Azad Engg zooms 25% in 2 days on signing 7-year contract with Rolls-Royce

Rolls-Royce signed a long term contract of seven years with AEL to produce/supply critical engine parts for their Defence / Military Aircraft engines

Shares of Azad Engineering (AEL) hit a new high of Rs 842.60 as they rallied 18 per cent on the BSE in Tuesday's intraday trade amid heavy volumes, in an otherwise range-bound market.

In the past two days, the stock has zoomed 25 per cent after the company, on Monday, announced that Rolls-Royce has signed a long term contract of seven years with AEL to produce/supply critical engine parts for their Defence / Military Aircraft engines.

At 11:03 AM, AEL was trading 17.6 per cent higher at Rs 837.20 as compared to 0.29 per cent decline in the S&P BSE Sensex. Average trading volumes on the counter more-than-doubled with a combined 3.9 million equity shares, representing 6.7 per cent of total equity of Azad Engineering, changing hands on the NSE and BSE till the time of writing of this report.

With the past two days' rally, the stock is trading 61 per cent higher against its issue price of Rs 524 per share. The company made its stock market debut on December 28, 2023.

AEL manufactures products for original equipment manufacturers (OEMs) in the energy, aerospace and defence, and oil and gas industries.

It caters to highly regulated industries with significant entry barriers, requiring stringent qualification process taking up to 30-48 months for onboarding a new vendor. It derived 90 per cent of its H1FY24 revenue from exports to global OEMs, backed by long-term contracts. Key customers include General Electric, Honeywell International, Mitsubishi Heavy Industries, Siemens Energy, Eaton Aerospace and MAN Energy Solutions.

Analysts, at the time of its initial public offering, had recommended to 'subscribe' the stock citing its debt-free status post-IPO, high net margins, and lower pricing compared to peers.  In March 2023, Azad Engineering sold shares to sportspersons such as Sachin Tendulkar, PV Sindhu, Saina Nehwal and Nikhat Zareen. The average acquisition cost of these shares was lower than the IPO price as they were allotted more shares following an issue of bonus shares.

Analysts at Motilal Oswal Financial Services, in their IPO note, had said that they like AEL given its presence in the high growth niche segment with high entry barriers, diversified product/client portfolio and robust financials. It would benefit from industry tailwinds especially in A&D space which could improve its revenue mix.