Aeroflex Industries Ltd (AEROFLEX) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to the Aeroflex Industries Limited Q2 FY '27 earnings conference call. As a reminder, all participants' lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. Before we begin, this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Asad Daud, Managing Director. Thank you and over to you, sir.
Asad Daud (Aeroflex Industries Ltd): Thank you so much. Good morning everyone. I welcome you all to Aeroflex Industries Limited Q2 FY '27 earnings call. Joining us today are members of our senior management team, along with representatives from Strategic Growth Advisors, our Investor Relations partner. I hope you've had the opportunity to review our financial results.
Asad Daud (Aeroflex Industries Ltd): and investor presentation, which are available both on the stock exchange and also on our company's website. We are pleased to report that our best ever results with quarterly revenue crossing 200 crores milestone for the first time ever. This achievement reflects sustained growth momentum across all our verticals, and supported by strong demand of for our core products, and increasing traction that we are witnessing in the liquid cooling vertical. It also highlights the strength of our diversified business model, our growing contribution from value-added products, and our strategic positioning in high growth segments, especially the high-performance data center infrastructure. During H1 FY '27, our metal flexible hose business delivered strong growth with revenues increasing by 40% on a year-on-year basis, supported by demand across various end-user industries and and across our established international customer base. The assemblies and other value-added products business also registered a growth of 44% on a year-on-year basis, which reflects increased demand for high precision engineered flow solutions. The liquid cooling vertical continues to gain significant traction driven by the the growing adoption of advanced cooling technologies in high performance data centers. This vertical contributed 24% to our revenue in FY in in H1 FY '27, which makes a significant milestone in our revolution from being just a flexible hose provider to an an integrated provider of advanced flow control and liquid cooling solutions. We have also announced the merger of Hyd-Air Engineering, which is our wholly owned subsidiary, with Aeroflex. This is aimed at strategically integrating operations of the of of Hyd-Air into Aeroflex and to create a more streamlined and efficient business structure. The merger is also expected to leverage existing infrastructure. It helps It will help to optimize the resource allocation and also strengthen the company's ability to scale in-house capabilities in line with our business requirements. By eliminating operational overlaps and simplifying the corporate structure and also optimizing the cost, this consolidation is expected to reduce the administrative and compliance-related costs, enhance our operational coordination, improve resource utilization and facilitate more and efficient capital allocation. Now talking about the data center opportunity, the rapid advancement of of AI and high-performance computing is transforming the entire global data center infrastructure, including in India, as well. Higher computing requirements are driving increased rack densities and heat generation, which is accelerating the shift from conventional air cooling to advanced liquid cooling technologies. Hyperscalers, cloud service providers and global technology companies are making huge investments in data centers not only internationally, but also in India as well. And this This is creating a growing demand for reliable, leak-proof and precision engineered flow control solutions. Aeroflex is well-positioned to participate in this opportunity through its expertise in the flexible flexible flow solutions in terms of engineered assemblies and also liquid cooling skid skid assemblies. Our SS and skid assemblies facilitate controlled coolant circulation and also support efficient data center cooling operations. We are also strengthening our capabilities in advanced flow control components and flexible connection solutions to address the the ever-in evolving requirements of the liquid cooling infrastructure. We aim to progressively strengthen our presence across the data data center value chain, leveraging our manufacturing capabilities, our customized engineering solutions and our diversified product portfolio. Now talking about our capacity expansion, in this month, we have announced a capacity expansion, which involves total capital expendi expenditure of 202 crores. This is aimed at from a long-term growth out-
