Avalon Technologies Limited (AVALON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Avalon Technologies Limited Q3 and 9 Months FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Swaminathan from Avendus Spark. Thank you, and over to you, sir.

Thanks, Dorvin. Good afternoon, everyone, and a warm welcome to the Q3 FY '25 Earnings Call of Avalon Technologies. To take us through the results today, we have with us from the management, Mr. Kunhamed Bicha, Chairman and Managing Director; Mr. Bhaskar Srinivasan, President; Mr. Suresh Veerappan, Chief Financial Officer; Mr. Shriram Vijayaraghavan, Chief Operating Officer; Mr. Venky Venkatesh, Chief Sales Officer; and Mr. Michael Robinson, Chief Operating Officer from U.S. Operations. Mr. Bicha will give us an overview of the business performance and will be followed up by Mr. Suresh's remarks on the financial performance, post which we will open 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. Now without any further delay, I will hand over the floor to Mr. Bicha for his initial remarks, the CMD. Thank you, and over to you, sir.

Thank you, Ravi. Ladies and gentlemen, on behalf of Avalon Technologies, I extend a very warm welcome to our Q3 FY '25 earnings call. I will quickly introduce Avalon Technologies, especially for the ones 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. We currently operate 14 manufacturing facilities in India and the United States. We are also adding a new manufacturing facility in India. Our key differentiators are: one, vertical integration. We offer a complex box-built solution right from PCB design, new product development to final product manufacturing, to global presence, both in terms of manufacturing presence and customer base. Three, optimal mix of established industries like industrial, rail, aerospace, medical, communications and emerging industries. Now turning to our business performance. We are pleased to share that we remain on the growth path that we guided earlier. Momentum continues to accelerate this year, driven by the recovery of our U.S. customers and our expanding presence in the Indian market. This strengthens our confidence in the growth ahead. We see this year as a pivotal moment, laying the foundation for a significant growth over the next decade. Initially, we guided 14% to 18% revenue growth and later revised it to 16% to 20% in our earlier earnings call. Now we are further increasing our FY 2025 revenue growth guidance to 22% to 24%. We built mission-critical long life cycle products and aim to be a trusted partner for our industry-leading customers. By focusing on long-term profitable growth opportunities, we have maintained industry-leading gross margin, staying away from the short-term. We had initially communicated 33% to 35% as a reasonable gross margin range in the medium term. Given our progress this financial year, we are now increasing our FY 2025 gross margin guidance to 34% to 36%. Moving to our Q3 FY '25 performance. As discussed in previous calls, key highlights for this quarter include our growing sales, increasing order book and improved profitability driven by operating leverage. In Q3 FY '25, our revenues grew by 31.1% year-over-year. Our gross margin percentage improved from 36.8% in Q3 FY '24 to 37.3% in Q3 FY '25. As we anticipated, the benefits of operating leverage are now evident with EBITDA margins rising to 12.3% in Q3 FY '25. Absolute EBITDA grew by 109.5% year-over-year. Our PAT stands at INR 24 crores, reflecting a 264.9% year-over-year increase with PAT margins of 8.2% in Q3 FY '25. Our order book grew by 25% year-over-year, reaching INR 1,594 crores as of December 31, 2024, with an average execution period of 12 to 14 months. Additionally, our long-term contracts, which extend beyond 14 months and span an average execution period of 2 to 3 years increased by 32% year-over-year to INR 1,111 crores. Our net working capital days improved from 161 days in March 2024 to 150 days in December 2024. We had initially targeted an improvement of at least 10 to 15 days by March 2025. Despite a temporary increase in our net working capital days from 134 days in September 2024, we remain confident in meeting our original guidance of 10 to 15 days improvement by the end of this fiscal year. Revenue share from our U.S. manufacturing plant now accounts for 12% of our revenue in Q3 FY '25, reporting a net loss of approximately INR 3.4 crores. An improvement from the INR 14 crore loss reported in Q1 FY 2025. Meanwhile, manufacturing at our India plants which serve both our domestic and global customers represent 88% of our business in Q3 FY '25, remains highly profitable with an EBITDA margin of 15% and a PAT margin of 10.8%. We have previously outlined our three key drivers of growth: Our existing U.S. business, new U.S. business and expanding Indian business. The recovery of our existing U.S. customer base highlights the strength of our longstanding customer relationships. We believe the U.S. market is continuing to gain traction and we are optimistic about the growth potential in this large addressable market. Two, our recent successes in the industrial, automotive and aerospace sectors with leading U.S. companies are progressing for design and prototype stages to commercial production. With ramp-up expected in the upcoming quarters, we are seeing increasing momentum with new wins in the U.S., which reinforces our vertically integrated capabilities and strong market position. In the rapidly growing Indian market, our focused efforts over the past 2 years have resulted in key wins in industrial, rail and communication sectors. These wins are transitioning to commercial production and are expected to ramp up significantly over the next few quarters. We are encouraged by the traction across all 3 growth engines, which strengthens our confidence in the growth opportunities available to us over the next decade. Turning to key deal wins. We continue to see strong traction across multiple sectors in both India and the U.S. We are moving from prototype to volume production this quarter for a global auto component company specializing in motion control systems. Our long-standing presence in the aerospace industry over the past 8 to 10 years is now translating into significant new business wins as we advance through the prototype stage in FY 2025. We will provide further updates in the coming quarters. In India, our rail business is scaling up well with stronger performance expected next year. Additionally, we are actively working with our customers on anti-collision cover systems, which we believe offers significant business potential in the future. On the infrastructure front, we are pleased to announce that our plant in Chennai dedicated to export is now complete and has started production. Additionally, Phase 1 of our brownfield expansion in Chennai designed to meet the growing demands of our domestic market is finished. Phase 2 is expected to begin within the next quarter. This positions us well to manage the increased demand expected in the coming period. With the expected revenue growth in the coming years, combined with our established team and infrastructure, operating leverage will be a key advantage. In summary, we are seeing strong signs of growth which we expect to sustain and accelerate in the future. I would like to thank each of you for being part of our journey. This has been a pivotal year for us and marks one of the many years of strong performance ahead. Avalon remains committed to building a business focused on long-term profitable growth rather than short-term gains. With that, I would like to hand over the call to our CFO, Suresh Veerappan, for a detailed overview of our financial performance. Thank you so much.

