AXISCADES Technologies Limited (532395) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the AXISCADES Technologies Limited Q4 FY '24 Earnings Conference Call hosted by Centrum Broking. [Operator Instructions] Please note that this conference is an accorded. I now hand the conference over to Mr. Sumeet Khaitan from Orient Capital. Thank you, and over to you, sir.

Good evening, everyone, and welcome to Quarter 4 and FY '24 Earnings Conference Call of AXISCADES Technologies Limited. Today from the management, we have Mr. Arun Krishnamurthi, CEO and Managing Director; and Mr. Shashidhar S.K., Group CFO. They will take you through the results and business performance. After which, we will proceed for a question-and-answer session. Before we begin the conference call, I would like to mention that this conference call may contain some forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. Actual results may differ materially. These statements are not guarantees of the future performance of the company and involve risks and uncertainties that are difficult to predict. With this, I now hand over the call to Mr. Arun Krishnamurthi for the -- for his opening remarks. Over to you, Arun, sir.

Good evening, everybody. Welcome to the Q4 FY '24 and our full year earnings call. I'm accompanied by Shashi, who's our Group CFO; Muju, who is the CEO of Mistral, at the moment, on business travel in California. So it's 3 a.m. for him, so he won't be able to join on this call as we usually does with us. I trust you have reviewed our investor presentation, which we have revamped to provide you with the status and potential of each vertical that we serve, along with business and financial performance. The financial year 2024 was a momentous year for the company, in which we successfully completed a qualified institutional placement, made 2 acquisitions, acquired new logos, strengthened our strategic relationship with several OEMs, had several deal wins, retired high-cost debt and strengthened the balance sheet. I am pleased to report good performance in most of our verticals in FY 2024, except heavy engineering and PES that we had macro challenges. The company completed the financial year with consolidated sales revenues of INR 952 crores, recording a growth of 17% over FY '23, revenue of INR 814 crores. Our growth was much higher than the ER&D industry growth rate of 7.4% as per the Nasscom report. Our constant dollar revenue growth was 14%. The revenue growth was driven by engineering services revenue, which grew by 21% from INR 576 crores in FY '23 to INR 694 crores, led by Aerospace, Automotive and Energy. This growth came about despite degrowth and softness in Heavy Engineering and Product Engineering verticals, which I will elaborate going forward. The Defense revenues grew by 8% from INR 238 crores to INR 258 crores with production revenues in Mistral defense triples from INR 39 crores in FY '23 to INR 112 crores this year. The company recorded consolidated EBITDA of INR 130 crores in FY '24 as against a normalized EBITDA of INR 124 crores in FY '23, a growth of 5%. The EBITDA margin stood at 13.7% as against normalized EBITDA margin of 15.3% in FY '23. As stated in our earlier earnings call, the company continues to make significant investments in building digital capabilities, which in short to medium-term impact on EBITDA. The financial year also saw a onetime cost and organizational costs because of 2 acquisitions as well as non-permitted expenses of equity raise event, which was charged to the P&L statement. The company hired senior leadership talent during the year and continue to retain experienced and billable resources in Heavy Engineering and Product Engineering Services despite degrowth. As it expects normalcy to return to these verticals in the later part of FY '25. The reduced EBITDA margins in FY '24 should also be seen in the context of these. The company recorded a PAT of INR 33.4 crores as against a PAT loss of INR 4.8 crores in FY '23. The normalized PAT after adjusting for exceptional charge in FY '23 was INR 63.23 crores. With prepayments of borrowings and proceeds raised by QIP, the finance costs will significantly decrease in FY '24, which will add to the PAT. The business performance for the fourth quarter, the company continues to record consistent year-on-year growth in its Engineering Services business. For Q4, Engineering Services business grew by 23% year-on-year to INR 182 crores from INR 149 crores in Q4 FY '23. The sequential revenue growth from Q3 FY '24 in Engineering Services was flat, mainly due to lower revenues from product engineering services and automotive. The Defense business in Q4 FY '24 at INR 73 crores, grew by 49% from the previous quarter with Defense production revenues accounting for INR 42 crores, doubling from INR 22 crores recorded in the previous quarter. The EBITDA was at INR 32 crores in Q4 FY '24 as against INR 29 crores in Q3 FY '24. Let me now delineate on some of the vertical-wise business performance and outlook for FY '25. The Aerospace vertical constituting 30% of consolidated revenue reflected robust growth of 27% over previous year, recording a revenue of INR 285 crores as against INR 225 crores in FY '23. Our long-term relationship with aerospace OEMs continues to expand and will benefit from the enhancement in production run rate by OEMs, backed by large order backlog with these OEMs. As such, recurring revenues from manufacturing support and in-service repairs will continue to show healthy growth in FY '25. The company is bidding for several other programs for which we will be a preferred supplier given our legacy and proven competencies. The company has also initiated several digitization projects in the Aerospace vertical, which will enhance productivity and margins. Our outlook for this vertical continues to be bullish for the foreseeable future. With the acquisition of add-solutions, the share of revenues from Automotive constitutes 11% of our total revenue at INR 103 crores in FY '24 as against 4% at INR 35 crores in FY '23. The company added new capabilities in this vertical in HMI testing, automation and EDI. The company added several new logos in FY '25 and acquired a cybersecurity work package with an automotive OEM in the U.K., which designated us as a preferred supplier. With the current emphasis on software-defined vehicles, we are building a brand differentiator with Mistral's hardware and add-solutions Automotive business. We, however, see some signs of softness in some of our Automotive clients due to challenges from Chinese OEMs on their EV portfolio. With the acquisition of EPCOGEN December '23, AXISCADES closed the financial year '24 with revenues from Energy vertical at INR 33 crores, constituting 3% of total revenue as against INR 19 crores in FY '23. With EPCOGEN, AXISCADES serve both domestic and overseas clients in the oil and gas refineries, power and green energy sectors, with expertise in front-end engineering, pre-award proposal engineering, detailed engineering, construction and commissioning support with multidisciplinary capabilities covering the full spectrum of the energy sector. The company, considering the potential of this vertical has positioned the business unit head in to enhance current relationships and build new relationships in the Middle East and seeks to open a marketing office in Dubai in FY '25. AXISCADES projects healthy growth from Energy verticals in FY '25. As stated earlier, the growth of 21% in Engineering Services business has come about despite the degrowth in Heavy Engineering and the PES verticals, mainly in the U.S. region. The