Azad Engineering Ltd Management Discussions

About US

Established in 2008 by visionary entrepreneur, Mr. Rakesh Chopdar, Azad stands at the forefront of global precision manufacturing, specialising in highly engineered, complex, mission and life-critical components for the Aerospace & Defence, Energy, Oil & Gas and Industrial Technology sectors. The company is revolutionizing the global precision manufacturing industry by leveraging cutting-edge technology and state-of-the-art infrastructure. With over 17+ years of operational excellence, Azad serves as a trusted Tier 1 supplier to the worlds leading OEMs across several countries and has established a comprehensive ecosystem designed to effectively meet their ever-evolving needs. This holistic approach ensures the delivery of unparalleled quality and innovation while also fostering the long-term growth and sustainability of partnerships. By continuously pushing the boundaries of precision manufacturing, Azad is pioneering a new era of global engineering excellence.

Industry Overview

Defence Manufacturing: Indias Trillion-Rupee Opportunity

Indias defence sector is at a defining inflection point, entering a structural growth cycle that is expected to reshape the nations industrial landscape. Defence production is projected to nearly triple — from •94,845 crore in FY22 to –•3 lakh crore by FY29E ˜CAGR –18%š — supported by aggressive indigenisation, favourable procurement policies, and deeper private-sector participation.

The private sectors share, currently at –23%, is set to increase significantly as advanced technology integration, system-level outsourcing, and co-development gain momentum. Exports are also emerging as a strategic growth lever, projected to surpass •50,000 crore by FY29E, reinforcing Indias position as a credible global supplier.

For Azad Engineering, this transformation is highly relevant. Our long-standing partnerships with global OEMs and our unique qualifications in complex, life-critical components position us to participate meaningfully in this multi-year growth cycle. With geopolitical realignment driving higher defence budgets globally, and Indias "Atmanirbhar Bharat" push enabling greater localisation, Azad is strategically placed to expand its Aerospace & Defence vertical.

Global Aviation: Structural Growth Backdrop

The aviation industry has rebounded strongly from the pandemic shock. Passenger traffic is expected to reach 9.9 billion in 2025, surpassing 2019 levels by 104%. The global commercial fleet is projected to grow –32% over the next decade, reaching 38,300 aircraft by 2035E. Fleet modernisation is also a key driver, with more than 21,000 aircraft scheduled for replacement between 2024Ÿ44.

Narrow-body aircraft — led by the Airbus A320 and Boeing 737 families — dominate demand, expected to grow by –35% over the next 10 years. By 2044, the global commercial fleet is projected to approach 50,000 active airplanes, with 76% of deliveries being single-aisle models.

For Azad, this creates a multi-decade runway for growth. Our qualified portfolio of aero-engine and structural components — including APU / Engine components, unison rings, airfoils, actuators, and hydraulic assemblies — supports leading global platforms. With increasing wallet share across programs and multi-year customer contracts, we are steadily deepening our role in global aerospace supply chains.

Indian Aviation: Expanding Horizons

India is among the worlds top three fastest-growing aviation markets. Domestic passenger volumes reached 161.3 million in CY24, and IATA projects annual traffic will triple to 425 million by 2044. With only –4% share of global air traffic compared to –17% for China and –18% for the U.S., India remains structurally underpenetrated.

This growth is underpinned by:

• Low-cost carriers driving affordability.

• Rising disposable incomes and an expanding middle class.

• UDAN scheme, which has created a new category of regional flyers through subsidised connectivity.

• Fleet expansion: Indias fleet has more than doubled in the past decade to –890 aircraft, with 2,325 aircraft on order, one of the largest order books globally.

• Airport expansion: 50 new regional airports are planned in the next 5 years (current: 147š.

These factors together create a sustained demand environment for regional and narrow-body aircraft, directly translating into higher demand for high-precision components. With deep engineering expertise and global qualifications, Azad is positioned as a strategic beneficiary of Indias aviation growth.

Energy & Power Generation Global Outlook

The global energy sector is undergoing a once-in-a-generation transformation, driven by decarbonisation, electrification, and digital economies. Electricity demand is projected to grow at 3.3% in 2025 and 3.7% in 2026, among the highest growth rates of the last decade. By 2026, global electricity consumption is expected to surpass 29,000 TWh, a new record.

