Azad Engineering: PAT Down 5.2%, Cash Flow Negative

AZAD Azad Engineering (NSE : AZAD) manufactures precision-forged and machined components for aircraft engines and power generation turbines. Its customers include GE Vernova, Baker Hughes, Siemens Energy, Mitsubishi Heavy Industries and Rolls-Royce. It has over 1,700 qualified parts and 45 qualified processes. Each new supplier approval takes 30 to 48 months, creating a durable entry barrier. What happened: In Q2FY27, revenue grew 31.1% and EBITDA margin reached 37.9%. Profit after tax fell 5.2% in the quarter. For H1FY27, PAT grew just 6.5% despite 28.6% revenue growth. The gap reflects lower treasury income after deploying IPO and QIP proceeds, higher employee costs, and new facilities adding costs before contributing revenue. Why it matters: Two new facilities dedicated to GE Vernova’s gas power business were inaugurated in September 2026, taking the total to six across 44,800 square metres. Customer agreements totalling US$338.5 million, equivalent to Rs 3,200 crore, are spread over multiple years. These include US$112 million with GE Vernova and US$90 million with Siemens Energy. What I am watching: Cash flow from operations was negative at Rs 45.8 crore in H1FY27, with Rs 157.5 crore absorbed by working capital. Inventory rose to Rs 424.8 crore and trade receivables to Rs 401.6 crore by September 2026. Management expects revenue acceleration from Q4FY27 as new capacity begins shipping. My stance: Azad trades at 113 times trailing earnings and 10 times book value at Rs 2,422.70. The revenue run-rate target is Rs 1,300 crore by FY28. The moat is genuine, but the valuation prices flawless execution of a ramp that has not yet reached the income statement. I do not hold a position in Azad Engineering at the time of writing. This is not investment advice.