share of Heavy Engineering to total revenue declined from 21% at INR 170 crores in FY '23 to 16% at INR 152 crores in FY '24. The decline of 11% in this vertical is due to slowdown in the U.S. region with low CapEx deployment for heavy earthmoving equipment. The company's revenue from a major Heavy Engineering OEM is mainly from low-margin staff augmentation business, which is disproportionally exposed to any slowdown. Hence, we have embarked on a journey to structurally alter our quality of revenue in this vertical by acquiring new logos and graduating to new value-added services, especially in digital, plant automation, process automation, and autonomous solutions by leveraging internal and Mistral capabilities. That growth will be muted in this vertical in the first 2 quarters of FY '25, we expect growth to return to this vertical in the second half of the financial year FY '25. The Product Engineering business of Mistral constituting 13% of total revenue, recorded a marginal decline of 2% to INR 125 crores in FY '24 from INR 128 crores in FY '23. While the services part of the PES business recorded stable growth of 6% at INR 59 crores in FY '24 from INR 55 crores in FY '23, there was a degrowth in the production part of the PES business, which degrow by 8% from INR 72 crores in FY '23 to INR 67 crores in '24. As stated in the earlier earnings calls, this is due to overproduction and overstocking of semiconductor chips by global semiconductor majors during the pandemic. We expect that growth will return to this vertical during the later part of FY '25 with fleshing out of built up inventories. Mistral continues to focus on new product development and innovation in this vertical. FY '24 was characterized by the release of autonomous aerial robotics controllers product for a drone kit and edge AI box in partnership with the semiconductor OEM. We also entered into new business deals with major automotive Tier 1 and Tier 2 clients. During the year, Mistral developed and tested a next-gen [indiscernible]. All these initiatives will result in deal wins for us in the coming quarters. As stated earlier in FY '24, the total revenue from Defense business, which constitutes 20% of our total revenues, grew by 8% from INR 238 crores to INR 258 crores. In this, the Defense business of Mistral grew by 37% from INR 137 crores to INR 203 crores. Out of this, the production revenue grew by 3x from INR 39 crores to INR 112 crores and prototype revenues were at INR 92 crores. The overall growth in Defense business was restricted to 8%, despite significant growth in Mistral Defense as a large order being executed by our subsidiary, for ACAT for the Man Portable Counter Drone device got deferred to FY '25 due to delay in predelivery inspection. Despite the delay, ACAT delivered 24 numbers of this MPCDS to the Indian Army in the month of March 2024. On successful execution of funded numbers, which is an existing contract, by Q2 FY '25 there are significant opportunities for repeat business and additional orders for this proprietary and one-of-a-kind drone technology developed by ACAT. This system is first of its kind of anti-drone system that has been inducted into the armed forces and is currently being used. The system being a small portable battery combines operated system caters to multiple frequency spectrums including command and control the navigation and can detect and jam a wide variety of drones completely made in India. It performs both electronic spectrum monitoring and electronic countermeasure functions up to 5 kilometers. It also covers certain special frequency spectrums not addressed by any other system in the market. The Indian Ministry of Defense and Defense Forces plans to acquire counter UAV capabilities, including that of MPCDS through multiple RFPs. The addressable opportunity in this area within India is about INR 3,000 crores for the next 5 years, not to speak of potential for exports. We are confident that the defense vertical will continue to grow on the back of strong order pipeline, which has been built up to design wins and prototype certifications over the last 10 years. The company added to its pipeline in FY '24, the design and prototype wins in several defense programs such as HISAR, which is a missile launching program, next-generation ERP for combat aircraft, Intel-based SBC, which is single board computers, DEAL satellite terminal design, direction finding for naval programs, et cetera. Mistral production order revenue will continue to grow at a robust pace in FY '25. Now coming to the digital initiatives. The current company currently has a 75-plus member digital team with deep competencies in automation, AI/ML and robotics with complete digital project execution capabilities in an agile environment. The team is focused on internal process automation as well as offering digital capabilities as a service to both existing and new customers. The digital team has developed a machine vision-based quality inspection system for AOL validation of manufactured product. The team is working with various customers, both current and potential to offer digital solutions for process and cost optimization. As stated earlier, the digital investments was negative to EBITDA in FY '24, the same as expected to be neutral to positive in FY '25. As stated in my previous call, I'm pleased to report that in the last 2 years, we have made significant progress in implementing our 3-pronged strategy of vertical diversification, customer diversification and digital first, and the business stands significantly various with 6 business verticals, addition of several new strategic logos, new acquisitions and our investments for a digital future. We continue to build our team for growth and have added more than 500 billable resources in the last 12 months, and our people resource stands at 3,000 plus across all the businesses. The outcome of this can be seen from revenue from new customers increasing by 5x from INR 14 crores in FY '23 to INR 69 crores in FY '24, and contributing to 7% of revenue in FY '24 versus 2% in FY '23. We currently work directly with more than 10 OEMs across our different verticals. We have delivery centers with multiple global locations as part of our global delivery model. We have been able to attract and retain quality talent having deep engineering expertise. Our attrition has fallen from 21% in FY '23 to 16% in FY '24. There is substantial headroom for growth in each of these verticals we serve, and our aim is to expand the addressable market with our service offerings owned over 2 decades. Our controlled order book across all entities stands at INR 749 crores against INR 589 crores at the beginning of the year, an increase of 27%. While we do not provide specific guidance on revenue and margins, our directional guidance on each of the verticals has already been designated. So overall, I strongly believe that we should be able to put up a better performance and better than industry growth rate in FY '25 even though we believe the growth will be generally back-ended to Q3 and Q4 due to the unique nature of some of our verticals and our overweight presence in defense, which are lumpy in nature and cannot be calibrated across quarters. To conclude, the fundamentals of the business remains strong, and we enjoy excellent customer relations to take us forward on a growth journey. Some verticals will grow faster than the others, and to some extent, that will be determined by macroeconomic trends and sector-specific seasonalities. I now invite Shashi, our CFO, to provide a review of the financial performance. Thank you.

