Azad Engineering Ltd (NSE: AZAD) Q2 2025 Earnings Call dated Nov. 12, 2024
Corporate Participants:
Rakesh Chopdar — Chief Executive Officer
Vishnu Malpani — WholeTime Director
Ronak Jajoo — Chief Financial Officer
Analysts:
Amit Dixit
Balamurali Krishna — Analyst
Jeevan Patwa — Analyst
Kamlesh Jain — Analyst
Aditya Bhartia — Analyst
Sanjay Shah — Analyst
Rajesh Vora — Analyst
Partha Saha — Analyst
Mayur Parkeria — Analyst
Akshay Kaila — Analyst
Amit Dixit — Analyst
Chirag Khasgiwala — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Azad Engineering Q2 FY25 Conference Call hosted by ICICI Securities. This conference call may contain forward-looking statement about the company, which are based on the belief, opinion, and expectation of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Amit Dixit from ICICI Security. Thank you, and over to you sir.
Amit Dixit
Thanks, Nikita. Good afternoon everyone. On behalf of ICICI Securities, I welcome all the participants for today’s call. At the outset, I would like to thank the management for giving us an opportunity to host this call. From the management, today, we have with us Mr. Rakesh Chopdar, Chairman and CEO; Mr. Vishnu Malpani, Whole-Time Director; and Mr. Ronak Jajoo, Chief Financial Officer. We will have brief opening remarks from the management, post which, we will open the floor for an interactive Q&A.
Without much ado, I would hand over the call to Mr. Chopdar to take this forward. Over to you sir.
Rakesh Chopdar — Chief Executive Officer
Thank you, Mr. Amit. Thanks a lot. Good afternoon and seasoned greetings to everyone. Welcome and thanks for joining today on Q2 earning call. On this call, we are joined by our Mr. Vishnu Malpani, Whole-Time Director; and our CFO, Mr. Ronak Jajoo; and SGA team, our Investor Relationship Advisors.
The results and presentations are uploaded on the stock exchange and the company website. I hope everybody had a chance to look at it. We have delivered a strong performance in this quarter with our revenues growing significantly to INR111 crores demonstrating robust growth on a year-on-year basis, showcasing a growth of 35%. Adjusted EBITDA for this quarter stands at INR41 crores. Further, the PAT has grown from INR90.5 crores in Q2 FY24 to INR21 crores in Q FY25, showcasing a growth of 8%.
We have come a long way in our journey from doing business of INR100 crores per annum to INR100 crores per quarter, demonstrating an exponential growth in the last few years. This progression is a result of our commitment to excellence and our persistence and dedication. We spent the initial few years concentrating on getting our products qualified and approved, and today we are in this unprecedented growth phase. The growth momentum has just started and we are confident that we will be able to capture a larger pie of our customers’ wallet share by leveraging our capabilities to better serve our customers’ need with our new and existing facilities in place.
Allow me to spend some minutes on the new orders that we have won during this quarter. We’re honored to share that we have signed an MOU with Baker Hughes, Kingdom of Saudi Arabia, in the presence of His Royal Highness, Prince Abdulaziz Bin Salman Al Saud, Minister of Energy, and distinguished officials and committee members of Local Content Forum at Riyadh, Saudi Arabia. This arrangement, amongst other things, enables us to set up a facility to manufacture and supply of precision components, sub-assemblies, assemblies to cater the requirements within the Kingdom of Saudi Arabia.
In another remarkable achievement, we bagged an order win from Mitsubishi Heavy Industries Japan. This is approximately INR700 crores order which will be executed over five years. This win is a testament of Azad’s grit and vision as we are the only critical suppliers in India for airfoils. This demonstrates Mitsubishi’s continuous confidence in us as an efficient strategic supplier and carry forward the long outstanding partnership between them which was started in the way back 2012. This order is way for them to block our capacities in the dedicated manufacturing — upcoming manufacturing plant that we are building for them in our new upcoming facility through foundation stone laid in the year 2022.
Additionally, we secured a $16 million order from Honeywell to manufacturing supply complex components for the aerospace and defense requirements. Another critical contract with Siemens Energy to manufacture supply complex — rotating complex components for the energy sector for a tenure of five years. These wings not only demonstrate our strategic partnership we have built with our OEMs but also reflect our growth journey. Way back, I recollect I started Azad with just one machine, and today, we have become a global leader in providing high precision-engineered components and solutions for the largest OEMs across energy, defense, oil, and gas sectors.
I am very happy to share that just now, Azad Engineering has received a signed supply agreement with Arabelle Solutions France, a French company for the supply of critical and highly complex routine stationary components to meet the global demand in the nuclear power generation industry. The value of the supply agreement for its term is valued approximately $40 million, that is INR340 crores. This supply agreement has initiated a strategic collaboration with Arabelle Solutions France.
With above wins, our order book stands at INR4,200 crores as on today. Adding the INR340 crores, somewhere around INR4,500 crores. We are confident that it will continue to increase significantly as we have a strong pipeline of contracts with our key customers. To update you on our capex plan for the new upcoming plant, the civil work is progressing as per the plan in line with the order book and the deliveries. We have placed orders for the machines and other equipments. Everything is on track to start commissioning at our factory beginning Q1 of FY26.
On the expansion front, as you all are aware, we are increasing our capacity to 10x and as an update, we are well on track and we will start generating revenues from a new plant from FY26. Further, we continue to provide a guidance of 25% to 30% for FY25 with improvement in our margins due to operating leverage, process efficiency, along with backward integration.
Now, I hand over the call to Mr. Vishnu Malpani, our Whole-Time Director to take this conversation further. Thank you.
Vishnu Malpani — WholeTime Director
Thank you, Mr. Chopdar, and see this greetings to everyone. Good afternoon and welcome to our earnings call for Azad Engineering. Azad’s story has always been about breaking new ground and that journey continues. From being one of the first Indian companies to be able to manufacture complex and critical components such as 3D airfoil to now building a plant with 10x more capacity for these life and mission-critical components, our progress is nothing but short, nothing short of being extraordinary. Today, we are a trusted partner to some of the world’s biggest OEMs, whether it’s the energy sector, aerospace and defense sector, or the oil and gas sector, and our commitment to innovation remains stronger than ever.