Thank you, KB, and good afternoon, everyone. Thank you for joining the call today. As KB mentioned, all 3 of our growth engines are advancing at different but accelerating rates. The U.S. market is gaining traction and our presence in the Indian market continues to strengthen. Reflecting this positive trajectory, we are further increasing our FY '25 revenue growth guidance to 22% to 24%. In Q3 FY '25, we recorded our highest ever quarterly revenues of INR 281 crores. This reflects a 31.07% year-over-year increase from INR 214 crores in Q3 FY '24. In 9 months FY '25, our revenue from operations is INR 755 crores, an increase of 16.1% year-on-year. Our geographical revenue split for the quarter was 45%-55% with India contributing INR 125 crores and the U.S. contributing INR 156 crores. For 9 months FY '25, our geographical revenue split was 42%:58% with India contributing INR 319 crores and U.S. contributing INR 437 crores. Our gross margin for Q3 FY '25 reached INR 0.8 crores, reflecting a strong 33% year-over-year increase from INR 8.9 crores in Q3 FY '24. Our Q3 FY '25 gross margin was at 37.3%, up by 48 bps from 36.8%. For 9 month FY '25, our gross margin stands at 36.1%. We continue to maintain industry-leading gross margins. EBITDA for Q3 FY '25 stood at INR 3.6 crores, reflecting a 10% increase from INR 15.5 crores in Q3 FY '24. This resulted in an EBITDA margin of 12.3%, up by 42 basis points from 7.7% in the same period last year. For 9 months FY '25, EBITDA stands at INR 23 crores, reflecting an increase of 5% year-on-year. EBITDA margin for FY '25 stands at 9.1%, marking an improvement of 245 basis points year-on-year. PAT rose to INR 24 crores, a 25% year-over-year increase from INR 6.6 crores with a PAT margin of 8.2%, up by 521 basis points from 3% in Q3 FY '24. For 9 months FY '25, PAT stands at INR 39 crores, an increase of 87.2% from INR 21 crores in 9 months FY '24. Our profitability continues to strengthen, delivering sustained growth. Our operating leverage becomes increasingly evident as revenue grows, translating into enhanced profitability given that a significant portion of our cost structure remains fixed. This phenomenon is reflected in our Q2 and Q3 results. Moving on to the balance sheet. Net working capital days improved from 161 days in March '24 to 150 days in December '24. Net inventory days came down from 118 days in March '24 to 103 days in December '24. Trade receivables increased from 79 days in March '24 to 94 days in December '24. Trade payable days increased from 36 days to 46 days over the same period. However, net working capital days have increased from 134 days in September '24 to 150 days in December '24 due to increase in receivable days from 80 to 94 days during this period. We remain confident in our ability to reduce net working capital days by 10 to 15 days in FY '25 in line with our earlier guidance. As of December 31, our total outstanding debt stands at INR 156 crores with cash equivalents and investments at INR 129 crores. Our CapEx for Q3 FY '25 and 9 months FY '25 was INR 11.3 crores and INR 32.7 crores, respectively. With the CapEx-light model, our asset turns are strong at 8.8. The budget for FY '26 is currently in progress, and we will be in a better position to provide detailed insights about our FY '26 outlook in our next call. To summarize, the momentum across our 3 growth engines, along with improved profitability and a strong financial position strengthens our confidence in achieving long-term sustainable growth. With a continued focus on operational efficiency, working capital management and strategic execution, we are well positioned to capture the opportunities ahead. Thank you.

[Operator Instructions]. We have the first question from the line of Rahul Gajare from Haitong Securities India Private Limited.

