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Aeroflex stock zooms 43% in 8 days, outperforms market on strong Q3 results

Management guides FY25E revenue growth of 18 per cent plus YoY, as orders from assembly segment (higher margin product) have gradually increased its share in the order book.

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Deepak Korgaonkar Mumbai

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Shares of Aeroflex Industries rallied 8 per cent to Rs 252.35 on the BSE in Thursday’s intraday trade, on healthy business outlook. In the past eight days, the stock price of iron & steel products manufacturer has zoomed 43 per cent after the company reported a strong set of numbers for the quarter ended December 2024 (Q3FY25). It had hit a record high of Rs 256.75 on January 17, 2025.
 
In comparison, the BSE Smallcap index gained 1.86 per cent and BSE Sensex up 0.32 per cent during the same period.
 
Aeroflex is engaged in the business of manufacturing and supply of metallic flexible flow solutions made with stainless steel. The product range includes stainless steel corrugation products (braided and non-braided) such as hose, double interlock flexible metal hoses, composite hose, stainless steel hose assemblies, teflon/PTFE hose, and fittings, among other items. The company has established itself as a leading global provider of metallic flexible flow solutions, catering to diverse industrial sectors worldwide.
 
 
In Q3FY25, Aeroflex reported a 68 per cent year-on-year (YoY) jump in consolidated profit after tax at Rs 15.21 crore, on the back of a 35 per cent YoY jump in total income, at Rs 100.37 crore. The company's earnings before interest, tax, depreciation and amortisation (Ebitda) grew at a healthy 48 per cent YoY to Rs 22.70 crore, with a strong Ebitda margin of 22.8 per cent, an improvement of 199 bps.
 
“To support these initiatives and explore growth opportunities, the company is evaluating fund raising options to drive both organic and inorganic expansion, reinforcing our commitment to sustainable progress and stakeholder value creation," the management said.
 
Management has guided FY25E revenue growth of 18 per cent plus YoY, as orders from assembly segment (higher margin product) have gradually increased its share in the order book. The company is positive about increase in US exports in the future as they may benefit from new industrialisation policies. They also are targeting for customers in Middle East and Africa and might see orders from them in the next 3-4 years. The business from European markets have hit a rough patch but it is still of significant importance to Aeroflex.
 
The management said the strong growth was driven by a strategic shift towards the company’s assembly business, increased domestic project based sales, and sustained market demand. Looking ahead, the management plans to further expand capacity for value-added offerings, which are expected to enhance the company's Ebitda margins and strengthen its market position.
 
The company in Q3FY25 announced new capex plans to enhance visibility in the medium to long term. In the SS hoses segment the company after augmenting the capacity to 16.5 m metre in FY25E has further planning to add another 3.5 m metre capacity by FY26E coupled with adding of 30 new assembly stations (taking the count to 70) and automation of welding process. This will require a capex of Rs 54 crore. 
 
In the new product segment, the company is planning to put a capacity for manufacturing miniature metal bellows at a capex of Rs 23 crore. All this capex will be funded from internal accruals and drive growth over FY26E-FY27E. This capex will margin accretive as miniature metal bellows command margins of 30-35 per cent while assemblies have 20-25 per cent margin profile, according to analysts at ICICI Securities. The brokerage firm values Aeroflex at 38x FY27E EPS to arrive at a fair value of Rs 280 with a Buy Rating.
 
With strong traction in export/domestic markets, new capex and expansion in margins, analysts expect the company to deliver a strong compound annual growth rate (CAGR) of 21 per cent and 28 per cent in revenues and profit after tax (PAT), respectively over FY24-FY27E. The lean balance sheet and strong cash flow generation will improve ROCE to 25.3 per cent in FY27E from 22.5 per cent in FY25E which will ensure the company commands rich multiple.
 

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First Published: Jan 23 2025 | 12:02 PM IST

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