In India, electricity demand rose modestly by 1.4% in H1 FY25 due to cooler weather and economic softness but is forecast to rise 4% for FY25 and accelerate to 6.6% in FY26, driven by industry, services, and rising household AC penetration. Peak load is projected to reach 270 GW in 2025, with efficiency standards expected to help manage long-term grid strain.

Gas Turbine Market

Despite renewable momentum, gas turbines remain indispensable for flexible, dispatchable power. The market is highly concentrated, with GE Vernova, Siemens Energy, and Mitsubishi Power controlling nearly two-thirds of global construction. GE Vernova alone has 55 GW of turbines under construction.

Asia drives growth: Two-thirds of gas-fired capacity under construction is in Asia, led by China ˜151 GW in development, 46 GW under construction). Nearly 47% of turbines under construction ˜82 GW) are hydrogen-ready, reflecting a shift toward cleaner fuels.

For Azad, this means rising demand for critical turbine components where we are already qualified suppliers to all the major global OEMs with a average relationship as Tier1 for over 10 years

Nuclear Power Market

Global nuclear generation is set to grow by nearly 2% annually in 2025Ÿ26, supported by reactor restarts in Japan, new builds in China and India, and steady output from the U.S. and France. Nuclears role in energy diversification and decarbonisation is expanding.

India targets 22,000 MW of nuclear capacity by 2050, with multiple new reactors under construction and collaborations with Russia, France, and the U.S. Indigenous programs such as the Advanced Heavy Water Reactor ˜AHWR) and future thorium-based designs underscore Indias long-term ambitions.

Azads qualifications in nuclear turbine airfoils and rotating components make us a critical partner in this transition for India and global Nuclear market.

Steam / Thermal Turbine Market

The global steam turbine market was valued at USD 17Ÿ19 billion in 2024, expected to grow modestly at –2.4Ÿ2.5% CAGR to reach USD 21Ÿ23 billion by 2030Ÿ34.

In India, growth is stronger, with the market valued at USD 934 million in 2024, forecast to reach USD 1.4 billion by 2033 ˜CAGR –4.3%š. Another estimate places it at USD 3.3 billion in 2022, rising to USD 4.4 billion by 2030 ˜CAGR –3.5%š. Separately, the steam turbine service market is valued at USD 19.5 billion in 2024, expected to reach USD 31.8 billion by 2034 ˜CAGR 5%š — larger than the turbine equipment market itself, reflecting the long-term value in MRO services. For Azad, which already supplies critical components for steam turbines, this presents a sustained growth runway not only in new-build but also in retrofit and service-driven opportunities.

Financial Overview

Revenue Performance

Azad Engineering delivered its best-ever financial performance in FY25, with revenue from operations rising 32.9% YoY to 4,529 million ˜FY24? •3,408 million). Growth was broad-based across business verticals, supported by deeper wallet share with existing customers, new client additions, and steady execution of the order book.

Energy & Oil & Gas: •3,586 million ˜79% of total revenue), up 26.0% YoY.

Aerospace & Defence: •807 million ˜17.9% of total revenue), up 84.1% YoY.

Scrap & Export Incentives: •136 million.

This strong performance underscores the benefits of diversification across high-growth sectors and Azads positioning as a strategic supplier to global OEMs.

Expenses and Profitability

Balance Sheet Strength

Net worth doubled to •14,176 million, driven by profitability and the successful •7,000 million QIP concluded in February 2025.

Borrowings stood at •2,383 million as of March 31, 2025, placing leverage at a comfortable level relative to equity and cash flows.

The company moved to a net cash position, with Cash & Bank balances at 6,959 million, supported by the QIP raise.

Capital Expenditure and Investments

During FY25, Azad commissioned the first manufacturing block under its new capacity expansion program, with additional sheds to be operational in FY26. Net Block increased by 1,465 million, reflecting investments in advanced machining, automation, and product development capabilities.

The company also initiated new product development programs for existing and new customers. These are capitalised in line with the companys policy on development expenditure.

Working Capital and Cash Flows

Net working capital increased to •3,311 million ˜FY24? •2,530 million), broadly in line with revenue growth.

The company is undertaking multiple initiatives to improve working capital efficiency, with benefits expected to accrue from FY26.

Operating cash flows turned positive, at •629 million in FY25 versus negative •69 million in FY24, driven by profitability and better collections.

Returns

ROCE (adjusted) stood at 20.7%, reflecting efficient capital deployment and prudent financial management.