We worked very hard in our business to diversify and it started to pay off. Our energy business, which contributed to about 78%, 79% of our revenue in the first half of FY25, continues to grow at a very healthy rate. With major orders from companies such as Mitsubishi, GE and Siemens, we are on a path for increasing our wallet share in this segment from the current 1%, 1.5% to about 2% to 5%. Similarly, with Baker Hughes, we are stronger in position in the oil and gas sector with tremendous potential and opportunities of setting up a manufacturing plant outside of India as well.
Our aerospace and defense business has more than doubled in the last year, now accounting for 16% to 17% of our revenue. Key orders from clients such as Rolls-Royce, GTRE/DRDO, Honeywell, among others will drive further growth in this sector. And I think it’s important to note that we are not just making life-critical and mission-critical components, we’re also moving to full assembly. We are manufacturing — we are on our verge to be manufacturing an engine end-to-end for GTRE, moving up the value chain in manufacturing itself. But this is just the beginning. Our new facility will unlock even more growth allowing us to serve our current customers better while opening doors to near opportunities and markets.
Through Smart acquisitions that Mr. Chopdar mentioned of Leo Primecomp and VTC Surface Technologies, we are building deeper capabilities and creating new avenues for growth. We are not here to settle for the status quo. Our goal is very clear. To grow our addressable market from $28 billion to upwards of a much, much higher number and to increase our wallet share from 1%, 2% to 5%. We are on our path to become something far greater than we are today. Together, we are building not just a company, we are building the future.
I would like to now hand over to Mr. Ronak Jajoo, our Chief Financial Officer, to discuss the key highlights on our financials. Thank you.
Ronak Jajoo — Chief Financial Officer
Thank you, Vishnu. Let me talk about our financial highlight for Q2 FY25. Revenue from operations came at around INR111 crores in Q2 FY25. The blended average growth rate in H1 FY25 is 32.17% when we compared to H1 FY24. The blended average growth rate for Q2 FY25 is 34.5% compared to Q2 FY24. The blended average growth rate for Q2 FY25 is 13.21%, compared to Q2 FY25.
The other income mainly consists of interest income and foreign currency fluctuation during the H1 FY25. In H1 FY24, it was higher on account of sales of our two subsidies and land which has resulted into INR9.8 crores of other income during that period. EBITDA inflow due to operating lag rate and the process improvement and stand at INR41 crores in Q2 FY25, the EBITDA margin has increased by 200 bps during the last quarter to this quarter. This improvement is largely driven by operating leverage in employee costs, tools expenses, and job work expenses.
The finance costs mainly represent the interest toward the working capital and term loan in our books as there are no Piramal CCDs which were converted into the equity during the IPO profit. The adjusted PBT for Q2 FY25 stood at INR31.4 crore and there is an improvement of 273 bps which is in line with our EBITDA margin improvement as explained earlier.
Profit after tax stood at INR21 crore with 19% of healthy PAT margins. Our net debt position as on 30th September is INR112 crore. Working capital is at peak in this particular quarter and there will be taper down as major qualifications have been completed and we are able to indigenize the raw material with one of the mill as explained in the earlier call.
Now, I would like to open the floor for questions and answers. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question and answer session. [Operator Instructions] The first question is from the line of Bala Murali Krishna from Oman Investment Advisors. Please go ahead.
Balamurali Krishna
Hi, good morning. So my first question is regarding the new facilities which we are building in Bollaram. So in FY26, by which quarter we can expect that to be on stream on this? And another facility we are planning in Sangareddy for RSP. So by when we can see that facility also come?
Operator
Sorry for interrupting you, sir. Your voice is not clear. Could you speak little loud?
Balamurali Krishna
Yeah. My question is regarding the new facilities which are coming on stream. So this Bollaram facility told in FY26, so in which quarter we can expect that to be on stream and by when we can expect to reach it to optimum level? Second is on the Sangareddy new facility also, what is the plan for that one also?
Rakesh Chopdar
Yeah, so, the first facility what we are building in 20 Bollaram, that’s going in a phase-wise manner. Because it’s a very large facility, right? And we are setting up dedicated facilities for every customer. So what we have intended to do is, we know the facility for GE steam power system with SPS, GE Vernova. That is the first facility which is going to come up. It will be ready in the calendar years of, you know, calendar year FY25 in the first quarter of the, you know, by, I think by January, February the first we should be done, and from March that will be operational. And then similarly every two to three months, we will be having one facility by — for Mitsubishi. And this is a progressive. It cannot be done all at a time, right? So do you understand what I’m trying to say, Mr. Bala Krishna?
Balamurali Krishna
Yes. Regarding the Sangareddy facility?
Rakesh Chopdar
Not sure. We are going to finish this first and then take up that facility. So we’re going phase-wise.
Balamurali Krishna
Okay.
Rakesh Chopdar
So this will be a continuing process. So first it will come for steam power system and we come for Mitsubishi. Then you know, all the customers are lined up. I can’t name them because we have not disclosed yet. But every customer has their own facility in our whole factory. So it’s a factory between the factories.
Balamurali Krishna
Okay. I understand. Regarding the —
Rakesh Chopdar
And you can expect from FY26 the incremental value. Incremental sales will be added up from the new facility. In a nutshell, if I want to answer you.
Balamurali Krishna
Yeah, understood. And regarding these order wins you saw in the — since we are listed, so we have seen a lot of orders. So I want to know that value. So when we — almost order five years to seven, eight origin. So from the FY26 onwards, we can expect the execution of all these orders?
Rakesh Chopdar
Yes, that’s the plan. That’s the plan, Mr. Bala Krishna. So FY26 onwards, you will see an incremental revenue coming up from the new facility which we are adding as the capacity what we’re building is 10 times size, with what existing it is.
