Concall AI

Diffusion Engineers Limited — Q4 FY26 earnings call

Call held 18 May 2026

Management summary

Diffusion Engineers reported strong consolidated financial performance for Q4 and full year FY26, driven by robust demand and strategic capacity expansions. While raw material volatility posed challenges, the company maintained resilient operations and a healthy order book of INR 200 crores. The company is progressing with its expansion projects, aiming for a INR 650 crores plus revenue platform with 15-16% EBITDA margins in the medium term, and is focused on improving working capital efficiency.

Highlights

Strong consolidated revenue growth of 38.08% YoY in Q4 FY26 to INR 1415.74 million.
Consolidated EBITDA grew 39.96% YoY to INR 206.89 million in Q4 FY26, with margin at 14.61%.
Full year FY26 consolidated PAT increased by 39.87% YoY to INR 504.1 million.
Healthy order book of INR 200 crores as of April 30, 2026, providing strong visibility for coming quarters.
Successful commissioning of a new 10-ton-per-day electrode plant and 25% expansion in wear plate capacity, supporting future growth.

Concerns

Standalone PAT for Q4 FY26 decreased by 3.05% YoY to INR 116.72 million.
Continued volatility in key raw material prices (tungsten, nickel, cobalt, molybdenum, chromium) impacting margins.
Heavy engineering facility commissioning by Q1 2027 implies a longer gestation period for full benefits from expansion.

Key financials

2 periods

Q4 FY26

Consolidated Revenue
1,415.74 Mn
YoY +38.1%
Consolidated EBITDA
206.89 Mn
YoY +40%
Consolidated EBITDA Margin
14.6%
Consolidated PAT
159.7 Mn
YoY +22.8%
Standalone Revenue
1,132.7 Mn
YoY +12.2%
Standalone EBITDA
154.13 Mn
YoY +13.5%
Standalone EBITDA Margin
13.6%
Standalone PAT
116.72 Mn
YoY -3%

FY26

Consolidated Revenue
4,066.28 Mn
YoY +21.3%
Consolidated EBITDA
571.42 Mn
YoY +21.2%
Consolidated EBITDA Margin
14.1%
Consolidated PAT
504.1 Mn
YoY +39.9%
Standalone Revenue
3,542.03 Mn
YoY +12.1%
Standalone EBITDA
469.29 Mn
YoY +14.6%
Standalone EBITDA Margin
13.3%
Standalone PAT
446.43 Mn
YoY +32.3%

What they filed

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

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	82	79	103	81	84 +2%	101 +28%	142 +38%	110 +36%
Expenses	71	69	88	70	72	87	121	96
EBITDA	11	10	15	11	12 +9%	14 +40%	21 +40%	14 +27%
Margin	14%	13%	14%	13%	14%	13%	15%	13%
Other income	1	0	5	7	3	5	3	9
Interest	1	0	0	0	1	1	1	1
Depreciation	1	1	1	2	2	2	2	2
Profit before tax	11	8	18	16	13 +18%	16 +100%	21 +17%	20 +25%
Tax rate	21%	13%	28%	21%	20%	24%	24%	17%
Net profit	9	7	13	12	10 +11%	12 +71%	16 +23%	17 +42%
EPS	3.01	1.89	3.48	3.26	2.70	3.22	4.27	4.44

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 2026-04-30 quantified

Execution

80% to 90% of the order book is expected to be executed in the current financial year.

Composition

Mix 3 products

Products 30%
Wear Plates and Wear Parts 30%
Heavy Engineering 30%

Share of order book by product· partial disclosure (90% of the book)

The order book is healthy and provides strong visibility for the coming quarters, with most of it expected to be executed in the current financial year.

Source: Prepared remarks

Capital allocation

high confidence

Capex ₹100 Cr
- Wear part, wear plate and heavy engineering capabilities facility ₹70 Cr
- B33 facility for slitting line and electrode manufacturing capabilities ₹30 Cr
So, total capex of the IPO we had mentioned our objects was close to INR100 crores, INR70 crores going in the facility where we have our wear part, wear plate and heavy engineering capabilities and INR30 crores in our facility where the B33 facility where we have the slitting line and electrode manufacturing capabilities.
M&A Tejorup Sunmay Systems Private Limited Investment · Pending regulatory

To participate in the manufacturing and integration of advanced VSHORADS systems, aligning with broader indigenization in the Indian defense ecosystem.
Opportunity may have a slightly longer gestation period; no significant revenue expected in FY26 or next financial year.

Another important strategic initiative during the year was our investment in Tejorup Sunmay Systems Private Limited in the defense sector. Through this investment, Diffusion Engineers aim to participate in the manufacturing and integration of advanced VSHORADS systems subject to prototype approvals. While this opportunity may have a slightly longer gestation period, we believe it provides strong strategic optionality and aligns with a broader indigenization opportunity in the Indian defense ecosystem. I don't think and I don't foresee any revenue coming in from Tejorup in this financial year. And also, I think, nothing significant coming in the next financial year.
Liquidity Liquidity disclosed The company continues to maintain a strong liquidity position, which provides us with the flexibility to future growth opportunities confidently.

