Aeroflex Industries is navigating global uncertainty with uncommon confidence. Backed by a decisive shift toward value-added products and a strategic entry into the fast-growing data-centre liquid-cooling segment, the company has delivered robust operating performance in Q3FY26. Margins are expanding, capacity is scaling, and management visibility has improved meaningfully. ICICI Direct believes these structural changes position Aeroflex for sustained earnings growth, valuing the stock at 30x FY28E earnings and assigning a BUY rating with a target of Rs. 245.

Company Overview: Engineering Precision With a Global Footprint

Aeroflex Industries Limited, incorporated in 1993, manufactures metallic flexible flow solutions using stainless steel. Its product portfolio spans flexible hoses, assemblies, fittings, bellows, and advanced flow systems catering to industrial, infrastructure, and energy applications.

The company’s export-oriented business model is a defining strength. Nearly 73% of revenue in 9MFY26 was derived from overseas markets, providing both scale and diversification, while domestic sales accounted for the remaining 27%.

Over the past four years, Aeroflex has delivered a consolidated revenue CAGR of approximately 27%, with EBITDA and PAT growing even faster at 38% and 72% CAGR respectively, underscoring operational leverage and improving profitability.

Q3FY26 Performance: Growth With Margin Discipline

Aeroflex reported its strongest quarterly performance to date in Q3FY26. Revenue rose 21% year-on-year to Rs. 121.1 crore, driven by a richer product mix and early traction in new applications.

EBITDA increased 28% YoY to Rs. 28.4 crore, while margins expanded by 171 basis points to 23.5%. Profit after tax grew 8% YoY to Rs. 16.5 crore, moderated by higher depreciation linked to recent capacity expansion.

During the quarter, the company commissioned an additional 1 million meters of hose manufacturing capacity, lifting total annual capacity to 17.5 million meters. This expansion supports rising demand without materially straining the balance sheet.

Strategic Shift: Value-Added Products Take Centre Stage

One of the most important structural changes underway at Aeroflex is its transition from commoditized hoses toward higher-margin value-added offerings such as assemblies, fittings, bellows, and skid systems.

Value-added products contributed nearly 54% of total sales in 9MFY26, a figure management expects to rise to 70% over the near term. This shift has already translated into sustained EBITDA margins in the 23–25% range.

Operating leverage from incremental capacity and process automation further strengthens margin visibility, reducing sensitivity to raw material volatility and pricing pressure.

New Growth Vector: Entry Into Data-Centre Liquid Cooling

Aeroflex’s entry into the global data-centre liquid-cooling market represents a decisive strategic inflection point. This segment, currently valued at around USD 3 billion, is projected to grow to USD 21 billion over the next six to seven years, implying a CAGR of approximately 33%.

The company completed its first commercial dispatch in Q3FY26, marking operational validation of this new platform. Liquid-cooling skid assembly capacity is being scaled from 2,000 units to 15,000 units per annum by June 2026.

At peak utilisation of 80%, this business alone has the potential to generate Rs. 300–350 crore in annual revenue, with demand visibility supported by an exclusive US partner.

Capital Allocation: Disciplined and Demand-Driven

Management has demonstrated capital discipline by recalibrating investment plans in line with demand visibility. Planned capex for miniature metal bellows has been revised downward from Rs. 23 crore to Rs. 10–12 crore, reducing execution risk and accelerating payback.

Freed-up capital is being redeployed into higher-visibility segments such as liquid cooling and process automation, reinforcing return metrics without stretching the balance sheet.

Financial Trajectory: Strong Earnings Visibility Through FY28

ICICI Direct expects Aeroflex to deliver revenue and PAT CAGR of 21.8% and 26% respectively over FY25–FY28E. Improved product mix and operating efficiency are forecast to lift return on capital employed to 27% by FY28E, up from 21.5% in FY25.

The company remains nearly debt-free, supported by strong internal cash generation and prudent working-capital management, despite elevated export exposure.

Valuation and Target Price

ICICI Direct values Aeroflex Industries at 30x FY28E earnings, arriving at a fair value of Rs. 245 per share.

At the current market price of Rs. 181, the stock offers an upside potential of 36% over a 12-month horizon, justifying a BUY recommendation.

Key Risks to Monitor

Global demand slowdown: High export dependence exposes the company to macro-economic volatility in overseas markets.
Working capital intensity: Growth-driven expansion could temporarily elevate receivables and inventory levels.
Execution risk: Timely scaling of liquid-cooling capacity remains critical to achieving medium-term revenue targets.

Investor Takeaway

Aeroflex Industries is no longer just a stainless-steel hose manufacturer. It is evolving into a precision-engineering platform with exposure to next-generation infrastructure themes. With expanding margins, visible capacity growth, and a strong balance sheet, the company appears well-positioned to compound earnings through the cycle. ICICI Direct’s BUY call reflects confidence that Aeroflex’s transformation is not aspirational—but already underway.