Centum Electronics: Beyond Defence Deals

Centum Electronics is evolving beyond its role as a defense contractor, with its investment case bolstered by a strategic shift towards higher-value engineering. The company operates distinct Electronics Manufacturing Services (EMS) and Build-to-Specification (BTS) business models. The BTS segment, which handles design and engineering, fosters stickier client relationships and provides greater long-term revenue visibility.

Overseas restructuring, including the classification of Canadian and French operations as discontinued, is nearing completion. This clears the path for investors to assess Centum based on the performance of its expanding Indian electronics business. The company is targeting standalone revenue growth of 25% to 30% medium-term.

Centum's order book stood at Rs 1,645 crore by the end of FY26, showing a 23% increase. The higher-value BTS business saw 37% growth in FY26, driven by radar systems and missile programs. Management anticipates EBITDA margins improving to between 13% and 15% over the next few years, up from 12.4% in FY26.

Financial discipline has been maintained, with adjusted net working capital days decreasing to 142 in FY26 and borrowings remaining modest. Future investments are prioritized for engineering capabilities and product development, strengthening Centum's position in the electronics value chain and enhancing pricing power. Valuation reflects high expectations for sustained growth and profitability.