Balamurali Krishna
So then we can expect a good jump in the numbers from that set on this as compared to the existing guidance.
Rakesh Chopdar
Yes, it is interesting. Hopefully, everything goes well as we have planned. Until now, whatever planned, everything was on track.
Balamurali Krishna
Okay. And lastly on this Baker Hughes agreement. So we are going to set up a plant in Saudi Arabia, right?
Rakesh Chopdar
Yes, yes. We already signed the MOU. We are now planning to set up a shop in Saudi Arabia.
Balamurali Krishna
But my concern is that in Gulf or Saudi Arabia, so the cost of production would be much higher as compared to India, so —
Rakesh Chopdar
Not really.
Balamurali Krishna
It can impact the margins slightly?
Rakesh Chopdar
No, no, nothing is going to happen. And this requirement is basically for Saudi Arabia, in Saudi Arabia, right? And the pricing structure is not as India structure, correct? So what we see is, the technology, everything is ours, right? So we have our own way of manufacturing. It doesn’t matter if it’s in Saudi Arabia, or it’s in India, or it’s in US or Europe. Wherever, it doesn’t matter.
Balamurali Krishna
Yeah. Lastly on small solution service. So in order wins, so in few orders, we are not getting the value of order. So, it would be helpful?
Rakesh Chopdar
We can’t disclose with Mr. Balakrishna and we can’t disclose what we can disclose — we are disclosing. We just now uploaded it on our website. We got a contract from Arabelle French Company. We got a large contract of INR340 crores [Speech Overlap]
Balamurali Krishna
Okay. That’s okay. All the best. Thank you.
Rakesh Chopdar
Thank you.
Operator
[Operator Instructions] The next question is from the line of Jeevan Patwa from Sahasrar Capital. Please go ahead.
Jeevan Patwa
Yeah. Congratulations, Rakesh. Wonderful set of numbers, and excellent order wins in last quarter and even today’s order. Just one question on this. So we are now saying we have won the contract with Arabelle Solutions which is for nuclear power. So are we exploring any domestic opportunities in the same sector and the area?
Rakesh Chopdar
Okay. Hello, Jeevan, nice to talk to you. This contract Arabelle Solutions, it’s a complete EDF. I hope you — hope you have heard about EDF. It’s a part of EDF. It’s a French government company and EDF and Arabelle control is the major nuclear power across the world. So it’s a pride moment for us to have this contract for nuclear power. It’s very, very stringent and to getting approved from EDF is very, very stringent, right? So this is where we stand for. And this is just the beginning of this last contract. And I can tell you the boom which is coming up in the power generation is quite crazy.
Coming to the second question of yours on the domestic. Domestic, look we have only BHEL and what you will come to know very soon, because we are in talks with the very senior management of BHEL. There are many parts which BHEL still imports, right? So we got into collaboration with them and what Azad is manufacturing, exporting and what, there are some components which BHEL is importing. So we had a discussion with them and hopefully we could crack something which is coming up big from BHEL as well. So equally, all right, there is a good requirement from BHEL as well.
Jeevan Patwa
Okay. And secondly on the Saudi, so we are going to set up manufacturing facilities. So any color on that how big it would be, what will be the investment and what would be the potential?
Rakesh Chopdar
I can’t give you much details, Jeevan, but I can tell you one thing. I can give you an idea flavor, that this requirement has nothing to do with what we — with the existing business as what we are doing with the Baker Hughes. So this is for the Kingdom, within the Kingdom, right? And they do not have many manufacturing facilities. I mean it’s not just, see, what Azad plays a role. Azad plays a role where it’s not just technology where you can buy, you have money, you buy technology and you start, you know, creating parts. It’s not that.
We value right, we value adding the process engineering and all. That skill set what Azad has got. It’s very rare. So this is where Baker Hughes selected us to set up a facility where we can provide solutions to them. So whatever business will come in, it is for Saudi within the Saudi. So this is quite large numbers. I can’t disclose any numbers right now but it’s quite significant.
Jeevan Patwa
Okay. Okay. Thanks a lot, Rakesh. Thanks a lot.
Rakesh Chopdar
Yeah, thanks, Jeevan.
Operator
Thank you. The next question is from the line of Kamlesh Jain from Lotus Asset Managers. Please go ahead.
Kamlesh Jain
Yeah. Thanks for the opportunity and congrats for a strong set of numbers and very strong commentary, sir.
Rakesh Chopdar
Thank you, Mr. Kamlesh.
Kamlesh Jain
Yeah, just one question on the part that like —
Rakesh Chopdar
Mr. Kamlesh, can you be a bit louder, please?
Kamlesh Jain
Yeah, yeah. So just one question on the part that we have a very ambitious target of around 10x capacity growth. So like what would be our capex spread over the next like say three, four, or four, five years, sir?
Rakesh Chopdar
Capex, again depends on the business cases, right? As Vishnu mentioned, like we are going in component manufacturing that is of course that is on track then we are going in assemblies, we are going in subassemblies. So every business case has its own business case of investments. So it’s a very detailed discussion and you’re most welcome to visit Azad so that we can showcase you all these things, what exactly we are talking about. It’s very difficult to justify one particular investment on one particular customer. So it’s very diversified, right? Azad is playing multiple roles in multiple verticals. So every vertical has its own set of investments. So it’s a very well planned. It’s very well-planned and very detailed plan.
Kamlesh Jain
No, like you have a guidance of roughly around INR200 crore capex in this particular year. So going forward like over next three, four years, like how the capex would be there because you have [Speech Overlap]
Rakesh Chopdar
That’s what I was trying to say, Mr. Kamlesh. We are going phase-wise, right? As Mr. Bala Krishna also has the same question. All the capex is not going to get consumed once, phase-wise. Like it’s not small facility what we’re building, it’s 10x, right? And every customer has this large contracts, like we should give an INR800 crores order. So we are investing ahead of the curve to balance their requirements. Same thing we signed a big contract with Arabelle. This is for again, large contracts.
