Avalon Technologies Limited (AVALON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Avalon Technologies Limited Q4 FY '24 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors. Thank you, and over to you, Ms. Nair.

Good afternoon, everyone, and a warm welcome on behalf of DAM Capital for the Q4 and FY '24 earnings call of Avalon Technologies. We have with us today from the management, Mr. Kunhamed Bicha, Chairman and Managing Director; Mr. Bhaskar Srinivasan, President; Mr. R. M. Subramanian, CFO; Mr. Shriram Vijayaraghavan, Group Chief Operating Officer; Mr. Venky Venkatesh, Group Chief Sales Officer; Mr. Michael Robinson, Chief Operating Officer for U.S.; and Mr. Suresh VR, Head of Corporate Planning and Investor Relations. Mr. Kunhamed Bicha will give a brief overview of the business performance, and that will be followed up by the CFO, Mr. R. M. Subramanian's remarks on the financial performance, post which we'll open up the floor for Q&A. As we move forward, it is important to bear in mind that any forward-looking statements made during this call are subject to potential risks and uncertainties, both known and unknown. Without further delay, I now hand over the floor to Mr. Bicha for his initial remarks, post which we'll open up the floor for Q&A. Over to you, sir.

Thank you, Bhoomika. Ladies and gentlemen, on behalf of Avalon Technologies, I extend a warm welcome to our Q4 and FY '24 earnings call. As we conclude our first financial year as a listed company, I sincerely thank you for your ongoing support. Before we dive into financials, we would like to highlight key differentiators of Avalon Technologies, especially for those who are joining us for the first time. Avalon Technologies established itself as a key player in electronic manufacturing services with a global reach. We take pride in our leadership, in high mix, flexible volume manufacturing, servicing a diverse range of industry verticals in complex integrated solutions that require significant engineering expertise. We currently operate across 12 manufacturing facilities in India and the United States. We are also adding 2 new manufacturing units in India. Our 3 key differentiators are: one, vertical integration. We are a one-stop shop offering a true box build from PCB design to manufacturing, that involves PCB design, new product development, cable assembly, sheet metal, plastics, magnetics, testing and logistics. Two, global presence, both in terms of manufacturing facilities and customer base. Three, optimal mix of established industries like industrial, rail, aerospace, medical, communication and emerging industries like clean energy. There are many possible updates I would like to share about FY '25, but first, let me begin by reflecting on FY '24. FY '24 presented a mix of challenges with significant shifts in the U.S. macro environment. Despite our initial optimism, we had to adjust our estimates in late Q1 FY '24 as our customers across various industry verticals reduced their inventories. Consequently, we took a more cautious approach in the latter half of the year and projected an 8% to 10% year-on-year revenue decline. Ultimately, we ended up with an 8% decline, primarily due to a 16% year-over-year decrease in our U.S. revenue. Our high fixed costs negatively impacted our operating leverage, further reducing profits. However, our Indian manufacturing, which serves both our Indian and global customers, representing 77% of our business, remains highly profitable with operating margins of 12.7% and PAT margins of 8.5% during the year FY '24. Now transitioning to FY '25. Our earlier expectations of a recovery in H1 and significant momentum in H2 seems to be materializing as anticipated. We are seeing positive signs and believe FY '25 will be a pivotal year for us. Here are a few highlights to underscore our optimism. Our order book witnessed a year-over-year growth of 11% to INR 1,366 crores, with an execution period over an average period of 12 to 14 months. Long-term contracts, in addition to the order book and executable over the 2 to 3 years, grew year-on-year by 58% to INR 949 crores. Through our concentrated efforts on inventory management, absolute inventory levels decreased by 10% from December '23 to March '24. We remain on track to reduce our net working capital days by at least 10 to 15 days in the next 9 to 12 months. Importantly, we categorized our business focus areas as 3 growth engines, all of which are regaining momentum in FY '24 -- FY '25 after encountering challenges in the previous year. Now let's delve into each of our growth engines. First growth engine, new customers in the U.S.. Starting with our major clean energy customer that we previously discussed, we are pleased to share that long, pending product compliance certification for their home electrification system has finally been approved. This was a significant milestone and in line with our earlier communication. The commercial launch is expected in late Q2 FY '25, with production ramp-up anticipated in H2 FY '25. The scale-up of this business is expected to be significant in '26. We are also happy to report several major new wins with industry-leading companies in the industrial and automotive segments. For some, we have secured box build contracts, while for others, we will begin with PCB and cable assemblies. We have received prototype orders now, with commercial production expected in H2 of FY '25. These are existing products with established companies, and we believe they can significantly scale up in FY '26 and have the potential to become some of our top 10 customers. For example, one of them is