What's Driving Growth For Azad Engineering?
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00:00Vishnu, good morning. I think the last time we spoke to you, you had managed to,
00:03oh, you were in conversation with Rolls-Royce, correct me if I'm wrong, and there was
00:08lots of activity in action. Of course, at that stage, you couldn't, you know, tell us or share
00:14details about the order size or the execution. I'm going to try my luck. Can we get some more
00:19clarity on what that deal with Rolls-Royce was? Absolutely. I'd be able to share a little more
00:26information than what we shared last time. So, first of all, thank you for having me on the show.
00:32You know, we've had a great quarter. We've recently delivered, you know, our results and,
00:38you know, our growth in terms of our top line and bottom line has been great. And, you know,
00:44since you were talking about, you know, our recent auto wins and Rolls-Royce was one of them. So,
00:49that's a very strategic contract that I told you about. We've gotten Rolls-Royce on board for their
00:54defense platforms, and we are working towards making some very critical parts that have come
00:58to India for the first time, and we are going to be making it. So, we are in the process of
01:02developing those parts. This is a long-term contract, and we are in the process of
01:08developing. So, we are setting up, you know, a dedicated plant for them. And over the next
01:14one year, we would start, you know, a process of development. We'll finish a process of
01:19qualification, and we should start delivering, you know, most of these rotating critical parts
01:24by next year. And we'll start the process, and then, you know, it's a progressive.
01:27Vishnu, for me, that you're going to be making an investment into a dedicated plant before you
01:32actually see that impact your revenues, which could potentially be one year out, is that fair?
01:37And if that is correct, then what is the investment you're making in this plant,
01:41which is specifically being tailored for Rolls-Royce parts?
01:46So, the way we work with our customers, because these are long-term contracts, you know, it's
01:51not that you invest, and then you receive, you start generating revenues. There's a very large,
01:56longish process of qualification where you have to prove to your customer that, you know, you
02:01have the necessary technical capabilities, et cetera, to produce it. So, we are in the
02:05developmental phase. We are dedicating. The reason why we are creating a dedicated plant
02:09is not just for this contract. We see that Rolls-Royce with us will be a very, very large,
02:14you know, relationship over the next few years. If you look at how we've grown with GE, how we've
02:19grown with Mitsubishi and others, you would see that, you know, Rolls-Royce would have a similar
02:23and a much larger trajectory because the aerospace industry is very, very large, you know, and our
02:30time for these parts is extremely large. Today, we are addressing $28 billion of them, and
02:35what we are catering to is just 1% there. So, that's why we are investing ahead of the curve
02:40in that. And this is the investment that we'd also raised during IPO. So, we had raised about
02:46240 crores of primary money and about, you know, 100 odd crores is going to get deployed
02:51in infrastructure, which also caters to the plan that we're creating for our customers, and then
02:55200 crores to create capacity, which is going to take care of projections for the next two years.
03:00Right. And what do you plan? What is the sort of growth that you're projecting for us? Significant
03:06jump in revenues, 30% in this quarter. Profitability is also significantly jumping.
03:12I'll talk about that because I know your finance costs have also come down significantly.
03:16Your, you know, your payment cycle is also improving. So, operationally, lots of good
03:21things happening. But before I go into that, what is the guidance? A 30% growth
03:27annually is an easy do for you, or is there a good chance that there could be an upshot to that
03:32number? So, we are giving a guidance of 25 to 30% because that's something that we believe that our
03:39company can do for a really long period of time. Like I just touched upon the fact that we are
03:44only, you know, we've only touched about 1% of where we can be. We're catering to a $28 billion
03:50time. So, 25 to 30% growth will, the company will sustain for a really long period of time.
03:55Obviously, our attempts internally are to go above and beyond these numbers, but then
04:00for the street guidance, you're looking at 25 to 30%. And you would be able to see it that,
04:05you know, at a quarter level, when we are delivering a 30% revenue growth, you know,
04:10this guidance is well under control for us. And our profit margin also, like you already
04:16touched upon, you know, whether it's EBITDA margins or PAT percentages, we have maintained that,
04:22you know, our EBITDA is consistent in the range of 34, 34, 35%. And that's the range that we've
04:28given, you know, 33 to 36% is the range that our EBITDA is going to be for, you know, a really long
04:34period of time, because a product mix, if it changes and, you know, it impacts our EBITDA
04:39percentage by about 100, 200 basis points, but otherwise the range is pretty consistent.
04:43And our PAT has also gone up. And like you said, you know, our finance cost, you know,
04:48has come down and largely last year, our PAT was lower because we had abrupt finance costs because
04:54of, you know, certain instruments in the company in the form of CCDs. But since those have been
04:58taken out during IPO, today our PAT, you know, our finance costs are normalised and so you see
05:04a PAT which is about 17 crores for the quarter. Got it. Vishnu, good morning. Neeraj here. So
05:11this, you know, these notes, what you mentioned that your addressable market is just 1%,
05:16you hope to go to 10%. So obviously, the opportunity size, if you do all the right
05:21things is very high. Let's go with an assumption that you do all the right things.
05:26Why is the growth aspect or growth projection then a 25% number? Is it because of capacity
05:32constraints and you want to go about it slowly? Or is there something else?
05:36No, so we are dining at 25-30%. So if you look at our four-year journey, right, FY21, we were doing
05:43about 120 odd crores as our annual revenue. This quarter, we've delivered 98 crores. So that is,
05:50you know, whatever we were delivering in a year, four years ago, we are delivering in a quarter.
