Ladies and gentlemen, good day, and welcome to Azad Engineering Limited Q3 FY 2024 Earnings Conference Call. Hosted by ICICI Securities Limited. The conference call contains forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of the call. These statements are not guarantees of future performance and involve risks and uncertainties as discussed below. As a reminder, participant lines will be in the listen-only mode, and there will be an opportunity to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Dixit from ICICI Securities. Thank you, and over to you, sir.
Thanks, Neerav. Good afternoon, everyone. On behalf of ICICI Securities, I welcome all the participants for Azad Engineering's Q3 of FY 2024 results conference call. At the outset, I would like to thank the management for giving us an opportunity to host their earnings call. From the management side, we have with us today Mr. Rakesh Chopdar, chairman and CEO; Mr. Vishnu Malpani, whole-time director; and Mr. Ronak Jajoo , chief financial officer. We will have brief opening remarks from the management, post which we will open the floor for an interactive Q&A. Without any ado, I would hand over the call to Mr. Chopdar to give his presentation. Over to you, sir.
Thank you, Amit. Thank you. Thank you, everyone. Good morning. This is Rakesh Chopdar, chairman and CEO at Azad. I would like to welcome everybody, and thanks for joining today on our degree of earning call after our listing. This call, I have with me our director, Mr. Vishnu Malpani; our CFO, Ronak Jajoo ; and the rest of the team, our investor relation advisors. The results and presentations are uploaded to the stock exchange and the company website. I hope everybody has had a chance to see it. We are pleased with the positive response to our initial public offering. We wish to offer our heartfelt gratitude to all the shareholders and everyone who was part of our IPO journey. The IPO has strengthened our balance sheet and will help us to achieve increased profitability through lower interest expenses which simultaneously for growth in our plan and expansion.
We have achieved our highest-ever quarterly performance in terms of both revenue and profit during this historic quarter. Both Q3 FY 2024 and nine months FY 2024 revenues increased by 39% year-on-year. Our quarterly performance aligns with the consistent financial growth that we have achieved over the years. Before we delve further into the quarter performance, I would like to give you some background on our company, as this is our first earnings call. In the year 2008, where I started, our Azad was established. We were just with one machine, and I was the sole operator on that. Basically, it's a very sad story. Now, 16 years, now we have more than standard machines and a thousand-plus very strong team. Since our inception in 2008, we started with very high -complex components with high-pressure requirements.
And very happy to say that in our product line, we are the only company who could break all the barriers in developing this product. It's a very niche product, life-critical and safety-critical product, which is mainly the development of our airfoil, which are three components, and these are not three components. Most of it is what we have seen in this manufacturing and engineering, where we call it as precision forged or machined. Having a CNC machine, having a forging unit, we just manufacture precision components. But this product or this product line which we are in doesn't fall in that category. I have a bit more concerned. I would like to really iterate on the parts. It's really important for everyone to understand what Azad actually does. It's just not a precision product. It is a life-critical product.
These are the rotating parts which we commonly see in aircraft engines, which when we get in the plane, we can see through the turbine, which are known as the turbine engines. These engines have these airfoils, which is the heart and soul of an aircraft. It powers the large jet turbines and the aircraft engine, and they work in very extreme conditions. Having said, is it having a technology of a CNC machine that we produce this part we produce? No. It's ordered with the customers what we have it, they're very niche. Having said that, these products being very critical, so is the acceptance to the acceptance, the approvals, the qualifications. This is what when you can say this is where we start getting our orders, and orders get registered. Only 15, 16 years.
The hard work what Azad has done, the whole team has done, is to get the qualifications, get the approvals, which is not easy. It's not just that someone has INR 500 crores or INR 1,000 crores money, goes buy the technology, produce this part. No, it doesn't work like that. For me, it's very important to make you understand this is not so easy to break this barrier and compete the world. Competing the world, which is in China, Japan, Europe, America. These are the countries where Azad is competing. I would say India is competing. Please, having this position, we feel very proud. The recent addition of the Rolls-Royce contract what we have received, we are the most critical components which are utilized in the engines of a fighter jet or a military jet.
Just imagine having approvals for this kind of parts, complex parts, companies like Rolls-Royce putting an order, Azad has the trust. Azad has really got the trust India has gained. We feel very proud, and I wish everyone listening to this do visit Azad facility, witness what we are trying to say. I'm sure it's not easy to understand what exactly I mean by listing this segment of the product line which Azad is in. Our products are very niche, as I mentioned, very life-critical, and all being special is exotic alloys. It's not the normal stainless steel, or it's not the normal material where we see in other industries. These engines come the land-based, aviation, and space. For land-based, we call it energy. For aviation, we call that A&D and Space . This is widely used in many sectors and very regulated.