a market leader in motion control systems in the mobility segment. Another is a major backup power generation products for residential and industrial markets. We will provide more updates on the same in the coming quarters. With the Inflation Reduction Act bolstering clean energy manufacturing in the U.S. and India emerging as a significant beneficiary of the China Plus One strategy, we are confident that our presence in both regions positions us for winning new sizable opportunities. Second engine of growth, existing customers in the U.S. These are industry-leading, well-established companies across various industry verticals, with whom we have partnered for many years. Last year, this growth area faced a significant challenge due to factors such as inventory destocking and macro uncertainties. We now believe that the inventory destocking cycle has bottomed out and the restocking cycle has begun for our U.S. customers, albeit at varying rates. Our efforts last year to gain wallet share with certain customers are also proving beneficial. In a sense, we believe the shift from destocking to restocking has begun and will become more prominent in H2 FY '25. With respect to aerospace customers, we have entered the cable harness and lighting products, and we have also signed a 15-year master term agreement with one of the global aerospace majors. We also expect recent order wins in the aerospace segment to commence execution in Q4 of FY '25 and ramp significantly FY '26. Third growth engine, India customers. Looking back at our business 5 years ago, we were predominantly an export-focused company, with nearly 75% of our revenues generated outside India. However, over the last 18 months, we have actively started focusing on the India market. We have made significant inroads in the industrial, rail, defense and EV verticals. Today, revenue generated from our India customers contributes 46% of our overall revenue. Speaking of major wins in the India market, let us start with rail. One of our major Japanese customers from the railway vertical has recently been approved by Indian Railways for an advanced version of a signaling and interlocking system they currently supply. This represents a better value proposition for Indian Railways, and we expect to learn more about this development in the coming quarter. Additionally, this customer is also approved for the Kavach system in Indian Railways, and we are actively collaborating with them on this initiative. This further strengthens our relationship with them and augments our business growth potential with the railway segment. We are also delighted to announce major wins with some industry-leading customers in the industrial and energy segments. We have secured prototype orders with them and expect ramp production in FY '25. These partnerships have the potential of becoming significant revenue contributors in late part of '25 and '26. While we have made progress in the defense sector and communication markets, we anticipate more meaningful order bookings to occur in H2 FY '25, with execution expected in '26. Transitioning from a detailed overview, we see all 3 of our growth engines are gaining momentum at different stages, fueling our confidence and significantly scaling our revenue over the next 3 years. While we believe we can comfortably double our revenues in this period, we want to remain cautiously optimistic for FY '25, projecting a 14% to 18% revenue growth. In continuation of our earlier discussion on preparing our organization for years of growth, we are pleased to announce the appointment of our new Chief Sales Officer, Mr. Venky Venkatesh. Venky brings over 30 years of experience leading high-performing global sales teams and closing large deals in our target verticals. On the infrastructure front, we are in the final stages of completing our new factory in Chennai, which will be operational this quarter. This plant will cater to our export demand. Additionally, to meet our anticipated domestic demand, Phase 1 of our Brownfield plant expansion in Chennai is expected to go live in Q1, with Phase 2 following in H2. With the revenue growth we anticipate in the coming years, combining our team and infrastructure in place, we expect the operational leverage will play a significant role in our favor. Profit growth is expected to outpace revenue growth. This is underpinned by the following reasons: one, we maintain industry-leading gross margins and have not pursued low-margin businesses. We expect to sustain our gross margins depending on product mix and ramp-ups; two, the majority of our costs below the material costs are fixed in nature, allowing operating leverage to flow through as revenue ramps up in H2; three, our dedicated focus on improving working capital will help us release some cash, further supporting our growth and profitability. In summary, it is evident that we have navigated a challenging year, and we anticipate a recovery in H1, followed by momentum in H2. The coming years appear promising, with FY '25 being pivotal for our growth trajectory. I would like to stay consistent with our message that it's essential for us not to lose sight of the long-term vision and opportunities while dealing with short-term macro challenges. Notably, the U.S. market is transitioning from destocking to restocking, which will positively impact our growth. We are preparing our organization for years of growth ahead. Avalon stands strong, building a business that is focused on long-term profitable growth rather than growth at any cost in the short term. Thank you. Now, our CFO, R. M. Subramanian, will talk on the financials.

