Below is a detailed summary of the document, which is a transcript of the Q3 FY ’25 Earnings Conference Call for Unimech Aerospace and Manufacturing Limited held on February 17, 2025. The summary emphasizes the management’s commentary on the company’s growth and outlook, as well as the question-and-answer (Q&A) session, while also covering key points from the presentation.
Overview of Unimech Aerospace and Manufacturing Limited
- Company Profile: Unimech Aerospace and Manufacturing Limited, headquartered in Bangalore, India, specializes in precision engineering and manufacturing of critical systems and components. It operates in two main segments: aero tooling (86% of revenue) and precision component assembly (PCA, 14% of revenue). The company serves aerospace, defense, nuclear, semiconductor, and other emerging industries, with a strong export focus (95% of revenue).
- Certifications: ISO 9001-2015 and AS 9100 Rev D certified.
- Financial Snapshot (9M FY ’25):
- Revenue: INR 174 crores (19% growth from INR 146 crores in 9M FY ’24).
- EBITDA: INR 64.5 crores (37% margin).
- PAT: INR 54.2 crores (31% margin).
- Q3 FY ’25 Revenue: INR 53 crores (lower than expected due to specific setbacks).
- Facilities: Operates two facilities totaling 1,80,000 square feet, with an additional 60,000 square feet added recently. A third facility is under discussion.
- Customers: 25 customers across seven countries, with nine new customers onboarded in 9M FY ’25.
- Order Book: INR 103 crores as of December 31, 2024.
- Capacity: Increased from 2,22,000 hours to 4,22,000 hours, with further expansion planned via IPO proceeds.
Management Commentary on Growth and Outlook
The management team, consisting of Anil Puttan Kumar (Chairman and Managing Director), Ramakrishna Kamojhala (Whole-Time Director and CFO), and Rajanikanth Balaraman (Whole-Time Director), provided detailed insights into the company’s performance, setbacks, and future growth strategies.
Anil Puttan Kumar’s Opening Remarks
- Post-IPO Optimism: As a newly listed company (IPO completed prior to Q3 FY ’25), Unimech is committed to sustainable growth and long-term shareholder value. The listing has enhanced credibility, attracting interest from customers and stakeholders.
- Q3 Performance: Described as a “fantastic quarter” from a long-term perspective despite a revenue dip. The focus was on laying a strong foundation for future growth through:
- Capacity Addition: Significant capacity expansion to ease operational challenges and support growth.
- Leadership Strengthening: Closed key positions in sales and operations across aero-tooling, aerospace, and non-aerospace units.
- Operational Efficiency: Sharpened focus on core verticals (aero-tooling and PCA) to improve margins and revenues.
- New Product Qualifications: Worked on qualifying new SKUs in aerospace, nuclear, and semiconductor segments for high-growth opportunities.
- Setbacks: Two unanticipated issues impacted Q3:
- Licensing Delays: Delays in customer engine tooling license renewals from OEMs (e.g., Safran, CFM) reduced orders for high-value products. Resolved by December 2024.
- Nuclear Segment Glitch: A technical issue with a standard part in a nuclear subsystem delayed revenue by a quarter. Also resolved, with lessons learned to enhance processes.
- Outlook: These setbacks were described as “once-in-a-decade” events, not reflective of long-term trends. The groundwork laid in Q3 positions Unimech for stronger performance in subsequent quarters and years.
Ramakrishna Kamojhala’s Financial and Business Update
- Financial Highlights:
- 9M FY ’25 showed a 19% revenue growth, stable EBITDA margins (~35%), and PAT margins (~31%).
- Q3 was below expectations due to the setbacks, pulling EBITDA margins to 28%, but management expects a rebound to 40%+ in Q4.
- Long-term financial stability is evident with consistent EBITDA margins (35%) and PAT margins (24-25%) over years, alongside a fixed asset turnover ratio of 3.5x at full utilization.
- Growth Drivers:
- Capacity Expansion: Added 60,000 square feet and increased machine hours significantly, though utilization remains low (50-54%) due to recent additions. Full utilization (90%) is expected within 18-24 months.
- Talent Pool: Headcount grew from 384 to 661, with key hires in leadership and training completed in Q3.
- SKU Growth: Qualified SKUs rose from 2,980 to over 4,000, enhancing product offerings.
- Segment Insights:
- Aero Tooling (86% of Revenue): Focus on complex, large-size tools for aero engines and airframes. Strategies include exclusive customer contracts and capacity expansion (e.g., INR 88 crores allocated for Unit 1 SEZ). Six new customers added.
- Precision Component Assembly (PCA, 14% of Revenue): Grew from INR 6 crores to INR 46 crores year-on-year. Targets nuclear, defense, and semiconductor sectors, with INR 62 crores allocated for capacity (56,000 hours added). Three new customers added.
- Outlook: Q4 revenue is projected at INR 65-70 crores, with EBITDA margins exceeding 40%. For FY ’26, a minimum 40% revenue growth is anticipated, with sustainable EBITDA margins in the 35-40% range.