Congratulations on the strong performance that we've seen during the third quarter. And also, I think I should congratulate you for a very elaborate opening remarks, which covered many of my questions. So to start the question, the first question I want to ask you is on the margin front. Given we've seen significant ramp-up in both the geographies, what do you think is more sustainable margin both in India and U.S. given some of the business will transition from prototyping to full-fledged manufacturing?

Rahul, thank you for your question. We believe that we have always maintained between 33% and 35% as the margin we target. But certain years, we may be higher like this year. We hope to do better than that but we target between 33% and 35% average gross margin between the 2 geographies.

And at EBITDA level, how different will that be given significant operational cost in the U.S. operations?

Actually, like we mentioned in the last few quarterly calls, we have reduced our operating costs. But there's a good opportunity in the U.S. today. We have to see how the politics of that plays out. So we intend to maintain the same margins going forward because we can always increase price.

Okay. My second question is on your expansion plan. You've indicated work on Phase 2 will start in a couple of quarters. So I want to know when will that be ready? And what could be the peak revenue once the Phase 2 is completed?

So we usually build up space 6 months to a year before we need it. So the key for us is we build the export facility, and that is ramping up as we speak. So this will take at least 6 to 9 months to complete. And then from that point, we'll have enough space and capacity for the following year. And we'll continue to do this as we go forward. Our longest lead time for setting up factories is the infrastructure itself, the machines or anything else.

Yes. And my last question I think you probably just touched on that. With Trump at the helm in the U.S. and his view, which are not very favorable towards clean energy, renewable, et cetera, how do you think your overall business could shape up given we have a sizable business coming from the clean energy vertical?

So let me there's always been confusion that we are in the solar side, a very small portion of our business is in the solar side, which could get affected in the U.S. But we are on the storage side, which is storing the energy. So that is growing between 50% and 70% in the U.S. year-over-year. And we are also in different other clean energy products apart from solar. To explain that it's not rooftop solar our main businesses. So the other piece is actually seeing significant growth.

The next question is from the line of Meet Jain from Motilal Oswal.

Congratulations for a very strong set of numbers. Sir, my first question is regarding our end user mix. As you can see, our industrial segment this quarter has seen a very good jump. Can you elaborate on that, which segment or which product categories and which geography have you seen such kind of growth? And my second question is on the receivable days. So it is a passing kind of increase, a normal operation or there is some kind of delay in receivables.

Let me address the first part of it. We are seeing growth in multiple industries. And because we are well diversified, if one industry slows down, it doesn't affect us as much. We have seen a very strong growth in industrial, okay? We've seen a little bit of slowdown in communication. But that doesn't mean that the whole thing has slowed down, but it's coming next quarter or the following quarters. So we are seeing good traction in industrial, mobility and clean energy sector. And in Q3, if you look at Clean Energy, we have grown 53% year-over-year, Mobility 10% and industrial 57%.

On to the second part of the question on the receivable days, this is more a temporary phenomenon. We were maintaining our receivable days around the 80 days mark, which is what we even saw in September '24 quarter. So what we see at 94 days in December '24 is more a temporary phenomenon. Like we said in the opening remarks, we are confident of reducing our overall net working capital days by 10 to 15 days like what we had guided for at the beginning of the year.

Understood. I have one more question on our manufacturing shift now we are almost 88% of the manufacturing in India. And earlier when we used to have almost 25%, 30% of the manufacturing in U.S. [indiscernible] Made in U.S.A. will be a theme which will have made some substantial value addition in the U.S. So is that the still valid because majority of the manufacturing will be shifted to India and will be very minimal manufacturing? So our clients in the U.S. will they see any impact on this because of that?

Meet, I don't believe there will be an impact. The way we look at it is the customer has got both options. We can pay a higher price in the U.S. if they want to do it in the U.S. But today, with India's emergence as EMS location, we are seeing customers come directly rather than what it was 10 years back, you needed to have a stop in the U.S. and then come here. We are seeing customers come directly and start production here. But there are certain type of products, which are large in nature, which we intend to continue making in the U.S. because it's not affordable to make in India. Did I answer the question?

Yes, sir. And on the margin side, we did almost 12.3% kind of margin this quarter, what will be a sustainable margins going ahead? Will you be able to achieve this because we see increasing operating leverage also? And when we say our gross margin will be in the range of 33%, 35%, so can we see this margin to be sustainable or even if improvement is possible, a sustainable margin of 12% will be a good assumption?

I think that's a decent assumption. We always strive to do better. But for the sake of this call, I think you can assume it will be close to that.

The next question is from the line of Praveen Sahay from PL Capital, Prabhudas Lilladher.

The first question is related to the '25 guidance of 22% to 24% of growth. That tells that the 40% to 48% of a growth for Q4 you are expecting. So can you give some more color from which segment or the order book you have in place, which led to a significant growth in the Q4?