Thank you, Arun, and good evening to everyone. As explained by Arun, the company had an impactful closure in FY '24 with revenue growing at 17% despite challenging macroeconomic environment and degrowth in Heavy Engineering and Product Engineering services. After having successfully concluded the acquisition of add-solutions in Q2 and EPCOGEN in Q3, we are now focused on making our acquisitions margin accretive by financing the offering, cross-selling capabilities and rationalizing costs and resources. The company recorded a consolidated EBITDA of INR 130 crores in FY '24 on sales revenue of INR 952 crores as it has normalized EBITDA of INR 144 crores in FY '23, a growth of 5% over previous year. The EBITDA margin grew at 13.7% as it is normalized EBITDA margin of 15.3% in FY '23. As you would remember in FY '23, the company has reported an EBITDA of INR 137 crores on a revenue of INR 813 crores, which included a onetime net benefit of INR 13 crores in COVID tranche in its U.S. entity. The company's EBITDA in FY '24 came at a lower margin of 160 basis points. This was on account of our investment in the digital team, the bench being maintained for Heavy Engineering and Product Engineering Services despite degrowth where we expect growth to return in FY '25, which together accounted for 100 bps. The shift of MPCDS program for FY '25, which was planned in Q4 of FY '24, which Arun spoke about shifting about 50 basis points to FY '25. The company took a one-time charge of INR 3.17 crores in the recalibration of the Mistral entity, Aero Electronics, accounting for about 30 basis points. The onetime organization cost on acquisitions, the expenses pertained to qualified institutional placement and hiring of non-billable senior leadership hires accounted for other 50 basis points. All of this aggregating to about 230 basis points. The employee benefit expenses of INR 499.8 crores, is 39% increase over the previous year, takes into account the head count of around 200, which have been added from the 2 acquisitions namely add-solutions and EPCOGEN, which added a payroll cost of INR 38 crores. Net new billable resources who have been hired [indiscernible] din numbers as well as the spend, which we did on the digital resource of [ INR 7.5 crores, ] which is currently a nonbillable digital team and senior latest hired during the year. The company's finance cost came higher by INR 20.48 crores at INR 56.37 crores in FY '24 as compared to INR 35.9 crores in FY '23. This was because of the full year impact of interest costs or funding of Mistral acquisition, prepayment charges and underlying costs pertaining to the refinancing of this debt. The company's PAT in FY '24 was INR 33.41 crores as against PAT loss of INR 4.8 crores in FY '23. Out of the net proceeds from the capital raise of INR 203.47 crores out of the INR 220 crores with the size of the QIP, INR 158.45 crores is meant for repayment of the borrowing and balance INR 45 02 crores is for general corporate purposes. From the QIP process, the company has since retired INR 120 crores in long-term debt to invested and bank borrowings, and we'll retire further with a minimum amount of INR 50 crores in September of 2024. With this, on an average basis, the finance cost in FY '25 will reduce by about 50%. The net borrowings include working capital and auctioning convertible debentures as on the 31st of March 2024 is INR 84.52 crores as against INR 214.37 crores as on the same date of the previous year, a reduction of 60%. The company has the healthy balance sheet with shareholders' equity standing at INR 592.82 crores as against INR 343.86 crores in the previous year. The cash, bank and liquid investments on the balance sheet amounted to INR 182 crores. To conclude, our focus in FY '25 will be to build a sustainable business and further strengthen growth and profitability. We will now open the floor to questions.

