 31, 2026, matching the Rs 13.04 crore net decline reported in the cash-flow statement. Bank balances other than cash equivalents also decreased to Rs 76.00 crore from Rs 160.00 crore. At the same time, inventories increased to Rs 427.35 crore from Rs 329.11 crore and trade receivables rose to Rs 404.13 crore from Rs 311.66 crore.

Did Azad Engineering remain profitable while operating cash was negative?

Azad Engineering remained profitable, reporting Rs 80.46 crore of profit before tax and Rs 66.09 crore of profit for the half year ended September 30, 2026. Profit before tax was below Rs 88.30 crore in the corresponding 2025 period, while profit for the period was above Rs 62.04 crore because total tax expense fell to Rs 14.37 crore from Rs 26.25 crore.

Revenue from operations increased to Rs 363.53 crore from Rs 282.72 crore, a rise of Rs 80.82 crore. Finance costs increased to Rs 22.77 crore from Rs 12.62 crore, and depreciation rose to Rs 41.13 crore from Rs 21.80 crore. The cash-flow statement adds back depreciation and finance costs in calculating operating profit before working-capital changes, but receivable, inventory and tax movements resulted in negative operating cash flow.

Total assets increased to Rs 2,404.66 crore at September 30, 2026 from Rs 2,200.04 crore at March 31, 2026. Total liabilities rose to Rs 809.22 crore from Rs 671.21 crore, while total equity increased to Rs 1,595.44 crore from Rs 1,528.84 crore. These balance-sheet changes occurred alongside the increase in working-capital assets, capital expenditure and borrowings during the six-month period.

What QIP funds remained available for capital expenditure?

Azad Engineering had Rs 78.24 crore of unutilised qualified institutional placement, or QIP, proceeds at September 30, 2026. The company had raised Rs 700.00 crore through the QIP and reported utilisation of Rs 621.76 crore. Of the unutilised balance, Rs 75.54 crore related to the allocation for funding or part-funding capital expenditure.

The placement document allocated Rs 525.00 crore to capital expenditure, of which Rs 449.46 crore had been utilised by September 30, 2026. It allocated Rs 156.21 crore to general corporate purposes, all of which had been utilised, and Rs 18.79 crore to issue expenses, of which Rs 16.09 crore had been utilised. Azad Engineering said net unutilised QIP proceeds were temporarily invested in deposits with commercial banks.

Conclusion

Azad Engineering’s half-year results show a difference between accounting profitability and cash generation. Revenue rose by Rs 80.82 crore and profit for the period increased by Rs 4.05 crore year on year, but receivables and inventories together used Rs 182.99 crore of cash. Capital expenditure of Rs 139.75 crore, lower cash balances and the rise in current borrowings occurred during the same period.

The next disclosed funding item to watch is deployment of the remaining Rs 75.54 crore QIP allocation for capital expenditure. Azad Engineering had used Rs 449.46 crore of the Rs 525.00 crore capex allocation by September 30, 2026, while the net unutilised proceeds remained in commercial-bank deposits.