So we are confident of doing this, and it's a broad-based growth, as you've seen in the last 2 quarters. To remind you, a year back, we were saying customers slowed down in the U.S. So a lot of our existing business has slowed down across industries. We are seeing a lot of that come back not only at the present levels but better than the present level. And some new customers will also start this year, this quarter. So we are fairly confident we're looking for that.

Related to that, for a quarter, definitely, there is some up and down in the contribution. But one in the opening remarks, you had mentioned related to the auto, you are focusing on the volume product and motion control system, you are getting an order. So can we assume that auto is going to one of the big driver for FY '26 for your revenue?

No, I wouldn't completely, it's one of our sectors, okay? It is a part of what we do, but we are doing a lot of the auto for export. So it's not a margin strain. It will be like rail or air, it will be one of our sectors. So our business is not based on auto. Auto is just one of our sectors.

Okay. So you'll be able to maintain the contribution where you are even after all.

Yes, very much.

And related to the Chennai plant, the Phase 1 has been completed. So how much is the contribution so far you had received from the Chennai, like that started contributing in the revenue or we will see the major revenue contribution from FY '26.

The export plant is fully operational. We're already starting to see revenues. So that's why we always said that year-to-year for a couple of years, we need INR 40 crores to INR 45 crores of CapEx. And today I explained the numbers to you. And this revenue from this plant is only going to increase. So that's why we are confident even if the rate of growth is higher, we can meet that with our capacities.

And two questions. Last one is, if you can give any color on your order book domestic and international and the reason for an increase in the other income?

So on the first part, the order book proportion also is very similar to what you see in the revenue proportion between 45% and 55% what we see on India and U.S. That's on the order book. The second part on other income. One component of that is the returns that we have generated from our investments. The second component is on the ForEx income.

The next question is from the line of Dhananjai Bagrodia from ASK.

Congratulations on a very good set of numbers. Sir, I just wanted to understand now, obviously, so our benefit is that we are present in globally, we have a good facility in U.S. And are we seeing any intake in terms of new clients coming in? Or how is the pipeline? Because that is a factory which we have ample capacity and which can ramp up significantly. Any thoughts on how that's coming along?

Thank you for that question, Dhananjai. For us, U.S. is always a beachhead. We need it to bring business into India. Our goal, 88% of what we do delivers a 15% EBITDA and 10.2% PAT today. So the best business for us is to have U.S. clients who can make in the U.S. but to make sure that they come directly, if you have a plant in the U.S. factory in the U.S., that eases the process because there are multiple ways customers look at because they have service levels in the U.S. itself when they have changes or when they need something expedited. So it is just a plus point. Our goal is always to make in India, but make in India for the world. And saying that, our India business, which we technically got into 2 to 3 years back is starting to pay dividends, our order book as well as our production is increased.

So are you all seeing like now with your customer interaction now Trump has come on, are you all seeing a lot of customers who are coming in who want to diversify from other regions to U.S. because no one wants to lose sales. So are we seeing a big uptick in that in our pipeline?

Yes, we're seeing a lot of activity. Actually, we have seen a lot of activity with customers moving products from Mexico to us. And that's only because we have the factory in the U.S. in the sense, not the U.S., but directly to India. They look at the risk profile, which one to be. U.S. is expensive, then we move to India. So we are seeing some of that activity. And I think that was a pleasant surprise for us.

Okay and how should we look at our U.S. segment as growth? How much growth could we look at that? Or is it too early days right now?

Because with Trump, we don't know what can happen but we are there in both locations. So if a customer wants to make in the U.S., he makes to a higher price. But our goal is to move that to production in India. So I think we are covered both ways if any of the tariffs come into play, I think we are very much ready for it either way.

Okay. And any other risks we are seeing along those lines?

We don't see anything as of today. I mean it is a positive time in the evolution of our company. So what we've been kind of telling over the last 6 quarters is the slowdown and last 2 quarters, we've seen growth, and we will see sustained growth for the midterm period also.

The next question is from the line of Renu Baid from IIFL.

Good performance. My first question is on inflows. So broadly inflows have been flattish for the last couple of quarters and order backlog is in the INR 1,400 crores range. So how should we look at the execution time line of the orders in hand after the upward revision in revenues for fiscal '25? And how does the growth pattern look at this point in time based on the order inflows and pipeline that we have for fiscal '26? That's the first.

Thank you, Renu, for your question. So like I said in my opening remarks, for the 12- to 14-month period, okay, which we have confirmed POs of INR 1,594 crores. For the 14 months to 3 years, we've got INR 1,111 crores, which is year-over-year increase of 32% on the second and we don't count anything. We have contracts for 15 years in certain cases. We don't count those contracts in these numbers. So we are looking at a short-term to midterm picture where executable orders are there and we intend to increase this. So there's a clear revenue guideline that this is there and more is increasing as we see. Year-over-year, we've seen a 25% growth and we'll continue to see that in the coming quarters.

