Stock to Benefit from India’s Naval Defence and Data Centre Boom

Synopsis: As India accelerates naval modernisation and data centre expansion, Shree Refrigerations is emerging as a niche beneficiary. With a 64% share in the naval HVAC segment, a Rs 3,000–3,500 crore addressable opportunity, high entry barriers and a 40% CAGR guidance, the company has also attracted ace investor Ashish Kacholia, who owns a 3.42% stake. 

With India’s navy modernisation efforts and data centre investments gaining momentum, one small but significant engineering firm is slowly positioning itself in this space. The company, with its expertise in naval HVAC systems, high barrier to entry, and foray into data centre air conditioning systems, feels that it is tackling the Rs 3,500 crore business opportunity. The sustained 3.42% holding of seasoned investor Ashish Kacholia in the company has also helped keep it in the focus of investors.

With a market cap of Rs 1,360 crore, the shares of Shree Refrigerations Ltd are trading at Rs 380 and are trading at a PE of 63 compared to their industry’s PE of 61. The shares have given a return of more than 100% since their listing in August     2025.

Riding Two Structural Growth Themes 

The vast majority of defence companies in India work in areas related to missiles, ships, radars, or electronics. But there are numerous engineering systems that make up the essential ecosystem behind every naval ship. One such niche area is the domain of HVAC, refrigeration and air-conditioning for military purposes, and here Shree Refrigerations has built a strong leadership over the last ten years.

The management of the company considers itself very lucky with the timing. While the Indian Navy has launched one of its biggest fleet expansion projects, India’s booming data centres create a completely new opportunity for the company. Instead of expanding into unrelated sectors, the management of the company considers these two options to be based on the same core competency of advanced cooling.

As a result, the stock is being watched by investors, including the famous shareholder Ashish Kacholia, who holds a stake of 3.42% in the company. Whereas the market usually pays attention to defence manufacturers that build ships and armaments, Shree Refrigerations considers special cooling systems to be another equally promising niche in the future.

A Leadership Position Built Over Three Decades 

As per the management, the company has come a long way in the past three decades. Beginning as a refrigeration testing machinery manufacturer, the firm has transformed itself into an exclusive defence HVAC manufacturer over the past ten years.

Currently, the firm boasts of more than 350 employees, eight coastal branches, and unique “three plus three” certifications by the Indian Navy. This allows the company to design, manufacture, install and commission full HVAC solutions, refrigeration plants and electrical control panels together , an achievement that the management claims is unique to the naval HVAC industry in India.

Management informed us that while many rivals are capable of manufacturing HVAC solutions and refrigeration plants, they need to procure electrical control panels from third parties. The company believes that this gives it the edge of better execution and customer relations.

One of the major achievements of the company was the successful indigenisation of the whole submarine HVAC system and the cooling solution for Scorpene-class submarines. Management informed us that it has even been able to introduce an innovative oil-free chiller solution using a compressor.

Why the Naval Opportunity Could Become Much Larger 

Another major theme highlighted on the conference call was India’s ongoing naval expansion program.The management noted that at present, the Indian Navy has approximately 150 ships and plans to expand its fleet to 230 ships over the next five-seven years. In order to fuel this expansion program, there are AoNs from the government to the tune of approximately Rs 2.3 lakh crore to Rs 2.4 lakh crore that are expected to translate into orders over the next two years.

While HVAC & refrigeration constitute just 1% of the total project cost of a naval vessel, the management thinks that this still amounts to approximately Rs 2,500 crore of addressable opportunity in defence projects.

With the inclusion of opportunities in the merchant marine segment, the management expects another Rs 500 crore opportunity, making it a total addressable market of approximately Rs 3,000 to 3,500 crore over the next two years. Interestingly, the management thinks that this opportunity can be highly lucrative owing to the concentrated nature of competition.

According to the company, there are only three to four meaningful players operating in this specialised defence HVAC ecosystem. While an equal market split would imply roughly 25% market share per player, management stated that the company currently commands approximately 60–70% market share within its addressable naval HVAC segment. If these assumptions hold true, the naval expansion alone could provide a significant runway for future order inflows.

