Aequs Sinks 19% as a 6% Margin and 17% Consumer Utilisation Overshadow a $1.1 Billion Aerospace Order Book

Shares of Aequs, the Belagavi-based contract manufacturer that makes aircraft parts and consumer electronics components, fell as much as 18.9% on Tuesday to an intraday low of Rs 196.50 on the NSE. The drop came after September-quarter results showed revenue rising quickly while profitability went the other way. By late morning the stock was still down about 16%, near Rs 204, leaving the company with a market value of roughly Rs 14,000 crore.

Growth on top, losses below

Consolidated revenue from operations rose 45.3% from a year earlier to Rs 409.1 crore. The net loss attributable to shareholders, however, widened to Rs 52.4 crore from Rs 20.6 crore a year ago, roughly unchanged from the previous quarter. EBITDA, or operating profit before depreciation and interest, fell 45% to about Rs 24.5 crore, and the EBITDA margin dropped to 6% from 16%.

Aequs said much of the year-on-year decline reflects accounting timing. Costs at its consumer electronics plants are now expensed as normal operating costs, whereas last year the business was still in a pre-operative phase. That explains the comparison. It does not change the fact that the company is spending far more to produce each rupee of sales than it was a year ago.

Two businesses moving in opposite directions

The results are really two stories. Aerospace, which brings in about 86% of revenue, grew 44% to Rs 351.4 crore, and its EBITDA rose 24% to Rs 78.3 crore. Its order book stands at about $1.1 billion. The company recently signed a wheels supply deal for the Airbus A320 with Safran, its first serial production contract running more than 15 years, and after the quarter closed it widened its Safran relationships to six group entities.

Consumer is where the trouble lies. Revenue rose 52% from a year earlier to Rs 57.7 crore, but it fell about 21% from the June quarter, and the segment's EBITDA loss widened to about Rs 40 crore. Capacity utilisation dropped to about 17% from 22% in the previous quarter. Chief executive Aravind Melligeri said customer qualification took longer than planned and supply chains were tight. He called the shortfall a timing issue rather than a loss of the underlying opportunity, but said the company is recalibrating its path to consumer EBITDA break-even. Aequs gave no new date.

Why the market reacted so sharply

A factory running at 17% of capacity still carries its full fixed costs. Until volumes rise, every quarter of delay adds to losses and adds to the need for capital. Aequs spent about Rs 160 crore on capital expenditure in the first half of the year and is counting on Rs 650 crore of promoter warrants to fund further expansion, including at Hosur. Investors had been valuing the stock on the assumption that the consumer business would stop losing money soon, and that assumption has now slipped.

The stock had also risen a long way before the results. It was up about 47% for the year even after Tuesday's fall, and it had hit a 52-week high of Rs 294.70 as recently as October 6, so expectations were high.

Analysts split on the outlook

The two brokerage calls reported after the results point in opposite directions. Nuvama kept a Buy rating with a Rs 444 target, citing the strength of the aerospace franchise and the promoter's investment. JM Financial kept a Reduce rating with a Rs 245 target, pointing to weak consumer sales, low utilisation and the delayed break-even.

For investors, the issue is no longer whether Aequs can win aerospace work. Its order book answers that. The question is how long the consumer business will hold back group earnings, and how much more capital it will need before it pays for itself.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.