Multibagger stock Azad Engineering corrects 22% from recent peak. Is it time to buy the dip?

Shares of Azad Engineering, a manufacturer of aerospace components and turbines, have experienced a significant downturn after a robust rally since their listing. The stock has corrected by 22.45%, falling to ₹1,613 per share from a peak of ₹2,080 in just 22 sessions.

Listed on Indian exchanges in December 2023 at ₹677 per share, a 29.3% premium over the IPO price of ₹524, the stock is currently trading 208% above its IPO price, despite the recent sell-off.

Looking ahead, domestic brokerage ICICI Securities suggests that the stock may reverse its current downtrend and potentially resume its upward trajectory.

The brokerage pointed out that the company is well-positioned for healthy earnings growth, bolstered by the upcoming 95,000 m2 facility, which promises clear execution visibility. It says the company is targeting a long-term market share increase of up to 10%, a substantial rise from its current 1%, owing to a significant Total Addressable Market (TAM).

It expects the company's recent order for the ATGG engine to play a crucial role in driving the company’s next growth phase. Additionally, the brokerage anticipates a reduction in working capital days to 180 as the company’s new aerospace & defence (A&D) and oil & gas verticals achieve critical mass.

Over the past five months, the brokerage said, it has seen significant progress in several areas. The industry, particularly aerospace & defence (A&D), has shown robust growth. The company's enhanced cost efficiencies and product quality have led to a larger share of wallet from clients.

The brokerage highlighted several significant achievements by the company, including securing five new orders across various segments and domains since February 2024.

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

Strong order wins

Azad has won overseas orders from GE Vernova and Siemens Energy in the energy segment, which encompasses gas, thermal, nuclear, and industrial domains. Further, the company has obtained an order from Baker Hughes and one of its subsidiaries in the O&G segment.

In the domestic market, Azad has received a contract from GTRE for end-to-end manufacturing, assembly, and integration of a complete assembled ATGG engine. Azad will be the single-source industry partner (IP) for GTRE for this engine, and the first batch of fully integrated turbo engines will be delivered by early-CY26.

These order wins have resulted in firm orders, long-term contracts and agreements, and a roadmap to rise above ₹30 billion compared to ₹18–20 billion six months ago. Further, the orders are distributed across different domains, clients, and segments, showcasing the company’s ability to broaden its earnings base within the TAM.

The journey from 1% to 10%

According to ICICI Securities, Azad Engineering is actively working to gain approvals for its components and parts. Over the past six months, the number of approved components has increased to 1,600. The firm projects that by FY27, Azad’s market share in the energy, aerospace and defence (A&D), and oil and gas (O&G) segments will be 2%, 0.1%, and 0.1%, respectively.

The brokerage anticipates that Azad’s share will grow progressively from 1% to 10% in the long term. This expected growth, as per the brokerage, will be driven by several factors: gaining approvals for additional components, increasing wallet share from existing customers, and transitioning from a component supplier to a solutions provider.

Based on the brokerage's estimates, even with a 25–30% revenue growth rate through FY35, Azad is projected to achieve a market share of only around 7% in the mature energy market, less than 2% in the A&D market, and just under 4% in the O&G market, assuming the total addressable market (TAM) remains constant at FY27 levels.

Record target price

The brokerage asserts that Azad Engineering is only beginning to tap into a vast opportunity. With its competitive cost position and commitment to product development, the brokerage projects the company to achieve robust EBITDA growth of 35% annually through FY35E.

Besides, it expects the EBITDA margin to improve alongside management increasing Azad’s presence in the A&D domain and securing more control over the value chain. Hence, there is a long and steep earnings growth curve ahead of the company.

In light of these factors, the brokerage has raised its target price for the stock to ₹2,450 per share and maintains a 'buy' rating. This target price signals a new record high for the stock.

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.