The company continues to maintain a strong liquidity position, which provides us with the flexibility to future growth opportunities confidently.

Guidance & targets

Revenue

Revenue Growth Revenue · FY27 · High confidence more than 20%

We expect revenue to grow by more than 20%, supported by capacity additions and strong order inflows, and increased contribution from high-margin engineered products.

— Prashant Garg
Revenue Platform Revenue · medium term (2-3 years) · High confidence INR 650 crores plus

Our long-term inspiration remains to build a INR650 crores plus revenue platform with sustainable EBITDA margins in the range of 15% to 16%.

— Prashant Garg
International Sales Growth Revenue · year on year basis · High confidence higher than 20%

So, we expect that the international sales will grow at higher than 20% year on year basis.

— Prashant Garg
INR 650 crores target achievement Revenue · 2-3 years · High confidence less than 3 years (2-3 years)

So, we think that the growth rate should increase considering the fact that new facilities will start coming live. We expect to hit this number in less than 3 years, anywhere between 2 to 3 years in terms of annual run rate.

— Prashant Garg

Margin

EBITDA Margin Improvement Margin · FY27 · High confidence 80-100 basis points

For this financial, we expect our EBITDA margins to go up by around 80, 100 basis points even considering the volatility which is there in the market right now.

— Prashant Garg
EBITDA Margin Range Margin · medium term · High confidence 15% to 16%

Our long-term inspiration remains to build a INR650 crores plus revenue platform with sustainable EBITDA margins in the range of 15% to 16%.

— Prashant Garg

Working Capital

Debtor Days Working Capital · FY27 · High confidence 80 to 85 days

No, our target would be anywhere between 80 to 90. We are targeting 80 to 85, actually...

— Prashant Garg
Inventory Days Working Capital · FY27 · High confidence 60 to 65 days

...and inventory days of 60 to 65.

— Prashant Garg

What to watch in Q1 FY27

Unit 4 Expansion Commissioning

Q1 FY27

Current In final stages, partial utilization started, plant and building ready by Q1 FY27

Target Full commissioning and operationalization of Unit 4

Why it matters

Full commissioning of Unit 4 is crucial for increasing capacity in wear plates, wear parts, and heavy engineering, directly impacting revenue growth and operational efficiencies.

So, the Unit 4 expansion is in final stages right now. And basically, it's a plant which is close to 170,000, 180,000 square feet. So, from this month onward, some part of that floor area will start getting utilized already. And we expect by Q1 this year, all of it will be, the plant and building will be ready and also new machines will start getting installed.

Risks & concerns

Raw material price volatility
medium

Continued volatility in key raw material prices (tungsten, nickel, cobalt, molybdenum, chromium) impacts supply chains and energy costs, leading to margin pressure on fixed-price contracts.

Management acknowledged
Lower margins in new railway sector entry
low

The railway business may initially carry lower margins due to developmental costs, but it is considered strategically important for long-term opportunities.

Management acknowledged
Longer gestation period for defense sector investment
low

The investment in Tejorup Sunmay Systems Private Limited for VSHORADS systems has a slightly longer gestation period, with no significant revenue expected in FY26 or FY27.

Management acknowledged

Q&A highlights

8 direct

Impact of West Asia crisis and raw material volatility on industry and company Direct

See, the West Asia crisis has directly impacted us in terms of the volatility it has caused in raw materials because of disruption of supply chains and also energy costs going up across the world. So, that has sort of directly impacted us in terms of a supply chain. But in terms of demand from the industries, that is what you're referring to. We don't see any slowdown happening as of now.

Addresses macro-economic and geopolitical risks, clarifying that while raw material costs are affected, demand remains strong and price increases are passed on.

Asked by Neil Bahal

Discrepancy between standalone and consolidated performance Direct

So, what has happened in this year is in our standalone basis, because we were already at max capacity utilization, the growth in terms of execution could have happened more if we had more capacity in wear plates, wear parts and heavy engineering, which we expect to get corrected after this new facility goes live.

Explains the reason for lower standalone growth, linking it to capacity constraints and future growth drivers from new facilities.

Asked by Neil Bahal

Status and benefits timeline of Unit 4 expansion Direct

So, the Unit 4 expansion is in final stages right now. And basically, it's a plant which is close to 170,000, 180,000 square feet. So, from this month onward, some part of that floor area will start getting utilized already. And we expect by Q1 this year, all of it will be, the plant and building will be ready and also new machines will start getting installed.

Provides a clear timeline for the commissioning of a major capacity expansion and its immediate impact on execution and order intake.

Asked by Sunil Jain

Timeline for substantial orders from railway projects Direct

So, we expect the execution to take anywhere between, since they are developmental orders, we expect the execution to take anywhere between six to nine months. And post they are delivered, then we will become or we will come in the approved vendor list for those particular components. And by the end of the year, we can start seeing some substantial orders coming in for from these initiatives.

Clarifies the gestation period for revenue generation from the new strategic entry into the railway sector.

