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Fundamental Analysis (Long term)

12 Nov 2024 07:54

Aeroflex Industries Ltd Concall Notes - Nov 2024

Q2 & H1 FY25 Financial Performance:

Total income for Q2 FY25 reached ₹95.8 crores, a 13.5% increase year-on-year.

Revenue growth primarily driven by a 38% increase in the assemblies and fittings business, rising from ₹27.46 crores in Q2 of last year to ₹37.89 crores.

For H1 FY25, total income was ₹186.58 crores, an 11% increase from ₹168.35 crores in H1 FY24.

Assemblies and fittings business grew by 52%, from ₹45.5 crores to almost ₹70 crores in H1 FY25.

Gross margins improved to approximately 40%, up from 36% in H1 FY24, reflecting a 400 basis point increase.

Year-on-year EBITDA growth of 29.5% in absolute terms; EBITDA margins at 22.10%.

Product Segmentation:

Flexible hose segment contributed about 52% to H1 revenue.

Assemblies and fittings business accounted for nearly 40% of revenue for H1 FY25.

Interlock and composite hoses contributed approximately 8% to overall revenue.

Capacity Expansion and Capex Plans:

Capacity expansion progressing as planned; added 1.5 million meters of capacity in August 2024, totaling 15 million meters per annum.

Remaining 1.5 million meters expected to be completed by December 2024.

Planned capex of ₹18 crores for Hyd-Air over the next six quarters for new machines and refurbishments.

Installation of new machines and setup of a quality lab at Hyd-Air is underway.

Acquisition and New Orders:

Completed acquisition of Hyd-Air in April 2024, enabling a shift from hose provision to complete assemblies.

Received the first trial order from the Railway Coach factory, marking a significant milestone for Hyd-Air.

Bellows project machinery installation underway; trial production expected to begin this quarter.

Strategic Focus and Market Outlook:

Aiming for 60% to 70% of revenue from the assembly business in the next 3-4 years.

Management confident in driving growth through innovation and expanding product portfolio.

Focus on diversifying offerings, growing global presence, and entering new sectors with value-added products.

Anticipating significant revenue contribution from the introduction of new robotic assembly.

Challenges and Operational Insights:

Current operational constraints in assembly line due to manual processes; automation expected with new welding machines arriving by December.

Facing increased working capital cycle due to delays in container shipments, impacting inventory levels.

Management is optimistic about overcoming these challenges through strategic customer collaborations and operational enhancements.

Export Contribution:

Exports now account for approximately 83% of overall revenue, showcasing strong international demand.

Management highlighted a shift in focus towards markets in the Americas, Middle East, and Africa, reducing reliance on the European market.

Future Guidance:

Management projects potential revenue from the 16.5 million meters capacity at approximately ₹500 crores, with expectations of at least 50% from the assembly business.

EBITDA margins expected to improve by 50 to 100 basis points upon reaching this revenue target.

Continued focus on R&D and operational efficiencies expected to yield cost savings impacting overall financial health positively.