It's a very highly regulated industry where not everyone can break the barriers by just buying a CNC machine or just having tons of money in the pocket. We commenced our operations in the energy sector, and today we have now come up a long way in the clean energy segment, having the nuclear, hydrogen, gas turbines, and also spread ourselves in the aviation. Aviation, we just came in. We took the long experience in the energy segment, which has put us in a very great sweet spot. Now we can handle the aviation industry. Again, these are not some simple part. Again, this is not an armrest or something which an aviation industry required. These are rotating parts of an engine. There is a lot of difference.
Everyone has to understand what it takes to fire that certain part manufactured in Azad, manufactured in India, which goes straight in the engine 35,000 feet above in the air, and just imagine if something goes wrong, thank God nothing goes wrong, it can be a disaster. The whole idea is to make you understand, give education, give a wide spectrum that, yes, now these are the parts never seen in India before, is what is here. That's why people are struggling to understand what exactly Azad does. Ladies and gentlemen, for me, it's very important for everyone to make you realize that please understand what Azad is doing. This is just a start. These qualifications are just released, and now is the time that you're going to see a very good positioning of Azad.
Our extensive experience in manufacturing capabilities enables to obtain the qualifications of these customers significantly lower lead time. It's not just that you try something first. Are you cheaper? You have a CNC shop. Are you cheaper? No. In our product, can you manufacture? Are you capable? Are you able? Can you consistently produce this part and bring the price to us? Okay, at what cost? That's the level of barriers which we have to cross, where the price comes last, not the first. This is what I just wanted to give a very brief background about the company. In the segments where we have some wins, we have already at a various stage of qualifications ongoing on the multiple marquee customers, and you name our marquee customers, we are there with them.
During this quarter, as compared with the same period last year, as a result, the contribution of these segments in this quarter has gone up by 20% in comparison and 10% in Q2 FY 2024 as well as Q3 FY 2023. In fact, we have recently signed, as I mentioned, on March 7 with Rolls-Royce, which is we are very proud that this part has come to India. In the coming years, we expect aerospace defense business to contribute to our revenues on par with energy segment with volume gaps in coming years. Again, we started that niche. We are maintaining our legacy. We would like to be a niche where we draw our expertise on the numbers what you see, the passion, and, moreover, profits, EBITDA. Please understand, and my colleague Vishnu will take you over that.
Please pay attention why this PAT is less, why this EBITDA is less. It's just operational. I wish that we could clarify this, that every aspect has to be understood very well. That's from my side, gentlemen. I pass on and over to Vishnu.
Thank you, Mr. Chopdar, for giving a good sense of purpose to our audience. I hope we've been able to clarify and take some of the questions that you might have. While Mr. Chopdar has given us a good top-level summary of where we are headed and where we are, let me give you some texture and flavor to our end markets and what our plans ahead are, because I'm guessing a lot of you must have questions on what are our end markets and plans. Let me give you a quick sense of that. It's important to note that our end markets are highly regulated. This is a question that we keep getting from a lot of analysts that we have a very high concentration risk.
I would like to take this opportunity to come out here and say that this industry is highly regulated and highly concentrated. The industry does not have a lot of large players. If you look at energy, GE, Mitsubishi, and Siemens, top three players, 70% of the industry is covered. If you look at aerospace, Boeing and Airbus together take about 21% of this industry. For us to find a new customer here is a challenge. Our diversification strategy is to do with the product line that we make. Our diversification, or our uniqueness is the positioning that we've achieved because of the product line that we are manufacturing. That's why we are unique. Today, our 18 plants cover about 70% of the end-user markets, which we are present.
You look at whatever segment you want, whether it is energy, aerospace, or oil and gas, we are working with the sector leaders there. Today, we address about $+28 billion market between airfoils, engine components, hydraulic parts, flight control parts, and air generation systems. All of these, for these three or four sectors, clean energy, aerospace, defense, oil and gas, and HCS. Our core end markets are extremely robust and expanding. You would've seen that the aerospace and defense industry is growing at about 9% CAGR. Similarly, the oil and gas industry is also growing at about 11%. We have a very robust and expanding end-user markets. Today, when you compare our business and you look at our wallet share, you would see that we have less than 1% wallet share.
Now, I would like to see this as an opportunity for us scaling up to the highest levels, because for us to get to this 1%, it has taken 15 years of hard work, 15 years of commitment in the business, while we were constantly reinvesting to get to this point of inflection. Now, I look at this less than 1% wallet share as a great opportunity for us to move forward. So from here, even if we are able to get to that 1% - 2%, 2% - 4%, we are looking at massive climb on our top line, and I am sure you all understand that. That gives us a sense that we have an enormous headroom when it comes to going further in our respective segments with our respective customers, especially with our product line. So going back to how do you onboard a customer?
