Aequs Ltd. has an aerospace order book exceeding $1 billion, but converting that pipeline into sustained profits will depend on its ability to expand production, maintain margins and improve the performance of its consumer business. Aerospace already accounts for most of the company's revenue and operates at relatively high utilisation, while the consumer division continues to incur losses because of underused manufacturing capacity.
The company is increasing its aerospace capacity to meet demand from global aircraft manufacturers, which are expanding production across several aircraft programmes. New customer agreements and planned investments could support further growth, although additional capacity will also bring costs before all facilities reach commercial production.
The consumer business presents a separate challenge. While its revenue is growing, low capacity utilisation continues to weigh on operating earnings. Management expects utilisation to improve, consumer operations to reach break-even and consolidated profitability to recover, but the timing of that improvement remains important to the company's financial performance.
Rising Demand
Global aircraft manufacturers Airbus and Boeing are increasing production across several aircraft programmes, including the Airbus A220 and A320 families and Boeing 737 in the single-aisle category. In wide-body aircraft, the programmes include the Airbus A330 and A350 and Boeing 777 and 787.
Higher aircraft production can increase demand for components supplied by companies such as Aequs because their contracts are linked to specific aircraft programmes. Once a component qualifies for serial production, its design can remain unchanged for 15-30 years or longer.
Certification requirements, production approvals and high switching costs make it difficult for aircraft manufacturers to replace qualified suppliers. This can give component makers a longer revenue opportunity as aircraft production increases over several years.
Aequs supplies precision components and assemblies to global aerospace companies, including Airbus, Boeing, Safran, Collins Aerospace, Honeywell, Bombardier, Dynamatic and Triumph Group. The average relationship tenure with its three largest customers exceeds 15 years.
These long-term relationships provide a foundation for the aerospace business, although revenue growth will also depend on aircraft production schedules and the company's ability to deliver the contracted volumes.
Capacity Limits
Aerospace contributed 81% of Aequs' consolidated revenue of Rs 395.5 crore in Q1FY27. Segment revenue increased 40% year-on-year to Rs 322.2 crore, while earnings before interest, tax, depreciation and amortisation (EBITDA) rose 35.6% to Rs 73.1 crore.
The segment reported an EBITDA margin of 22.7% and a return on capital employed of close to 22%.
Aequs operates aerospace manufacturing facilities in India, the US and France. Capacity utilisation reached 70% in Q1FY27, up from 62% in FY26. Management considers a utilisation level of 75-80% a comfortable operating range, placing existing facilities relatively close to that range.
The company has also expanded its qualified aerospace product portfolio to more than 5,740 stock-keeping units (SKUs). These cover aero-engine systems, landing gear, actuation systems, doors and cargo interiors used across major aircraft programmes.
Higher utilisation and a broader product portfolio could support further growth. However, the company will need additional capacity to accommodate new orders if production approaches the limits of its existing facilities.
Order Pipeline
Aequs Aerospace's order book crossed $1 billion, equivalent to around Rs 9,600 crore, in Q1FY27, increasing 13% sequentially. The orders are linked to long-duration aircraft programmes, providing visibility beyond the immediate production cycle.
The company has also secured agreements that could add to its future order pipeline. It signed a 15-year agreement with Safran Landing Systems to manufacture fully assembled wheels for the Airbus A320 programme. Production will take place entirely in India using aerospace-grade aluminium.
Aequs has also signed long-term agreements with two new global Tier-1 aerostructures customers. These wins were not included in the reported order book, leaving additional potential business to move towards production.
To support the expansion, Aequs signed a memorandum of understanding with the Tamil Nadu government for a cumulative investment of Rs 1,900 crore over 10 years to establish an integrated aerospace ecosystem near Hosur.
The proposed facility will focus on aero-engine systems, gearboxes and complex landing gear components. It is expected to begin generating commercial revenue in FY29.
The company has separately committed Rs 2,856 crore over five years to expand its precision engineering capacity in Karnataka. Following its recent aerospace wins, management is evaluating whether it can reallocate or accelerate some of this expenditure towards aerospace.
The investments could help Aequs meet future demand, but they also increase the importance of managing capital expenditure and the costs associated with new facilities.
Consumer Drag
Despite the aerospace business's performance, Aequs reported consolidated EBITDA of Rs 21.5 crore and a net loss of Rs 53.2 crore in Q1FY27. Higher depreciation and interest costs following recent capacity additions, along with losses in the consumer division, continued to weigh on the overall results.
The consumer business generated revenue of Rs 73.4 crore in Q1FY27, more than doubling year-on-year. It manufactures metal and plastic enclosures and mechanical components for laptops, tablets, smartwatches and other electronic devices. Its portfolio also includes cookware and toys.
Unlike aerospace manufacturing, consumer products generally have shorter production cycles. The economics of the business depend heavily on keeping manufacturing lines sufficiently utilised.
Consumer capacity utilisation stood at only 22% in Q1FY27, resulting in an EBITDA loss of Rs 36.1 crore. The loss narrowed 24% sequentially from Rs 47.3 crore in Q4FY26, providing an early indication of improvement.
Management expects the consumer business to achieve steady-state asset turnover of around 1.5 times and reach EBITDA break-even as operations scale up. Improving utilisation beyond 40% is an immediate priority.
The company expects the consumer division to become profitable by FY30. Until then, its ability to increase production without a corresponding rise in losses will remain important to consolidated earnings.
Profitability Targets
Aequs expects consolidated revenue to grow 45-50% year-on-year in FY27, with operational EBITDA doubling. Within aerospace, the company is targeting revenue growth of 25-30% in FY27 and an EBITDA margin above 20%.
Over the longer term, Aequs is targeting four to six times revenue growth by FY31, consolidated margins of 18-22% and a steady-state return on capital employed of around 20%.
At the consolidated level, management expects margins to improve across the business, supporting a return to positive net profit by the first half of FY28.
These targets depend on the company converting its aerospace order pipeline into production and revenue while improving utilisation in the consumer business. The timing of new capacity additions and the associated depreciation and interest costs will also influence how much of the additional revenue translates into profit.
Valuation Risks
Aequs trades at a price-to-sales multiple of 14 times, above the aerospace and defence sector median of 12 times. The premium places greater importance on the company's ability to deliver its growth and profitability targets.
Customer concentration and export dependence are key risks. Exports accounted for 88% of consolidated revenue in Q1FY27, exposing the company to changes in global demand and aircraft production rates.
The company must also manage the fixed-cost burden from recent capacity expansions, including depreciation and interest expenses, while addressing continuing losses in the consumer division.
Aequs enters FY27 with an aerospace business that has a large order book, established customer relationships and margins above 20%. But the order book alone does not guarantee higher profits. The company's ability to convert orders into production, manage expansion costs and improve consumer capacity utilisation will determine whether revenue growth translates into sustained consolidated profitability.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.