Sure. Second, will it be possible for you to share any updates with respect to where are we in terms of completing the prototyping and the pipeline of new products with our large U.S. clean energy customers there, be it Lunar or arka, any updates on how are we to ramp up again.

Yes. So like I said, I think in our lines, we are past that. That's a small part of what we do going forward. 2 years back, it was a big part. But to say that we have started production. We have started production.

Okay. And we are seeing the ramp-up as scheduled or as planned or it's slightly softer?

No, I think as per plan, but we have taken a very conservative number on it.

It is progressing as planned. In the last call, we had mentioned that in Q4, the commercial will happen in Q1 is when the ramp-up is going to start. So it is progressing as per plan.

Got it. And lastly, within the autos, would it be possible for you to share what are we doing to improve our exposure to the EV portfolio and simultaneously, any investments in R&D to step up capabilities on this side?

We're looking at as one of the subverticals like a [indiscernible] rail. It's not a do a die for us. And we are looking at it globally. So it's going to be just not EV. We are in the what we call the normal ICE engine also. So it's just not EV related. So especially outside India.

The next question is from the line of Chirag from Keynote Capital.

Sir, I just want to know that as we are growing at high double-digit rate, I just wanted to understand what is our current capacity utilization and what are our CapEx going forward as we might be already reaching INR 300 crores, INR 350 crores top line on a quarterly run rate?

Chirag, I think we have enough capacity that we've always said that we have planned this for doubling our growth in 3 years. So we are not too concerned on the capacity. Of course, there are some issues here and there, but it's all solvable. Mostly it is how fast we can get space organized. And we have always said for the next couple of years, we'll need a CapEx of around INR 40 crores to INR 45 crores and we are maintaining that because we have always believed that we should operate in asset turns of 8% to 10%. That's always been our goal. 10 sorry, 8 to 10x.

And as we are almost reached a cash flow company, which is going to be almost INR 100 crores cash on an annual basis. So it would be just 50 percentage of that would be CapEx and another 50% is we are keeping it for some kind of inorganic growth or we are going to provide some dividends to the shareholders. Any thoughts on that?

So my thought on that is very clear. We are hoping to see some substantial business. We are hoping, okay, I'm not saying we have, and we'll need the cash at that point of time, okay? So we hope that it comes through in the next year or so. So we still maintain the CapEx will be INR 40 crores to INR 45 crores a year, at least for the foreseeable future. There something substantial breaks, of course, we've got to look at it differently.

Fair enough. After, just one clarification we have also given to the earlier participant, I might have missed it. But once the second phase of the CapEx is getting completed, what kind of revenue we can actually expect at optimum utilization?

Like I mentioned, we build our building ahead of the business, right? So what we're doing is this building will be utilized 9 months from now. So there's a lot of business coming in. So we just need space to operate. So we are building the building and deciding what to put in there 3 to 6 months from now. So we are always ahead by 9 months to 12 months.

And sir, as our revenue from box build is inching up again to 50 percentage, if I'm not wrong, can we expect that the margins from current level can even go further up as revenue from box build improves?

I think our commitments of margins of course, we are pushing for higher box build and more complex box builds. We will strive towards that, but we want to guide lower.

Okay. Okay. And last from my side. Sir, as you just mentioned in the initial comments that still the U.S. plant is still making losses on PAT level. Any clarity on that? Because as you said, new order book is being coming from U.S. from at this moment. And there are a few of the products that can't be built over here. The larger products has to be built in U.S. only, right? So what is your guidance towards this that? Will it become PAT positive in the next year itself?

I believe it could, but it's also an insurance policy for us, right? If there is something which the political situation right towards U.S., we can always make some of the products in the U.S. So I think we stand in good ground in that sense, that the business does not move anywhere in case there's anything coming up. We feel very good having that facility there. And today, as the losses have reduced, I think it's in a state where I think in the next 12 to 18 months, you could possibly see some positive numbers out of that.

Just last one to squeeze in. So is it fair to assume that you have almost reached a monthly order book intake of INR 125 crores to INR 130 crores now?

Monthly order book intake, what is, INR 350 crores to INR 400 crores, you are correct.

The next question is from the line of [ Vineeth ], an individual investor.

One additional question on our subsidiaries, how they have been structured like what is the work we are undertaking in our subsidiaries as Sienna and then how is the business flow over there? Could you please throw some light on it?

Could you repeat it? I didn't hear you really well in the beginning. I heard subsidiaries.

I just want to understand on the subsidiaries part, like how are we positioning them? I see some design elements in the Sienna ECAD division.

Okay. So ECAD, we all operate as one subsidiaries for a reason. So Sienna ECAD is a design company where we do design as a service. Sienna, which is in the U.S., is our U.S. company, which is 100% owned subsidiary, which we do production in the U.S. And ATS is where we do our metals and certain other products, which are not PC related.

Are we looking at any chip design sort of ventures from these subsidiaries going forward?

Yes. In a lot of cases, we do design, but we don't create the IP. We create the IP for the customer for a service.