So these contracts are coming because we are building a capacity. So, hard part was done already back, long back, and that’s how what Vishnu was mentioning. We are increasing the wallet share within the customers from 1% to 3% to 5% to 10%. That’s the reason this is a very well-laid-out 10x capacity. There’s a plan behind this for next capacity. So I request your presence in Azad then we can discuss more in detail. I can share you all the things, because it’s not just one customer. I could have given you one number.
Kamlesh Jain
Okay. And last on the debt side, like our debt — net debt in this quarter has risen to roughly around INR127 odd crore. And I do appreciate that you had a capex of roughly around INR127 crore in this quarter. And like say going forward as we expand and increase our capex, so what are the debt levels or net debt to EBITDA we would be comfortable with?
Ronak Jajoo
Yeah. Mr. Kamlesh, Ronak here. So our net debt to EBITDA guidelines will be around 1.2 to 1.3. We always maintain that particular ratio and we are on that range.
Kamlesh Jain
Okay. So that would remain in that particular range?
Rakesh Chopdar
Yeah. Yeah.
Kamlesh Jain
Okay. Thanks a lot and best of luck.
Operator
Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead.
Aditya Bhartia
Hi. Good morning sir. So my first question is on some of the new large contracts that you’ve got from companies like Mitsubishi and Honeywell. Now these have been our existing large customers and we’ve already been executing orders for them. So just want to understand these new orders should be seen as something which is completely incremental to what we were already doing or part of the existing business gets consummated in the new order wins that we are speaking about, especially for Mitsubishi given that that’s a fairly large order.
Rakesh Chopdar
Yeah, it’s purely incremental of the wallet share increment, Aditya. As existing business what we are doing with every customer is we have limited capacity. Because the revenue is what we are doing at the moment and we are going into 10 times. So there is a plan behind 10 times. Why we are going 10 times is because we know that these orders are on its way. And as we are showing capacity, we are showing progress. They are releasing the purchase orders. So this is an incremental which will be continuing like Vishnu mentioned, 1% to 3% to 5% to 10% wallet share, increment of wallet share from every customer. This is a classic example how the wallet share is increasing.
Aditya Bhartia
Understood. Understood. Perfect. And one should —
Rakesh Chopdar
[Speech Overlap] uploaded some of our Arabelle Solutions, Aditya, on nuclear power.
Aditya Bhartia
Right. Right. The EDF one. Correct.
Rakesh Chopdar
Yeah.
Aditya Bhartia
And we should be assuming slower and gradual kind of a ramp-up as capacity keeps becoming operational. And fair to assume that revenues that we’ll be getting from some of these new contracts two years down the line will be higher than first year, third year will be higher than second year. Is that how we should be building that in?
Vishnu Malpani
Yep. So, Aditya, hi, Vishnu here, and thanks for your question. So just adding to, you know, the first question that you’d asked. So if you at, you know, the way our Japanese stand generally works is, you know, they work on purchase orders and then, you know, that needs to be executed. But since a new capacity is coming up, it’s every OEM isn’t, you know, making efforts to sort of book our capacity for the next four, five years so that, you know, there is a clear clarity on how the ramp-up is going to happen in terms of wallet share. So you know, all the contracts that you see with our customers, with our existing customers and our existing product lines are, you know, towards increasing our wallet share. So that is how we are looking at it.
And secondly, see today, we are constrained by capacity, right? So when you see a ramp up, you would see, so you know, you should look at customers that we have been talking to that we are in production mode. So those customers will constantly keep ramping up at a faster rate. The customers that are currently in developmental phase or qualification phase will slowly ramp up, as is the nature of the industry because these are mission and life-critical components, right?
Aditya Bhartia
Interesting. Yeah, But Vishnu, given that the Mitsubishi order that we spoke about is INR700 crores for I think over a five-year period, on an average, it kind of works out to be INR140 crores per year. Let’s say we build in a ramp-up over there. By third year, we’ll be having INR150 crore, INR170 crore of possibly revenues coming from this order. That is a fairly substantial part of incremental growth that then we are speaking about, right?
And we are speaking about not one such order but multiple such orders. Then should we think about growth possibly being faster than what we’ve been speaking until now? Is it a possibility that with so much capacity coming on stream and with the kind of order wins that we have had, instead of 25% to 30% growth, we can be at a faster growth trajectory?
Vishnu Malpani
Definitely, Aditya. I think that’s the most logical response to this question. But then for the market, we’re still guiding 25% to 30%, but internally, we are obviously changing higher numbers, as you would know, because these contracts, like you rightly said, come and with specific delivery schedules and specific timelines. So we are ramping up quickly, right? So if you look at our addition in our capacity, it’s not 25%, 30%, it’s higher than 25%, 30% per annum. So we are obviously internally targeting higher number, but guiding the market at 25%, 30%. That’s how I would like to answer it.
Aditya Bhartia
Absolutely. And even for FY25, this 25% to 30% guidance looks to be on the conservative side. Unless it is a scenario that we are facing big capacity constraints until the time new capacity comes on stream, it’s difficult to further expand, because we are now already doing INR100 odd crores per quarter even if we assume, let’s say 3%, 4% sequential growth every quarter for the next two quarters, we are speaking about hitting the upper end of the guidance, and historically we have done a sharper sequential growth than that. So is it that we are just being conservative or are we facing capacity constraints at this stage?
Vishnu Malpani
First point is there is definitely capacity constraint, right? So in the current facilities that we have, we are going to be busting our capacity very, very soon. And that’s why you see our endeavor or our attempt is to start productionizing the new facility as soon as possible. So today, while the 25%, 30% guidance has been rightly set, we’ve hit INR100 crore revenue per quarter. So we are looking at delivering at the upper end of the guidance for sure, trying to manage your capacity internally. But since the new plant comes up, I think the growth can be much higher. So there is definitely capacity constraint for the current year, but we are still managing with the 25% to 30% and we should be at the upper end of the guidance only.
