Diffusion Engineers Limited — Q1 FY26 earnings call

Call held 19 Aug 2025

Management summary

Diffusion Engineers Limited reported a strong Q1 FY26 with consolidated revenue growing 13.48% YoY to INR 806.65 million and PAT surging 68.62% YoY to INR 122.64 million. The company secured new orders totaling INR 680 million and is progressing with its INR 1000 million capex plan for capacity expansion. International expansion is underway with a new UAE subsidiary, and management expects sustained margin improvement and reduced working capital days.

Highlights

  • Consolidated Revenue from operations in Q1 FY26 was INR 806.65 million, a Y-o-Y increase of 13.48%.

  • Consolidated EBITDA, excluding other income, was at INR 105.81 million in Q1 FY26, a Y-o-Y increase of 14.75%.

  • Consolidated Profit after tax stood at INR 122.64 million in Q1 FY26, a Y-o-Y increase of 68.62%.

  • Secured a significant domestic order worth INR 480 million for high-pressure grinding rollers, and another INR 200 million order for similar equipment.

  • Incorporated a wholly-owned subsidiary Diffusion Wear Solutions Middle East LLC in UAE during this quarter to expand international presence.

Key financials

  1. Consolidated Revenue 806.65 Mn +13.5%YoY
  2. Consolidated EBITDA 105.81 Mn +14.8%YoY
  3. Consolidated EBITDA Margin 13.1%
  4. Consolidated PAT 122.64 Mn +68.6%YoY

What they filed

Q1 FY27: revenue up 35.8%, net profit up 41.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue82 79 103 81 84 +2%101 +28%142 +38%110 +36%
EBITDA11 10 15 11 12 +9%14 +40%21 +40%14 +27%
Net profit9 7 13 12 10 +11%12 +71%16 +23%17 +42%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

high confidence

Inflow this quarter

₹680 Mn

Execution

Execution for large orders is 11-12 months; other products range from 2 weeks to 10 months.

Pipeline

other

Order book pipeline remains strong, expecting similar sorts of orders.

The order book pipeline remains strong with significant new orders secured, and execution timelines vary by product category from weeks to 12 months.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹1,000 Mn
    • Increase manufacturing capacity in electrodes, wires, wear plates, wear parts and heavy engineering ₹1,000 Mn
    • Heavy engineering unit in Uma Khapri
    • Electrode manufacturing and clipping lines at Unit 5
    • Rooftop solar plant
    Our immediate capex plan is to deploy around INR100 crores to increase capabilities or manufacturing capacity in electrodes, wires, wear plates, wear parts and heavy engineering.
  • Dividend ₹1.5/share (final)
    our shareholders approved a final dividend of INR1.5 per share, which amounts to 15% for FY25.
  • M&A Diffusion Wear Solutions Middle East LLC Acquisition · Closed

    To bring us closer to Middle Eastern customers by offering local hard facing grinding and super conditioning services and wear parts supplies.

    We have also incorporated a wholly owned subsidiary diffusion wear solutions Middle East LLC in UAE during this quarter.
  • M&A Turkey Subsidiary Acquisition · Announced

    To take care of the local Turkish market and expand international presence.

    We have also incorporated a wholly owned subsidiary diffusion wear solutions Middle East LLC in UAE during this quarter. ... We are adding two subsidiaries to UAE and Turkey

Guidance & targets

Revenue

  • Revenue Growth Revenue · FY26 · Medium confidence double digit, a little higher double digit
    We will be growing at least, double digit, a little higher double digit I can say, more than in double digit.

    — Ramesh Kumar N

Margin

  • EBITDA Margin Margin · FY26 · Medium confidence improve from 13.5%

    From 13-14% today

    Currently our margins are at 13.5, so throughout the year do we expect them sequentially to go up or are they going to remain in this range of 13% to 14%? We expect the margins to improve because with the increasing scale our fixed costs are not increasing in the same extent.

    — Prashant Garg

Working Capital

  • Working Capital Cycle Days Working Capital · Q2 FY26 · High confidence 80-90 days

    From more or less that of March today

    So our working capital cycle are more or less that of March. It has not improved much, but yes most probably in second quarter there will be some improvement in our working capital cycle. So it will remain somewhere around 90 days. So that's what we expect we want to bring it around between 80 to 90 days. That's our target.

