Unimech Aerospace: Strong Market Debut and Expansion Plans

Unimech Aerospace, a new entrant on Dalal Street and a manufacturer of aerospace components, is setting its sights on expanding its domestic operations—a significant market opportunity the company is yet to fully tap. The company anticipates better performance in the second half of FY25 compared to the first half.

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Unimech’s shares  debuted strongly on the stock exchange on December 31, closing the calendar year with a remarkable listing gain of nearly 86% over the issue price. Although the stock cooled from its opening highs during the session, it remained over 70% above the issue price by the end of the day.

Speaking to CNBC-TV18, Unimech Chairman P. Anil Kumar noted that capacity utilization is improving as the company focuses on scaling its domestic business. In FY24, the company derived a staggering 97.6% of its revenue from exports, with the United States contributing over 92% of total earnings, highlighting its strong export-driven model.

Revenue Risks and Strategic Priorities

Unimech has acknowledged that changes in government defense spending and fluctuations in airline activities could influence its revenue streams. The company primarily generates income by supplying high-precision components to global original equipment manufacturers (OEMs) in aerospace, defense, semiconductors, and energy sectors. During the December public issue, management emphasized the necessity of diversifying its customer base. Presently, over 90% of Unimech’s revenue is sourced from its top five customers, as reflected in H1FY25 and FY24 data.

Unimech also highlighted the unpredictability of future inventory trends due to varying client strategies. While some customers pursue localization initiatives, others are consolidating platforms in low-cost manufacturing regions. "Diversifying our customer base is crucial to mitigating this risk. We are actively exploring new markets and customer segments to reduce reliance on a limited set of clients," the company stated.

Capital Expansion Plans

Proceeds from the public issue are pivotal to Unimech’s growth strategy, with significant funds earmarked for capital investments across two phases. According to Kumar, the first phase, already in progress, involves procuring advanced CNC machines, welding centers, and specialized processing units, and is expected to conclude within a few months. The second phase, slated for completion within 12-18 months, will follow a similar blueprint. This expansion could potentially double Unimech’s production capacity within six months.

Entry into the U.S. Market

With the U.S. potentially emphasizing domestic job creation under President-elect Donald Trump, Unimech is also planning to establish a manufacturing facility in the country. Kumar noted that this initiative would enable the company to participate in defense programs with outsourcing restrictions while also cutting logistics costs.

New Opportunities and Margins

The company is exploring opportunities in the nuclear power sector and semiconductor technologies, alongside plans to engage in domestic defense initiatives. Unimech’s focus on high-margin projects has yielded significant financial results, with an EBITDA margin of 37.9% in FY24 compared to 21.3% in FY22. While current capacity utilization is around 95%, the chairman indicated it might dip slightly during the expansion phase.

By broadening its market presence and customer base while investing in capacity expansion, Unimech aims to solidify its position as a leading player in the aerospace components industry.