Centum Electronics: Why a Rs 52-crore loss hasn’t derailed the rally

Centum Electronics ended FY26 with a reported net loss of nearly Rs 52 crore. On paper, that leaves the company with a negative price-to-earnings ratio.

Yet the market appears to be telling a different story.

The stock trades near Rs 3,634, up roughly 58% over the past year, and continues to trade near record highs. Investors, it seems, have looked through the headline numbers.

The reason is straightforward. The reported loss says less about the business today than it does about decisions made years ago. For years, Centum’s profitable India operations were weighed down by loss-making subsidiaries in Europe and Canada. In FY26, management finally drew a line under those businesses, taking a one-time exceptional charge that pushed the company into the red.

Strip out that accounting hit, and a different picture emerges. India business grew 25%, margins improved, and the company built a record order pipeline.

Three things are worth understanding here:

The cleanup that caused the loss, and why it is good news.

How Centum is climbing the electronics value chain, and what is funding that climb.

The growth engines underneath, and the operating leverage they could unlock.

Centum Electronics – Historical Price chart (Source: http://www.tradingview.com)

But first, how does Centum actually make money?

Understanding the business

Centum operates across two segments that look similar on the surface but generate returns differently.

Build-to-Specification (BTS) is the company’s design-led business. Centum owns the intellectual property and develops products from concept to finished hardware for customers such as DRDO, ISRO and the armed forces. The segment contributed about 28% of FY26 standalone revenue and generates EBITDA margins of roughly 20%.

Electronic Manufacturing Services (EMS) is a build-to-print business, where Centum manufactures products designed by customers, largely for export-oriented global equipment makers. EMS accounts for around 72% of revenue but operates at lower EBITDA margins of 10-11%.

However, EMS requires less capital and generates return on capital employed (ROCE) of more than 20%. BTS, by contrast, offers higher margins and stronger intellectual property protection but demands more capital and longer cycles.

The mix between them drives blended profitability.

The work itself is the moat: tolerances in microns, multi-year qualification, and single-source status on roughly 80% of what it makes. Customers rarely switch suppliers when the part sits inside a mission-critical missile or a satellite.

Segment-wise revenue and EBITDA margins

Segment

% of FY26 revenue

EBITDA margin

Capital character

What it builds

BTS

~28%

~20%

More capital, longer cycles

Defence & space systems: radar, payloads, missile & tank electronics

EMS

~72%

~10-11%

Capital-light, ROCE 20%+

Build-to-print for global OEMs: defence, industrial, medical, mobility

Table Source: Q4 FY26 Investor Presentation; Q4 FY26 earnings call. Standalone basis.

The loss was largely a cleanup exercise

For years, Centum’s subsidiaries in Canada and France generated losses and diluted the performance of the India business.

In FY26, management exited Canada and initiated court-supervised restructuring of the French operations. The move resulted in a one-time exceptional charge of Rs 203 crore, including a write-down of Rs 154 crore in subsidiary investments. The largely non-cash charge turned what would otherwise have been a profitable year into a reported loss.

The table below highlights PAT variation before and after the exception of non-cash charges. The underlying India business, however, continued to strengthen.

P&L Statement

Rs Crore (Standalone)

FY23

FY24

FY25

FY26

Revenue

501

633

776

973

EBITDA margin

10.7%

12.4%

12.1%

12.4%

PAT before exceptional

19

36

46

86

Reported PAT

19

36

46

(117)

Table Source: Q4 FY26 Investor Presentation, Slide 18. FY26 reported PAT is after the one-time Rs 203 crore exceptional charge

The benefits of the cleanup are already becoming visible. Historically, loss-making overseas subsidiaries depressed consolidated margins below standalone levels. With those businesses being carved out, the continuing operations are now generating healthier profitability. CRISIL has also revised its outlook on the company to Positive.

Moving up the value chain

With that drag gone, where does future growth come from?

Historically, Centum sold components and subsystems that formed part of larger platforms. Increasingly, it is shifting towards building the whole system.

Radar is the clearest proof.

Centum has long supplied radar subsystems. In FY26, it won a complete radar programme from Hindustan Aeronautics Limited (HAL), an Active Electronically Scanned Array (AESA) radar for a naval helicopter worth over Rs 570 crore over its life, with Centum responsible for the entire turnkey system.

It also won a second full system, a long-range radar for tracking satellites and space debris. The company’s Space segment, therefore, also tells the same story: Centum has gone from supplying microelectronic components to delivering complete satellite payloads.

Why does this matter? Because moving up the value chain is a margin lever, not just a revenue one. A full, indigenously designed system earns far more than a subsystem. Management estimates that fully indigenously designed systems can eventually generate EBITDA margins of 35-40%, substantially above current BTS margins of around 20%.