Aditya Bhartia
Sure. And just last question from my side. There’s obviously this capacity expansion that we are undertaking. There’s the capacity that we have to set up in Saudi Arabia. Any breakup of capex that you can provide at this stage about how we should be thinking about capex numbers for next two or three years and how much capex we would have already incurred in FY25 in respect of the new capacity that will be coming on stream?
Vishnu Malpani
So, Aditya, you know, for this conversation, I’d like to take you back to say a couple years behind when we were at say INR100 crore per annum. So we built capacity of ForEx and today, we reached a point where we reached INR100 crores per quarter, right? So we do have a plan of ramping up in a pragmatic way until FY27, FY28. And we internally have also started planning our business beyond FY27, FY28 onwards to much higher numbers as well.
So the capacity planning, the capex planning is underway and I think today we do know the capacity addition that we need to do until FY27, FY28. We are working towards going from FY27, FY28 to say FY32. So we are in the process of doing the math around the capex deployment. But in all likelihood, you understand the asset terms that we have in our business. You understand the kind of potential that we’re looking at. So it will be a fair assumption to look at that and make a good guess. But from our perspective, I think it is going to take us maybe a couple more months to come out with more concrete exact numbers for capital deployment.
Aditya Bhartia
Sure. That’s helpful. Thank you so much, Rakesh, Vishnu. Thanks.
Vishnu Malpani
Yeah. You’re welcome. Thank you, Aditya.
Operator
Thank you. The next question is from the line of Sanjay Shah from Pranishta. Please go ahead.
Sanjay Shah
Okay, hi. I hope you can hear me.
Rakesh Chopdar
Yes, Mr. Sanjay.
Sanjay Shah
No, thank you. Thank you. Actually, most of the questions have been answered so I don’t have any question left. I do want to take this opportunity since I’m on the line to congratulate you. I don’t think we have a better exponent of manufacturing excellence in the country than you. So all the best. But all my questions have been answered.
Rakesh Chopdar
So nice of you. Thank you, Mr. Sanjay. So nice of you.
Operator
Hello, Sanjay sir, am I audible to you? [Technical Issue] Hello.
Rakesh Chopdar
Yeah.
Operator
The next question is from the line of Rajesh Vora from Jainmay Ventures. Please go ahead.
Rajesh Vora
Good afternoon, Rakesh ji. Congrats on winning prestigious orders from some of the top market clients in the world and also good numbers. See, you mentioned in your opening remarks that first quarter of next financial year you’re going to start the phase 1 of the expansion. So what percentage of 95,000 square meters of facility one will be ready in first quarter?
Rakesh Chopdar
It doesn’t come back like that, Mr. Rajesh. Thank you so much for your question. It doesn’t go like that. If — every OEM has their own requirements, right? So we can’t compare that with space occupancy. We have to compare with the capacity what we are trying to add in that space. That is — that could be ideal, you know, thing to explain you and it’s too technical to give you the, you know, number of machines and all that. So you are also most welcome to visit Azad so I can give you more detailed, you know, presentation on this.
Rajesh Vora
No, I understand. I have already met you and visited your plant. Thank you so much for that. Look, what all of us are trying to understand, Mr. Rakesh ji, is that, there is a 10x capacity expansion being planned with [Technical Issue]. There is a soaring order book which is also very, very commendable. What we are trying to get our arms around is what percentage of that is going to be ready. Out of that 10 times, is 1 time going to be ready in first quarter ’26 when you say we are going to start? How do we spoke that?
Rakesh Chopdar
What guidance we are giving, Mr. Rajesh is the 25%, 30% guidance is to the market and we have our internal targets are different, correct? So this is where we are trying to explain you that the growth rate what we are seeing for FY25 and FY26 onwards are incremental. As you come nearer to FY25 and as we also see how progressive we can build these facilities ASAP, that would be an ideal situation to give you exact, quarter-wise, how it’s going to come and incremental things.
Rajesh Vora
Sure, sure, I understand that. Yeah. And wallet share target that you have set out for your company, 5% from each customer on an average basis, will that be achieved once you have the entire 10 times capacity under your belt?
Rakesh Chopdar
Every OEM has a different number. So we — when we say 1%, 2%, 3% to 5% to 10% is an average number.
Rajesh Vora
Sure.
Rakesh Chopdar
Yeah.
Rajesh Vora
So that target will be achieved once we have the 10 times capacity?
Rakesh Chopdar
Yeah, 10 times is now. And then there is as earlier also another gentleman asked on the first question what the first and Mr. Bala Krishna also asked, that Phase 1 is 90,000 — 95,000 square meters and we have another 70,000 square meters facility ready. So we finish this first and we go move to that. So this 10 times may become 12 times, 14 times, 15 times hopefully.
Rajesh Vora
Sure. Sure. Okay.
Rakesh Chopdar
So basis the requirements, as the wallet share, as it increases, we are ready.
Rajesh Vora
Okay. Wonderful. Wonderful. Good. All the very best, Mr. Rakesh.
Rakesh Chopdar
Thank you.
Rajesh Vora
Thank you.
Operator
Thank you. The next question is from the line of Partha from Eastern Financiers Limited. Please go ahead.
Partha Saha
Yeah. Hello sir. Am I audible?
Rakesh Chopdar
Yes, Mr. Partha.
Partha Saha
Yeah, thanks for the opportunity, and congratulations on wonderful set of numbers. I have a couple of questions. First one is, do you have further scope of margin improvement from here onwards?
Rakesh Chopdar
Of course. Of course. We all die for that, right? So we will not leave anything, which is — it is not –we’ll not let it go nature ways. Either if you go to the customer or you come to us. Either of it.
Partha Saha
Okay, thanks. Next is on working capital. I missed out whether our working capital days has been stretched, has been there challenges on procurement and raw materials?