[Operator Instructions] The first question is from the line of Jyoti Singh from Arihant Capital Markets.

Yes, I'm audible?

Sorry, Mam, your voice is breaking.

Sir, my question is on the revenue mix side, if I see on the geography side, and if I see on the [Technical Difficulty] so there is a huge variance compared to last quarter to this quarter. So like we have an increase in certain segments, and we have decreased in certain segments. So can you explain on that, it will be going to be consistent from here onwards? Or will be doing a decrease or increase in every segment?

Jyoti, this is Arun here. So is your question about the segment or the geography.

Hello?

Yes. Can you hear me? Is the question on the verticals or is it on geography? Because on the verticals, like I said, we have seen very good growth from Aerospace, and that will continue for us. We have seen growth from Automotive and we have seen growth from Energy. And of course, the Defense business, which is all India-based business, that is also something that will significantly grow. So these are the verticals that we see consistent growth.

The next question is from the line of [indiscernible] from Lucky Investment Managers.

Am I audible?

Yes, you are.

Yes, sir. So sir, my question is that the total cost of goods sold that we have in our P&L, that pertains to the product revenue of the Defense and the Semiconductor business, right?

You're right. The material consumption is what we see there is only from the Semiconductor and the Defense vertical, yes.

Yes, sir. So for FY '24, if I see the total product revenue for these 2 verticals it is about INR 180 crores. And the cost of goods sold is also about INR 185 crores. So currently, are we negative of the breakeven level at the gross margin level for these 2 verticals in the Product segment?

So with respect to refer to the material cost, the denominator as to the revenue is just a minute, let me take this...

Yes, sir. So you're saying that I should take the denominator as the total revenue for this verticals, not only the product revenue that has been mentioned in the presentation?

It is the total revenue. If you look at the semiconductor revenues of Mistral, what is the production revenue, it is -- the total number, which has to be taken as a denominator is INR 383 crores, which essentially is about 50% of the material cost.

Okay. So you're saying we make 50% gross margin on the Semiconductor business. So combined with the design and the product revenue.

