Garuda Aerospace FY26 Analysis: Strong Growth, But What Is Happening Underneath?

Garuda Aerospace, which is trading in the unlisted market at around ₹430 per share, has released its FY26 Annual Report. Before analysing the company’s financial performance for FY26, let us first understand what Garuda Aerospace actually does.

Garuda operates in the drone industry, where it sells drones for agriculture, industrial and defence applications. The company has four main business areas:

• Drone sales – Selling drones for agriculture, industrial and defence applications.
• Drone-as-a-Service – Providing services such as spraying, crop health monitoring and other drone-based activities.
• Training & certification – Training drone pilots and providing certification.
• Maintenance & support – Providing maintenance and support for drones purchased by customers.

Unlike some other drone companies, Garuda is more focused on agriculture and civic drone applications. It is estimated that around 70% of its revenue comes from the agriculture segment, while the remaining revenue comes from other segments.

Why Is Garuda Focusing on Agriculture Rather Than the Established Defence Market?

Well, the drone industry is moving beyond defence and finding applications across various industries, with agriculture being one of the major segments. Today, the drone industry is growing at around 30% CAGR and is expected to reach nearly US$91 billion by CY30.

The structure of the industry is also changing. The defence segment’s share is expected to fall from 48% to 33%, while enterprise applications are expected to rise from 33% to 41%. Logistics is expected to reach 15%, while consumer applications are expected to account for around 11%.

This shift shows that future growth may come more from commercial and industrial applications rather than only military demand. This is one of the reasons Garuda is focusing on the agriculture segment, where competition is relatively lower compared with the defence market.

How Did Garuda Perform in FY26?

In FY26, the company reported around ₹205 crore in revenue, up 67% from around ₹123 crore in the previous year. But the more important question is: what actually drove this growth?

If we break down the revenue, around ₹99.36 crore came from the sale of drones, up 66% from around ₹59 crore in the previous year. But the bigger growth came from the services business. Revenue from services increased from ₹57.8 crore to ₹106 crore, representing growth of around 84%. As a result, Drone-as-a-Service now contributes around 52% of total revenue, compared with around 47% in the previous year. So, Garuda is not only selling more drones; its services business is also becoming an increasingly important part of the business.

Now, this growth looks impressive, but there is one important factor we need to keep in mind. Garuda, like most drone manufacturers in India, still depends heavily on imported components. The management has previously said that the company wants to reduce this dependence and increase the use of locally developed components. The company is targeting a reduction in imported component dependency from nearly 40-45% to around 15% through indigenous flight controllers, local propulsion systems, better sourcing networks and localized manufacturing.

This dependence on components is important because it directly impacts the company’s margins. And that is exactly what we are seeing in FY26. Despite the strong growth in revenue, gross margin fell from 53% to 42%, while EBITDA margin declined from 23.32% to 18.42%. In other words, Garuda is growing fast, but it is currently making less margin on every rupee of revenue.

Even with this margin pressure, the sharp increase in revenue helped EBITDA grow from ₹28 crore to ₹38 crore, an increase of around 33%. The same was reflected at the bottom line, with PAT increasing from ₹14.8 crore in FY25 to ₹25.92 crore in FY26, while EPS increased from ₹3.67 to ₹4.99, representing a 36% increase in earnings.

So, if we look at the income statement, FY26 was clearly a strong year for Garuda:

• Revenue: +66%
• EBITDA: +33.45%
• PAT: +41%
• EPS: +36%

But here is where the analysis gets interesting. Strong revenue and profit growth is only one part of the story. The next question is whether this growth is actually translating into cash for the business. If customers are taking longer to pay, more and more money can get stuck in the business.

So, to understand what is happening underneath the growth, let’s now look at Garuda Aerospace’s balance sheet and working capital.

Before looking at Garuda’s numbers, we first need to understand that the drone industry is already a working-capital-heavy business. In simple terms, this means that a significant amount of money can remain tied up in the day-to-day operations of the business.

Now, let’s look at Garuda’s working capital. It increased from ₹133 crore to ₹190 crore, an increase of around 43%. However, revenue grew faster than working capital. As a result, Garuda generated ₹1.08 of revenue for every ₹1 of working capital invested in the business during FY26, compared with ₹0.88 of revenue for every ₹1 of working capital in FY25.

That looks great, right? But we also need to look at the receivable days. Earlier, the company was able to recover its money within around 332 days. Now, it is taking around 415 days to recover the money. As a result, the company’s cash conversion cycle also increased from 329 days to 362 days.

So, when we look at the overall data, we can see that the amount of money tied up in the business has increased. But how does the overall balance sheet look?

Let’s start with the current ratio. It declined by around 34% to 2.7. However, Garuda is still in a relatively good position compared with its peer ideaForge, which has a cash conversion cycle of around 587 days and a current ratio of around 2.24.

But there is another concern. The strong improvement in revenue and profits has not translated into better returns on capital. ROE fell from 13.98% to 12.78%, while ROCE declined from 15.80% to 13.61%.

This means that while Garuda is growing strongly at the top line, the business is also using more working capital and taking longer to recover its money. So, the growth looks strong, but the efficiency of that growth is something we need to watch closely.

And this brings us to the next important question: at the current unlisted market price, are we actually paying a reasonable price for this growth?

To answer this, we need to look at Garuda’s valuation and compare it with a listed peer. For this comparison, we have taken ideaForge.

At the current price of ₹430 per share in the unlisted market, Garuda is trading at a P/E of 86 times, compared with ideaForge, which is trading at around 1,009 times. So, on the valuation front, Garuda clearly looks cheaper than its listed peer.

But valuation alone does not tell the complete story. We also need to look at growth. Garuda delivered 67% revenue growth in FY26, compared with ideaForge, where revenue grew by around 40.26%. Garuda is also generating positive returns, with an ROE of 12.78%, while ideaForge has an ROE of -3.34%.

If we look at the PEG ratio, Garuda is trading at around 2.39 times. So, while Garuda is certainly not a cheap stock at a P/E of 86 times, its valuation looks more reasonable when we compare it with the growth it is delivering and the valuation of ideaForge.

Overall, Garuda presents an interesting combination of strong revenue growth, increasing service revenue, and a relatively lower valuation compared with its peer. At the same time, investors cannot ignore the decline in margins, higher receivable days, longer cash conversion cycle, and lower ROE and ROCE.

So, at current unlisted share price the garuda does not look cheap on an absolute basis. However, compared with its peer, Garuda appears to be trading at a relatively reasonable valuation for the growth it is delivering