I would like to bring your attention to the fact that it takes about 30 months - 38 months to onboard a new customer. Then you have to qualify part by part for you to get to a production stage where you start generating revenue. For these 15 years, we have done this rigorously and gained qualification for +1,500 components across engines, across sectors, across customers with global OEMs in energy, aerospace, and defense industry. These are approvals that are very hard to achieve, and there are only a handful players around the world that have been able to achieve it. You see, our competition is not in India for our product line. These barriers are only broken by global players, and we are competing with those global players only.
We compete with Japan, we compete with China, we compete with Europe, we compete with U.S.-based suppliers, and these are the only players around the world that have broken barriers, and nobody from India has been able to do it. With customer qualifications that we have for each and every stage, it is important and proven that globally, that as an organization, Azad has put ourselves positioned really well in supply chain of these OEMs, plus as a country, we have been able to put ourselves out there saying we can today manufacture extremely complex rotating parts for engine and for defense platforms or for commercial airlines. We are very proud to do this. I would like to echo Mr. Chopdar's thoughts and the fact that this is a big milestone, not just for Azad, but for our country.
I am sure you should all be a part of it because this is a big milestone in our journey, in our country, in India's growing aerospace, defense, and precision engineering ecosystem for us. Azad has really forged robust customer relationships with our client base. If you look at our top clients, we have an average relationship of over 10 years with them. We do not just work with our customer on one segment. We were talking about concentration risk sometime back. We do not say, let us take an example of GE. We do not just work with GE on one segment or one product line. We work with their nuclear segment, we work with their gas segment, we work with their clean segment, we work with their hydrogen segment. This is how we are looking at diversifying it.
This is only possible because of our long-forged robust customer relationships over 10 years. Why does it take 10 years? Because, guys, we need to remember that this is a part which is rotating at 13,000 feet, and these parts are mission-critical and life-safe. That's why it takes relationship. Even if somebody today wants to start this business, there is no shortcut. That is possible across the globe. Whether you are in India or Japan or China, you would take about 15 to 17 to 20 years to get to the point that Azad Engineering has reached. As a strategic and a growth partner to our customers across these industries, we would like to inform you that we have long-term relationships which have cumulated into long-term contracts with our customers. Today, our business has a visibility of not just near term.
We have a visibility of three years, five years, seven years, and 10 years. This is because our customers have signed contracts with us. We have roadmaps with each one of them, and that's why you see we are investing ahead of the curve. We are investing in infrastructure. We are investing in capacity. We are investing in organizational building because we know that this business needs this kind of investment for us to cater to the growth that is coming by. We are looking at it in a very structured and a stable way. The base is now created. We are only going to build on this from the strong base that we've created. Our competitive positioning is evident from a solid performance, which you would see that we have not just grown our top line this quarter.
You see, we have also increased our EBITDA percentage, which is what we kept telling. This was something which we had constantly iterated to the market that we are running a business that's a high EBITDA margin business. You would see that anytime when you're looking at our financial numbers, please keep what is optically visible versus what is happening really. Mr. Chopdar was talking about how our PAT was optically lower. Most of the questions that we had received over our last calls or meetings, et cetera, was. W hy did your PAT drop to INR 8 crores in FY 2023? We constantly explained the fact that we had convertible debentures. One of the questions that was put to us was. Your debt is about INR 300 crores for a company of your size. We had explained to them that this is not your debt.
These are convertible CCD instruments, and these instruments are going to be converted to equity, and the investor will take an exit in IPO. That, my friends, is actually happening. You see, by the end of September, our gross debt was over INR 300 crores. In the December quarter last year, when we did our initial public offering, our investors converted the convertible instruments into equity. They have taken an entry. Today, if you look at it as on today, if I have to speak about it, through the IPO proceeds, our debt has been completely paid off, and today our debt is under INR 30 odd crores today. That's barely anything compared to the INR 300 crores that was being actually shown, and that is why you see our profit today has gone up.
I would not say that we have grown up six times or seven times in terms of profit. This is a consistent performance. The PAT drop in last year was an optical matter because of the coupons that we are paying on the CCD instrument, and that is why it had happened. Also a couple of one-time impact that was because of redemption of debentures. I am sure you would have read our financial and this will be happily clear. This is all over. You will be able to see in Q4, because obviously, while in December we had payments towards coupon that was being done to our investors on CCD, so you would have still seen some impact.
But in the Q4 this year, the quarter that we are going to deliver, you will be able to see the PAT and the finance costs would have normalized completely, and you would see an uptrend in terms of that. Coming to our growing demand, we are expanding our manufacturing facilities. Today, we have four manufacturing plants in Hyderabad totaling to about 20,000 square meters. We have acquired 170,000 square meters more on top of it, which is six times of the current capacity. We are developing our infrastructure in phases. We will start with the 95,000 square meters to start with, and you will see our incremental revenue for FY 2026 will come out of the new plant. We plan to create dedicated customer factories, micro factories in a larger field. We will be able to talk more about it during our annual calls.