Yes. Correct.

Okay. And would the margins be similar on the defense side as well?

So in Defense, there are 2 parts to it. One is the production revenues, which are the regular runs in terms of what Arun described, which has tripled from about INR 39 crores to INR 112 crores. There, the EBITDA margins of around 29% and then the other part of INR 90 crores of what we did for prototypes essentially is a negative margin because of the fact that the objective at this point in time is to get into the order pipeline as a result of which, we have steep bidding from various competition, and we ensure that we bid appropriately to ensure that we are in the auto pipeline.

Yes. I think the structure -- this is Arun here. just to clarify, the life cycle of the Defense win is that when we win an order, we work on the R&D and the design part. And usually, that part is where we made some investments. Thus, of course, because we are in competitive bidding, we have to go low on price. So typically, the margins in that phase are low, and that's what we refer to as prototypes. So if you look at this year, other than the INR 100 crores, which is production, the rest of it is prototypes. But then as it moves into certification and production that's where we have the part number and when we move to production, the margins are much higher. It is anywhere in the 25% to 30% EBITDA region. So the INR 100 crores of production revenues comes at extremely high margins. But the prototypes revenue come at a lower margin because like I said for 2 reasons; one is we need to invest in R&D, and secondly, due to competitive bidding.

Okay. So the production is -- you said 29% EBITDA margin.

Yes. So essentially, for FY '24, the production revenues was INR 112 crores, which we made an EBITDA of INR 33.18 crores, which is about 30%. And at the same time, the prototype revenues was INR 91.62 crores on which we lost INR 3.37 crores as what I told you because at that point time objective was different. Essentially, the blended, I would say, EBITDA for the Defense vertical of Mistral was INR 30 at 15% against the INR 203 crores of total revenue.

Yes. And the prototype business is important for us because this is the pipeline that we bid. So this is the future production order that we have. So we may consciously make an effort to make sure that we win orders where there is a high production potential. And depending on the amount of prototypes, there is an investment that we need to make.

All right, sir. I have 1 more question. If you can tell us for the finance cost for the FY '25?

Yes. So the total finance cost for FY '25 for the financial statement of what you see is INR 55.76 crores and that essentially involved the long-term debt, which we arrived for the purpose of acquisition of Mistral, which was a total amount of INR 210 crores. Of which now with the QIP proceeds, we have returned INR 105 crores or repaid INR 105 crores, and we will be repaying a minimum of other INR 50 crores to INR 60 crores in September. So -- and a part -- so this retirement of debt in FY '25, we expect that these INR 56 cores of finance cost and what is there on the P&L will reduce by at least 50%.

The next question is from the line of Deepak Poddar from Sapphire Capital.

Am I audible sir?

Yes, you are.

Just first step, I just wanted to understand -- I mean, in the previous call as well, I think we had a objective, maybe what by FY '26, I guess, or 2026 a PAT objective of INR 180 crores. Now given this issue in the semiconductor sector as well as underperformance in Heavy Engineering, how is that outlook stands as we speak now?

Yes. No, we are still running for that. So what we said is that by -- this is from FY '23 to FY '26, we would like to double our revenues, and we'd like to triple up PAT. So we were $100 million -- if I can talk in dollars, there's $100 million in FY '23. So we are aiming for $200 million in FY '26 and tripling of PAT. So we expect -- so like I said in my opening remarks, in Heavy Engineering, we are looking at structurally changing our business from some of the low-margin mechanical engineering work we do to do more work in the embedded and the digital side. And that's the journey that we are on. We have seen some success in the previous quarter and this quarter, there's been incremental increases but that is something that will work on. So we will expect that Heavy Engineering, the main clients will improve but also that we will be able to work with some other clients in the Heavy Engineering space. So that's how we expect to see that improve. And of course, the other one, which is -- which was a drag of the production of PES, we are hoping that the inventory stocking issue will sort of ease itself out by maybe H2 of this year. And if that happens, then again, production revenues in 3 years slightly defense are very high margin. So that will also then come back and contribute to revenue base. So Obviously, these are some of the macro trends. And of course, Heavy Engineering is also impacted by the U.S. election year but we hope to see some recovery happening during the year.

Okay. Okay. So effectively, when you said double revenue and triple pack, so FY '23, we are basically -- from INR 820 crores, we are looking at INR 1,600 crores plus kind of a top line. And PAT -- I think adjusted PAT, you had an exceptional item of INR 68 crores that year, right? So adjusted for that, your PAT would be close to about INR 50 crores. So INR 150 crores...

