Stock to buy: Multibagger Azad Engineering shares jump 8% after Investec initiates coverage with ’buy’, sees 23% upside

Shares of Azad Engineering, a leading manufacturer of aerospace components and turbines, surged 8 percent in today's session, reaching ₹1,624 per share. The rally followed global brokerage firm Investec's initiation of coverage on the stock with a ‘buy’ rating and a target price of ₹1,850, indicating a potential upside of 23 percent from Tuesday's closing price.

Investec highlighted that Azad Engineering is the only Indian company providing 3D airfoils to global OEMs, emphasising the high entry barriers within the industry. The brokerage projects Azad's profit after tax (PAT) to grow at a 40 percent CAGR over FY 2024-2027, driven by recent order wins, diversification, and reduced finance costs.

Earlier, domestic brokerage ICICI Securities also raised its target price for Azad Engineering to ₹2,450 per share, maintaining a 'buy' rating—marking a record target for the stock. It said the company's enhanced cost efficiencies and product quality have led to a larger share of wallets from clients.

“In our view, Azad is on a long runway of significant earnings growth, with significant TAM still available,” said the brokerage.

Steady order wins

Azad Engineering has secured multiple orders in recent months, positioning itself strongly in the market. The company signed a five-year agreement with Siemens Energy Global GmbH & Co to manufacture and supply critical rotating components for advanced gas and thermal turbine engines, meeting their global demand.

Additionally, Azad secured a prestigious national pride contract from the Gas Turbine Research Establishment (GTRE), a leading R&D organisation under DRDO and the Ministry of Defence, Government of India, for the end-to-end manufacturing, assembly, and integration of a complete Advanced Turbo Gas Generator Engine.

Further strengthening its portfolio, the company entered a seven-year contract with Rolls Royce to produce and supply critical engine parts for their defence and military aircraft engines.

Azad also signed a five-year agreement with a subsidiary of Baker Hughes to supply highly complex and critical components for the oil and gas sector, along with another five-year supply agreement to provide medium-to-high-complexity precision machined components for oil field services. The contract is extendable by an additional three-year and one-year term.

In a transformative collaboration, the company also established a contract with GE Vernova's Steam Power business to supply high-complexity rotating airfoils for the nuclear, industrial, and thermal power industries. This phase one agreement is valued at approximately USD 35 million over seven years. These contracts underline Azad's strong market position and growth potential in the industry, as per the company's recent exchange filing. 

Robust performance in the June quarter, driven by Aerospace and Defence segment

For the quarter ending in June, the company reported a 29.6 percent year-on-year increase in consolidated revenue from operations, reaching ₹984.1 million. The Energy and Oil & Gas segment grew by 13.4 percent in Q1 FY25, driven mainly by additional capacity. The company began executing oil and gas orders in FY24 and is expected to see rapid growth in this segment during FY25.

The Aerospace & Defence segment experienced significant growth, recording a 231.7 percent year-on-year increase in Q1 FY25, reaching ₹182.1 million, primarily due to the execution of domestic orders. The company's recent order wins, including those from Rolls Royce and GTRE, are expected to further boost growth in this segment.

Additionally, profit after tax surged by 131.5% year-on-year to ₹171.3 million, up from ₹74.0 million in the same period last year.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.