Thank you, and good evening, everybody. Thanks for joining the call today. As we come close to FY '24, I would like to thank the entire Avalon team and all our stakeholders for the confidence they have placed in us. I believe we are uniquely positioned with our hybrid business model, vertical integration and diverse sector mix to benefit from one of the greatest industry moments that India has seen in recent years. FY '24 was a tough year for us with several macro challenges, primarily around the demand scenario for our U.S. customers, largely driven by muted macro and recessionary headwinds. Despite this, we continue to grow our order book by growing our existing customers and winning new customers and making deep inroads into our business segments. While we believe we have passed the lows and are beginning to see the green shoots of recovery, we continue to reiterate that the products we make and the industry we serve are present and are fairly complex and our ramp-up period is generally of 6 to 9 months. Given this, some of the wins we had in FY '24 will take time to ramp up, and we see the momentum picking up in H2 FY '25. For the full FY '25, we do expect to see revenue growth of around 14% to 18% year-on-year, primarily driven by H2. Since our profit is strongly tied to our scale of production and revenues, we accordingly expect H2 to be much more profitable for us than H1 and FY '25 as a whole to be significantly better than FY '24. Now moving on to performance in FY '24 in detail, financials. Our revenue from operations was INR 867 crores, a decrease of 8.2% year-on-year. This is in alignment with the revised guidance we have given in Q3 FY '24, and we expect to see improvement here on out. Gross profit was INR 315 crores, down by 9.5% year-on-year. Our gross margin stands at 36.3%, and we were able to maintain it around near FY '23 levels. We continue to maintain industry-leading gross margins as a factor of our unique hybrid business model and premium quality of products. We are also selective in terms of pursuing profitable growth rather than growth at all costs. Coming to EBITDA. EBITDA was at INR 62 crores, down 44.5% year-on-year. EBITDA margin stood at 7.2%, a decrease of 472 basis points on a yearly basis. As mentioned earlier, we continue to have a fair share of fixed expenses and the muted revenues will accordingly result in lower operating profit. PAT stood at INR 28 crores, down by 46.7% year-on-year, and PAT margin was at 3.2%, a decrease of 230 basis points year-on-year. Revenue from our India manufacturing site that serves both our Indian and global customers is around 76 -- 77% of the total revenue. The EBITDA and PAT percentage pattern in India manufacturing are at 12.7% and 8.3%, respectively. We continue to be among the forerunners in terms of margins in this business. The U.S. manufacturing reported a post-tax loss of INR 30 crores for the FY '24. We expect this to improve in H2 FY '25. In line with the cost optimization exercises, there is progress at our U.S. entity and the employee cost has been consistently improving. Regarding the transfer of production from our U.S. plant to our India plant, we have received approval to ship production for nearly 50% of our existing U.S. manufacturing customers during FY '25. We have already begun the production transfer for approximately 30% to 35% of these customers. Moving on to the balance sheet side. Our net working capital days were at 161 days as of March '24, comprising of 118 days of inventory, 79 days of receivables and 36 days of payables. We have managed to bring down our inventory levels by around 10% on absolute level, owing to our customer demand recovering in the U.S. and our rationalization efforts there. Our supply chain has normalized, and we will derive benefits from this stability going forward. While we had earlier anticipated a sharper improvement in working capital, we expect to take a longer time frame due to our larger customer base and signing up of new larger deals. We continue to improve our payable days and are aspiring to reduce our net working capital cycle by 10 to 15 days over the next 9 to 12 months. Because of all the results we have taken -- efforts we have taken, it may be noted that for FY '24, cash flow from operations, post working capital changes, was positive at INR 17 crores. As at the end of FY '24, we have liquid cash in terms of investments and FDs of approximately INR 118 crores, out of which INR 50 crores is earmarked for debt repayment in our U.S. subsidiary and the surplus will serve as reserve and growth capital. Additionally, we prefer to keep the existing working capital lines in India available amounting to INR 185 crores. The open working capital lines have markedly improved our ability to bid for larger orders, which will reflect in the upcoming quarters. In summary, our FY '24 performance was characterized by lower top line, largely due to inventory rebalancing, a challenging macro environment in the U.S. and a focus on optimizing our cost structure. However, we believe we have reached the bottom and have begun witnessing green shoots of revival. We have successfully moved some of the products to India for manufacturing and optimized our fixed cost in the U.S., in alignment with our strategic plan. Additionally, we have strengthened our senior leadership team through lateral hires at the CXO level. We have utilized this difficult period to focus on building up of the organization, and we expect to see the results of these efforts with the ramp-up beginning in H1 FY '25 and continuing strongly into H2 FY '25. Throughout this process, we'll continue to focus on winning quality customers and maintaining our brand equity, while upholding industry-leading margins. In conclusion, I believe that we have reached the end of the tunnel and are now poised to scale up our business in FY '25 and beyond. Thank you. Bhoomika, over to you.

