Diffusion Eng

Diffusion Engineers Limited reported a robust Q1 FY26, with consolidated revenue from operations growing 13.48% year-on-year to INR 806.65 million. This growth was fueled by strong performance across all three product segments, reinforced by substantial export gains and steady demand. Consolidated EBITDA, excluding other income, increased 14.75% YoY to INR 105.81 million, resulting in an EBITDA margin of 13.12%. Profit after tax saw a significant surge of 68.62% YoY, reaching INR 122.64 million, driven by improved EBITDA and reduced finance costs.

The company secured a significant domestic order worth INR 480 million for the supply of high-pressure grinding rollers to a leading cement company, further solidifying its dominance in wear part solutions. This was followed by another INR 200 million order for similar equipment. These orders are expected to contribute meaningfully to revenue in the coming quarters, with execution timelines ranging from 11-12 months for large heavy engineering orders and shorter durations for other products. The company maintains a strong order book pipeline, anticipating similar orders due to robust operational expenditure and capex in core industrial sectors like steel, cement, and power.

Diffusion Engineers expanded its international footprint by incorporating a wholly-owned subsidiary, Diffusion Wear Solutions Middle East LLC, in UAE during the quarter. This move aims to bring the company closer to Middle Eastern customers by offering local hard facing, grinding, and super conditioning services. The company is also establishing a subsidiary in Turkey to serve the local market. These additions are expected to accelerate export sales, which currently account for 12-13% of total revenue, with a long-term goal to double export volumes within the next two to three years.

An immediate capex plan of INR 1000 million is underway to enhance manufacturing capabilities for electrodes, wires, wear plates, wear parts, and heavy engineering. The majority of this capex is focused on a heavy engineering unit in Uma Khapri and an electrode manufacturing and clipping lines unit (Unit 5). Progress at Uma Khapri is on track, with PEB building erection expected by September, despite minor rain-related delays. Unit 5 is also nearing operational readiness, with machines already at the supplier facility, and a rooftop solar plant order has been placed.

Management anticipates a faster growth trajectory for its heavy engineering and wear parts businesses compared to consumables, driven by increased demand and the specialized nature of these products. This strategic shift towards higher-value offerings, combined with increasing scale and effective cost control, is expected to lead to continued improvement in EBITDA margins. The company aims to sustain or improve its current consolidated EBITDA margin of 13.12% throughout FY26, targeting the 13-14% range.

The company is focused on improving its working capital cycle, targeting a reduction to 80-90 days by Q2 FY26. This initiative is crucial for enhancing cash flow and overall financial efficiency. Execution cycles vary significantly across product categories, from quick turnaround times of two weeks for electrodes to 8-10 months for larger heavy engineering items, demonstrating the company's ability to manage diverse operational complexities.

Diffusion Engineers continues to emphasize innovation, leveraging its associate company LSN Diffusion in the UK for thermal spray powder technologies. This includes the development of disc brake coatings, which have commercial applications in India and Europe, particularly for Euro 7 emission norms. The company is evaluating the manufacturing of these powders in India versus buying them, based on economic and quality considerations, showcasing a commitment to advanced metallurgical solutions.