Diffusion Engineers Limited — Q3 FY26 earnings call

Call held 9 Feb 2026

Management summary

Diffusion Engineers Limited reported strong Q3 FY26 results with consolidated revenue up 27.31% YoY to INR 100.82 crores and PAT surging 69.14% YoY to INR 12.01 crores. The company maintains a robust order book of INR 200 crores and is actively pursuing capacity expansion, funded by IPO proceeds, to support accelerated growth of 25% from FY27 onwards. Management aims for 15-16% EBITDA margins and a INR 600 crores top-line post-capex, despite short-term raw material price volatility.

Highlights

  • Consolidated Revenue from operations grew 27.31% YoY to INR 100.82 crores in Q3 FY26.

  • Consolidated EBITDA increased 28.96% YoY to INR 13.50 crores in Q3 FY26, with margins stable at 13.39%.

  • Consolidated PAT surged 69.14% YoY to INR 12.01 crores in Q3 FY26.

  • Robust order book of INR 200 crores, reflecting sustained demand and strong customer relationships (80% repeat business).

  • Strategic capacity expansion fully funded by IPO proceeds, with new assets expected to deliver 3x to 3.5x asset turnover.

Concerns

  • Raw material price volatility (e.g., tungsten up 300% from 2024 levels) can impact short-term margins, though costs are eventually passed on.

  • Operating at approximately 85% capacity utilization, highlighting the urgency of ongoing capacity expansion.

Key financials

  1. Consolidated Revenue ₹100.82 Cr +27.3%YoY
  2. Consolidated EBITDA ₹13.5 Cr +29%YoY
  3. Consolidated EBITDA Margin 13.4%
  4. Consolidated PAT ₹12.01 Cr +69.1%YoY
  5. Consolidated 9M Revenue ₹265.05 Cr +13.9%YoY
  6. Consolidated 9M PAT ₹34.44 Cr +49.5%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

Total value

₹200 Cr

as of 2025-12-31 quantified

Execution

Vande Bharat railway contracts to be executed within three to five months.

Composition

  • Cement (sector)
  • Steel (sector)
  • Power (sector)
  • Mining (sector)
  • Infrastructure (sector)

Pipeline

L1 awaiting loa

LOIs for 3 Vande Bharat railway contracts

Order book remains robust, reflecting sustained demand across key industrial sectors, with new LOIs received for railway contracts.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹100 Cr fully funded through our IPO proceeds
    • Welding consumables expansion (10 tons per day incremental electrode manufacturing capacity)
    • Wear plate capacity increase (25% to more than 250 square meters per day)
    • New wire manufacturing line for backward integration
    • Commissioning of a new heavy engineering facility
    As you are aware, we are in the midst of a significant expansion phase fully funded through our IPO proceeds. Some of the key updates include; welding consumables expansion expected to come alive shortly, adding 10 tons per day of incremental electrode manufacturing capacity. Wear plate capacity increased by 25% to more than 250 square meters per day. A new wire manufacturing line enhancing backward integration and improved margins is getting ready at our manufacturer's place. Commissioning of a new heavy engineering facility by the end of FY '26. We expect that these new assets will deliver an asset turnover of 3x to 3.5x, with full utilization to be achieved over the next two to three years, that is by FY '28-'29. ... And we are investing close to INR 100 crores.
  • M&A Tejorup Sunmay Systems Private Limited Acquisition · Signed

    Strategic investment for design and development of advanced systems for aerospace, marine, and land applications, focusing on VSHORADS (Very Short Range Air Defense Systems), and to secure manufacturing rights for missile and launcher.

    Pre-revenue company, strategic for manufacturing rights and indigenous solution development.

    So, we are talking about Tejorup Sunmay Systems Private Limited. This company is involved in the design and development of advanced systems for aerospace, marine, and land applications. And right now, they are focusing on developing a solution for VSHORADS. ... The fact that they are a pre-revenue company is absolutely right, but they have been able to secure a project prototype sanction order under Make II category of DAP 2020. ... the purpose of investment is not just financial; it is also strategic because with this investment, we also get manufacturing rights once the prototype is approved by the regulatory authorities, which can be DRDO and Indian Army.

Guidance & targets

Revenue

  • Accelerated Revenue Growth Revenue · FY27 onwards · High confidence 25%
    With new capacities coming online, FY '27 onwards should start seeing accelerated growth in the range of 25%.

    — Prashant Garg

  • Top-line Post-Capex Revenue · Long-term · High confidence INR6 billion
    Our long-term aspiration is to build Diffusion Engineers into an INR6 billion top-line post-capex.

    — Prashant Garg

  • Revenue from New Capacities Revenue · Upon full utilization (FY28-29) · High confidence INR600 crores to INR700 crores
    we expect to be able to do a turnover of INR600 crores to INR700 crores with this additional capacities.