05:55So we want to be consistent with what we are saying, we want to grow. And the reason why we
06:00are saying 25-30% this year, largely is also because a new plant is going to get created this
06:06year. And next year onwards, we will start getting, you know, output out of the newer plant
06:12as well. So next year, our growth projections could be slightly higher. But right now, it is
06:1525-30% because we want to, and we are well within, you know, the guidance that we are giving. In
06:21fact, we have more than delivered that in the first quarter. And, but we are very confident
06:26of what we what we are getting the street for. Sure. Okay. So one question now, because you're
06:31doing multiple things, right? I mean, I believe this engagement with GTRE for ATGG engines, then
06:40the whole Rolls Royce piece and some other things that you're doing. I believe you have qualifications
06:44for multiple things. So I believe there are a lot of adjacencies. What I want to understand is,
06:50how does your capacity come on stream for various streams of work that you might be doing?
06:58And what does the business look like five years out? I mean, tell us what it is right now in
07:04terms of revenue heads or verticals. How does it look like five years out in terms of contribution
07:09and possibly growth projections? So I think that's, that's a very interesting question.
07:15So I'd start by saying, you know, we, we have a 5C strategy internally, everything that we have
07:20to do in our business is dependent on the 5Cs. And the 5Cs for us are customers, contracts,
07:26capacity, capability, and consistency, right? So our growth strategy is based on these 5Cs. And
07:32you know, our investments in the business, our investments in plant machinery or infrastructure
07:37are dependent on how each of these, you know, parameters that I spoke about are growing with us.
07:42Now, speaking about the business, we today cater. So today, you know, we cater to the energy
07:47industry, which is the power generation industry, whether it is gas turbines, nuclear turbines,
07:51or steam-based turbines, we are qualified to produce parts for all of these critical
07:56applications, right? We are approved by EDF, that's Electrode France, which controls major
08:02nuclear plants, you know, in France. So we are even approved by them in terms of aerospace and
08:08defense, that's our second focus area for us. This year, you know, this quarter, we've delivered
08:13roughly 20% of our revenue out of aerospace. And the third business vertical for us is oil and gas.
08:20This vertical is under qualification, but we are anticipating, you know, very, very large growth
08:25coming out of this business. So our split today is, you know, roughly about 88% power generation
08:32on energy business, 20% aerospace and defense, and about, you know, 1% because oil and gas is
08:38in qualification. But when you look at it from FY27 onwards, we will see that the business is,
08:44you know, largely diversified, you will see 50-55% coming out of energy, whereas the balance 45%
08:51will be contributed by aerospace and defense and oil and gas. Because each of our customers are
08:55growing at a much larger rate. Whatever took us, say, you know, 16-17 years in energy has taken us
09:00about 4-5 years in aerospace, and about, you know, 1.5-2 years in oil and gas. Oil and gas
09:06business has already started generating revenues. We'll be able to demonstrate, you know, multi-fold
09:11growth this year. And also, you know, you will see a multi-fold growth in the oil and gas
09:17vertical for next year as well. Vishnu, any other significant orders that you're currently bidding
09:24for? I know you've signed significant ones with GE where NOVA and Siemens Energy in the recent
09:30couple of weeks. But in terms of tenders, in terms of orders, can we expect big bang announcements?
09:36And, you know, I know you will not be able to tell me the exact size and timeline, but give
09:40me some perspective. And of course, if that's the case, and also what your closure rate is,
09:45if you've tendered for a few big deals. Sure. So, to give you things in perspective,
09:50we were at about 1800-2000 crores of estimated order size while we were going for an IPO.
09:57Today, as we speak, our order book is anywhere between 33-3400 crores. Now, that's
10:04adding about 1300-1400 crores in a period of about six to nine months. Now, this is where we are.
10:10You know, if you had spoken to me at the end of the last financial year, we were at about roughly
10:15around 3000 crores. We've added 300 crores of orders across, you know, five customers. So, you know,
10:22this period we've backed about, you know, large contracts with Baker Hughes. We've,
10:26you know, two contracts with Baker Hughes. One very, very, you know, strategic project with,
10:33you know, GTRE and DRDO in India for GTRE. I mean, ATGG engine, advanced gas turbo generator engine.
10:40We've backed orders from G1 Nova. We've backed contracts with Rolls-Royce. And there's also
10:45another contract that we've backed from one large engine OEM. I won't be able to name, but yeah,
10:50due to confidentiality norms. But today as a business, you know, we have all aero engine
10:56OEMs working with us. Today, as a business, we have 80% of the energy top customers working with
11:02us and, you know, 35-40% of the oil and gas customers working with us. So, you know, we are
11:07at a landscape where we have the right set of customers. We have the right set of, you know,
11:11product profiles with them. Our margins are good and capacity is incoming. So, I think the best
11:16years for Azad are yet to be, you know, seen and we will continue to grow at the guidance that we
11:21are doing. No, that's not a question at all. I mean, I'm sure the best years are ahead. The
11:26question was only the pace by virtue of the fact that this really big thing. Next year, once a new
11:31plant comes in, you will see that our growth rate will slightly increase because our only
11:36constraint today is capacity. Capacity, sure. Vishnu, lovely talking. As usual, by the way,
11:42thank you so much for taking the time out. Look forward to talk to you post your quarter two
11:45numbers then. Thank you. Yeah, looking forward to it as well.