Aeroflex Industries Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

1 Asad Daud (Managing Director)

Analysts

10 Deepak Poddar (Sapphire Capital), Karan Dhole (Asit C Mehta), Muskan (Niveshaay Investment), Nirvana Laha (Badrinath Holdings), Omkar Chachad (Motilal Oswal Financial Services), Prem Luniya (Astute Investment Management), Pritesh Chheda (Lucky Investments), Raman (Sequent Investments), Shubhi Gupta (Trinetra Asset Managers), Shwetha (ithought PMS), Tej Patel (Niveshaay Investment), Yash Jhurani (Qode Advisors), Yashika Pancholi (Haitong Investments)

Financials & KPIs

Geographic & Segment Commentary

SFN Skid Assemblies (Data Centre Liquid Cooling): Revenue reached ₹32.4 crores (~23% of total) in Q1 FY27 with volume of 1,040 skids. Capacity expanded from 6,000 to 9,000 units per annum, with plans to scale to 15,000 units per annum by Q3 FY27 (October–November); capex budgeted at ₹48 crores for the 2,000→15,000 expansion. Customer gives a 2-month dispatch plan with project visibility extending ~3 months. Management expects ~80% optimal utilization in FY28 once fully commissioned. Each skid is custom-designed with value ranging ₹1 lakh to ₹5 lakh depending on design complexity.

Flexible Hoses & Assemblies: Core business grew 41% YoY with current capacity utilization at 65–66%. Capacity expansion from 17.5 million meters to 20 million meters per annum targeted by Q3 FY27; total capex ~₹54 crores across FY25–FY27. Peak revenue potential at full utilization (assuming 70% from assemblies) estimated at ₹650–675 crores. Q1 mix was 63% assemblies and 37% bare hoses, driving blended margins of ~22–23%.

International Markets (Europe & USA): Exports grew 43% YoY, with traction in Italy, Spain, France, and the UK. Europe business includes data centre applications (flexible hose assemblies for liquid cooling, fire suppression, HVAC) alongside traditional industrial segments. Management is in active discussions with international customers for SFN skid assemblies (different design from India); potential market described as "multifold" versus India. International competitors cited include Senior, Parker, and local US/European manufacturers.

Hyd-Air & Metal Bellows: Hyd-Air revenue at ~₹7 crores and metal bellows at ~₹3 crores in Q1 FY27. Bellows expected to ramp up over the next 2 quarters. Hyd-Air currently supplies components used internally in hose assemblies going into data centres (not directly into SFN skids). Capex plan for Hyd-Air under discussion to be announced when finalized.

Company-Specific & Strategic Commentary

Product Portfolio Evolution: Aeroflex is transitioning from a flexible hose manufacturer to an integrated provider of advanced flow control and flow management solutions for mission-critical applications. The company is developing ~15 new products showcased at an April international exhibition; orders already received from European customers for data centre assemblies, with skid assembly discussions ongoing.

Engineering & R&D Capability: Management emphasizes engineering differentiation, product innovation, and speed/agility as competitive moats alongside cost arbitrage. R&D pipeline includes products developed in collaboration with customers across hose assemblies and liquid cooling verticals. Fire hose assembly for a large US customer is nearly complete, expected to commercialize by end-Q2 or start of Q3 FY27, targeted at international supply.

Capacity Expansion & Manufacturing Footprint: Setting up a new plant at Chakan (Pune) for hose assemblies for a specific international customer, contributing to elevated employee and other expenses in Q1. Q1 cost elevation also impacted by West Asia logistics crisis starting mid-March. Investments continuing in automation, advanced welding solutions, and precision manufacturing.

Data Centre Vertical Strategy: Targeting 25% revenue contribution from SFN skid assemblies by year-end FY27 (already at ~23% in Q1). Targeting company-wide 25% EBITDA margin over the next few years. Per Aeroflex content metric, ~40 skids required per 1 MW of liquid-cooled IT load. Management views demand visibility as multi-year, tied to AI infrastructure build-out.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

SFN Skid Capacity Expansion & International Opportunity

• Question: Capacity expansion to 15,000 units and plans beyond that, given India data centre policy momentum (Tej Patel)
• Answer: Expansion from 2,000→15,000 based on customer projections; 9,000 commissioned, 15,000 by Q3 (Oct–Nov). Further expansion beyond 15,000 under discussion but premature to comment. International market potential is "multifold" vs India; different skid design being developed for international customers; first international skid business expected in FY27 (Asad Daud)

Skid Pricing, Margins & Competition

• Question: Average skid price declined; is it competition-driven? Impact on margins? (Shubhi Gupta)
• Answer: Skid is tailor-made; price varies by design (₹1 lakh to ₹5 lakh per skid) even within the same data centre/floor. No standard pricing; costing done per design—no margin impact. International competitors include Senior, Parker, and US/European players (Asad Daud)