For now, I would like to say that the infrastructure that is being created will have incremental revenue of FY 2026 coming here, and we plan to add our machines in a very phased manner. With this, I would like to say that there is a lot that is going to happen with us, and I think the story for Azad is unfolding. We are at the time where we are today having a volunteer of less than 1%. We are in the right kind of sectors with the right kind of customers and product line. We have a unique positioning. We hope that you understand what we have communicated, and we will open the house for questions in some time. I would now request my colleague, Ronak Jajoo, who is our Chief Financial Officer, to maybe give a glimpse of our financial performance. Ronak, over to you.
Thank you, Vishnu. Actually, we will talk about the consolidated financial highlights for the quarter. Our revenue stood at INR 89.2 crore, which is a 49% growth on year-on-year basis. Our revenue are growing at a healthy pace. We are positive to maintain this trajectory in times to come, and we are hopeful that we continue this growth over the years to come. This growth is led by strong change in both energy and aerospace segments, where our energy segment grew at 50% on year-on-year basis on a large base, and our aerospace and defense registered 157% year-on-year growth at a small base.
Our consumption percentage as a sales has reduced from 13.3% - 11.6% during the quarter, mainly because of change in mix, and we are glad to inform the market that we have qualitative ordering leads where we are getting the better price, and the lead times for the raw materials has decreased drastically for the company. Our employee costs have shown an increase in line with our growth in the top line. Our operating excellence is a focus area for us. As a result, we are able to achieve certain process improvement. It resulting into the 5% reduction in other expenses. During the quarter, our adjusted EBITDA increased by 87% on YOY basis to INR 332.8 crore with 36.7% margin, and this is the highest ever EBITDA generated by the company during this particular quarter.
At the same time, actual EBITDA increased by 36.7% on YOY basis, INR 327 million with 36.7% margin. During quarter three FY 2023, our actual EBITDA was impacted due to the certain one-time adjustments. We have made adjustment to EBITDA with respect to certain non-recurring items such as fire-related expenses, and brief of these items is available on slide number 13 of the presentation. PAT for the quarter increased by 339% on YOY basis to INR 168 million, taking 28% margin. Coming to the balance sheet, the company has reduced the debt. As Vishnu has mentioned to you that our gross debt on 30th September was INR 374 crore. In quarter three 2024, our CCD, namely Piramal, who are holding our CCD as converted into CCD, share was INR 173 crore. We reduced our gross debt to INR 163 crore, largely due to conversion of CCD into equity shares.
Our finance cost in quarter three stood at INR 9.3 million, including INR 13.3 million and INR 133 million on non-recurring item, namely INR 120 million towards the CCD and remaining INR 13 million on account of [inaudible ] on loans which we have to unwind during this present quarter. With these two non-recurring expenses not forming part of our future finance cost to reduce proportionate financial cost to the third, and that will be reflected in quarter four onward results where our finance cost will be normalized and we see a better debt margin coming forward. Looking at a nine-month number, revenue from operations grew by 49% year-on-year basis to INR 248.0 million as compared to the corresponding period last year. Nine-month 2024 adjusted EBITDA grow in line with revenue and reached INR 857 million with margin of 34.5%.
Net profit for nine months 2024 was INR 437 million compared to loss of INR 54 million in nine months 2023. There was adjustment during the nine months 2023, which we share in the slide number 31 if you go to the presentation. I am opening the floor for question -and -answers now.
Thank you very much. We will now begin the question -and -answer session. Anyone who wishes to ask the question may press star and one on their telephone. If you wish to remove yourself from the question queue, you may press star and two. Operators ask participants to use hand lifts while asking your question. Ladies and gentlemen, we will wait for a moment while the question is assembled. Participants, you may press star and one to ask a question. The first question is from the line of Aditya from Investec. Please go ahead.
Good afternoon, Rakesh, Vishnu [inaudible], congratulations on such a great IPO. Since a lot of late change, obviously very encouraging for yourself. I want to understand you have three recent customers in the quarter, higher than what we usually used to call. So what are all the factors that have contributed to it, and would you be expecting gross margins to be something like deep vendors or lower tiers just slightly lower? That is the first question.
Hello, Aditya. Vishnu here.
Hi, Vishnu.
Aditya, thanks for your question. Our EBITDA has gone up because of efficiencies that we got in two of our expense lines. In terms of job work and tooling, there is a margin expansion. We have saved our EBITDA there. We have been able to save about 2%-3% EBITDA between our tools job work and power. That was a result of one backward integration that we have done in our business, and the other one was a lower power charges through installing a direct line of power in our business. We were able to save about 3%, and that is why there is a margin expansion that has happened in our business this quarter, and this is sustainable, and this should continue.