Programme / engine

Value

What it signals

HAL AESA radar (UH-M)

Rs 570 Cr (life)

Full turnkey radar system, not a subsystem

Space-debris tracking radar

~Rs 30 Cr

Second complete radar system

Satellite payloads (ISRO)

~400 modules

Component supplier turned payload builder

Semiconductor equipment

$10M to $30M

New EMS engine, anchor customer

Table Source: Q3 and Q4 FY26 Investor Presentations and earnings calls. Figures are programme-life or guided values

So, how does a mid-size company climb into system-level work? Through four routes.

Its own research, with around 600 design engineers and 17 patents, is the slowest path but the highest-margin one.

Partnerships with global manufacturers bring technology faster, as with the naval navigation system built on a European partner’s technology and an understanding with Bharat Electronics Limited (BEL).

The start-up and academic ecosystem adds a third route.

Enablers like a new systems-integration facility and a top-level defence certification open mission-critical tenders.

However, this climb is slow and uneven. Development programmes typically depress margins for 18-24 months before production volumes scale, and BTS order inflows remained relatively modest in FY26. The segment’s order book grew a modest 17%, against EMS’s 28%.

Annual closing order book. (Source Centum Electronics investor presentations (standalone order book, Rs crore) YoY is FY26 vs FY25

The engines underneath

While BTS climbs, two quieter engines are scaling.

The first is semiconductor manufacturing. A new anchor customer contributed nearly $10 million in revenue during FY26, and management expects that figure to reach $30 million within two to three years. With India investing heavily in semiconductor manufacturing and global supply chains diversifying beyond China, this could become a meaningful growth vertical.

The second is defence exports. Higher defence budgets in Europe and the Middle East, and capacity constraints abroad, are pushing existing global customers to route more orders through Centum, which builds electronics for platforms, including the Rafale fighter. This revenue is margin-friendly and does not depend on the domestic cycle. Behind both sits a broader trend: global manufacturers indigenising production in India.

Order book and operating leverage

The investment case ultimately rests on operating leverage.

Centum ended FY26 with a standalone order book of about Rs 1,645 crore, up 23%, giving revenue visibility for about a year and a half. The bigger point is what happens as it converts. Centum’s cost base is largely fixed, so as revenue grows and the higher-margin BTS share rises, the same costs spread over a larger base and the blended margin lifts. Management targets a standalone EBITDA margin of 13-15%, against 12.4% in FY26.

The cleanup has also left a healthier balance sheet. Borrowings are just 0.28 times equity, ROCE has risen to about 21%, working capital has improved, and the company declared a Rs 5 dividend.

Valuation and Outlook

On continuing operations earnings, the stock trades at about 53 times. On a standalone profit before the one-off, about 62 times, and price-to-book (P/B) is steep at roughly 15 times.

However, premium valuations are common across the defence-electronics ecosystem. Defence-electronics design houses like Astra Microwave and Data Patterns trade at 60-65 times earnings, with Apollo Micro Systems higher still, and broad electronics manufacturers like Kaynes Technology command rich multiples too.

The sector is pricing a multi-year structural growth cycle in defence, space, and electronics manufacturing, and Centum now sits inside it with a cleaner story than a year ago.

Peer-to-Peer comparison

Company

Mkt Cap (Rs Cr)

P/E (TTM)

EV/EBITDA (TTM)

P/B

Focus

Centum Electronics

~5,400

~53x (cont.)

~40x

~15.6x

Defence/space BTS + EMS

Astra Microwave

~25,700

~94x

~68x

~14.4x

Defence electronics (design-led)

Apollo Micro Systems

~14,250

~126x

~67x

~10.7x

Defence electronics

Kaynes Technology

~21,500

~58x

~38x

~4.6x

Broad EMS, incl. semiconductors

Table Source: www.screener.in

The maths is simple. If standalone revenue compounds at the 25-30% management targets and the margin climbs toward 15%, earnings grow fast enough such that today’s multiple looks less stretched on forward numbers. If growth slows or margin expansion stalls, however, the current multiple leaves little room for disappointment.

The risks are real. The semiconductor ramp leans on a single anchor customer. BTS is lumpy, and its FY26 order intake was soft. Development orders drag margins before they help. Moving to the system level, it will sometimes compete with its own customers. And a thin book value sits beneath a high price-to-book.

Investors should watch four indicators closely: standalone growth in the 25-30% range, progress towards the 15% EBITDA margin target, scaling of the semiconductor business, and clean consolidated financials once the overseas exits are fully reflected from FY27 onward.

If those targets are achieved, FY26 may ultimately be remembered as the year Centum cleaned up its past. If not, the valuation could prove difficult to defend.

Note: We have relied on data from http://www.Screener.in and http://www.tijorifinance.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

Rahul Rao has helped conduct financial literacy programmes for over 1,50,000 investors. He has also worked at an AIF, focusing on small and mid-cap opportunities.

Disclosure: The writer or his dependents do not hold shares in the securities/stocks/bonds discussed in the article.

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