Azad Engineering’s FY26: Record margins, bigger capacity, and the working capital bill

Azad Engineering closed FY26 with its strongest annual performance so far, supported by higher deliveries from complex, qualified manufacturing programs and a steady ramp-up of newly commissioned facilities. On a consolidated basis, revenue from operations rose to ₹602.98 crore, up 31.8 percent year on year. EBITDA increased to ₹225.31 crore, up 39.7 percent, with a 37.4 percent margin. Profit after tax grew 54.4 percent to ₹133.56 crore, with a 22.2 percent margin.

The standalone picture was similar. Revenue from operations reached ₹590.38 crore, up 30.3 percent. Reported EBITDA came in at ₹217.75 crore with a 36.9 percent margin, and profit after tax was ₹132.16 crore with a 22.4 percent margin. Management described FY26 as a year focused on consolidation and stabilisation, embedding newly commissioned capacity, converting long qualification cycles into serial production, and building the organisation for the next phase of growth.

What drove growth: Energy scale and steady Aerospace momentum

Azad’s revenue continues to be anchored by the Energy and Oil and Gas vertical, with Aerospace and Defence building steadily in the background. In FY26 standalone, Energy and Oil and Gas contributed ₹481.13 crore, or 81.5 percent of revenue. Aerospace and Defence contributed ₹101.26 crore, or 17.2 percent. The company also remained heavily export oriented, with exports at 93.0 percent of FY26 standalone revenue.

In Q4FY26 standalone, revenue was ₹157.39 crore, up 26.4 percent year on year, with EBITDA margin at 36.7 percent and PAT margin at 22.3 percent. Energy and Oil and Gas contributed ₹127.94 crore in the quarter, or 81.3 percent, while Aerospace and Defence contributed ₹27.75 crore, or 17.6 percent.

Management highlighted that Aerospace and Defence crossed ₹100 crore in annual revenue for the first time in the company’s history. Over the medium term, the company expects its vertical mix to become more balanced. In the concall, management indicated that over the next 4 to 5 years, Energy could contribute around 55 to 60 percent of revenue, with the balance coming from Aerospace and Defence and Oil and Gas as those verticals scale.

Capacity expansion: four dedicated facilities and more in progress

A key operational highlight is the commissioning of customer dedicated lean manufacturing facilities at Tunikibollaram Industrial Park, Hyderabad. The company listed four inaugurated facilities: one each for Mitsubishi Heavy Industries, GE Vernova Steam Power, Siemens Energy, and Baker Hughes. Management noted that two of these were commissioned during FY26, with the Baker Hughes facility inaugurated in April 2026.

In the concall, the CEO stated that infrastructure build-out is around 70 to 80 percent complete and that the operating focus now shifts toward conversion, throughput and operating leverage from a more integrated manufacturing system.

The company also reiterated an ambition to expand geographically through co-location with key global OEM footprints, and noted that an MoU has been signed for expansion into Saudi Arabia. However, management clarified that while the opportunity remains on, timelines have been shifted and discussions are ongoing in view of the current situation and priorities.

The order book and what it implies for growth

Management stated the order book is approximately ₹6,500 crore net of deliveries in FY26, and described it as about 11 to 12 times FY26 revenue. Conversion of this order book into revenue was explained as being driven by three factors: customer production schedules, Azad’s capacity availability and ramp-up, and the qualification status of each part under contract.

Based on this alignment, management expressed confidence in delivering a 25 percent plus top line trajectory in FY27 and on a multiyear basis. The CEO also indicated that the 25 percent plus view is conservative, and suggested that as stabilisation improves toward full utilisation, growth could accelerate, though no revised numerical guidance was provided.

The working capital bill: why cash flows lagged earnings

While profitability remained strong, cash flow reflected the cost of ramping up. Standalone net cash from operating activities was negative ₹123.26 crore in FY26, compared with positive ₹62.89 crore in FY25. The primary driver was a sharp working capital absorption of ₹300.30 crore in FY26.

Working capital metrics also moved higher. The presentation’s working capital chart showed inventory days increasing to 158 in FY26 from 130 in FY25, and receivable days rising to 164 from 158.

Management addressed this directly. The CFO described FY26 as an investment and transition year, with multiple OEM dedicated facilities simultaneously moving through commissioning, qualification and stabilisation. This required upfront investments in plant and machinery, inventory build, manpower readiness and work in progress.

The CFO added that nearly 96 percent of inventory is less than one year old, suggesting the build-up is linked to recent ramp-ups and customer schedules rather than legacy slow-moving stock. The company also mentioned accumulated GST credit of about ₹100 crore over the past two years, expected to be realised by H1 FY28, which could support future liquidity.

Takeaways from FY26 and what to watch in FY27

Azad Engineering’s FY26 performance reinforces its positioning as a supplier of highly engineered, complex and mission critical components to global OEMs in regulated end markets. The results also show that growth is currently capacity and qualification driven, with margins supported by scale, operating efficiencies and a favourable mix.

But FY26 also makes the trade-off clear. The company is investing ahead of demand, and the near term impact is visible in working capital absorption and negative operating cash flow.

FY27 will be tracked on three execution markers that management itself highlighted: ramp-up of the four recently inaugurated OEM facilities, completion and commissioning of remaining plants under construction, and normalisation of the working capital cycle as utilisation improves. Management also expects FY27 to be the first year with meaningful Oil and Gas ramp-up, as FY26 contribution in that vertical was not material due to qualification stage.