Aditya, this is Rakesh. Again, I would like to give a note to everyone that these products are not standard. There is a continuous innovation; there is a continuous process improvement, which is not only created, it is visible for tomorrow as well. These are the improvement points. This always will be available, and which we are just exploring it right now.
Sure. Okay, sir. On the operating margin side that you referred to, would you be able to share some details?
I think it's the longest discussion, but I can tell you that we were sending out our product for a special process outside. Now, what Azad has done is we decided to make an investment on this special process about a year and a half ago. We invested, we executed, and then, yeah, we built capability on it, got that special process implemented with our customers. Now we are able to see an impact of this because we started producing parts on that special process. That's why you see an upliftment in the operating margins that we have. This is a sustainable number. This is going to be.
Okay. My next question is on Rolls-Royce that you've been working on for almost two years. Any specific details that you can share on it? What could be the revenue potential? How large could it be? And how exactly is Azad positioned?
Aditya, please note, Rolls-Royce has got two divisions. One is the commercial, one is the defense military. We have a U.S. license to produce this. We have not got the license to produce this part. These are very highly confidential, and we can't give you much statement as because this is from military program. This is from Rolls-Royce Defense. This is not from the Rolls-Royce Civil Aerospace . Of course, it's all under one roof only. But still we cannot reveal much detail because of the military protocol, because we have a license from the U.S. government. So we have to keep things confidential. But you're most welcome to visit the facility where we can give you some idea, or we can give you some kind of a guidance what exactly these parts are.
Okay. For something like this also, Rakesh, would we be inclined to set up a dedicated facility given the sensitivity around it and possibly a very large opportunity?
Not really. For the confidentiality, it is a standard. India and we are, right from inception as a manufacturing entity, we have been a very niche segment. That is culture already built in us, having this confidential information. Talking about the facility, as Vishnu also mentioned, this is just a part of a big ocean. Putting the door is the biggest thing. It took us years of dedication and qualification and approvals what we have got, and this is where the opportunity started. This is something which is beyond numbers, what you can imagine what the numbers are. So definitely we would love to innovate a great factory for Rolls-Royce to build a new facility.
[inaudible] . We need to come back with a follow-up question. Thank you. Next question is from Kamlesh Jain from Lotus Asset Managers . Please go ahead.
Yeah. Thanks, Rakesh and Vishnu, for elaborating the explanation of your business. Looks like a strong type of combination and a strong future ahead.
Kamlesh, can you speak a little louder, please?
Yeah. Am I audible now?
Little bit.
Yeah. Thanks for the invitation, Vishnu, for the elaborate explanation of the meeting. Just one question on the expansion side. You mentioned about 170,000 square meters, which you have recently acquired, but how the capacity would pan out over the years at full utilization?
Yeah. Kamlesh, thanks for the question. As mentioned, we were aware what is coming, right? We had finishing of our gestation period of this 13, 15 years. As I mentioned earlier as well, we just put in the door. We know what is exactly coming. [inaudible] for this. This is not something a normal general [inaudible] or something that we can go; we can plan for one year or two years. This is something that you have to plan like. As mentioned, the customer of ours—if we talk about our product line, it is so critical, right? It is a license. It takes stages for us, and it takes stages for the customers; both involvement, a lot of time to qualify, get the approvals. That is what we finished recently. Now is the time to increase the volume capacity.
This is actually what is a very big plan, which is we have to demonstrate to the customer. Look, now we are ready to take all your requirements, whatever the planning. It is exactly what we are trying to show at the volume increment. This is where the volume share increment comes in. We have a capacity gap. We have to get this gap, but we are ready to take the recent phases of —w e are opening up a factory for you guys. This is where planning comes in, like this space management is in accordance to the coming business, what we can see on the rules of customers. So it is very well planned.
Great. Current capacity is around [inaudible] . I would say, and we have bought these keeping in view that it would be expanded over a staggered manner. Now, like say over three, six years or five years, how the capacity or how the increase in revenue will pan out. I know that wallet share will also increase, new customers will also come in. But like, say, over three, four, five years, how the revenue will pan out from this particular expansion? I will just touch on the business because on the numbers, what the guidance, what I think we have pretty. We can just—
Look, hi, Kamlesh. That's a great question. Look, first of all, I'd like to say that we'll be able to give you more clarity on this when we come for our annual results. I think we will talk about those. Since you've initiated this question, I would like to put you the comfort. You mentioned the number of 158,000 annual hours. There was a mistake in that. This is our quarterly capacity. Our annual capacity is way over three lakh hours today as a business. If you see our historical numbers, you will get a sense of how we are planning our capacity. Just as they can get, FY 2021, we did about INR 122 odd crores. We took it somewhere INR 195 crores, then we took it to INR 251, and this year we've already done INR 247.