Entry Barriers Could Be the Company’s Biggest Competitive Advantage 

The topic that perhaps comes up the most often in the earnings call is not about revenue growth but rather entry barriers. The management has stressed throughout the call that defence HVAC is quite different from commercial HVAC. For the product being supplied to the Indian Navy, it needs to meet certain DEF STAN, or defence, standards.

In addition to the product itself, the manufacture needs to get certified by various naval directorates such as Marine Engineering, Naval Architecture and Electrical Engineering. Each of these independent authorities needs to approve the manufacturer of each category of the equipment.

Certifications act as a high barrier of entry into the market, limiting the number of potential suppliers. The management pointed out that there are only four to five players who are able to function in this niche market due to the complex process of qualifying the product to the defence standards.

This niche positioning along with the long history of the business forms the basis of the investment case. Instead of competing with hundreds of commercial HVAC companies, it competes on the basis of technical qualifications and certifications.

Data Centre Cooling Could Be the Next Growth Driver 

While defence continues to be the primary business of the company even now, the management sees potential in the next stage of growth in India’s rapidly growing data center sector. Rather than venturing into this market on their own, Shree Refrigerations has chosen to team up with Smardt, which is one of the largest providers of oil-free chiller technology in the world, to offer cooling services to data centers.

As per the management, no matter whether air-cooling, water-cooling, direct-to-chip cooling, or immersion cooling is applied, all of them require chillers to release the heat. This provides the assurance to the management that the cooling requirement of each data center will continue to be there. With the help of the same technology which was being used for defence purposes, the company believes that it can repeat its success story in the data center market as well.

However, the management has been rather conservative about implementation of its plan. It has made it clear that in FY27 guidance, there is no provision for data center revenue since the company plans to achieve some reference installations and qualifications first before starting to earn revenues through the data center business.

Financial Performance Reflects Improving Execution

The operational performance of the company during the financial year 2026 indicates improvement in the capability to execute projects. As per management, the company had received an order book of Rs 215 crore at the start of the financial year, but due to execution-focused efforts such as design approvals, type testing, capacity build-up, and hiring, there was little revenue generation in the first half of the year. 

However, once these activities were over, the execution speed picked up dramatically during the second half. There was doubling of revenue on both YoY and half-year comparisons, whereas there was an expansion in the EBITDA margin to 26.3% from 11% in the first half on the back of operating leverage. 

There were substantial improvements in working capital too; the same reduced from 570 days to 370 days, whereas the interest cost reduced after the repayments of high-interest-bearing debt.

Management Continues to Guide for 40% CAGR 

Although the company operates in a specialised niche in engineering, management remains confident of sustaining an approximate 40% CAGR in the coming three to five years. The future growth is expected to be backed by the following three critical pillars: continued naval growth, merchant marine growth, and commercialisation of data center services.

Further, the company remains confident of its previous long-term financial goals. Most importantly, the management clarified that the guidance for growth does not include any contribution from the data center vertical in the FY 2027. This means that successful execution in the data center vertical can add to the growth drivers in the future.

Strong Competitive Moat Could Support Long-Term Growth 

One of the key insights from the conference call was the focus on the barriers to entry. While regular HVAC companies can get away without following strict military guidelines and getting approvals from various naval directorates, supplying military-grade cooling solutions requires strict adherence to military requirements and approvals from multiple naval directorates.

This process takes several years and greatly reduces the number of possible suppliers. Management is of the opinion that these barriers have been instrumental in establishing leadership in the industry where only a few qualified players exist. With the company’s integrated manufacturing operations and long relationship with the Indian Navy, it is well-placed to benefit from the country’s push towards defence indigenisation.

The presence of the seasoned investor Ashish Kacholia, who holds a 3.42% equity in the company, has also caught investors’ eyes. While holding equity shares should not form the base for investment decisions, given the Rs 3,000-3,500 crore addressable market size, leadership in the defence HVAC space, diversification into data center cooling segment, and aggressive growth plans make Shree Refrigerations a promising niche engineering company to follow as India increases its defence and digital infrastructure spends.

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