Any plans to move forward into this venture design IP owning the IP?

It sometimes is very counterproductive because let's say, we are doing 5 different type of inverters for the sake of argument for the best guys in the world. And if we have our own inverter design, the other 5 will not stay with us. So we are a true manufacturing company, and we do design as a service. We still have 150, 200 people in design, but we design products for customers with the hope that manufacturing comes to us.

The next line of question is from Sumant Kumar.

So when talking about Avalon industry is growing at 30% CAGR. So what are we doing to outperform the industry? When we see the diversification, we have a decent diversification across industry we have a presence. And also, we are focusing on domestic side. So what was the guidance and the growth we are talking about? And when we see the other companies, some companies are growing more than 40%. So what is our aspirational number for the growth? And what are we doing for the higher growth in which segment we are focusing where we are lacking? So can you talk on that?

Yes. So we always have said that we are not going to do growth at all costs. We are going to do profitable growth in the sense, we are not going to sign businesses for the top line. okay? That is a very clear mantra and goal for us, and we have maintained that over the years. If we wanted to solve the top line problem, there's enough business out there at lower margins. So that's why we're not in the consumer space. That's why we're not in certain spaces where we can't achieve that. So in the longer term, we'll continue to do that. And we believe that we can grow at a faster rate in our own business, which is the more complex, the more mission-critical, the more difficult to do, the more export. And that has been our goal always. We've not changed anything. So there's enough business out there to cater to that.

Because we have seen FY '24 growth and '25 onwards, we have seen recovery. So for that, what are the risk mitigation, what are the diversification we are thinking of? We have a higher contribution of export now focusing on domestic. So in that, we have seen the clean energy is not doing good in U.S., our growth is muted. So if this kind of scenario is not going to arise in future, what are other segments we are diversifying?

Let me just correct that if that's okay with you. Clean Energy, which is 22% of the business, grew 53% year-over-year. So our growth is going to come from sectors. There are a few couple of industries we're entering into, which we'll talk about a few quarters later, okay, which we are specifically targeting, again, the same business model as we have today. And I think there are subverticals in the 5 verticals we have and we are very confident that, that things will be a different set of growth rate than what we have today in these 5 verticals.

And what about railway, how things are going on the railway side?

Railways is a good part of our revenue and a lot of that is in India, and we are seeing tremendous growth this year as well as we are going to see more next year. And we have had a few more products added to our railway portfolio, which I think as a country, as India, as we grow, we're going to see a large pattern of growth in complexity.

The next line of the question comes from Deepak Krishnan from Kotak Institutional Equities.

Congrats on a good set of results. I think just more from the previous participant itself. Now you said 3 levers of growth. I think first is recovery of the existing base that's definitely come through and there could be further growth there. But in terms of incremental growth..

Deepak, you sound a little bit muted. Can you repeat the question again?

Is this better now?

It's much better now, much better now.

Yes. I just wanted to sort of understand the [Technical Difficulty]

Deepak, are you there?

The next line of question is from Bhoomika Nair from DAM Capital.

Yes. Congratulations, sir, on a good set of numbers and strong growth in the current quarter. Sir, just wanted to get a sense in terms of the new clients and the order intake that we have seen, which areas, if you can talk about, which is seeing a strong scale up from an end user perspective, how large are they? If you can get some color in terms of that aspect, sir.

Bhoomika, as usual, you asked the most difficult question, but I will try to answer it best way possible. See the key part of it is export is back, okay? That is where we were struggling for 2, 3 quarters, and that's where our business was. And with that, the India piece is growing. So we see a broad-based growth, especially the industrials have done very well in this quarter and will continue to do well in the following quarters. But as we target to have a 25% to 30% in each of these verticals. So what you're seeing is in India, you're seeing a lot more of the mobility that's per se rail business and the air business coming through. Industrial is a 50-50 mix and the order intake is very similar to what we are seeing in the past. It's a healthy mix between the 3. Communications, you may see a bigger upside in the future and medical, of course, we don't focus as much now. But it's going to be split 50-50. Our goal has always been to get the company to be 50% in India and 50% outside India. Because if you go back 3 years, we were 70% outside India and 30%. So we will never be caught in the wrong foot like what we were caught 12, 18 months back. So in that sense, it's a broad-based growth. And we have, like I mentioned before, a couple of verticals which are exciting for us. And as we get deeper into that business, we can talk about it.

Sure, sure. That helps. Sir, the other aspect is with this whole administration change in U.S., we obviously have both offerings, right? We shifted a lot of manufacturing to India over the past year, 1.5 years are you seeing some of the clients rethinking their decision, wanting to come back to U.S. manufacturing or anything of that sort? They might not have yet taken any decisions as such, but are you sensing any of that kind of conversations with your clients?

