Aeroflex Industries Q1 FY27 earnings call

Aeroflex Industries Limited reported its highest quarterly performance in Q1 FY27, with consolidated revenue reaching ₹145.97 crores, marking a 72.4% year-on-year increase. EBITDA grew by 116% to ₹33.5 crores, leading to a significant margin expansion of 468 basis points to 23.04%. Profit after tax (PAT) also saw a substantial rise of 162% to ₹18.79 crores, with the PAT margin improving by 440 basis points to approximately 13%.

The SFN Skid Assemblies business was a key growth driver, contributing ₹32.4 crores, or approximately 23%, to the total revenue in Q1 FY27. The company has expanded its skid assembly capacity from 6,000 units to 9,000 units per annum and plans to further increase it to 15,000 units per annum by Q3 FY27. Management aims for an 80% optimal utilization of this expanded capacity by FY28, with Q1 sales volume at 1,040 units.

The core flexible hose business demonstrated robust growth of 41% year-on-year. To meet increasing demand, Aeroflex plans to boost its flexible hose production capacity from the current 17.5 million meters per annum to 20 million meters per annum. This expansion is targeted for completion by Q3 of the current financial year, with a budgeted capex of ₹54 crores for the entire project.

Aeroflex is actively investing in new product development and automation, particularly in liquid cooling solutions for data centers. The company is developing products in collaboration with customers, with the fire hose assembly for data centers expected to be commercialized by the end of the current quarter or early next quarter. This strategic focus aims to transition the company from a flexible hose manufacturer to an integrated provider of advanced flow control solutions.

Exports grew by 43% year-on-year, with increased business coming from both Europe and the U.S. market, including flexible hoses for data center applications. Management anticipates definite business from the international market for skid assemblies in the current financial year. The company's engineering capabilities, product quality, continuous innovation, cost arbitrage, and speed are cited as key reasons for global players to source from Aeroflex.

While gross margins increased, sequential EBITDA margins saw a slight decline of 80 basis points. Management attributed this to increased employee costs associated with the ramp-up of manpower for the skid business and new facilities, as well as higher logistics costs stemming from the West Asia crisis. These are viewed as investments for future growth and temporary impacts, with a long-term target of achieving a 25% blended EBITDA margin.