• Despite ongoing capex and capacity expansion, return ratios remain healthy and are expected to strengthen as new facilities ramp up.

Summary

FY25 was a year of profitable growth, balance sheet strengthening, and investment for the future. Azad delivered strong revenue growth, expanded margins to a historic high, reduced leverage, and raised long-term growth capital through a •7,000 million QIP. With a robust order book, efficient capital structure, and ongoing capacity expansion, the company is well placed to sustain growth momentum and create long-term shareholder value.

Human Resources

As of today, the company employs approximately 1453 individuals, reflecting our commitment to fostering a diverse and dynamic workforce. Our human resources strategy focuses on talent acquisition, retention, and development to align with our long-term business objectives. We maintain robust industrial relations, characterised by a constructive and collaborative approach with all stakeholders. Through continuous engagement, training programs, and career development opportunities, we strive to create an inclusive and supportive work environment that empowers employees to achieve their fullest potential while contributing to the companys growth and success.

Risk and Risk Mitigation

At Azad Engineering, we understand that operating in high-precision manufacturing sectors such as aerospace, defence, and energy involves unique risks that could impact our operations and strategic goals. Our risk management framework is designed to proactively identify and mitigate these risks, ensuring resilience and sustained growth.

Key Risks:

• Market Volatility: Fluctuations in global demand and supply chain disruptions can affect production schedules and revenue. Mitigation Strategy: We mitigate this risk by maintaining a diversified customer base across multiple sectors and geographies and by building strong relationships with reliable suppliers.

• Technological Obsolescence: Rapid technological advancements could render existing equipment or processes outdated. Mitigation Strategy: To stay ahead, we invest in continuous R&D, upgrade our manufacturing technologies, and foster innovation within our engineering teams.

• Regulatory Compliance: The aerospace and defence sectors are highly regulated, with strict compliance requirements that can vary by region. Mitigation Strategy: We ensure compliance by regularly updating our knowledge of regulatory standards and maintaining robust internal controls and audits.

• Operational Risks: High precision in manufacturing processes necessitates a strong focus on quality control and operational efficiency. Mitigation Strategy: We employ stringent quality assurance protocols and continuous training for our workforce to uphold the highest standards of precision and reliability.

• Supply Chain Disruptions: Dependence on specialised raw materials and components poses a risk of supply chain disruptions. Mitigation Strategy: To counter this, we establish long-term contracts with multiple suppliers and maintain buffer inventories to manage potential supply disruptions.

Internal Control Systems nd Adequacy Azad Engineering has established robust internal control systems designed to ensure the reliability of financial reporting, safeguard assets, and promote operational efficiency across all levels of the organisation. Our internal control framework is aligned with best practices and is regularly reviewed to ensure its effectiveness and adequacy in addressing the evolving risks associated with our business operations.

The company employs comprehensive policies, procedures, and guidelines that govern all critical processes, including procurement, production, quality assurance, and financial management. These controls are designed to prevent and detect errors, fraud, and other irregularities, thereby maintaining the integrity of our operations.

Azad Engineering has implemented a vigilant vigilance mechanism to further enhance the control environment and promote transparency, accountability, and ethical conduct among employees. This mechanism includes a whistleblower policy, which provides a secure and confidential platform for employees and stakeholders to report any unethical practices, financial misconduct, or non-compliance with legal and regulatory requirements.

The Audit Committee, in collaboration with the Internal Audit team, regularly reviews the adequacy and effectiveness of the internal control systems and the vigilance mechanism. Any identified weaknesses are promptly addressed through corrective actions and process improvements to ensure that the control systems remain robust and resilient.

Azad Engineering is committed to maintaining a culture of integrity, compliance, and operational excellence by continuously monitoring and strengthening our internal controls and vigilance mechanisms.

Cautionary Forward-Looking Statement This Management Discussion and Analysis ˜MDA) contains forward-looking statements that are based on the current expectations, assumptions, projections, and estimates of the management of Azad Engineering. These statements are subject to inherent risks, uncertainties, and other factors that could cause actual results to differ materially from those projected or anticipated. Factors that could influence the outcomes include but are not limited to, changes in market conditions, economic and political developments, regulatory changes, technological advancements, and unforeseen events affecting the industry or the companys operations.

Azad Engineering is not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. The information contained in this MDA should not be construed as a guarantee of future performance. Readers should exercise caution and consider the inherent risks when interpreting forward-looking statements.