Rakesh Chopdar
Yeah. So this is the biggest problem of procurement of. Because everything is being bought. And now what we’re doing is, you know, while we try to place an order for the raw material and all these, always we have to import major of it. You have to pay in advance and then the manufacturer, then the shipping time, then it comes in as inventory, then we start manufacturing. It takes quite a time to, you know, churn out that. So we are now in — we are successful in developing few Indian mills here. And these Indian mills is — it has just started right now, okay?
And if you can see, very much taper of a major of the qualifications are done now. So very soon you will — we will get all of this. So this is a temporary issue. This working capital issue is a temporary issue. And very soon, you will see a taper of that number of, you know, the days which are coming up. So that way you will very soon see that this will come out of this problem very soon.
Partha Saha
Thanks, sir. Thanks for that. And the last one sir, with regards to that —
Operator
Sorry for interrupting you, sir. May request that you return to the question queue for follow-up question.
Partha Saha
It was just the last one, if you could please.
Operator
Sir, you can also return to the question queue for follow-up questions.
Partha Saha
Okay. Yeah sure.
Operator
Thank you, sir. The next question is from the line of Mayur from Wealth Managers India Private Limited. Please go ahead.
Mayur Parkeria
Good afternoon, sir. Can you — am I audible?
Rakesh Chopdar
Yes, Mr. Mayur.
Mayur Parkeria
Yes. Congratulation on a good set of numbers. Just two questions. I could actually join the call little late because of network issues, but then I hope if you can answer me again if this has already been asked. The point I was trying to understand was, you know, we have the customer confirmations and orders in place. We are putting up the capacities in order to execute that. We have the product approvals and validations all done. So sir, what is the risk? I am trying to listen. What is the risk in theoretically trying to ramp up 3 times in two years? Why can’t it be done? Just — I understand that sir, a capital cost —
Rakesh Chopdar
I will answer you. I understood your question. I’ll answer you, right? Building, constructions, people, money, everything is available. What about the equipment? Every equipment is all imported. The deliveries of these equipments are not handy, as, okay, construction-wise, some building take three months and the same building, if we add more resources, we can do it in say two months, right? We can add more people, we can train more people, we can do all sort of things which we are in our control.
But when we talk about these kind of equipments, what we need to manufacture these components are also majorly imported, right? This is where we sometimes have this long lead delivery items which is not in our hand. And we cannot anticipate an order which will come up in six months and place an order today on the equipment. We will only place an order once we have a contract in hand. You get my point, sir? [Speech Overlap]
Mayur Parkeria
But sir we already have INR4,000 crore worthof orders sir. Where is the [Speech Overlap]
Rakesh Chopdar
Yeah, we place equipment orders. They are just all coming and that’s the reason we are telling you, you will see an increment revenue from FY26, correct? So you will see — you will see a shift from FY26 for sure. Because the capacity will be done, equipment will be in place.
Mayur Parkeria
Okay, got it. Another question was, you know, normally when we see, you know, we — what we have understood about airfoils and other parts which are there or the other which goes into the — it’s critical in nature. It is important in nature. Why is it, and we say we are among the lowest cost for most of our parts which are there. Why is this advantage which is for the customer, which is, you know, it is low cost, it is critical in nature. We have the orders in hand. Why is that advantage not getting reflected in terms of our working capital cycle which can be much, much lower than what normally a critical manufacturer of suppliers would normally get the benefit of, sir?
Rakesh Chopdar
Yeah, of course, you’re right. Of course, you’re right. So when you say qualification, this is a very continuous process. You keep qualifying, you keep your wallet share increasing, you keep your order book in incremental base, right? Today, yeah, if we capitalize our development costs or this, what do you call the qualification cost, our EBITDA is 3% to 4% higher, but we expense it out. We don’t show that as taking that consideration in our — you know, we don’t capitalize that amount.
If we stop doing that, we cannot do that. We cannot stop it, right? We don’t want to stop at INR4,000 crores. We are addressing a TAM which is what product Azad is related to, is around $30 billion, $30 billion-plus. This is just a start. Now, when you’re trying to reflect things, we need to have this facility. First thing is foremost is this facility coming up.
Second, the qualifications which we finish, as you can see in our working capital, which is, you know, having higher number of days because of the reasons which I am sure you must have heard before in the previous question that the raw material, the qualification as a minimum order quantity of, you have to qualify five pieces. For that, you need to buy 500 castings. You have to import all that 500 casting which stays in inventory. Once you finish the qualifications, then inventory slowly starts getting reducing. That means the taper-off is coming, correct?
Mayur Parkeria
When is that [Speech Overlap]
Rakesh Chopdar
So, that is just coming out of this phase. We are just coming out of that phase. And from FY26, you see a beautiful story coming up.
Mayur Parkeria
So, sir, you think that — so just to understand it better, at INR1,000 crore turnover, you believe that the working capital would be — will it be meaningfully lower than the current working capital days?
Rakesh Chopdar
Of course. Of course. Of course. We can survive, we’re having such long working capital, right? It’s not a thing. But this is a temporary phase, I’m telling you. Not me, anyone has to go through this.
Mayur Parkeria
Okay. And this will start playing for FY26 [Speech Overlap]
Rakesh Chopdar
As you mentioned — as we mentioned, we are best cost, we have good margin, we have good customer profile. That’s why we are the only one in the country for certain product line. There’s no one else.
Mayur Parkeria
So this will start seeing from FY26 is what you say?
Rakesh Chopdar
Yeah, yes, yes. Hard work is just done there. The hard work is just done. Now, you will see — you will definitely witness. We all wish to do this, right? All these years, we did this struggling. Now, we have coming capacity addition.
Mayur Parkeria
Okay, sir. Thank you so much and wish you all the best.
Rakesh Chopdar
Thank you. Thank you, Mr. Mayur. Thank you.
Operator
[Operator Instructions] The next question is from the line of Akshay from CD Integrated Service Limited. Please go ahead.
Akshay Kaila
Hello, sir, am I audible?
Rakesh Chopdar
Hello, Akshay. Please can you be little louder?
Akshay Kaila
Right, sir, am I audible?
Rakesh Chopdar
Yeah. Okay. If you can. Yeah. Please go ahead.
