Azad Engineering (Behind the Meter Proxy - I)
Indirect beneficiery of increasing Gas Turbine Capacities
Dear Learners,
If you have not read the previous post - I would urge you to read before diving in this post
TLDR
Grid is not able to keep up with the growing power demand from Data centres. In response, Hyperscalers are going “Behind the Meter” i.e., building their own plants.
Two technologies in particular are gaining traction - Gas Turbines and Solid Oxide Fuel Cells (SOFC).
Few Indian companies are embedded in the supply chain of the OEMs involved in powering data centers
Gas Turbine - Azad Engineering & TD Power Systems
SOFC - Mtar Technologies & Carborundum Universal
These are not pure-play themes but rather indirect beneficiaries. Further, these companies serve multiple industries - so, think of data centres as a new demand vector sitting on top of established businesses in power generation, aerospace, nuclear, and defence etc.
In this post we will do a deep dive on Azad
Gas Turbine
The primary components to produce electricity using gas turbines are
i) Fuel (typically natural gas)
ii) The gas turbine itself (available across different MW ranges - the fuel is burned effectively)
iii) Generator to produce electricity
To increase efficiency (in combined cycle turbines), additional industrial equipment to recover heat (exhaust head), which is fed to a steam turbine to generate electricity
Three companies now control over 75% of the world's gas turbine supply. It took thirty years of booms, busts, and bailouts to get here!!
In the 1990s, the large industrial gas turbine market was genuinely competitive. GE, Westinghouse, Siemens, ABB, Alstom, Mitsubishi, Rolls-Royce, and Ansaldo all operated at scale. Customers had options. Competition kept margins honest.
What followed was not a technology race - it was a capital cycle playing out in slow motion, as described in Capital Returns. The ordering boom of the early 2000s collapsed into a bust, stranding manufacturing capacity and crushing margins across the industry.
In the aftermath came the consolidation. Siemens acquired Westinghouse’s power division. ABB and Alstom combined their power businesses (the inherited turbines carried severe design defects - warranty claims and repairs pushed it to the edge of insolvency, triggering a rescue by the French government). GE ultimately acquired Alstom’s power assets. Rolls-Royce exited large-frame turbines entirely, retreating to its core jet engine business.
After going through the bust, the Industry is now absorbing more orders than it can physically fulfill. The waiting list runs to 2031.
The scarce resource is no longer capital, or even technology - it is manufacturing slots, held exclusively by three companies that spent thirty years accumulating the institutional knowledge no acquirer could buy and no newcomer can replicate fast enough to matter.
Nutshell, Cycle has turned, after a prolonged period of consolidation, Gas Turbine OEMs are expanding capacity
Azad Engineering
The most supply-constrained components in gas turbines are turbine blades and vanes.
Gas Turbine OEMs do not manufacture every component inside their turbines. The components demand materials and tolerances so extreme that OEMs source these parts from a small, specialised external supply base.
One such company is Azad Engineering. All three top Gas Turbine OEMs (75% of Global Market Share - GE, Siemens, MHI) source components from Azad.
Growth Business
Azad is putting up dedicated mini-plants in the factory premises for different customers. At the time of IPO they had area of 20,000 sqm. They acquired another 170,000 sqm of which in the phase I target is to develop 95,000 sqm by putting dedicated plants for the customers.
Management says wallet share across customers is only about 1–1.5%, leaving substantial scope for long-term growth.
The orderbook at the end of Q3FY2026 was INR 6500 Crore i.e. over 11x TTM revenue giving growth visibility.
The growth is already visible in the numbers
Why Azad is building dedicated factories rather that having a single facility?
In my opinion, this is essentially OEM capacity reservation in disguise.
Customers are pre-blocking capacity, not just ordering parts. Further, IP is key - having dedicated factories give each OEM hard assurance on IP segregation, no tooling cross-contamination, no shared shop-floor visibility into a rival’s parts.
Qualification is per-line, not per-company. These qualifications are tied to specific machines, fixtures and processes. Dedicated plant simplifies audits, traceability and AS9100/nuclear/turbine-grade certification.
But it add to the risk as well. The capacities are not fungible.
Right to Win
Manufacturing in India is cost competitive compared to the major markets like China, Europe, America and Korea.
Moving up the Value Chain
Broadly, we can differentiate parts on (1) on the basis of section of the turbine i.e. cold section (compression) vs hot section (combustion) (2) Stationary parts vs rotating parts
The above infographic showcases that Azad has moved up the value chain but it is still not at the pinnacle of handling the toughest job i.e. rotating parts in the combustion section.
What it takes to move up the value chain?
Advanced Material Processing and Casting
Manufacturing process require nickel-based superalloys - special materials engineered to sustain structural integrity under creep and stress at temperatures that would destroy conventional steel.
Working with these i.e. forging or casting these materials is not a standard foundry operation rather a controlled process at every stage.
The most demanding application is directional solidification and single crystal casting, where the blade is grown as a continuous crystalline structure to eliminate the grain boundaries that would otherwise initiate creep failure at operating temperature.