[Operator Instructions] The first question is from the line of Arafat Saiyed from Incred Research.

My first question is on new client addition and new sectors. Let's say, clean energy is not doing well in -- especially in the U.S.. And how is the situation there? If you can guide me something on that. And what's your, let's say, outlook on clean energy first? And that's my first question.

Thank you, Arafat. To answer your question, clean energy is a temporary slowdown. So we anticipate the same rate of growth as we go into the future because some of the key wins we've had have come from clean energy. And we -- if you take an example of our home electrification system, the project had been delayed. Now we are certified. The customer is satisfied for all the compliances, and we have started the prototypes, and we see a major ramp of that in the -- from Q2 of this year and full production in H2. So we are not seeing a decrease in that. We -- over a 3-year period, that should grow much faster than the rest of our industries. But the destocking of our existing customers have also affected that.

Yes. And sir, my next question is on your, let's say, aerospace and defense, you recently added. And you're saying you got a big client name also you added. So can you just throw some light on that? Let's say, what's kind of growth you're looking at in this space for the next 3 to 5 years?

Yes. Aerospace has been a focus area for Avalon. And as you're well aware, it takes a lot of time to get in. And once you're in, you're there for a long period of time. So usually, historically, we would have 5-year agreements, LTAs. Now with the global major, we have signed a 15-year LTA, which means the forecast for the next 15 years, so multiple segments. We are there in lighting now. We were never in cables. That launch is happening this quarter, okay? And of course, previously, we've talked about wiper blades. The first 2, 3 prototypes have already shipped, and there are 153 types of wiper blades we're getting into production in the next 12 to 18 months. And this is a substantial piece growing into the next 10 to 15 years.

So the last question if I may, so basically, you are looking for, let' say, a shift your U.S. manufacturing to India. So what's the status on that? And when you're reaching that journey?

So last year, we decided -- we talked to customers during this -- and it's a good time to talk to them when their numbers are coming down with the destocking. So around 55% to 60% of our customers agreed to move to India. And at various stages -- they are at various stages. Some of it is already in production, but the big pieces are getting transferred back here. And I think this will be complete in the next 1 to 2 quarters. So around 60% of our existing business will move to India. But anything which is of clean energy and which has the IRI benefit, Inflation Reduction Act benefit, a lot of customers do still want to keep that in the U.S. in the near term. And we are of a firm belief that in the longer term, the cost factors will play, and there's a good possibility that they could -- part of that could be moved to India.

[Operator Instructions] Next question is from the line of [indiscernible] from HL Growth Fund.

Yes. My question is, you have been keeping on saying that there's been a slowdown in the U.S., but yours is not the only stock I have invested in. I have invested in several companies. They have never said that. And I have relatives in the U.S.. They said there's been no economic slowdown. So on what basis have you been saying that there's been a slowdown in the U.S.?