Akshay Kaila
Good afternoon, sir. Congratulations on the great set of number. I just want to understand the thing I was looking for the presentation. And our total addressable market for FY27, even if we consider the 1% of that then it would be around INR2,500 to INR2,600 crore in all the three segments we are working. So is it understanding right that if we can just grab the 1% share of totally addressable market, we can do that revenue or turnover around FY27, FY28?
Rakesh Chopdar
Of course, Akshay. That is the reason we are putting up 10 times capacity, right? We know that as well market, we are at best for, we have qualifications and approvals are majorly done, right? So it’s only the capacity issue right now. So that’s what we are trying to say. If the capacity should we get this factory ASAP up, that’s the whole intention to take the wallet share which is available and this already started turning out. You can see these last contracts coming is nothing, but our capacity agreement, correct?
Akshay Kaila
Okay, sir. Okay. And sir, my second question is that whatever the contracts or the agreements we are signing or we are getting the value of all the things, let’s say if contract is for five years, then in five years, it will get completed and all the revenue will be realized. Is my understanding right?
Rakesh Chopdar
Of course. Of course. And this is not an end, right? This is just the start.
Akshay Kaila
Okay, sir. Right, right, sir. Thank you so much, sir. And all the best for the future.
Rakesh Chopdar
Thank you. Thank you, Akshay.
Operator
Thank you. The next question is from the line of Partha from Eastern Financiers Limited. Please go ahead, sir.
Partha Saha
Yeah, thanks again for the opportunity. Sir, I have just one question with regards to this Mitsubishi order. I think it’s a repeat order.
Rakesh Chopdar
Yeah, it’s an incremental. Correct. Correct. It’s just the capacity. Capacity out. The higher what we are doing.
Partha Saha
Yeah. And, sir, there are no competitors in India?
Rakesh Chopdar
No, no.
Partha Saha
Okay.
Rakesh Chopdar
Few of the — just to give you one more good thing which we all should feel proud is it’s not just India, a few of their components. We are the only outside Japan in the whole world. There’s no one else. Either it’s manufactured in Japan or made in India.
Partha Saha
Okay, that’s great, sir. So, you know, before other step in, so you know, were there any other companies which are actually doing it and Azad actually took over from?
Rakesh Chopdar
Yeah, of course. See this is where — see where Azad compete, Azad competes China, Europe, Korea, Japan, and USA.
Partha Saha
Okay.
Rakesh Chopdar
Right? And the wallet share which is coming it from, of course, in the competition.
Partha Saha
Okay, yeah, sure. Thank you, sir.
Rakesh Chopdar
Yeah. Okay.
Partha Saha
Thank you, sir.
Rakesh Chopdar
Thank you.
Operator
Thank you. The next question is from the line of Mr. Amit Dixit from ICICI Securities. Please go ahead, sir.
Amit Dixit
Yeah, thanks for the opportunity and congratulations for a — for actually continuation of very good set of numbers.
Rakesh Chopdar
Thank you, Mr. Amit.
Amit Dixit
A few questions. The first one is on, you know, commercial aerospace. So we are seeing that things are now improving all the company particularly after Boeing strike has got over. There is optimistic commentary from all the global majors. Now, just wanted to understand that whether we have anything on annual or LEAP engine, are we now engaged in some of the parts or are we vying for that particular engine which is basically as you know, the fastest-growing engine in the history of aviation?
Rakesh Chopdar
Yeah. Yeah. Yes, system is definitely, when we are in this industry of engines, for us it doesn’t matter. It depends or — it’s a military or a commercial airline engine, right? For us, it will not matter. The customer base look is the same. Only thing is we are not taking much orders because we want to get ready. We want to get ready because these are some master requirements and you know, so that engine component, especially on the rotating components, it’s not easy to get into that, but Azad has already put its foot in the door, right? So very soon, you will listen a lot of about these things.
Amit Dixit
Yeah. Because the question was more in light of the fact that both GE aerospace and Safran who have got collaboration. They are our clients. So, I was just wondering that we should also have a foot in the door at least.
Rakesh Chopdar
Yeah, we are GE Aviation, already approved suppliers, Safran, we are already approved suppliers, Rolls Royce we are already approved suppliers so that is not a problem. With this, we are getting ready to take that big chunk. As I told, the capacity is the major issues, right. So, that that is all, talks are going on and we can share more details once it comes to close up when we are about to close deals with them.
Amit Dixit
Okay. The second one is on the order that we won earlier, that is on — for Rolls-Royce. When we can see the execution of this order to begin?
Rakesh Chopdar
Yeah, the qualification is on, Mr. Amit. So as per the contract, by calendar year ’25, we should be in the middle of the qualification. And as the qualification is done, then that’s done with that and the ramp up comes up from there.
Amit Dixit
Okay, so some of the earnings that we get, incremental earnings in FY26 maybe —
Rakesh Chopdar
Yes, that — yeah. So we also have a lot of hopes on FY26, which will open, of course, it will at least give a kickstart. At least, it will give some small, small, small, small steps for the future years if you start taking baby steps from FY26. With what we’re doing currently, it will add baby steps from FY26 and then we can leap and bound and crawl, walk, and run.
Amit Dixit
Okay. The second one is on Saudi Arabia, interesting collaboration. Now, does it give us any preference that whatever Baker Hughes, for our, of course, for our market, whatever it does, we will be getting the first opportunity in Saudi Arabia for Baker Hughes. Is it structured or how does it work? And if it is possible, can you give the broad contours of the facility size that we are looking at?
Rakesh Chopdar
It’s an interesting question, Ms. Amit. I’ll tell you, this is very massive. It’s not something in — it’s all in millions, you know, and it can convert into a lot. So when we met the Ministry of the Energy, we met their clients. Baker Hughes took us to their clients, which is Saudi Aramco and many more companies. And they presented Azad that, okay, this is a company which will come and set up a shop. So it’s their approval who has accepted that Baker Hughes has got suppliers to put in a shop there, because of the capabilities, right.