As a business, we know that the business is continuously looking at a growth at a customer level. We are constantly investing in capacity. If you look at our energy segment, right? We would have grown in that largely over our year-on-year number. That is because we deployed CapEx of about INR 16,000, INR 17,000, as we invested in them. If you look at our aerospace business year-on-year growth, that has happened. Our aerospace year-on-year quarterly growth has tripled now. That is because of the qualification act. Our growth is a factor of the capacity that we are creating, and from here onwards, today, the IPO proceeds that we were looking at, we have taken out the money that is needed to deploy in plant and machinery that will take us to our FY 2026, FY 2027 numbers without any troubles.
These capacity numbers have been committed to our customers, so we cannot obviously not create capacity. Our only job over the next two years is going to be create infrastructure, deploy machines in a staggered manner that our return on capital employed is also very effective. Our incremental ROCE is with this is target should be upwards or around 25% is what we are looking at.
Yeah. I would like to add one more thing, Mr. Kamlesh, what you can see in the H1, what we have delivered. We are on a track which is going for this financial year. You can have that a look. As mentioned on the capacity, these numbers, what the capacity, what is the increase is already in. We have a roadmap from our customers. That is how the capacity grew on. This is how that 170,000 square meters have come up. For next five years or 10 years, the capacity what we have seen, the roadmap is with the customer. It's not just we are just building the capacity. It's not just we have purchased the land. There is a calculation behind the procurement of the land. There's a calculation behind the square meters. Why do we need so much square meters? I hope it clarifies.
Great. Thanks, Rakesh, and wish you all the best.
Thank you.
Thank you. Next question is from the line of Rajesh Vora from Jainmay Venture . Please go ahead.
Good afternoon, gentlemen. Congratulations. Very good set of numbers. Thank you, especially Mr. Chopdar, for giving us a very good overview of the company. Your business is quite impressive in what you have done in the last decade and a half. What were your strengths to be patient and stay for so long in such a crowded business, and how did you manage the risk of failure or other risks?
Thank you, Rajesh. My first thing is when I was 16, when I turned 16, I have seen enough failures, or I have seen enough of struggle. I think my quota got finished on a lighter note, and now it is there. It evolved in a way where I got into this mode, and the biggest strength is what I can see now after realizing, after talking to people like you in the whole world. I am very fortunate. Thank you so much for that. Also my team, what I have built over these years and this infrastructure and other stuff. The ability to accept challenges and give results in a very favorable way. That is helping me to continue this, and I hope I will take this to great heights.
Very interesting. I saw given the way you kept growing, do you have any company as a role model in your mind? Like a corporation of U.S. or an aerospace somewhere? You are looking to multiply your revenue and market share?
Not required, Mr. Rajesh. I will tell you. Most engineering companies have a joint venture, either for money or for the country, or for the market, or for sales, or on a premise. When we have achieved all the three, we do not have to suffer for anything. Why do we need to go and suffer again? Usually, in our product line, again, there is a very vast share of trade energy. There is a vast product line differentiation in the classification of the products what we actually manufacture. As I was repeating, again, I repeat, I feel very proud of saying that we do not make armrest of a seat, we make it a wing rest of an engine.
We have classified what exactly we are doing there, how we are positioning ourselves, and what it took us to get these parts manufactured here in India and being utilized globally.
We do not know which part we are manufacturing is operational in China or Japan or Saudi. We do not know where they are operational, and we feel great about it. To follow someone, trust me, if we try to follow someone, we exactly do what others do. That way, that gives a result that Azad is the only company, we are very proud of India, and we broke these barriers. As we represent, as we go out, and no one knows us in India, trust me. No one exactly has an idea what exactly Azad does. When you go to Japan, you ask Mitsubishi. Hey, how is Azad? You go to America, you go and ask GE. You go and ask Rolls-Royce. You go and ask. What does Azad do? They say, Wow. They really like it. They are very happy with our company.
This is what the problem also we are facing is positioning of Azad, where we are visible. I am sure over the coming time, we all will realize what exactly we are doing. Just give us some time. Let the numbers speak on it. That is what the best way is.
Thank you. Rajesh [inaudible] , I will give us to come back for a follow-up question.
Look forward to meet you and visit your facility.
More than welcome, Rajesh.
Thank you. Next question is from Pritesh from Lucky Investments. Please go ahead.
Sir, the asset turn around that you have in your balance sheet, which shows, let's say, last year ended about INR 60 crore. What's the asset turn usually your business operates at?
This is Vishnu here. If you look at our business in a segmental way, energy, aerospace, defense, and oil and gas. Energy is a business historically has had an asset turn of around 1.5 for plant, for machine. For the products that we are now doing and building qualifications for, this asset turn will go upwards from 1.5 to 1.7 on the energy sector. On the aerospace side, you see the products that we're currently making have an asset turn of 2 to 2.5. So at a blended level, when you see our business in [inaudible] , you see it will get to a point where our asset turns blended will be around 1.7.