I'm not an economist, but I can try to answer your question. So what -- see, on the -- what I would say on the consumer side, you're not seeing a slowdown, but of late, there's some slowdown. The consumer spending is strong. The U.S. economy looks strong from the outside. Most people are confused when it's -- though inflation is high. But what we are seeing is that -- Omiya, that -- see we went through COVID and supply chain challenges for 4 years. Last year is when we, customers -- apart from different industries, okay, not consumer, we are industrial. We are in aero. We are in medical. We are in auto. We saw across the board because before June, April time frame, the lead times for products were 40 to 50 weeks, okay? Either we kept inventory, customer kept inventory, there was a 50-week lead time. So when things slowed down, the availability of components came back. They wanted to go back to pre-COVID levels of 16 to 20 weeks, which is the normal lead time, we all dealt with before this. And now today, the component lead times have come to that. So there's no supply chain challenges, as you say. So now that's why we said customers destock for 5 to 6 months. And now we are seeing the restocking happening and them coming back at variable rates into the normal run rate they had. And these are customers who have been with us for 7, 8 years, 9 years in some cases. So it's not -- like it's a new customer. It's -- these are Fortune 500 companies, a lot of them working with us over a number of years. So it is more of a destocking and restocking. So in India, we're seeing phenomenal growth. The whole country is seeing growth. But in the U.S., there is a slowdown, but that's possibly the largest market also. So you have to be wary of that one.

Okay. And with regards to the aerospace, you make all those sheet metal parts. You also have a competitor, I think, in Sansera Engineering. They also have started making sheet metal parts for aerospace. So how do you fare against that? And has the slowdown in aerospace something to do with the issue with Boeing?

No. See, of course, the slowdown in aerospace, we do around 400 to 500 different parts of planes. And of course, there's also an issue will slowdown of certain models. We do see that. But for us, aero, the bigger pieces are forward-looking where we are tooling up and doing. Sansera does a lot of machining, and they've been doing that for years. And for certain customers, we are the only vendor of choice for fabrication, and it's completely 2 different models. So it's -- Sansera is into high-end machining, and they've been there for years, and they've just invested in a larger project, that's what you probably are referring to.

[Operator Instructions] Next question is from the line of Smit from Niveshaay Investment Advisory.

My first question is, what are the major reasons for decrease in EBITDA margin? Is it due to decline in revenue because our gross margins are intact?

Yes. I think I'll answer. Subramanian here. So in terms of decrease in EBITDA margin, if you look at quarter-on-quarter, it's at a similar level. But if you look at comparing the previous year, it's come down and -- mainly due to the sales coming down. And below the gross margins, about majority, 50% of our costs are fixed in nature. So that has a negative operating leverage effect, which has led to the slowdown. But in quarters where we have good sales, which is like Q4 last year, you will see that flowing down into EBITDA, and we are at mid- to higher teens in terms of EBITDA margins. So that's how is the nature of our business, and we are confident of reaching this as we move forward.

Okay. The second question I have is, what are the reasons for decrease in revenue from clean energy? And our customers delaying orders due to some reason?

In a lot of cases, the orders are there to -- some of it has been with the destocking situation with the existing customers. But our larger customer project is starting to ramp only now, which is delayed by at least 12 months. So that is one of the true reasons. And we anticipate in a 3-year period, this is going to be our fastest-growing segment for sure.

Okay, sir. I have another question. What is the percentage range cost of PCB in product sector? And it go up to like 70% to 80% in sectors like aerospace and defense?

So we are a little bit different if you look at the different sectors. For example, you mentioned aerospace. We don't do PCB in aerospace. We do cables, we do metals, we do plastics in aerospace. So we are not a completely PCB-oriented company. Saying that, a larger portion of our revenue comes from PCB and box build.

Okay. So what is the percentage cost in general if we consider PCB?

So different industries, to be honest, have different margins you can command. If you look at the consumer space, it will be lower margins. If you look at the industrial space, it will be mid-level margins. If you look at some of the clean energy space, it will be a bit higher than the industrial. And it truly depends on the complexity of the work and how much engineering is involved rather than the automation piece. Because if you look at the consumer piece, a lot of it is automated. If you look at, let's say, we are taking an interlocking system. It is a INR 1 crore to INR 2 crore system. There's a lot of labor and a lot of verticals going into, not only PCB, cable, plastics, metal. So it's very difficult to say, by industry, you can say the material margins differ.