And they have, it’s not just Baker Hughes, it’s in connection with the Ministry of Energy as well as their customers where these products are going to use, who’s going to use these products, right? So they also need to give a consent. So they also approved us. Okay. Azad is the best fit, you can go ahead with that. So Baker Hughes has taken in principle approval from the ministry in principle with their customers and then put Azad there in the front. So it was not just one day story. We had gone, we have presented there. We had to really come to the, you know, we had to match and we definitely matched all the requirements and we were welcomed and we felt happy that they selected us.
Amit Dixit
Okay, so when can we expect, you know, the production or the setting about this is facility?
Rakesh Chopdar
No. This is at a very early stage. We just agreed now. We are having discussions. They have sent us some package. We are evaluating. We have to record this and that. We need to select equipment and we need to, we’re also thinking to have a local partner there, you know, because the administration work and all that thing. We would like to take a local, set up a JV with local partner there. We are talking to few of the major companies there. We can have a JV with them and we can start this activity so that we focus on our business here and also give support to that JV. So we are making it a smart workout. We are trying to make sure that we don’t put much investments, we don’t put much big things and we keep measure of the things in our control and things will go very smooth.
Amit Dixit
Okay, the last question from my end here, that last time you mentioned in the call that Q2 FY25 would be better in terms of margins and it indeed is. Now, is it interesting that despite slight lower Q-o-Q share of aerospace, we still have margin improvement. Now, is it due to the order execution sequence or the impact of value addition pursuant to new acquisitions or how should we beat into this?
Rakesh Chopdar
I’m sorry, Mr. Amit, I’m not really. Can you please repeat the question here?
Amit Dixit
Yeah, so the question is that last time in the con-call, you mentioned the Q2 FY25 would be better in terms of margin, and you know, margins have come out better, to be honest, in Q-o-Q. Now, and this is despite, you know, if I look at Q-o-Q split between — in the revenue, then energy contribution is higher compared to, I mean aerospace, if I look on Q-o-Q basis. Now, is the improvement in margin basically because of the orders we are executing, the nature of orders that might carry higher margins, or is it that we have acquired the two acquisitions that we have made? Is it the impact of these?
Ronak Jajoo
Yeah, Amit, this is a function of process improvement and the lower employee cost because we are not adding employees and our sales are moving at 13% quarter-on-quarter basis. So this is a function of operating leverage and the process improvement, what we have done, it is not because of the subsidies what we have acquired.
Amit Dixit
Okay, so that is to follow, that advantage?
Ronak Jajoo
Yeah, yeah.
Amit Dixit
Okay. Wonderful. Thank you, and all the best.
Operator
Thank you. The next question is from the line of Chirag from Neo Asset Management. Please go ahead, sir.
Chirag Khasgiwala
Yeah, hi. So just want to understand that, you know, from your commentary, if I can understand that, you know, if a new veteran wants to enter into business, it will not be very easy for that player to build up the kind of capacity that you build up and there will also entry barriers. But at the same time if when you are looking to increase your wallet share amongst OEMs, then effectively you’ll be grabbing the market share from other suppliers based in China, Japan, US and all. So what difference will you be providing to these OEMs that they will be encouraged to come to you and not to go to the other suppliers also there in the business?
Rakesh Chopdar
Hello, Chirag. Actually, see, first thing in our business is first is to break entry barriers. First, you need to prove that you can manufacture these rotating components. When we now won a nuclear order, we are now making rotating components for the aircraft. And you can imagine the life-critical components. You’re not talking about some armrests or you know, you’re not talking about some component. It doesn’t — it’s not really directly affecting a life-critical component, correct?
If you see it’s an armrest manufacturing, you go and get approval. I think the CNC machines you can manufacture armrest, but manufacturing, rotating component of engine, you can imagine how much barriers are there to break to come to that level of the OEM accepting a rotating component manufactured in wherever the facilities and setting up and utilizing it, correct?
So definitely it’s not easy. First, the barriers are there to break, qualifications are there, and then comes the price level, right? Whoever has broken the barriers, they must be a great company, China or Japan or US or Korea. They must have done it in their past whenever they have started 30, 40, 50 years ago. And Azad being a new entrant, it’s very — it’s very, very evident that it’s not easy just to put technology and we can get these orders, right? We have to break the barriers also.
So in this regard, in this context, what we can tell you is, that the orders, what we have, is definitely we’re competing the world. We have the best cost. I don’t use the word low cost. I say it’s the best cost and give a solution to the customers, right? And anything which a qualification takes for any OEM to approve, any supplier is a cost to the customer also. So definitely if the cost is not beneficial to them, they will not switch. It’s a very tedious work and it’s a long journey to do the qualification. They have to spend so much money.
Other than we invest money, they also invest a lot of money in qualification, right? For years. So that benefit if you don’t pass on, why will the order come to us? That will stay in China or Japan, wherever they have done it already. So definitely, there is a cost advantage as well. First, it’s technical capability, promote, and then comes the cost.
Chirag Khasgiwala
Okay. Thank you.
Rakesh Chopdar
Yeah.
Operator
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to management for closing comments. Please go ahead, sir.
Rakesh Chopdar
Yeah. Thank you so much. Thank you, everyone, for your time and patience for coming in this call and asking good questions. I hope we could answer all the questions. If anything is there, free to write an email to us. We can answer all the questions basis the time constraints. And that’s it from my side. Thank you so much, everyone.
Vishnu Malpani
Thank you. Thank you from Azad’s side. We’re very happy to get on a call and address the questions that, you know, anybody had and it’s always a pleasure to talk about our business and to get more clarity into the questions. And these are some very interesting set of questions and I hope we’ve been able to bring some more clarity into how we’re planning to ramp up our business in any way. So thank you so much for joining us today.
Ronak Jajoo
Thanks a lot for taking the time for the call and it was great session where you have asked a lot of insightful questions and hope we are able to give you the color on that. Thank you.
Operator
[Operator Closing Remarks]