    — Prashant Garg

Profitability

  • EBITDA Margins Profitability · Medium term · High confidence 15% to 16%
    term, we are targeting EBITDA margins of 15% to 16% driven by scale, backward integration, and a richer product mix.

    — Prashant Garg

  • EBITDA Margin Expansion Profitability · Next year (FY27) · Medium confidence 100 to 200 bps
    But going forward, we are hoping a margin expansion of 100 to 200 basis point on our EBITDA levels in spite of this volatility considering the scale of operations as they are increasing.

    — Prashant Garg

Asset Utilization

  • Asset Turnover from New Assets Asset Utilization · Next two to three years · High confidence 3x to 3.5x
    We expect that these new assets will deliver an asset turnover of 3x to 3.5x, with full utilization to be achieved over the next two to three years, that is by FY '28-'29.

    — Prashant Garg

Capacity Utilization

  • Full Utilization of New Capacities Capacity Utilization · FY28-29 · High confidence 85%
    full utilization to be achieved over the next two to three years, that is by FY '28-'29. ... So, we expect it to happen by anywhere between FY '28 and FY '29.

    — Prashant Garg

Order Book

  • Order Book Increase Order Book · End of Q1 next year · Medium confidence substantially increase
    but we think by the end of Q1 next year, our order book should increase substantially from what it is right now.

    — Prashant Garg

Growth

  • Growth Rate vs Industry Growth · High confidence faster
    Yes, so we expect to grow faster than the average growth rates that are visible in the welding consumables or the welding solutions industry.

    — Prashant Garg

What to watch in Q4 FY26

Commissioning of New Capacities

Next quarter / End of FY26
Current Welding consumables expansion expected shortly, wire manufacturing line getting ready, heavy engineering facility by end of FY26.
Target Commercial operations for new welding consumables, wire manufacturing, and heavy engineering facilities.

Why it matters

Successful commissioning is crucial for unlocking new revenue streams and achieving accelerated growth targets from FY27.

welding consumables expansion expected to come alive shortly, adding 10 tons per day of incremental electrode manufacturing capacity. Wear plate capacity increased by 25% to more than 250 square meters per day. A new wire manufacturing line enhancing backward integration and improved margins is getting ready at our manufacturer's place. Commissioning of a new heavy engineering facility by the end of FY '26.

Risks & concerns

  • Raw Material Price Volatility

    medium

    High volatility in specialty raw materials like tungsten (up 300% from 2024 levels) can affect short-term margins, though costs are eventually passed on.

    Management acknowledged

  • High Capacity Utilization

    medium

    Operating at approximately 85% capacity utilization limits the ability to take on more orders until new capacities come online, potentially constraining immediate growth.

    Management acknowledged

  • Geopolitical Supply Chain Disruptions for Defense Projects

    low

    Geopolitical factors could lead to supply chain disruptions for defense projects, which the company aims to mitigate by focusing on indigenous solutions.

    Management acknowledged

Q&A highlights

6 direct
Tejorup Sunmay Systems Acquisition and Valuation Direct
So, we are talking about Tejorup Sunmay Systems Private Limited. This company is involved in the design and development of advanced systems for aerospace, marine, and land applications. ... the purpose of investment is not just financial; it is also strategic because with this investment, we also get manufacturing rights once the prototype is approved by the regulatory authorities, which can be DRDO and Indian Army.

Clarified the strategic rationale behind acquiring a stake in a pre-revenue defense tech company, emphasizing manufacturing rights beyond just welding.

Asked by Varun Jain

Vande Bharat Railway Contracts Status and Margins Partial
Yes, so we have received LOI for so there were six contracts in which we were in the top two bidders. ... these are please bear in mind that we are entering into a new sort of space and because these are developmental orders, we can't really comment on the margins as of now because there is a learning curve involved and these are new activities that we are doing.

Provided an update on winning LOIs for significant railway contracts but indicated uncertainty on margins due to the developmental nature of the orders.

Asked by Varun Jain

Revenue Potential from Capacity Expansion Direct
we expect to be able to do a turnover of INR600 crores to INR700 crores with this additional capacities.

Quantified the expected revenue generation from the ongoing INR 100 crore capacity expansion, linking it to asset turnover targets.

Asked by Bijal Shah

Diffusion's Credentials for Missile/Launcher Manufacturing Direct
So, we have also supplied some parts to Skyroot, which is a private space-tech company based out of Hyderabad which used the parts that we supplied to them as dies for the filling of their propellants in the rockets. So, we have experience and it's just that the engineering capability and machining capabilities we have, we would need to invest more in a newer facility to manufacture smaller parts.

Addressed concerns about their capability in complex defense manufacturing by highlighting existing experience with space-tech and defense sector supplies.