Okay. Sir, I have one last question. What is your outlook for the revenue and margin and also for the U.S. operations?

Yes. In terms of our strategy, which we talked about our U.S. operations, in terms of the existing customer, we did talk about trying to move them, and then we have had good success in terms of trying to move out. Okay. That's in terms of existing customers. And as our MD talked about it, for some of our clean energy customers who gets IRA benefits, it will continue to be manufactured in the U.S. So moving forward, our focus will continue to remain on the market. U.S. market is one of the largest and the most profitable markets. We'll continue to focus on that and onboard the customers. And as we move along, our efforts will be to try and move to India, and that's our strategy. And that's playing out and we continue to work on it. Margins will vary depending on the type of the product and the complexity of the product and where we manufacture. Of course, if we try to manufacture in the U.S., the margin has to be higher to justify the higher labor cost.

Okay. So can you give a ballpark number for revenue and margins for FY '25?

In terms of the revenue with respect to -- yes, we talked about -- in the long run, we want to keep the mix as 50-50 in terms of U.S. to India. That's what we work on. And it does vary between quarter-to-quarter.

Next question is from the line of Darshil Jhaveri from Crown Capital Partners.

So sir, I just wanted to ask regarding our growth and order book. So could you just help me out? We are saying that we have an order book of INR 1,300 crores. So that's executed over 14 months. And then there's another long-term contract. So is the long-term contract included in the order book? How much part of it is, could you just help us out in that, sir?

So what -- we break our order book into 2 pieces, the long-term contracts and immediate shippable orders. So when we say INR 1,366 crores, it is what is executable in the next 12 to 14 months. When we say long-term contracts, which has actually grown by 58% to INR 949 crores, if you look at it from last year, is what can happen between 12 to 14 months to 3 years. So where we have contracts, we count that separately. That explains that to you. They're not the same.

Yes, they're completely different. Yes. Perfect. Perfect. So on that rate, sir, our growth should be much higher than what we are guiding for, sir, right? Because if you're going to execute around -- we should be able to execute this in 12 months, right sir? And we are currently...

We're losing your audio.

Can you hear me?

Yes. I can hear you. We can hear you.

Yes. So I just wanted to ask if this INR 1,300 crores you want to execute over a period of 12 months, then is it possible that our revenue guidance is a bit conservative, sir?

So like I mentioned, Darshil, so when we gave this guidance, once bitten, twice shy. Okay. Last year, we were off our guidance a little bit. So like I mentioned, we remain on track, but for a 3-year period. But this is very conservative guidance. From what we can see, things can change positively, and we will confirm that in the ongoing quarters.

Perfect. Perfect. And sir, I just wanted to ask regarding margins. So currently, we were impacted by negative operating leverage. But as you had mentioned that in like you Q4 FY '23, we could even touch 15% margin, with our revenue going to INR 270 crores. So sir, so now going forward as we recover, our margin trajectory, so if I could just -- if we are above INR 250 crores, INR 260 crores, we should see -- we should go back to our historical margins. Would that be a fair assumption, sir?

Yes. So absolutely. So what we believe is -- see, we have set up for a huge growth, and there's an unfortunate slowdown in '24. So you're going to see us go back to where we were or even better in the future, for sure. It's operating leverage. RMS, you want to add something to that?

Yes. Just to add to what MD said. In terms of -- we are -- from a capacity perspective, we are what you call designed for a much larger thing. And as our sales pipeline comes, we are -- gross margins, we have been able to maintain sort of the industry best standards. And with the current fixed cost, the margins should flow automatically in the EBITDA and PAT, and we have done that in the past, and we are confident of doing that in the future as well.

Okay. So a 12% margin is possible for FY '25 as a lot of our manufacturing also shifting to India, which is already doing a 12% margin.

I don't want to be getting the specific in terms of numbers, in terms of what we need to achieve. I think from a guidance perspective on sales, we had done. And we have talked about the mechanism of how it works. I'm sure you can work the numbers for yourself.

Perfect, perfect. And sir, I just wanted to ask regarding our shift of manufacturing of a lot of customers to India. Will that be margin accretive? And if yes, how -- by how much, sir?