In fact, we're seeing the opposite of that. So the clients which have moved, now they're moving other products directly to India, which is a good sign. And the way I look at it is in case there's a tariff or something put on it, we can always make it back in the U.S. at a higher cost, okay? Of course, the charges will go up. But I believe that the move to India is true. We have convinced these customers that we can make in India, developing to do it in the U.S. And we have done that because we are lucky that we did that before the election because right now, we don't know which way it's going. Every day, it changes, right? So we can't make a guess or customers can't make a guess on what's happening. But the interesting piece for us is even the places close to the U.S., we are seeing some traction with business moving to India, to us.

Okay. That's interesting. And even the new customers are happy to kind of just directly move to India rather than wanting to have a production in U.S. Would that understanding be correct?

I would say, by far, that's always been our goal to make it in India. If the guy want to start there, they are more than happy to do it and transition out in 6 months to a year, however it feels like. But certain products cannot move like the quasi military stuff, which we do, cannot move outside the country. So we we'll focus on that, and I think there's a huge potential there to make us in the U.S., and we look at it from that context.

Sure. The other aspect you know we've scaled down on U.S. quite a bit, we've moved to India. We've seen clients coming to India as well. But the U.S. business continues to be a bit of a drag. Had it not been for U.S., we would have actually reported a much better margin profile. How are you seeing that loss kind of tapering down given that there's not really much of revenue momentum that's happening and the negative operating leverage in U.S. is really hurting us. Not materially as it was perhaps, say, a year ago. It's obviously come down dramatically. But where do we get into a breakeven situation or some bit of a profitable situation in the U.S.?

So end of the day, in our minds, we are very clear that U.S. results being shared, okay? A lot of the activity, a lot of the conversation happen there. And if they want prototypes, we can still do it there. So at this point, we believe it is absolutely essential to have that front end, especially when you're dealing with very complex products where you have engineering interactions because you have to understand the 12-hour time difference, convince an engineer to talk to somebody in India is always a convincing story, right? And we have teams of engineers, whether it's 18 or 20 engineers involved in a project from the U.S. and from our side. That actually helps in a big way. That's probably the most positive thing we have because 55% of our business is in the U.S., and that's a support structure. So we believe that even if there is a small loss on that, and we hopefully we breakeven our goal is to make it profitable, and we will strive towards that. But it's a lower cost.

Yes, yes. So I mean more like one can possibly view it as perhaps a small cost center to get the volumes or get the customers in perhaps.

Absolutely, absolutely.

The next line of the question comes from Karan Sanwal from Niveshaay.

Congrats on good set of numbers. I have a few questions regarding like we talked about reducing our net working capital for the full year. So would it be predominantly through decrease in receivables?

Suresh, do you want to answer that?

It's going to be a combination of all 3 aspects. We are working as a team on receivables, payables as well as inventory. But yes, we are confident on reducing the net working capital from where we are today to March.

Okay. And also, could you get us the 9 monthly figure for the cash flow from operations.

Approximately, it will be negative INR 10.6 crores on a 9-month basis.

Okay. And would we be trying to convert this to positive for the full year? Or would it stay negative?

For example, we had INR 36 crores of positive cash flow operations in the first quarter. It is just in this quarter with the increase in receivables, we saw that. But with the increase in sales and a positive operating leverage, I think in the coming quarters, we should start seeing that.

Okay. So there is no challenges in collecting receivables, right? It's just the sales have increased. That's why it has increased. Am I correct?

Yes, you're absolutely right. There are no challenges. These are very large MNCs, kind of like Fortune 500 companies. It is a temporary phenomenon, which was collected in the first fortnight of January.

Understood. And also, you talked about the subsidiary, the businesses that we do in the subsidiary. So any specific segments that are covered only through subsidiary? Or is it all interrelated within the company?

We operate as a single group, okay? It is for practical purposes, we have different subsidiaries. But the way how we operate, it is a single group.

Okay. One last question. If you could talk about the coverage opportunity that we are doing with the vendors, like when are we expected to start field trials or bid for those tenders? Any progress on that part, anything you could highlight for that?

Yes, Karan, this is KB. So we are in different forms of field trials now. So products have been built and the trials are customers approved by the Indian Railways. And when Stage 2, hopefully, Stage 2 or Stage 3, we should see a good part of business coming to us. So the trials are going on.

The next line of question comes from Jeetu Panjabi from EM Capital Advisors.

The numbers are great. I have two broad questions. In the backdrop of what's been happening in recent weeks and since Trump's come in, there seems to be a fair amount of global distrust that's come up. My question really is, is there any change in the tone of discussions of customers when they're engaging with you all? Is there any sense of caution? Or do you think that they would think about the business in any different way?

See, because it's the second coming of Trump, most of America is used for the first coming. So he did something very similar. And it's what we as a personal opinion is more of a negotiating tool more than trying to get things done. But of course, from a business, from an Avalon standpoint, if the patriotism, of course, plays out in America, you have a choice to make it in the U.S. or you can make it in India, but of course, cost to where. And the first preference is where it is cost effective. So every meeting starts to talk of Trump. But to us, what you read in the newspapers today and what you read tomorrow will be 2 different things. You can't plan for that.

