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Q3FY26 Result Highlights Aeroflex Industries Limited delivered a strong performance in Q3 FY26, marked by its highest-ever quarterly revenue and healthy margin expansion. Consolidated sales stood at ₹121 crore, registering a robust 21% YoY and 9% QoQ growth, driven by a favourable shift toward value-added products, higher assemblies’ contribution and resilient export demand. EBITDA increased 28% YoY to ₹28 crore, with margins expanding by 171 bps YoY to 23.5%, reflecting operating leverage, improved product mix and efficiency gains. Despite tariff-related pricing pressures in the US market, PAT grew 8% YoY to ₹16.5 crore, while cash PAT rose a strong 28% YoY to ₹22.8 crore, underscoring the company’s strong cash-generative business model. Exports remained a key growth driver, growing ~30% YoY, supported by continued traction in Europe and stable repeat orders from existing US customers. On the operational front, the company successfully added 1 million meters of hose capacity in January 2026, taking total installed capacity to 17.5 million meters per annum, and continued to scale its higher-margin assembly operations. A key strategic milestone during the quarter was the first commercial dispatch of advanced flow-control components and skid assemblies for liquid cooling applications in data centers, positioning the company to capitalise on the fast-growing AI and data-center infrastructure opportunity.

Key conference call takeaways

Capacity Expansion & Capex Updates

• Total hose capacity increased to 17.5 million meters per annum; remaining 2.5 million meters to be commissioned by Q2 FY27.
• Six new assembly stations added, increasing total to 46, strengthening focus on higher-margin assemblies.
• Miniature metal bellows capex rationalised to ₹10.5 crore, aligning capacity with near-term demand visibility.
• FY26 capex till December stood at ₹36 crore; total planned capex including working capital around ₹90–97 crore.

Liquid Cooling & Data Center Opportunity

• Entered high-performance liquid cooling systems for data centers; completed first commercial dispatch of skid assemblies.
• Skid assembly capacity being expanded to 15,000 units annually, targeted completion by June 2026.
• Initial order pipeline of ~₹45 crore secured; peak revenue potential estimated at ₹300–350 crore over medium term.
• Liquid cooling margins expected to be better than hoses and broadly in line with existing assembly margins.

Segment Performance & Product Mix

• Value-added products including assemblies, fittings and skid systems contributed 54% of nine-month total sales.
• Metal bellows currently at ₹12 crore annual run-rate, expected to scale to ₹36 crore over next few quarters.
• HyDRA division operating near 70% utilisation, with current revenue potential of ₹45–50 crore annually.
• Assemblies remain strategic priority, driving both margin expansion and customer stickiness across industries.

Export, Geography & Tariff Impact

• Exports contributed 74% of total revenue; EU and US together accounted for nearly 85% of export sales.
• US market faced tariff headwinds, but no order cancellations; repeat orders from existing customers remained strong.
• EU exports grew meaningfully; management expects acceleration post EU-India FTA implementation.
• Overall export revenue grew 30% YoY in Q3, demonstrating resilience despite global trade disruptions.

Margins & Strategy

• Management expects strong Q4 and FY27 momentum supported by healthy order book and expanding data-center exposure.
• Long-term EBITDA margin guidance maintained at 23–25%, with upside potential if tariff pressures ease.
• Focus remains on disciplined capital allocation, faster payback projects, and scaling value-added solutions.
• Company aims to exceed ₹1,000 crore revenue potential over next three years across hoses, assemblies, bellows, and cooling solutions.Top of Form

Outlook & valuation

Aeroflex is visible shift toward value-added products, expanding global opportunities, and disciplined capital allocation. The company is well positioned to sustain mid-teens revenue growth over the medium term, driven by rising contribution from assemblies, metal bellows, Hyd-Air engineering, and the newly commercialised liquid-cooling skid assemblies for data centres. The liquid-cooling business, backed by an exclusive long-term arrangement with a large US-listed multinational, offers a multi-year growth runway with peak revenue potential of ₹300–350 crore by FY29, materially enhancing Aeroflex’s addressable market and product complexity. Capacity additions across hoses, assemblies, and automation are largely funded through internal accruals and equity, keeping the balance sheet conservative and limiting financial risk. Management’s long-term EBITDA margin guidance of 23–25% appears achievable, aided by operating leverage, higher assemblies mix, automation benefits, and gradual easing of tariff pressures. Aeroflex deserves a premium multiple relative to traditional hose manufacturers, given its transition toward a solutions-led, engineering-intensive model with exposure to high-growth end markets such as data centres, AI infrastructure, railways, ports, and process industries. While near-term PAT growth may remain moderate due to depreciation from recent capex, cash earnings and ROCE are expected to improve meaningfully from FY27 onwards. Overall, Aeroflex offers an attractive long-term compounding story, balancing growth visibility, margin expansion, and balance-sheet strength. At a CMP of Rs.178, the stock is trading at 22x FY28E. We maintain a HOLD rating on the stock.