CARE Rating assigns 'A-' rating to the LT facilities of Azad Engineering with 'stable' outlook

Azad Engineering said that CARE Rating has assigned 'CARE A-' rating to the long-term bank facilities of the company with 'stable' outlook.

The agency has assigned CARE A2+ rating to the short-term bank facilities of Azad Engineering.

CARE Rating stated that the ratings assigned to Azad Engineering (AEL) derive strength from experienced promoter and leadership team, established relationship with reputed original equipment manufacturing (OEMs), track record of supplying mission/life critical components to OEMs and advanced infrastructure.

Ratings also consider the consistent growth in revenue in FY24 with healthy profitability margins, satisfactory financial profile despite moderation expected in near term and presence in critical products of energy, defence, aerospace and oil & gas.

The company operates as one of the few suppliers that has wide spectrum of products used in critical operations of energy, defence, aerospace and oil & gas sector. One of the major components manufactured by the company is turbine blade used on utility supply turbines essentially designed to be failsafe.

AEL achieved qualification for over 1700+ products through testing procedures from OEMs, which are then put for production based on the long-term orders placed by these OEMs. Such orders generally span for 4-5 years based on the volume of order and machine availability at AEL.

AEL consistently supplied against the orders in the past five years which led to improvement in total operating income (TOI) that increased from Rs 122.08 crore in FY20 to Rs 257.68 crore in FY23 and further increased to Rs 343.19 crore in FY24. The company maintained profit before interest, lease rentals, depreciation, and taxation (PBILDT) margin above 25% in this period.

AELs credit profile improved significantly in FY24 due to successful completion of initial public offering through which the company generated ₹240 crore, which was deployed for repayment of existing loans, planned capital expenditure and working capital purposes.

However, ratings are constrained by elongated working capital cycle due to lengthy qualification process and commercialisation and project risk associated with large-sized debt-funded capex.

Azad Engineering is engaged in the manufacturing precision forged and machined components for clean energy, aerospace, defence, oil and gas, standalone power supply (SPS) as required by OEMs, with its manufacturing unit in Hyderabad.

The scrip shed 0.56% to currently trade at Rs 1645 on the BSE.

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