But we do only machining, right? Do we get the forging made from out?
No, no. This is [inaudible] what I'm saying. 1.75. Forging is done in-house. Everything is done in-house.
The entire part, whatever is forged, your final out will be a machined part only.
Yeah. It depends on the customer's requirement. But yes, we do forging, we do machining, we do special processes. It's end-to-end 360 degree ecosystem that Azad is trying to create for our OEMs.
Yeah, gentlemen. This is what we are manufacturing. It's not just product, it also is solution as well.
The second question is on the working capital. In the last three years, number is all over the place. But usually, incrementally, what working capital cycle will you operate at?
If you look at our business again, I think the idea is to look at it from an energy standpoint, because energy business we've done it for 15 years. In 15 years, we've grown it into a point where our cash-to-cash conversion cycle is about 130 to 140 days. In this business, working capital cycle for this segment will only progressively come down slowly because we are indigenizing our raw material purchase. As soon as that happens, the working capital portion on the business will become lower. Our aerospace, defense, and oil and gas business require qualification. When you are qualifying these part by part, what happens is you have an inventory build-up, and also there is an impact on this. That's why the working capital cycle seems elongated at that point.
If you see for this quarter, you will see there is a shift in our working capital cycle even on the aerospace side. This will progressively come down. In FY [inaudible], the entire business will be at a blended asset turn, sorry, working capital cycle, or a cash conversion cycle of 130-140 days completely.
Okay. Your blended cycle incrementally should move towards 130-140 days. Today it is—
No, no. Blended will get to 130-140 days. See, what happens is energy has our quantum of revenue versus our quantum of qualification is very different than compared to aerospace. Aerospace last quarter has done about INR 15 crore, but the quantum of qualification is there. That is why you see this impact there. But at a blended level, our business will become 130-140 days of cash-to-cash conversion, I think, in [inaudible]; progressively, it will come down with every quarter and every year going this way.
Just follow on. What is the realizations per kg that you work on? We do blank sub-machined part.
No, it doesn't go that way. It goes as product per piece. It doesn't go by sub kg.
Thank you very much.
Thank you. The next question is from Bala Murali Krishna from Oman Investment Advisors. Please go ahead.
Yeah, good afternoon. I would like to know that the different aerospace sector, is the percentage of contribution . What are all at three, four years or five years?
Thank you so much for the question. Again, we would like to start from 2008. It is a footprint in the energy sector first. As you take longer and longer, it will cover all the parts, part by part qualification as it rolls along. It takes a lot of time. Only 2019, 2020 is where we stepped in aerospace. The beauty of Azad is we are not a company in aerospace. Already the center of excellence for manufacturing airfoils. Everyone has to understand what airfoil is. It is a three-dimensional product. A three-dimensional product, it is very highly regulated. Having that experience when we went into the aerospace sector, though the number looks smaller, that is going to scale up drastically in the coming time. That is evident.
You see the Rolls-Royce contract; it has come for seven years, and we are going to supply these parts and many more in the pipeline. In these sectors, sir, the growth is very massive in next coming three, five years.
Understood, sir. The incremental revenue [inaudible].
Yeah. Sir, what you must be looking at are very large. They are very, very massive. What has been in consideration next three to five years, we already have it in hand. You know this all is going to be add-ons. This is what we are trying to make sure that the growth which is lined up for the coming years is already secured.
Okay, good, sir. Lastly, any other new product development which is already developed under evolution with the OEM?
Say example, I'll give you one example. One example. What contract we have signed. Like any X company, any one of the engine manufacturer. One of the engine manufacturers has, say, 10 different models of their engines, right? One may go in A320, one may go in A220 aircraft, one may go in B737, one may go in DC-8. You know they have many varieties of commercial engines aircrafts. Every engine is designed as per the aircraft design, right? We've looked at just a few of the engines, maybe one or two, but they've got 10 more engines. To cover these one or two, you know the impact is massive. Just imagine the one we in fit that. If we look ahead at those 10 different engines and 10 different requirements coming in.
That's what Vishnu was mentioning to you, the TAM which Azad is connected is more than 28, 30 million through the engine. The TAM, or the market size, is only related to Azad. It's not that the entire world's TAM have been presenting. No. The TAM what we have been showing; what has been shown is only related to us, only related to the product line where Azad is playing.
Very good, sir. Great to hear.
Thank you.
[inaudible]
You are more than welcome. You will love it. I can tell you will love it.
[inaudible]
Thank you. The next question is from the line of Neel Mehta from ICICI Securities. Please go ahead.
Hi. Very hard to actually find the numbers. My main question is, everyone, because most of them are already answered. While we see most of the top lines in export, Japan number one and U.S. number two, and then Europe. Do we see any major impact from the Red Sea crisis on your end or as of now?
