Aeroflex

Aeroflex experienced a challenging Q1 FY26, with total income declining 6% YoY to INR 84.67 crores. EBITDA stood at INR 15.8 crores, resulting in an EBITDA margin of 18.68%, while Profit After Tax (PAT) was INR 7.1 crores, or 8.46% margin. This performance was primarily attributed to external macroeconomic factors and increased tariffs impacting export demand, leading to a temporary dip in procurement and delayed orders.

A significant development this quarter was Aeroflex's entry into next-gen cooling technology for data center infrastructure. The company signed a long-term agreement with a listed U.S. corporation (market capitalization over USD 50 billion) for the supply of liquid cooling solutions. An initial order of INR 7.8 crores has been received for advanced flow control components, with execution expected mostly in H2 FY26. This positions Aeroflex in a high-potential sector, with the global data center cooling market estimated at $4.4 billion and projected to grow at a 20% CAGR to become almost 5x in the next 7 years.

The company noted that tariffs on its products increased from approximately 3.5% to 10%, adding a significant cost burden of 6.5% to customers. This regulatory uncertainty led to a temporary dip in demand and cautious offtake from export markets. However, management observed signs of stabilization and sentiment returning to normalcy, with order flows expected to improve in Q2. The domestic market showed resilience, growing by more than 30% in Q1, partially offsetting the export decline.

Ongoing expansions at the Hyd-Air Engineering subsidiary and the metal bellows plant are in a scaling phase and have not yet reached optimum capacity utilization, contributing to the Q1 margin compression. Management expects operational efficiencies to improve and margins to normalize over the next few quarters as these capacities scale up and fixed costs are absorbed. The company targets an annual EBITDA margin of 21-22% for FY26, with a long-term goal of 25% within 4-5 years, noting that metal bellows could achieve 28-30% EBITDA margins at optimum utilization.

The assemblies segment continues to be a major contributor, accounting for more than 50% of total sales. The new metal bellows and Hyd-Air segments are expected to collectively contribute 10-15% of overall sales this year. Peak annual revenue potentials for metal bellows are estimated at INR 80-90 crores, and for Hyd-Air at INR 30-35 crores. Aeroflex aims to deepen its capabilities, strengthen its product portfolio, and expand its global presence, particularly focusing on increasing its presence in the U.S. market.