Summary
Diffusion Engineers Limited - Q3 FY 2026 Earnings Call Summary Monday, February 09, 2026 04:30 PM IST
Event Participants
Executives 3 Abhishek Mehta (CFO), Chanchal Jaiswal (CS & Compliance Officer), Prashant Garg (Chairman & Managing Director)
Analysts 4 Bijal Shah (RTL Investments), Rohan Mehta (Individual Investor), Sai Saket (Neem Capital), Varun Jain (Dolat Capital)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue (Consolidated) | ₹100.82 crores | +27.31% YoY; Driven by strong demand in cement, steel, and power sectors. |
| Revenue (9M FY26) | ₹265.05 crores | +13.88% YoY; Reflects steady execution despite high capacity utilization of ~85%. |
| EBITDA (Consolidated) | ₹13.51 crores | +28.96% YoY; Growth supported by disciplined cost management and better absorption. |
| EBITDA Margin (%) | 13.39% | +17 bps YoY; Stable despite raw material volatility in tungsten and nickel. |
| PAT (Consolidated) | ₹12.01 crores | +69.14% YoY; Significant jump aided by operational leverage and interest cost savings. |
| Order Book | ~₹200.00 crores | Robust demand across core sectors; 80% contribution from repeat customers. |
| Capacity Utilization | ~85% | Currently operating at high levels; necessitates immediate capacity expansion. |
Geographic & Segment Commentary
- Heavy Engineering: The segment reported ~100% YoY growth in roller press revenue, estimated at ₹60-70 crores for FY26. Management is expanding machining capabilities to handle larger, more complex precision parts.
- Welding Consumables: A new 10-ton per day incremental electrode manufacturing plant was commissioned in Feb 2026. Backward integration via a new in-house wire slitting line now meets over 50% of internal strip requirements.
- Wear Solutions: Wear plate capacity has been increased by 25% to exceed 250 square meters per day. This segment remains a key driver for margin expansion due to its value-added nature.
Company-Specific & Strategic Commentary
- Capacity Expansion (Unit 5): Major IPO-funded expansion is nearing completion; includes a new heavy engineering facility by end-FY26. Management expects an asset turnover of 3.0x to 3.5x on these new investments.
- Strategic Defense Investment: Acquired a 10% stake in Tejorup Sunmay Systems for ₹4-4.5 crores to enter the VSHORADS (Air Defense) space. DEL secures manufacturing rights for missile systems and launchers once prototypes are approved.
- Railway Entry: Received Letters of Intent (LOIs) for three contracts related to Vande Bharat; manufacturing facilities have cleared RITES inspection. These are developmental orders intended to establish DEL as an approved Railway vendor.
- R&D Focus: Leveraging a DSIR-approved facility to innovate in high-performance materials to mitigate the impact of volatile raw material prices.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Growth | 25% YoY (FY27 onwards) | Growth acceleration expected as new capacities come online and utilization ramps up. |
| EBITDA Margin | 15% - 16% (Medium Term) | Target driven by economies of scale, backward integration, and a richer product mix. |
| Revenue Target | ₹600 - ₹700 crores (FY28-29) | Long-term aspiration post-full utilization (85%) of new expanded capacities. |
| Asset Turnover | 3.0x - 3.5x | Expected productivity from the ₹100 crore IPO-funded capex cycle. |
Risks & Constraints
| Risk | Context |
|---|---|
| Raw Material Volatility | Prices of tungsten, nickel, and cobalt are highly volatile; tungsten prices surged >200% compared to 2025 averages. Management notes a time lag in passing these costs to consumers. |
| Margin Dilution (Short-term) | New capacity commissioning will lead to a spike in depreciation charges in Q4 FY26, potentially impacting PBT. |
| Execution Risk | Entry into defense (missiles) and railways involves a steep learning curve and prototype approval cycles of 1-2 years. |
Q&A Highlights
Defense Strategy & Tejorup Investment
- Question: What is the rationale for investing in a pre-revenue defense startup? (Varun Jain)
- Answer: It is a strategic move to secure manufacturing rights for VSHORADS systems. DEL aims to be the ultimate aggregator/manufacturer for these indigenous systems once prototypes are approved by DRDO (Prashant Garg).
Railway Contracts
- Question: What is the status of the Vande Bharat/Railway orders? (Varun Jain)
- Answer: DEL was a top-two bidder in six contracts and has received three LOIs. RITES has completed facility inspections, and execution is expected within 3-5 months (Prashant Garg).
Heavy Engineering Growth
- Question: How much did the roller segment contribute? (Sunil Jain)
- Answer: Roller revenue is expected to reach ₹60-70 crores in FY26, reflecting ~100% YoY growth. FY27 growth is projected in the 20-25% range (Prashant Garg).
Capacity & Utilization
- Question: When will the new capacity reach optimal utilization? (Bijal Shah)
- Answer: New capacity will initially bring overall utilization down to 50-60%. We expect to reach the optimal 80-85% level by FY28 or FY29 (Prashant Garg).
Key Takeaway
Diffusion Engineers delivered a strong Q3 FY26 with consolidated revenue growing 27.31% YoY to ₹100.82 crores, supported by a robust order book of ₹200 crores. The company is at a strategic inflection point, transitioning from a welding-focused player to a diversified engineering firm, evidenced by its ₹100 crore IPO-funded capex and recent 10% stake in a defense technology startup. While current utilization remains high at 85%, the commissioning of new electrode and heavy engineering plants by end-FY26 facilitates a projected revenue jump to ₹600-700 crores by FY28-29. Management maintains a positive outlook with FY27 revenue growth guided at 25% and EBITDA margins targeted at 15-16%. Investors should monitor the impact of tungsten price volatility and the successful conversion of developmental railway and defense orders into mass manufacturing contracts.
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