Asad Daud (Aeroflex Industries Ltd): to increase the demand visibility that we are seeing across both our sectors. In terms of the stainless steel flexible flow solutions, we have already completed the expansion of our manufacturing capacity to 20 million meters per annum and we have planned a further expansion of 10 million meters per annum, which will take our total capacity to 30 million meters per annum and it is estimated to be completed by March 2028. And it involves an investment of approximately 124 crores. This expansion program will comprise a mix of both brownfield expansion at our at the existing Taloja facility and also a proposed new manufacturing facility for hose assemblies. Now talking about the expansion plan for the skid assemblies, our our current capacity expansion plan of of expansion to 15,000 units per annum is expected to be completed by December 2026. Out of that, we have already commissioned the 12,000 units per annum. And to to add on top of that, we have planned the next phase of expansion, thereby raising our capacity from 15,000 units per annum to 30,000 skid assemblies per annum. And the same is expected to be completed by March 2028. And this will entail an additional investment of rupees 78 crores. The overall investment of rupees 202 crores will be funded primarily through a combination of internal accruals, bridge loan financing, and equity fund raise, if required. At the peak capacity utilization, these additional capacities are expected to generate incremental revenue potential of approximately rupees 500 to 550 crores per year. The expansion will be implemented in a phased manner, strengthening our our ability to execute larger customer programs and capitalize on opportunities across data centers and other high-growth industries. To talk about our technology, innovation and R&D, which remains central to our long-term growth strategy, and we continue to invest in new production capabilities, new product development, manufacturing process improvements and enhancing our engineering capabilities. I'm also delighted to share that we have been granted a patent for our invention of developing a system and method for automatically generating a a 3D computer-aided model for braided hose assemblies. This technology automates the generation of 3D CAD models of braided hose assemblies, enabling greater efficiency, consistency and and precision in product development. Going forward, we will continue to focus on product innovation, process automation, and advanced manufacturing technologies to develop customized solutions for specialized and mission-critical mission-critical applications. Looking ahead, we remain confident about our long-term growth prospects. Our strategy is focused on three key priorities. First is to strengthen our core metal flexible hoses and assemblies business through capacity expansion, automation, product innovation, and deeper market penetration. Second is to scale up our liquid cooling solutions business by expanding our manufacturing capabilities, capacity, strengthening our engineering capabilities, and also increasing the engagement with our customers across the data center ecosystem. And thirdly, to to continuously invest in technology, R&D and advanced manufacturing to develop specialized solutions for these high-growth industries. The global transition towards AI-led computing and liquid cooled data center infrastructure represents a a multiyear opportunity for us, and our our recently announced expansion program reflects our confidence in this opportunity and also our commitment to building these capabilities required to support the future growth.
Asad Daud (Aeroflex Industries Ltd): 87% on a Y-o-Y basis. Our EBITDA stood at 50.34 crores which is a growth of 94% on a Y-o-Y basis. Our EBITDA margin 24.27% as compared to to 23.34% last year. The profit after tax stood at 36.56 crores which is a 150 and our PAT margin for the
Moderator: Sorry to interrupt you Asad sir, we are losing your voice in between.
Asad Daud (Aeroflex Industries Ltd): Okay, am I audible now?
Moderator: Yes sir, please continue.
Asad Daud (Aeroflex Industries Ltd): Okay, sorry. So, we'll just I'll just repeat the last couple of lines. Profit after tax stood at 36.56 crores which is a growth of 157% on a year-on-year basis. PAT margin stood at 17.6%. Talking about H1, the total income for the quarter stood at 353.66 crores which is a growth of 81% on a Y-o-Y basis. The EBITDA stood at 83.83 crores which is a growth of 103% on a on a Y-o-Y basis. EBITDA margin stood at 23.710%. compared to 21.19 in this in in H1 FY26. Profit after tax stood at 55.35 crores and the PAT margin for the quarter was at 15.65 percentage. During During the quarter, we changed our depreciation method from the WDV which is the written-down value method to the straight-line method, effective from 1st April 2026, to better reflect the expected usage of the assets. This change resulted in a reduction in depreciation expense of rupees 8.41 crores both for Q2 and for H1. The change in the depreciation methodology was undertaken based on the advice of technical experts and also considering significant investments being undertaken in the capital on CapEx and and an assessment of the pattern in which the the future benefits of the of the assets are expected to be utilized. This depreciation method methodology was changed from WDV to SLM. Our financial performance during H1 FY27 has been extremely encouraging and with the company already achieving financial numbers close to its entire FY26 performance within the first 6 months of FY27. This reflects strong business momentum that we are seeing, robust growth that we are seeing across our segments and increasing contribution from our liquid cooling solutions business, positioning us well for the remainder of the year. Lastly, I would like to thank our employees, our customers, suppliers, business partners, and our most important, shareholders, for their continued trust and support. Thank you, and with that I would like to conclude my remarks and we can now open the floor for questions.
Moderator: Thank you very much. We will now begin with a question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Raman K.V. from Sequent Investments. Please go ahead.
Raman K.V. (Sequent Investments): Hello sir, can you hear me?
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