Azad is not into single crystal blade manufacturing. PTCIL is advancing into this capability
High-Precision Machining and Drilling
One of the core capability of Azad
3D machining of components using five-axis and nine-axis CNC operations
Surface Treatment and Coating Systems
Special coatings are required especially the Thermal Barrier Coatings
NADCAP Certification required
Apart from this the manufacturing requires Advanced Inspection and Testing.
Emerging technologies in the field include Additive Manufacturing and use of ceramic matrix composites (CMCs) for blades as they are lighter and more heat tolerant.
Azad's core competency was in cold-section compressor airfoils. The MHI contract represents a significant shift into hot-section manufacturing
Nozzle vanes face extreme heat but without the centrifugal fatigue loading of rotating parts. They are a hot section component but not the most demanding hot section component.
AZAD VTC
Azad acquired VTC Surface Technologies in May 2024 bringing advanced wear, corrosion, and heat-resistant coating capabilities in-house. As discussed earlier, surface coatings is a critical process, previously Azad was dependent on approved third-party coaters, leaking margin and exposing its OEM qualified-supplier status to an external vendor's quality system.
By internalising this step and subsequently securing NADCAP accreditation, Azad can now do coating in-house.
AZAD PRIME
Azad Prime (formerly Leo Primecomp), brought in four decades of heavy engineering expertise i.e. precision-machined components ranging from 1 gram to 120 tons and 3mm to 3000mm in diameter, including control valves, rotors, casings, diaphragms, and heavy engineering systems used in nuclear, gas, and thermal turbine engines.
GTRE
GTRE win for end-to-end manufacturing, assembly, and integration of a complete assembled Advanced Turbo Gas Generator Engine. Here, Azad is sole industry production partner.
This showcased the hunger to move to systems integration. The order is yet to be fulfilled but it would lead to valuable process knowledge, tooling, and qualification for a complete propulsion system
Aerospace and Oil & Gas Vertical
We have so far not discussed the other two verticals i.e. Aerospace and Oil & Gas. Here again Azad is working with the top OEMs. Essentially every major engine OEM is their customer in Aerospace and as far as Oil & Gas is concerned
Azad’s aerospace business today is a small but rapidly accelerating share of total revenue, currently around 17-19% delivering mission and life-critical components including engine assemblies, APUs, airfoils, actuators, and hydraulic systems, supporting platforms such as the Boeing 737, Airbus A320 and A350 families, and the Gulfstream G550.
The fundamental challenge in aerospace is not just capability but time as qualification cycles for aerospace components are among the longest and most capital-intensive in any industry. A new part qualification can take 2-5 years of FAIs (First Article Inspections), process approvals, audit cycles and test programmes before a single revenue-generating part ships.
Oil & Gas is Azad’s newest and smallest vertical but one with a clear strategic rationale which is precision turbomachinery components for the LNG, upstream, and midstream segments. This is technically adjacent to what Azad already makes for power generation turbines.
O&G is different from aerospace. It is less about qualification time and more about contract structure and customer concentration. The segment currently contributes a modest share of revenue, and the primary customer anchor is Baker Hughes via its Italian subsidiary Nuovo Pignone, one of the world’s foremost turbomachinery OEMs for LNG and petrochemical applications.
Dependence on a single large O&G customer, while typical in the early stage of a vertical build, means revenue is lumpy and visibility is shorter than the energy segment’s long-duration turbine contracts. However, Baker Hughes is not a transactional customer. Azad has signed multiple amendments to its Strategic Supply Agreement with Nuovo Pignone, most recently in April 2026. A dedicated 7,600 sqm advanced lean manufacturing facility dedicated to Baker Hughes, has been inaugurated.
Risk
Working Capital
The working capital is elevated. Need to have large inventories to get qualified (especially in aerospace as it is relatively newer vertical)
One mitigation strategy is if local capabilities get developed - already working to onboard local suppliers. However, most of it depends on the OEMs with very little say by Azad. Sunflag and Star wire has been approved as suppliers for a few grades.
To sum up
Azad is a fast growing company
Managament is walking the talk
There are immense tailwinds in all the sectors it operates
Gas turbine - data center led demand
Aerospace - post covid recovery - Airbus/Boeing with record order backlog
Oil & Gas - The crude prices will lead to investments in exploration
They are increasing capacity. However the risk here is supply chain disruption. And please keep in mind that manufacturing require specialized equipment from like of Mazak, DMG Mori, which itself has huge waiting list - so any indication that they are not able to place orders or receive machinery or other inputs on time will be a monitorable
Other risk will be geopolitical in terms of availability of upstream materials which itself are dependent on Rare Earth
They had raised money via QIP and as they deploy capex - 4 of 8 facilities have been inaugurated - given than it will take 12-18 months to ramp up we can expect (1) Continued Revenue growth (2) Operating leverage to play out as ramp up happens and more parts/components gets qualified - Max utilization will happen by FY28
Disc: Invested and Biased. Do your own Due Diligence. This is not an investment advice
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Disclaimer: Views are personal. I am not SEBI registered. The information provided here is for educational purposes only. This is not buy or sell advice. I will not be responsible for any of your profit/loss based on the above information. Consult your financial advisor before making any decisions.
What a great find!!