Asked by Bijal Shah

Pathway to Revenue from Additional Capacity Direct
So the additional capacity will, first of all, enable us to get more orders because we are restricted by the number of orders we accept because of our current capacity utilization. ... we are adding to our machining capabilities, which will enable us to manufacture more complex and precision parts, especially of the larger size when it comes to heavy engineering product line of our business.

Explained the dual benefit of capacity expansion: enabling higher order intake and allowing for manufacturing of more complex, higher-value products.

Asked by Sai Saket

Impact of Raw Material Price Volatility on Margins Direct
So, our margins in the short-term get affected by raw material price volatility. So if the volatility is sort of gradual, we don't see that much of a problem. But if it is very volatile, then of course in short-term it affects us because it takes, there is always a time lag between the raw material prices increasing and we being able to pass on that price hike to our customers.

Acknowledged the short-term margin pressure from volatile raw material prices but indicated ability to pass on costs over time.

Asked by Sunil Jain

Seasonality of Business with Product Mix Shift Partial
So, ultimately our goal is to get out of the seasonality and get an order book and execution cycle sort of synced, so that we can, always be our maximum utilization and execution from our production facilities so that, we get reliable sort of revenue numbers. ... But as you rightly pointed out, we are moving away from, just selling our consumables and getting into more engineered products, and large industrial solutions. So that will sort of reduce the effect of seasonality, but some effect will always be there.

Discussed the strategy to mitigate seasonality through product mix shift and synchronized order book, while acknowledging some inherent seasonal factors will remain.

Asked by Sai Saket

Customer Base Diversification Direct
So our customer base is very diversified. I think the single biggest customer doesn't account for even 20% of our turnover; I think it would be less than 15%. So, and we have a large customer base with large proportion of repeat orders coming in.

Confirmed a diversified customer base with no single customer accounting for more than 15-20% of turnover, indicating reduced client concentration risk.

Asked by Vikrant Sahu

2 min read 6 chapters

Detailed narrative

Strong Q3 FY26 Performance Driven by Robust Execution

Diffusion Engineers Limited delivered healthy revenue growth in Q3 FY26, with consolidated revenue from operations increasing 27.31% YoY to INR 100.82 crores. This performance was supported by strong execution across welding consumables, wear solutions, and heavy engineering segments. Consolidated EBITDA grew 28.96% YoY to INR 13.50 crores, maintaining a stable margin of 13.39%, while consolidated PAT surged 69.14% YoY to INR 12.01 crores, reflecting disciplined cost management and an improving product mix.

Strategic Capacity Expansion Underway for Accelerated Growth

The company is in the midst of a significant IPO-funded capacity expansion, investing approximately INR 100 crores. Key updates include adding 10 tons per day of incremental electrode manufacturing capacity, increasing wear plate capacity by 25% to over 250 square meters per day, and commissioning a new heavy engineering facility by the end of FY26. These new assets are expected to deliver a 3x to 3.5x asset turnover, contributing INR 600-700 crores in turnover upon full utilization by FY28-29, and driving accelerated growth of 25% from FY27 onwards.

Entry into Defense Sector with Strategic Tejorup Acquisition

Diffusion Engineers acquired a 10% stake in Tejorup Sunmay Systems Private Limited, a pre-revenue company focused on advanced systems for aerospace, marine, and land applications, particularly VSHORADS. This strategic investment provides Diffusion with manufacturing rights for missiles and launchers upon prototype approval, leveraging their existing precision engineering capabilities and experience as a defense supplier for T-90 tanks and armor. The move aims to develop indigenous solutions under the Atmanirbhar Bharat initiative.

Robust Order Book and New Railway Opportunities

The company maintains a robust order book of INR 200 crores, with over 80% of revenues coming from repeat customers across critical industrial sectors like cement, steel, power, mining, and infrastructure. Furthermore, Diffusion has received Letters of Intent (LOIs) for three Vande Bharat railway contracts, which are expected to be executed within three to five months. These new contracts are crucial for opening new market gates, despite their developmental nature and currently unquantified margins.

Margin Outlook Amidst Raw Material Volatility

While consolidated EBITDA margins remained stable at 13.39% in Q3 FY26, the company acknowledges that short-term margins can be affected by high volatility in specialty raw material prices, such as tungsten, which has seen a 300% increase from 2024 levels. However, management expects to pass on these costs and is targeting a 100-200 basis point EBITDA margin expansion in FY27, aiming for 15-16% in the medium term, driven by scale and a richer product mix.

Mitigating Seasonality Through Product Mix Shift

Management aims to reduce the seasonality of its business, traditionally stronger in Q2 and Q4, by syncing the order book and execution cycle. The shift towards more engineered products and large industrial solutions, away from just consumables, is expected to mitigate the effect of seasonality. While some seasonal elements related to major plant shutdowns during the rainy season will persist, the changing product mix is anticipated to provide more consistent revenue generation.

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