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  • 04 Oct 2024
  • ICICIdirect Research

HIDDEN GEM AEROFLEX INDUSTRIES

Aeroflex Industries is engaged in manufacturing of stainless-steel flexible flow solutions or hoses, which are commonly used in industries like oil & gas, chemicals, steel, ports, buildings etc. Company’s derives 84% of its revenue comes from exports and ~16% from domestic markets

Stainless steel hoses industry at the global level is growing at ~8% CAGR but there is a market shift happening from unorganised to organised market, which will create sizable opportunity for Aeroflex in future

Company has recently expanded its Hoses capacity by 36% to 15 mn mtrs from FY23 level of 11 mn mtrs. This capacity is further getting expanded to 16.5 mn mtrs. Moreover, capacity of better-margin assembly segment also has also been expanded recently by adding 5 new assembly stations. Along with these capacity additions, company is entering into another high-margin business – Metal bellows (which is expected to earn 25%+ EBITDA margin vs ~20% margin at present in existing businesses)

Company is also increasing its exposure in high-growth sectors like aerospace, solar, semiconductors, electric mobility etc, which will also drive company’s growth in the coming period

So going ahead, revenue mix will change significantly from low-margin to high-margin businesses in the next 2 years.

We expect revenue CAGR of ~25% over FY24-26E while EBITDA & PAT CAGR of ~34% & ~37% respectively over the same period.

Out target price is Rs 230 (valued at 38x P/E on FY26E)