Sorry, can you be a little louder, please? Prices are increasing what? Sorry.
Sorry. I am asking major exports from the top line: Japan, Europe, and U.S.
Yeah.
Do we see any impact from the Red Sea crisis? The supply chain breakup.
No. Again, very good question that I could answer in a very generic way. Azad, all the products during COVID also, we fell under essentials. These parts what we manufacture are majorly used in power generation, and wherever there are events like that, it doesn't affect anywhere because this is what exactly is in the aviation or it is in the energy business. All are majorly in essential areas. We will not have any kind of thing which is going to affect the business.
Thank you so much.
Okay.
The next question is from the line of Amit Dixit from ICICI Securities . Please go ahead.
Yeah. Hi. Thanks. I am sorry for the delay. I have just one question. While we are deepening our presence in different space, in the missile arena as well, we have a formidable different capabilities coming up, particularly in aerospace. With the joint venture between GE and HAL we were talking about. Later on, maybe Safran and HAL. Incidentally, one of them is our customer already, and the other one we are working with. Just wanted to understand from a very broad framework, what sort of opportunity do we see here? Because the numbers that are being talked about, at least on the aircraft side, these are quite formidable, and this opportunity [inaudible] . Just wanted, if you could give your perspective on that would be helpful.
Good question, Mr. Amit. You have helped me understand better what to cover now. What engine has come to India is F404 and F414, right?
Yes.
From GE, which is coming to HAL. This engine is utilized not only in our LCA, utilizing various other aircraft manufacturing other nations, like Sweden or any European countries, where the same engine is utilized in the various other countries with their different indigenous manufacture. Azad is positioned as a global supplier. What are the global supply chain system? Parts which are being supplied by GE to the entire world, they are global supply chain system. Azad is well-positioned. The parts what we manufacture will go in an engine of 404 or a 414. That may go to India, or that may go to Sweden, or that may go to whichever country they want to sell these engines to. We may not know. Best part is having that control of these approvals and things where Azad is again, very well positioned.
So we definitely have a very significant role to play in this kind of program. Example, I will give you one thing which has happened two, three years back or four years back. This was an order from Bharat Heavy Electricals. We bid for a project. Eventually, we got the project, and it was for 800 MW and three units, 2,400 MW, and we won the order, competing China and Poland in Europe. We won the order. We participated as a pre-bid, and when we received the order, you know what my surprise was? Azad is in Telangana; Azad is in India. To our surprise, those projects were of 20% Telangana. Rest order on GE, which was manufactured in Poland. So our effort went all the way to Poland, got assembled, came back to Telangana. Such examples. That's the beauty of a great positioning, what I was talking about.
We are positioning globally. Our parts, what we manufacture, supply, goes to which part of the world? We may not know.
Just to follow from this, while we are at it, this government endeavors to push [Non-English content] in different ways. Also, there is increased level of regionalization. We are already, as you mentioned, F404, F414, and Safran engine will be co-produced or developed together. I think we have an excellent opportunity over here to build up the expertise and certification.
I would say this is an add-on to us. This will be a great bonus to us, and we will be happy to serve that. The best part is we have done it for three years already, so I think we can handle it. One thing, Azad would like to maintain that legacy of that complex parts, and we would like to continue that. This is a great opportunity. This is very long run. It's not just today, tomorrow, one year, two years story. As you rightly said, this will work till 2050.
Sir, the last very fundamental thing is that after Russia-Ukraine war, and with Palestine-Israel conflict also flaring, and now there are reports of U.S. going for Ethiopia or whatever. In this campsite, do you see any traction in order for us going ahead?
No. No, Mr. Amit. It doesn't come at all in our cases. When Ukraine-Russia war came in, you know where we faced the problem the most? When we were raising funds. So investors were scattered here and there. Customers were scared. It was on a lighter note. I'm just telling you that was the time we were raising money on the. We were on the verge of raising money. So what we found is this thing, financial institution, not in our customer segment. It was on a lighter note.
Okay, sure. That's it from my side. Thank you, and all the best.
Thank you very much. I now hand the conference to the management to close the comments.
I would like to request Mr. Chopdar to go ahead and give the closing comments.
Okay. Thank you so much, everyone, for your time and spending time with us during this call. It was quite informative. Being the first call of ours, we will get more trained what to speak, what not to speak. We were a bit confused. Maybe we could give all the appropriate answers. If not, apologies for that. Any other things are there, guys; I most welcome you visit us. With this, I conclude the call. If you have any further queries, please contact your CA or investor relation advisors. Thank you all for joining us today. Take care.
Thank you very much. On behalf of Azad Engineering Limited, I conclude this conference. Thank you for joining us. You may now disconnect your lines. Thank you.