Rajanikanth Balaraman’s Strategic Initiatives
- Data Engineering Partnership: Acquired a 30% stake in a firm developing indigenous micro gas turbines for aerospace (e.g., UAVs, missiles). Unimech will be the exclusive manufacturing partner, expanding capabilities in turbo machinery and built-to-spec solutions.
- M&A Opportunities: Exploring inorganic growth through accretive deals aligned with long-term vision, currently in the deal flow stage.
- Geographical Expansion: Targeting increased market share in the U.S. and Europe, leveraging existing relationships and onboarding new customers.
- Outlook: These initiatives aim to diversify revenue streams, enhance technological capabilities, and strengthen global presence, positioning Unimech as a deep-tech leader.
Closing Remarks (Anil Puttan Kumar)
- Commitment: Emphasized responsibility to investors as a listed entity, promising transparency and long-term value creation.
- Confidence: Despite Q3 setbacks, management views the company as poised for “successful days ahead,” with mid- and long-term growth assured.
Question-and-Answer Session
The Q&A session provided further clarity on the setbacks, growth strategies, and external factors. Key questions and responses are summarized below:
- Kamlesh Jain (Lotus Asset Managers) – Disclosure of Licensing Issue
- Question: Why wasn’t the licensing delay disclosed in the IPO prospectus, given its “once-in-a-decade” impact?
- Response (Anil): The issue was unknown during the IPO process and only surfaced in December 2024. Regular business continued unaffected, but high-value orders were delayed. It was resolved by customers without Unimech’s prior awareness. Future disclosures will be improved as a listed company.
- Follow-up: On U.S. tariffs (77% of revenue from the U.S.), what are the current duties?
- Response (Management): Unimech ships ex-works, so customers bear customs duties, and specifics are unknown. No immediate tariff concerns due to the critical nature of products and India’s strategic supply chain role.
- Jagvir Singh (Shade Capital) – Revenue and Margins
- Question: Are Q3 revenues shifted to Q4?
- Response (Management): Licensing issues are resolved, and nuclear delays are mostly addressed. Q4 revenue is expected at INR 65-70 crores (65% conversion of INR 100 crores order book), with nuclear recovery subject to testing.
- Follow-up: EBITDA margins dropped to 28% in Q3; what’s the target for Q4 and FY ’26?
- Response: Q3 was an anomaly; Q4 margins should exceed 40%, sustainable at 35-40% for FY ’26.
- Follow-up: How will a small order book drive growth?
- Response (Anil): New leadership and credibility as a listed company have generated 15-16 strong leads, promising robust growth. Detailed visibility to be shared next quarter.
- Follow-up: Opportunities in nuclear and semiconductor?
- Response (Anil): Already active in both segments, Unimech benefits from government focus and partnerships with OEMs, targeting high-mix, low-volume, complex subsystems.
- Follow-up: Peak capacity revenue potential?
- Response (Ramakrishna): Full capacity (5,00,000+ hours) expected in 24 months, with 70% utilization by FY ’26 and 90% by FY ’27. A 40% growth is projected for FY ’26.
- Prasheel Gandhi (Anand Rathi) – Nuclear and MRO Opportunities
- Question: New nuclear products beyond drive mechanisms?
- Response (Management): Targeting eight high-value subsystems (e.g., fuel locators, sealing plugs), with five nearing approval by Q4.
- Follow-up: Can relationships leverage India’s growing MRO sector?
- Response (Anil): Yes, Unimech’s green channel status with OEMs and licenses (e.g., LEAP, Pratt & Whitney) positions it to capture demand from new Indian MROs, with one order already secured.
- Akshay (Individual Investor) – U.S. Tariffs and Capacity
- Question: Risks from U.S. tariffs under Trump?
- Response (Rajanikanth/Anil): Too early to assess, but no current tariffs apply. Critical nature of tools and India’s supply chain role mitigate risks.
- Follow-up: Post-IPO capacity and utilization?
- Response (Ramakrishna): Adding 23 and 27 machines to Units 1 and 2, respectively, boosting capacity to over 5,00,000 hours. Utilization to reach 65-70% by FY ’26 end and 80%+ by FY ’27.
- Ashutosh Nimbani (JM Financial) – Revenue Decline Details
- Question: Cause of licensing delay impact?
- Response (Anil): Licensees delayed high-value tool orders due to renewal negotiations, not demand or inventory issues. Resolved by November-December 2024, boosting Q4 inflows.
- Follow-up: License validity?
- Response: 10 years.
Key Takeaways
- Q3 Challenges: Revenue dipped due to licensing delays and a nuclear glitch, both resolved, with Q4 expected to recover (INR 65-70 crores, 40%+ EBITDA).
- Growth Strategy: Capacity expansion, leadership hires, new SKUs, and segment diversification (nuclear, semiconductor) fuel mid- and long-term growth.
- Outlook: Management projects a minimum 40% revenue growth for FY ’26, with sustainable 35-40% EBITDA margins and full capacity utilization by FY ’27.
- Q&A Insights: Transparency on setbacks, confidence in recovery, and proactive strategies for emerging opportunities (e.g., nuclear, MRO) reassured investors.