Flexible Hose Utilization, Peak Revenue & Margin Trajectory

• Question: Current flexible hose capacity utilization, peak revenue potential at full utilization, and progress on 25% margin target (Raman)
• Answer: Current utilization 65–66%; peak revenue potential ₹650–675 crores assuming 70% from assemblies. 25% target is company-wide blended EBITDA margin (not just flexible hose). Q1 mix was 63% assemblies / 37% bare hoses; blended margin ~22–23%. Bare hose margins 16–20%, assembly margins 22–26% (Asad Daud)

Fire Hose Assembly Commercialization

• Question: Update on fire hose assembly for data centres, market size, geography (Prem Luniya)
• Answer: Nearly complete; expected to commercialize by end-Q2 or start-Q3 FY27. For international supply to large US customer. Margins expected at 23–26%. Specific revenue quantum not shareable pre-commercialization (Asad Daud)

Skid Volume, Order Book & Visibility

• Question: Order book/delivery schedule for skids; Q1 skid volume; exit run rate on which capacity (Pritesh Chheda)
• Answer: Customer gives 2-month dispatch plan with ~3-month project visibility. Q1 skid volume was 1,040 units (₹32.4 crores). 750 skids/month Q4 exit run rate is on 15,000 capacity once commissioned (Asad Daud)

Q-on-Q Margin Bridge & Cost Drivers

• Question: Q1 gross margins up ~200 bps QoQ but offset by ~300 bps deleverage from employee/other expenses—is this expansion-related, one-off? (Nirvana Laha)
• Answer: Costs relate to Chakan plant setup, SFN Taloja manpower ramp-up, and bellows under-utilization. West Asia logistics crisis from mid-March also added costs. Bellows ramp expected to boost margins in coming quarters. Mgmt advised annual view vs quarterly (Asad Daud)

Aeroflex Content per MW & International Competitive Positioning

• Question: Aeroflex content per MW of liquid-cooled IT load; rationale for international customers sourcing from India (Yash Jhurani)
• Answer: ~40 skids per 1 MW on average. International customers source for: (1) engineering capabilities (developed product non-existent in India 1 year ago), (2) innovation/design improvements, (3) cost arbitrage, (4) speed/agility. Mgmt views these as defensible moats (Asad Daud)

Sequential Margin Decline & Q2 Outlook

• Question: Sequential margin decline of ~80 bps despite doubled skid volumes—product changes? Q2 margin outlook (Omkar Chachad)
• Answer: Decline due to investments in skid team expansion, new Chakan facility for international hose assemblies, and West Asia logistics cost inflation from mid-March. Q2 margins expected similar to Q1 (~23%); mgmt prefers annual over quarterly assessment (Asad Daud)

Hyd-Air Strategy & Data Centre Integration

• Question: Standalone approvals to sell Hyd-Air components to other skid makers/CDU players globally? % of Hyd-Air in SFN skids? (Muskan)
• Answer: Hyd-Air products to be used internally only (not sold to other data centre manufacturers). Hyd-Air does not supply directly into SFN (different technology); supplies components used in hose assemblies for data centres (Asad Daud)

Flexible Hose Applications in Data Centres

• Question: Applications for flexible hoses (not skids) in data centres; demand drivers from Europe (Raman follow-up)
• Answer: Three use cases: (1) last-mile connection between rack and SFN (flexible component), (2) fire suppression/firefighting systems, (3) HVAC applications in air-cooled data centres. Older data centres converting from rubber to metal hoses (Asad Daud)

Key Takeaway

Aeroflex Industries reported its highest-ever quarterly performance in Q1 FY27 with consolidated revenue of ₹145.97 crores (+72.4% YoY), EBITDA of ₹33.5 crores (+116% YoY) with margin expansion of 468 bps to 23.04%, and PAT of ₹18.79 crores (+162% YoY), driven by 41% YoY growth in flexible hoses and a rapid scale-up of SFN skid assemblies for data centre liquid cooling which contributed ₹32.4 crores (~23% of revenue, 1,040 skids). Strategic focus remains on scaling the data centre vertical, with skid capacity expanding from 9,000 to 15,000 units per annum by Q3 FY27 (₹48 crores capex), flexible hose capacity scaling to 20 million meters per annum (₹54 crores capex), and commercialization of fire hose assemblies for a large US customer targeted by end-Q2/early-Q3 FY27; the company is targeting 25% EBITDA margin over the next few years and ~25% revenue contribution from skids by FY27 year-end, supported by ~40 skids per MW of liquid-cooled IT load, active international customer engagement (Europe, USA) where potential is described as "multifold" vs India, and engineering/innovation as the key defensible moat. Key risks include customer design approval delays (10–11 month cycle for new customers), external machine supplier delays affecting Q3 commissioning, sequential margin volatility from Chakan plant setup and bellows ramp-up, and customer concentration; management guides for ~750 skids/month Q4 exit run rate (on 15,000 capacity, ~65% utilization), and expects FY28 to see optimal ~80% utilization of expanded skid capacity.