Desco Infratech Delivers Strong FY26 Growth Amid Diversification Efforts

Desco Infratech Ltd. reported strong financial results for fiscal year 2026, with revenue nearly doubling to ₹118.79 crore and net profit after tax (PAT) jumping 81% to ₹16.38 crore. This growth reflects the company's aggressive expansion strategy beyond its traditional City Gas Distribution (CGD) business.

Management is pushing into new areas like power distribution, solar EPC, and compressed biogas (CBG), marked by the acquisition of SGAEPL to tap the CBG market and the establishment of a Middle East subsidiary, Desco Global FZ-LLC. While establishing international presence, progress for the Dubai subsidiary has been slowed by current geopolitical tensions. These diversification moves aim for faster cash generation and better margins. The company has set an ambitious ₹1,000 crore revenue target by 2030.

Shareholders are witnessing rapid scaling of the company's revenue and profits. While diversification opens new growth avenues, it also brings new margin dynamics and operational challenges. The balance sheet remains strong, with a low debt-to-equity ratio of 0.2x. However, resolving high-interest debt is a priority. Investors will be focused on Desco's progress in converting this growth into positive operating cash flows, especially as newer segments like solar EPC and CBG are expected to become significant contributors.

Key risks include high borrowing costs, with current unsecured NBFC loans carrying interest rates between 16-17%, creating a substantial interest burden. Geopolitical issues have also impacted plans for the Dubai subsidiary. The company's rapid expansion has temporarily stretched working capital, leading to negative operating cash flow of approximately ₹18-19 crore for FY26. Additionally, business execution often leans towards the second half of the fiscal year due to monsoon-related delays in the first half.

While established CGD peers like Indraprastha Gas (IGL) and Mahanagar Gas (MGL) often show stable, consistent growth, Desco is pursuing a more aggressive diversification path. The newer solar and power segments operate at margins of 9.5-10%, lower than the legacy CGD business's 15.3%, representing a trade-off for potentially improved cash conversion.

Key metrics for FY26 include a consolidated debt-to-equity ratio of 0.2x, a 20% increase in net worth, and negative operating cash flow of ₹18-19 crore.

Investors will be tracking several key developments:

• The successful restructuring of high-cost NBFC debt, expected after the first half of FY27.
• Progress toward achieving positive operating cash flows within the next two years.
• The commissioning and performance of the new CBG plant, anticipated in Q1 FY27.
• Desco's ability to sustain its projected revenue growth of 70-80% over the next 2-3 years.
• Performance and cash cycle improvements in the power distribution and solar EPC segments.
• Future plans for green hydrogen initiatives.