Analysis based on the latest results shared by the company (source: Chat GPT).
1. Financial Health Analysis
Balance Sheet Strength
- Assets Growth:
- Total assets increased from ₹4,043 Mn (FY22) to ₹7,970 Mn (FY24), indicating expansion and investment in growth.
- Increase in property, plant, and equipment (₹2,545 Mn in FY24 from ₹1,444 Mn in FY22) suggests capital expenditure for capacity expansion.
- Strong cash balance of ₹281 Mn in FY24, up from ₹44 Mn in FY22.
- Liabilities & Debt Position:
- Total liabilities decreased significantly from ₹3,852 Mn (FY23) to ₹1,520 Mn (FY24), reducing financial leverage.
- Long-term debt reduced from ₹2,208 Mn (FY23) to ₹271 Mn (FY24), suggesting the company has aggressively paid off debt.
- Net Debt-to-Equity improved from 1.2x (FY23) to near-zero in FY24, a strong positive sign.
- Equity Growth:
- Equity increased significantly from ₹1,200 Mn (FY22) to ₹6,450 Mn (FY24) due to new equity infusion.
- The company raised ₹7,400 Mn from an IPO, strengthening its financial position.
Cash Flow Analysis
- Operating Cash Flow:
- The company had negative operating cash flow in FY23 and FY24 (-₹69 Mn in FY24), which is concerning despite high profitability.
- Large working capital investments (inventory and receivables) contributed to negative cash flows.
- Investing Activities:
- Heavy investment in property, plant, and equipment (₹753 Mn in FY24) indicates capacity expansion.
- Sale of subsidiary (₹118 Mn in FY24) suggests a portfolio adjustment.
- Financing Activities:
- Raised ₹2,400 Mn from equity issuance, reducing reliance on debt.
- Repaid ₹955 Mn in long-term debt, improving balance sheet strength.
Profitability & Margins
- Revenue Growth:
- 32% CAGR in revenue (FY22-24), growing from ₹1,945 Mn to ₹3,408 Mn.
- Exports account for 87%+ of revenue, indicating strong global demand.
- EBITDA Growth:
- EBITDA grew 37% CAGR (FY22-24), reaching ₹1,187 Mn in FY24.
- EBITDA margins ~35%, indicating high profitability.
- Net Profit Growth:
- Net profit (PAT) grew 41% CAGR (FY22-24), reaching ₹586 Mn in FY24.
- PAT margin ~16%, which is strong for a manufacturing company.
- Return on Capital Employed (RoCE):
- Improved significantly from 13% (FY22) to 19% (FY24).
- Adjusted RoCE was 28% in FY24, indicating efficient capital utilization.
2. Growth Prospects
Industry & Market Position
- Strong presence in Aerospace, Defence, Energy, and Oil & Gas sectors.
- High entry barriers due to strict qualification processes (30-48 months for onboarding new suppliers).
- Exclusive supplier relationships with top global OEMs (Boeing, Airbus, GE, Mitsubishi, etc.).
- Order backlog from global energy and aerospace OEMs indicates future revenue visibility.
Expansion Plans
- Two new manufacturing facilities in Hyderabad planned to increase capacity.
- MoU signed for expansion into Saudi Arabia, which could open new markets.
- Expansion into Advanced Turbo Gas Generator (ATGG) manufacturing suggests higher-value product development.
Challenges
- High customer concentration risk (major revenue from a few large OEMs).
- Foreign exchange risk, as 87% of revenue comes from exports.
- Capital-intensive industry, requiring continuous investment in technology and capacity.
3. Potential Malpractices or Red Flags
No direct evidence of financial fraud or malpractices was found, but some areas require attention:
- Negative Operating Cash Flow:
- Despite strong profits, negative cash flows raise concerns about working capital management.
- High trade receivables (₹1,699 Mn in FY24) suggest possible payment collection issues.
- High Non-Recurring Adjustments:
- Frequent adjustments for fire incidents, forex losses, and credit-impaired receivables.
- Fire-related expenses were ₹63 Mn in FY23, impacting reported EBITDA.
- Significant IPO Fund Utilization:
- Raised ₹7,400 Mn from IPO but unclear how much was deployed for actual growth.
- Monitoring future use of IPO funds is essential.
4. Conclusion: Should You Invest?
Positives:
- Strong financial health with low debt and increasing equity.
- Rapid revenue and profit growth with high margins (~35% EBITDA).
- Deep relationships with global OEMs in high-entry-barrier industries.
- Expanding manufacturing capacity and entering new markets.
Concerns:
- Negative operating cash flow, indicating possible working capital issues.
- High customer concentration risk.
- Execution risk in expansion plans.
Verdict:
Azad Engineering appears to be a fundamentally strong company with high growth potential, but investors should closely monitor cash flows and IPO fund utilization.
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