Yes, I'll take that, RMS. Darshil, so we believe moving to India will be more profitable for the company, okay? Because there's a cost which we are trying to reduce in the U.S. A combination of this should be -- will have a very positive effect. Did that answer your question?

Darshil, I request you to come back for a follow-up question. Next question is from the line of Rahul Gajare from Haitong Securities.

I wanted to understand in terms of the direction where we are going as far as the U.S. operations are concerned, in this particular year, you did indicate that you did well on the EBITDA side. But at the bottom line, there was a loss. What is your road map on turning the U.S. business completely becoming profitable over there? Do you think that's going to take -- that's a 3-year journey? Or how much time will that take? That's the first part because that will have a huge impact on the consolidated financials.

You're absolutely right, Rahul, and that's what we've been struggling through last year, and the first time we've had this kind of slowdown in the U.S. But saying that, U.S. is the largest market, and we also need that as a beachhead because we deal with some of our clients who have complex systems. They like to see some operation in the U.S. I'm also saying that we would have a smaller operation once a lot of these products move to India, and that journey has started 4, 5 months back. Some of it is moved, some of them in motion. But any of the clean energy products, if we need to play in the U.S., we need to be there because of the IRA benefits the customer gets. So that is the question we are trying to answer. So anything which does not have an IRA benefit, we are moving or convincing customers to move, okay? And we've been very successful in doing that. It's taking a little bit longer than we expected, but the choice is the IRA benefit is going to be there for some time. And we are hoping once it gets started, some of the subcomponents can move to India.

Assuming that we are looking at a 50-50 share between U.S. and India, even if clean energy were to be about 25% to 30% of the total revenue, which is profitable, the U.S. business is more profitable, when do you think -- okay, let me just put it in a different way. Do you think the profit of the U.S., the EBITDA margin of the U.S. can be higher than that of the Indian operations?

No, I don't think -- as we see it now, of course, we raised prices, we can get the U.S. to be higher. But as we see now, our core business, our most powerful business is the U.S. customer making in India, and that is our core target. And for clean energy, we are giving a pathway to the customer to start in the U.S. and then bring subsystems into India, so they get the IRA benefit.

I wanted to also ask you about -- I mean I think you just fleetingly talked about having enough capacity. Do you see the company needing more CapEx in order to support future growth?

We have always maintained a different model, as we have spoken in the past. We usually strive for a 10x asset turn. And over the next 3 years, we believe our investments in the facilities or the larger factories are done, and we'll have a INR 35 crores to INR 45 crores every year to maintain growth because we're also looking at labor arbitrage because of the U.S. customers. So we would look at -- to answer your questions, INR 40 crores to INR 45 crores every year for the next 3 years.

I'm not too sure if I missed this. You talked about a revenue guidance of about 14% to 18%, and I understand you're conservative based on all the numbers over here. Did you talk about a specific EBITDA number? I don't know if I missed that or you did not give that guidance?

On the guidance, we have stuck to the top line, and we have not gone in specifics in terms of profit margins.

Next question is from the line of Neel Nadkarni from Dalal & Broacha Stock Broking.

I just had a couple of questions. The first one is regarding the new plants that you are getting online in India. So maybe what capabilities are you adding over there? And are you targeting some other geographies apart from U.S. over there also?

Yes. See, these facilities will be mixed plants with, I think, the new one coming up is where we're seeing the fastest growth areas. PCB, cable, plastics, it will be a mix. It's a 160,000 -- 150,000 square feet facility, 3.5 acres and we have got room to build more. In India, we do have the Bangalore factory. So the larger box build will be done in the new plant, we believe will come -- the first part will come through late this quarter, early next quarter, and the larger plant will start construction once this is done. And so it will be a mixed bag. It's just not a certain category of parts. So we try to utilize our space in the best way possible. And we believe the longest lead time to get production growing is not the machines and it's the factories and facilities.

Yes. And in the geographies front, are you targeting some other geographies also?

Yes, of course. Europe has been -- we've been trying to get there. We have a few customers, but none of the larger pieces. But a lot of our European customers, when they come to India, they use us quite a bit. It's not going back to Europe. It's Like what we say in 24% of our business, if I'm right, I don't know, this quarter comes from Japanese customers.