Azad Engineering: 4 Reasons why its 93x P/E valuation is justified

Azad Engineering has emerged as one of the most closely watched precision manufacturing companies in India, drawing attention for its rapid scale-up, global customer base, and expanding technological capabilities. As the business continues to strengthen its operations and widen its industry footprint, several factors collectively help explain why investors currently value the company at a premium.

About the Company

Founded by Rakesh Chopdar in 1983, Azad Engineering Ltd. has grown into a specialised manufacturer of precision-forged and machined components used across clean energy, aerospace, defence, oil and gas, and standalone power supply systems. The company operates an advanced facility in Hyderabad that houses a Forge Shop, Heat Treatment Shop, specialised CNC and heavy-machining capabilities, inspection laboratories, and dedicated manufacturing software. 

Azad Engineering has a market capitalisation of Rs. 10,507.45 crore, with its current market price at Rs. 1,627. The stock is trading at a P/E Ratio of 92.8x. Here are 4 reasons why the high valuations of Azad Engineering are justified. 

Clients

Azad Engineering is deeply integrated into global aerospace and turbine supply chains, acting as a critical vendor to leading OEMs with strong international penetration. The company serves six major aerospace and defence manufacturers and supplies components for a wide set of aircraft platforms including the A320, A350, A355, A350 XWB, B737, B737 Max, B747, B777, B777X, and the Gulfstream G550. It is also in discussions for supplying parts for upcoming engine platforms.

In the turbine ecosystem, the company works with five global manufacturers that collectively command nearly seventy-five percent of the market. As per CARE Ratings, its aerospace clientele includes Honeywell, GE Aviation, Eaton, Boeing, Rolls Royce, Baker Hughes, Pratt & Whitney, Rafael, and HAL. Its export presence spans across the US, UK, Europe, Japan, and the Middle East. Over the last decade, the company secured more than 1,700 product qualifications and 45 process qualifications, placing it among a very small group of highly capable global suppliers. Importantly, its customer relationships average over ten years, reflecting deep trust and long-term engagement.

High Entry Barriers Industry

The company operates in a domain where the engineering complexity and mission-critical nature of components create a naturally high barrier to entry. Precision parts used in aerospace, defence, energy, and industrial turbine systems require micron-level accuracy, specialised metallurgy, and multi-stage testing. Building such capability demands years of technical know-how, heavy capital investment in advanced equipment, and access to a highly skilled workforce. New players find it extremely difficult to match these standards without long operational experience and substantial financial backing.

In addition, the time-consuming qualification process with global OEMs acts as another major hurdle. Suppliers targeting aircraft engine makers, turbine manufacturers, or defence contractors often undergo three to seven years of stringent audits, certifications, and validation cycles before being approved. Customers dealing with high-risk, high-reliability components rarely switch vendors, further increasing entry barriers for new entrants. This combination of deep technical requirements, long approval cycles, and high switching costs limits the number of participants, allowing specialised companies like Azad Engineering to operate with a structural advantage.

Consistent Growth in Revenue and Healthy Profitability

Azad Engineering has delivered strong and steady business expansion over the last four years. Its total operating income grew at a robust compound annual growth rate of 38.84 percent from FY21 to FY25, rising from Rs. 123.12 crore in FY21 to Rs. 343.20 crore in FY24, and further to Rs. 457.49 crore in FY25. This growth has been supported by consistent delivery of high-quality components and a strong emphasis on process excellence. A significant portion of revenue comes from exports, which typically carry higher margins and bolster profitability.

Adequate Liquidity Position

CARE Edge notes that Azad Engineering maintains an adequate liquidity profile backed by strong cash accruals relative to its repayment obligations. Its debt service coverage ratio is projected to stay comfortable and above unity through FY26 to FY28. With a gearing ratio below unity, the company retains financial room to raise additional debt if needed. Working-capital utilisation averaged around eighty-four percent in the twelve months ending May 2025, supported by a robust current ratio of 5.00x as of March 31, 2025. The company’s cash and liquid investments increased substantially from Rs. 58.76 crore in FY24 to Rs. 695.62 crore in FY25, largely driven by equity issuance proceeds.

Management’s View

Management reiterated its FY26 topline growth guidance of twenty-five to thirty percent, with expectations of a stronger performance in the second half as new facilities ramp up. The company is close to assembling and delivering its first two engines within the next couple of months, after which DRDO will conduct initial trials. There is also a possibility of shifting the test bed to Azad at a later stage, although this is not included in current projections.

The leadership emphasised that tariffs have not affected deliveries or margins, as decisions for life-critical and mission-critical components are driven by capability rather than price. Despite ninety-two percent of FY25 revenue coming from exports, the company has seen no material impact from tariff-related developments. Additionally, management highlighted that wallet share gains from long-standing customers are helping drive incremental revenue growth.

Written by Manan Gangwar

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