Okay. Okay. And are you doing anything different on the back? Or do you just status quo and business continues?

Business continues because you see these changes can only happen over a period of a year or 2, even if things are transferring from XYZ to one location to another. It takes time because our products are complex. And most customers would not want to change that because some of the lifetime of our products is 5 to 15 years. So it is not in the best interest to start moving things just because of a change in governance. So we believe in the longer term, the customers who are here will always be here. If any customer wants to make in the U.S., we are more than welcome to do that.

Okay. Now my second question is kind of you've given a guidance of 22% to 24% going next year, which is actually a great number. So thanks for that. But I have a question. In a scenario where you say I want to step on the gas and I want to grow at 35% and not 24%, is there a way to get there? Like does the opportunity exist? Do you think you can execute to that opportunity? And is there a model to sustain the business model at a higher growth rate?

Absolutely. You've seen the 30% growth rate already in the last 2 quarters, and we think it will be a little bit better this quarter. And we are confident we have set up our operations and leadership, the factories to have this sustained higher growth. So for the next 12 to 18 months, we don't anticipate having an issue with that. Of course, we don't know what we don't know. But as we stand in the existing type of business, we are very confident.

Okay. Excellent. And one last piece, if I may sneak in, is in the context of these 25%, 30% or whatever number you'd grow at, what will be the toughest part of the business to manage?

So in the context, on the technology side, it's broad-based because one, the start-up of the businesses will take time because there's a lot of engineering content. It is not step and repeat. So some of our products are INR 1 crores to INR 2 crores sell one product, right? So some of them are fairly complex in what we do. So when we plan for a cut in 4 months or 6 months, that may go to 8 months. Both sides, there's a lot of engineering involved to cut in the product. So that, I would say, is trying to time the pieces of business which are coming in will be difficult because of the cutover because they're transferring from different parts of the world or they're introducing a new product. And we have to be very and very engineering intensive.

The next line of question comes from Ashutosh Agarwal from Northbridge India.

Yes. Firstly, congratulations on a very great set of numbers, and I'm thankful to you being an investor since IPO. So company has done very well like throughout this period. So firstly, I want to give my gratitude and thank you to you for all the efforts.

You are welcome, and our goal is to make shareholder wealth creation, which needs to happen over a period of time. And it's not instant over a period of time, we are going to create that. And thank you for being an IPO investor and staying with us for the calls.

Just sir, I have two queries. Firstly, as a part of long-term vision, can we have like a ballpark number for revenue or PAT for the next 3 to 4 years?

We have aspirational goals in the sense what we want to be, but we want to kind of get closer to that and announce things or give guidance have been got in the wrong foot in the last couple of years. So I think from a sense of the future, the growth is there. We believe that India is getting accepted and there's a push for America where we are all in both locations. And we do also operate in a sense of sales activity in the other geographies also, which will grow over a period of time.

Okay. So like in terms of number, like can we have a ballpark figure like are we looking to grow at maybe 25% CAGR revenue and PAT-wise? Is there any margin expansion probability? So just wanted to take an idea about that.

This is Suresh with us. We are working on our budget for now. So we will be completing it in this quarter. And then probably during the next quarter, we'll be able to give more details. But on your question on revenue growth, I think the industry is growing at a higher pace. We just started our growth momentum. It is only going to get better and we're going to be stronger from there. In terms of margins, with the scale, operating leverage effect will keep continuing to impact us positively, which is what we saw in the last 2 quarters. We expect to continue to see the same in the coming.

Okay. And my next and last question is I know many investors has already discussed this that after Trump, what is the impact. So we are seeing like a lot of positive and negatives on the EMS industry as a whole after Trump. So do you feel that there is a substantial maybe a reduction in audios or a reduction in business with the U.S. after coming off Trump in the EMS industry? Or do you feel that it is just a social media hype and practically, there will not be a major disruption?

No, I think see, both India and U.S. stand to gain out of this unless Trump says something else tomorrow, which I don't know about. But for us, we are seeing both sides. We are seeing a lot of activity. And we always said previously, our goal is to do 50% in India and 50% of sales as export. So we maintain that and it counters each other because last time we went through a downturn though we are diversified, we were a lot U.S.-based. Today, we have come out of that, and we have a combination of India, U.S. and of course, a few other countries also.

Looking forward for more longer term relationships.

Thank you, Ashutosh, for being a shareholder and being with us from the IPO days.

Thank you. I would now like to hand over the conference over to the management for closing comments.

In summary, we are seeing strong signs of growth, which we expect to sustain and accelerate in the future. I would like to thank each of you for being-- I'm sorry-- we are encouraged by the robust support from our investors. We are committed to reinforce the trust that our investors have in our company. I sincerely appreciate your steadfast support and confidence in Avalon. Together, we are set for a remarkable journey of profitable growth and success. Thanks to everyone attending the call. Thank you very much.

Thank you. On behalf of Avalon Technologies Limited, that concludes this conference.