The company behind India’s surveillance camera market leader CP Plus, Aditya Infotech Ltd, listed at Rs 1,018 per share in August 2025, marking a 51% premium over its IPO price of Rs 675.Eight months later, the stock touched Rs 2,285, delivering a 2.2x return in under a year. The rally has been backed by strong operating performance. In Q3 FY26, revenue grew 37% year-on-year, while adjusted profit after tax (PAT) surged 139% and EBITDA margins expanded from 8.3% in FY25 to 12.7%.In a weak broader market, such momentum raises two questions: what is driving this transformation, and do current valuations still hold up?The first is the Standardisation Testing and Quality Certification (STQC) mandate that effectively curtailed Chinese brands in India’s surveillance market, creating a structural advantage for CP PLUS, nearly doubling its market share from 21% to 39% within a year.The second is the business model transformation. Dahua, a Chinese brand previously distributed by the company, contributed 25% of revenue in FY25. That share has now fallen below 5%. In its place, CP PLUS’s own brand and higher-value IP cameras are driving a meaningful improvement in margins.The third is valuation. At roughly 67 times FY27 estimated earnings, and with no directly comparable listed peers, the key question is whether investors are pricing in past gains or future growth.To understand this, it is important to examine how the company makes money.Story continues below this adUnderstanding the businessCP PLUS sells video surveillance products, including CCTV cameras, network video recorders, digital video recorders, and related accessories such as cables, hard disks, and power supplies. Cameras and recorders accounted for 79% of FY25 revenue.The company operates through two primary streams: its own CP PLUS brand and distribution of Dahua products. Source: ICICI Direct IC Dec 2025 (FY23-25 brand mix), Q3 FY26 IP/Conference call (Q3 figures), DRHP (FY25 market share), Q2 FY26 IP (market share)The former contributed 87% of revenue in Q3 FY26, up from 75% in FY25. Dahua’s contribution has steadily declined and is expected to fall below 5% by FY27, with management indicating it is no longer strategically relevant.Margin expansion is being driven by two concurrent shifts. First, CP PLUS-branded products carry significantly higher margins than distribution-led revenues. As their share increases, blended margins improve. Second, within the product mix, IP cameras now account for roughly 75%, up from around 70% just a quarter earlier. These cameras sell at three to three-and-a-half times the price of analog alternatives, lifting average selling prices without requiring proportional volume growth.Story continues below this ad Source: Q1-Q3 FY26 IPs (quarterly financials), Q2/Q3 Conference calls (brand and IP share). Q1 FY25 derived from H1 dataThe impact is visible in the numbers. Gross margins expanded from 16.9% in Q1 FY25 to 28.1% in Q3 FY26, while EBITDA margins nearly doubled from 6.9% to 12.7% over the same period. This improvement has been consistent across five consecutive quarters.Distribution channelsDistribution strength remains a key advantage. Around 80% of revenue flows through a network of over 800 distributors across 500 cities, with system integrators and project sales contributing another 16%. The company also operates 48 branch offices, 13 service centres, and 69 exclusive retail stores, giving it deep penetration in Tier 2 and Tier 3 markets.Manufacturing is centralised at a single facility in Kadapa, Andhra Pradesh, the third-largest CCTV plant globally by output. Monthly capacity has scaled from 1.4 million units in FY25 to about 1.9 million currently, with plans to reach 2.4 million by the first half of FY27. Source: Q1-Q3 FY26 IPs, Q3 Conference call, DRHP (FY25 capacity), ICICI Direct IC Dec 2025 (FY23-24)The STQC moatIf the business model explains how CP PLUS makes money, regulation explains why profitability has accelerated so sharply.Story continues below this adIn April 2025, the Ministry of Electronics and Information Technology mandated STQC certification for all IP cameras sold in India. The move was aimed at addressing cybersecurity and data integrity concerns, particularly around Chinese equipment used in sensitive installations.The impact was immediate and dramatic. Before the mandate, Chinese brands held 36% of the market, Indian brands 34%, and others the remaining 30%. Post-STQC, Indian brands surged to 56%, while Chinese players dropped to 14%.CP PLUS emerged as the biggest beneficiary, largely because it entered the transition with one of the broadest STQC-certified portfolios. By Q3 FY26, the company had certification across more than 90% of its relevant product range. In contrast, competitors such as Prama Hikvision (a JV with China’s Hikvision) had only a limited number of certified models, while Dahua’s direct operations in India were effectively excluded due to supply chain restrictions.As a result, CP PLUS’s market share rose from 20.8% in FY25 to over 31% in Q1 FY26 and approximately 39% by Q2 FY26. Management is now targeting 50%.Story continues below this adThe durability of this advantage, however, remains uncertain. While the company believes it has at least a year’s lead, competitors are catching up. Several Indian and global brands have already secured partial certifications, suggesting the moat may narrow over time.Risks and what hasn’t changedSemiconductor shortages have driven sharp increases in component costs, with some memory prices rising as much as threefold. The company has responded with price hikes of 6-8% in January 2026 and expects further increases. While supply constraints may disadvantage smaller competitors, there is also a risk that demand softens if price increases are not fully absorbed.Management has already hedged this risk, saying that 15-20% market growth is still expected, but the pent-up demand tailwind, “whether it’ll happen or not is yet to be seen.”Beyond the near-term supply crunch, several structural risks remain.Manufacturing remains concentrated in a single facility at Kadapa. There are no patents on product designs, and 85% of AIL Dixon’s (Aditya Infotech Ltd & Dixon Technologies JV) components are still imported, primarily from China and Taiwan.Story continues below this adBackward integration efforts, including a housing plant, lens assembly, and cables, are underway but remain at an early stage and are unlikely to materially impact margins in the near term.Working capital is another area of concern. Gross current asset days have remained elevated, with receivables and inventory both exceeding 100 days. Operating cash flow has been weak, turning negative in FY24 and only marginally positive in FY25 despite PAT of Rs 351 crore. With revenue growing at over 30%, working capital demands are likely to remain high.Finally, the STQC moat itself could narrow. Five to six Indian brands and several global brands have already obtained partial certifications. If semiconductor supply normalises and more competitors scale up certified portfolios, CP PLUS’s market share gains could slow or partially reverse.Valuation and outlookAt current levels of Rs 2,275 per share, Aditya Infotech trades at roughly 67 times FY27 estimated earnings (ICICI Direct) and 56 times FY28 estimates.Story continues below this ad Source: http://www.screener.inIt has more than tripled from its IPO price in under a year. Source: Q3 FY26 IP (FY26E guidance), Q3 Conference call (FY27E guidance), ICICI Direct Feb 2026 (FY28E estimates, P/E at CMP ~Rs 1,573)Valuation is difficult to anchor given the absence of direct listed peers in India. Comparisons are often drawn with Hikvision and Dahua during China’s surveillance expansion phase, but those companies enjoyed 40-50% gross margins, 10%+ R&D spend, and state subsidies. CP PLUS operates at 28% gross margins with sub-1% R&D spend.For CP PLUS, the next four to six quarters will be critical.First, whether the market share gains sustain above 39% as competitors get certified.Story continues below this adSecond, whether operating cash flow turns meaningfully positive despite 30%+ revenue growth.Third, whether EBITDA margins hold at 11-12% or push into the early teens as management expects.The STQC moat has given CP PLUS a window. Whether it becomes a permanent advantage or a temporary tailwind will determine if 56 times FY28 earnings is cheap or expensive.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 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.The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. 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