Asked by Sunil Jain

Segmental revenue breakup and future growth trends Direct

So, we have always indicated that it's roughly 30% products, 30% wear plates and wear parts and 30% heavy engineering and 10% of services. So, this is how the breakup is. We think that wear plates, wear parts and heavy engineering will slightly increase at a faster growth rate in comparison to welding consumables, purely because that is where the industry is headed.

Provides insight into the company's revenue mix and strategic shift towards higher-growth, higher-value segments like wear plates and heavy engineering.

Asked by Madhur Rathi

Volatility in EBITDA margins and its causes Direct

No, predominantly it's because of the volatility in the raw material and like we are having orders worth INR200 crores. So, we can't really go back to the customer and ask to increase. Only in those contracts we can ask them to increase the prices where we have price variation clauses built in and price variation clauses are typically built in in contracts which are long term.

Explains the operational challenges in managing margins due to raw material price fluctuations and the nature of fixed-price contracts.

Asked by Nishant Gupta

High debtor and inventory days compared to peers Direct

See what happens is in Q4, we have done a sale of close to 140 crores in comparison to the preceding quarter. So therefore, end of year debtor days is slightly higher because a major chunk of sales has happened in Q4. So as per as the debtor days are right now, 98 days for FY26. Inventory, we have worked hard. So, inventory, we've been able to keep it at 66 days which was the same as FY25.

Provides context for working capital metrics, attributing higher debtor days to Q4 sales seasonality and outlining targets for improvement.

Asked by Gunit Singh

Need for additional capex for future revenue targets (INR 650-900 crores) Direct

No, we don't expect any additional capex, not just for up to INR650 crores, but even up to higher. I think that the capex that we are doing, the INR100 crores capex that we have indicated should be enough to propel us to INR800 crores to INR900 crores in the coming years.

Clarifies that current capex plans are sufficient for significant future revenue growth, indicating efficient capital deployment.

Asked by Gunit Singh

3 min read 7 chapters

Detailed narrative

Strong Consolidated Performance in FY26

Diffusion Engineers reported a robust consolidated revenue of INR 4066.28 million for FY26, marking a 21.28% YoY increase from INR 3352.76 million in FY25. Consolidated EBITDA grew by 21.18% to INR 571.42 million, with a margin of 14.05%. Consolidated PAT surged 39.87% YoY to INR 504.1 million, demonstrating resilient operational performance despite market challenges. This growth was supported by healthy demand across core industries like cement, steel, power, mining, and engineering.

Strategic Capacity Expansions and Commissioning Progress

The company successfully commissioned a new 10-ton-per-day electrode plant, expanded wear plate capacity by approximately 25%, and installed an in-house strip-slitting line. These initiatives, funded through IPO proceeds, are expected to support marginal improvement and better supply chain control. The heavy engineering facility (Unit 4 expansion) is in its final stages, with the plant and building expected to be ready and new machines installed by Q1 FY27, enabling increased execution capacity.

Healthy Order Book and Future Visibility

Diffusion Engineers maintains a healthy order book of approximately INR 200 crores as of April 30, 2026, providing strong revenue visibility for the coming quarters. Management expects 80-90% of this order book to be executed within the current financial year (FY27). The company's order book has grown from INR 100 crores on March 31, 2025, reflecting strong order inflows and customer trust in product quality and engineering capabilities.

Entry into Railway and Defense Sectors

The company is making encouraging progress in the railway sector, having achieved L1 status in multiple contracts and received letters of intent for developmental orders linked to the Vande Bharat supply chain. Substantial orders from this sector are anticipated from next year. Additionally, Diffusion Engineers invested in Tejorup Sunmay Systems Private Limited to participate in the manufacturing and integration of advanced VSHORADS systems for defense, a strategic move with a longer gestation period but significant long-term potential in the Indian defense ecosystem.

Revenue and Margin Outlook for FY27 and Medium Term

For FY27, the company anticipates revenue growth exceeding 20%, driven by new capacities and strong order inflows. It targets a medium-term revenue platform of INR 650 crores plus with sustainable EBITDA margins in the 15-16% range, expecting an 80-100 basis points improvement in EBITDA margins for FY27. This improvement is projected to come from operating leverage, backward integration benefits, and a richer product mix, with the INR 100 crores capex sufficient to propel revenue to INR 800-900 crores in coming years.

Working Capital Management Focus

Management is actively working to optimize working capital, targeting a reduction in debtor days from 98 in FY26 to 80-85 in FY27, and maintaining inventory days at 60-65. The higher debtor days in Q4 FY26 were attributed to a significant portion of sales occurring in the quarter. This focus on tighter control is crucial for improving cash flow efficiency, especially given the long project cycles in the capital goods sector.

Raw Material Volatility Mitigation Strategies

Despite ongoing volatility in key raw material prices like tungsten, nickel, cobalt, molybdenum, and chromium, the company employs strategies to mitigate impact. For subsequent contracts, price increases are passed on to customers. For fixed-price contracts, raw materials are booked immediately upon order confirmation. Additionally, offers for highly volatile materials are given with very small validity periods to manage risk, though a time lag in passing on costs can still affect margins.

This is an AI-generated summary of a publicly available earnings call transcript.

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