Azad Engineering Multibagger Shares Soar 8% After Investec’s ‘Buy’ Rating: Is It the Best Defence Stock to Buy Now?

Shares of Azad Engineering, a key player in the aerospace components and turbine manufacturing sector, jumped by 8% today, reaching ₹1,624 per share. This boost came after global brokerage firm Investec began coverage of the stock, giving it a ‘buy’ rating. Investec set a target price of ₹1,850, suggesting a potential 23% rise from Tuesday’s closing price.

Investec’s Positive Outlook

Investec highlighted that Azad Engineering is the only Indian company supplying 3D airfoils to major global Original Equipment Manufacturers (OEMs). This distinction points to the high barriers to entry in the industry. Investec expects Azad’s profit after tax (PAT) to grow at an impressive 40% annual rate over the fiscal years 2024-2027. This growth is anticipated due to recent order wins, greater diversification, and reduced financial costs.

Support from ICICI Securities

Previously, domestic brokerage ICICI Securities also increased its target price for Azad Engineering to ₹2,450 per share, maintaining a ‘buy’ rating. This marks a record high target for the stock. ICICI Securities attributed the optimistic outlook to the company’s improved cost efficiency and product quality, which have resulted in a larger share of spending from its clients.

Ongoing Order Wins

Azad Engineering has secured several significant orders recently, strengthening its market position. The company signed a five-year agreement with Siemens Energy Global GmbH & Co to manufacture and supply key rotating components for advanced gas and thermal turbine engines, meeting global demand.

Additionally, Azad Engineering secured a notable contract from the Gas Turbine Research Establishment (GTRE), a prominent R&D organisation under the Defence Research and Development Organisation (DRDO) and the Ministry of Defence, India. This contract involves the complete manufacturing, assembly, and integration of an Advanced Turbo Gas Generator Engine.

Further expanding its portfolio, Azad Engineering entered a seven-year agreement with Rolls Royce to produce and supply critical engine parts for defence and military aircraft engines.

The company also signed a five-year deal with a Baker Hughes subsidiary to supply complex components for the oil and gas sector. Moreover, another five-year agreement was secured to provide precision-machined components for oil field services, with options to extend the contract by up to four more years.

In a significant partnership, Azad Engineering established a contract with GE Vernova’s Steam Power business. This contract, worth approximately $35 million over seven years, involves supplying high-complexity rotating airfoils for the nuclear, industrial, and thermal power industries.

Strong Performance in June Quarter

In the quarter ending in June, Azad Engineering reported a 29.6% year-on-year increase in consolidated revenue, reaching ₹984.1 million. The Energy and Oil & Gas segment grew by 13.4%, driven by added capacity. The company began fulfilling oil and gas orders in FY24, and this segment is expected to see rapid growth in FY25.

The Aerospace & Defence segment also saw substantial growth, with a 231.7% year-on-year increase, reaching ₹182.1 million in Q1 FY25. This growth was primarily due to the execution of domestic orders, including those from Rolls Royce and GTRE.

Additionally, the company’s 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.