    — Abhishek Mehta

Exports

  • Export Volume Exports · next two to three years · Medium confidence double the number

    From current level today

    We are already exporting to 30 plus countries. We would want us to export to at least double the number of what we are doing right now in the next two to three years.

    — Prashant Garg

What to watch in Q2 FY26

Capex Progress (Uma Khapri & Unit 5)

next quarter
Current Footing and civil work progressing well at Uma Khapri, PEB building erection expected by September. Unit 5 machines ready and functional soon.
Target PEB building erection started, Unit 5 operational.

Why it matters

Successful and timely execution of capex projects is crucial for capacity expansion and future revenue generation.

Almost the footing and the civil work is progressing well. We are expecting to start erection of the PEB building by September. So we are pretty much on track. Of course, rains are causing some delays, but we are hoping that we will not be too delayed behind our estimated sort of timelines. ... And the second unit is unit five, where we are setting up the electrode manufacturing and clipping lines. So those machines are already ready at our supplier facility. So those will be functioning, functional very soon.

Risks & concerns

  • Raw Material Price Volatility

    medium

    Raw material prices, especially rare earth metals, have been volatile due to geopolitical issues, but the company has diversified its supply chain and can pass on costs.

    Management acknowledged

  • Capex Execution Delays

    low

    Rains are causing some delays in capex projects, but management is confident in meeting estimated timelines.

    Management acknowledged

Q&A highlights

7 direct
FY26 Revenue and Operating Margin Outlook, Capex Delays, Export Strategy Partial
We will be growing at least, double digit, a little higher double digit I can say, more than in double digit. ... We should be able to sustain these margins throughout the year.

Analyst sought clarity on the company's financial outlook and strategic execution for the current fiscal year.

Asked by Vikram

Order Book Pipeline and Execution Timeline Direct
So order book pipeline remains strong. We are expecting similar sort of orders. In fact, after the last order of INR 48 crores which we had communicated to the exchange and to the investors, we were given another order of roughly INR 20 crore of similar equipment's, which is included in this order book.

Provides insight into future revenue visibility and the company's ability to convert orders into revenue.

Asked by Sunil Jain

Rollers Life Cycle and Replacement Market Dynamics Direct
So total mill population divided by 4 is the number of rollers that we can get every year to supply in the market.

Clarifies the recurring revenue potential from their high-pressure grinding rollers in the cement industry.

Asked by Sunil Jain

Heavy Engineering Order Sourcing (OEM vs. Direct) and Competitive Advantage Direct
So we have precision manufacturing capabilities to manufacture large industrial equipment... we offer this unique combination to OEMs where we can give them surface treatment, life improvement and large industrial manufacturing capabilities.

Highlights the company's unique value proposition and competitive differentiators in securing high-value heavy engineering orders.

Asked by Sonal Minhas

Revenue Mix Change, EBITDA Margins, and Execution Cycle Direct
heavy engineering and wear parts business will grow faster in comparison to consumable business, but we are seeing growth happening in all these parts of the business.

Explains the strategic shift in product mix towards higher-value segments and its expected impact on growth and margins.

Asked by Khush Nahar

Working Capital Cycle Targets Direct
we want to bring it around between 80 to 90 days. That's our target.

Provides a clear target for improving operational efficiency and cash flow management.

Asked by Khush Nahar

International Expansion Strategy and Contribution Direct
We would want us to export to at least double the number of what we are doing right now in the next two to three years.

Outlines the long-term international growth ambitions and the strategic importance of new subsidiaries in UAE and Turkey.

Asked by Sunil Jain

Technology Transfer from UK Associate and Abu Dhabi Plant Nature Direct
LSN Diffusion is an associate company in the UK where we manufacture these thermal spray powders and technology sharing is always a constant thing that keeps happening between us... As regards UAE it is like a light fabrication and engineering shop which will primarily focus on services, but also have manufacturing capability to manufacture smaller size to medium size wear parts.

Provides insight into the company's R&D efforts, potential new product developments, and the operational focus of its international facilities.

Asked by Khush Nahar

3 min read 7 chapters

Detailed narrative

Q1 FY26 Consolidated Financial Performance

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.

Strategic Order Wins and Market Dominance

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.

International Expansion and Subsidiaries

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.

Capacity Expansion and Operational Progress

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.

Product Mix Shift and Margin Outlook

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.

Working Capital Management and Operational Efficiency

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.

Innovation and R&D Initiatives

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.

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