Exactly what we have said. So we are aiming for anywhere between INR 160 crores to INR 180 crores of PAT by FY '26.

By FY '26, right?

That's right.

Okay. And then how will we achieve that? I mean, in terms of margins, if I have to see currently, we are at about 12.5% to 13% kind of a margin level. So if you have to achieve that FY '26 kind of a bottom line, your EBITDA margin has to improve to around 18% plus, right? So do you think that this is something that is achievable for us once this segment that you spoke about can come back actually?

Yes. So Deepak couple of things. One is that the doubling our revenue is also includes an inorganic company to it. I just wanted to mention that for this year or next year, we will also look at some acquisitions. So there will be some revenue contribution from there. Secondly, I think on the EBITDA, you're right. I think we're definitely looking. This year, we want to focus on profitability. So we have sort of structured our team, we have put in some measures, we appointed a Chief Revenue Officer, and we have sort of changed the organization structure. So we will look at getting to about 15% or anywhere the range of 15% to 15.5% of EBITDA this year. And then we will look at also enhancing, like I said, our production revenues from both Defense and PES, which will happen later part of this year to next year. So we are hoping that the ramp-up of that quality of revenue of production will also give us a disproportionate benefit on EBITDA into FY '26. So that's the plan that we have.

And just to add to that, the entire digital team as what we have built, one of the main focus areas is to remove the linearity between revenue and HR resources. And what they do is they automate the repetitive processes and their objective is to remove at least about 30% of the [indiscernible] if I can call it that, involving that. So These automation processes and what we saw in terms of the [ digital ] project will also add to the EBITDA margin.

Okay. I got it. That's very clear. And just a final clarification. You mentioned this year you are expecting a growth that is better than FY '24 growth that we have seen. And that growth will largely be back ended to second half, right? Your first half will be flattish because of the oversupply in semiconductor and even the heavy engineering that you expect to have some improvement maybe in 6 months, yes?

Yes. So we are expecting obviously to grow better than industry. So the industry growth rate is 14%, 15%, we expect to grow better than that. And in certain verticals, yes, the growth will be back ended, specifically when it comes to previous, for example.

Correct. Correct. I mean, what I was trying to understand if FY '24, we have grown by about 16%. And ideally, if we like to grow higher than that, maybe 17%, 18% or 20%, my second half growth on a Y-o-Y basis would be higher than my first half growth rate?

That's correct, yes.

The next question is from the line of Amish Kanani from JM Financial Services.

Congrats sir on a good set of numbers. Sir, in terms of Defense, good ramp-up that we have saw on the production side where the margins are high from INR 38 crores to INR 112 crores. And you have mentioned that executable production orders for the coming year could be INR 272 crores. So 1 clarification, sir. And thanks for that it gives us some clarity on the trajectory. The question is, sir, is it 1 year or it could be 12 to 18 months, should we take it? Is the first question. And in that question -- in that context, sir, we were looking at some time back, we were talking about some design win orders, I mean, with some quantum. So this new opportunity on the drone side that we are talking about with addressable market opportunity of INR 3,000 crores. Is it in addition to the all design win orders that we have had all this while? Or is part of that that's? Sorry, that's the...

Yes. Yes, Amish thanks a lot. So the drone potential of INR 3,000 crores over 5 years is in addition to the production revenues that we are talking about. So the production revenue this year was about INR 100 crores. We expect that to get close to about INR 200 crores next year. It might be slightly less than INR 200 crores but it will be in that region. And we are looking at -- we are working on quite a few prototypes as we speak in FY '24, which also will sort of contribute to some of the revenues. So the anti-drone revenues is in addition to the production revenues, the potential rather.

Okay. Okay. And sir, as drone where you're talking about 40 and plus probably 60 and stuff like that. It's all Army? Because we understand drone will go beyond the Army and Defense as well. So any thoughts there or it's as of now only Army.

So the current orders that we have is for 100 units of the anti-drone system, out of which 40 has been delivered. So all this is for the army and they'll be deployed in the borders or the Himalaya and as well as Rajasthan. We are in the process of completing the balance 60, which would happen like I said, by Q2 of FY '24. And the other pipeline of orders that we see in anti-drone also we are seeing at the moment from the army but like you said, this will be across the board. It will be from air force, it will be from army, it will from navy, it will be from Home Guard Security Services as well. So we see that overall INR 3,000 crore potential to be widespread across and, of course, I must mention that we are only focused on defense when it comes to drone. We are not really looking at commercial or logistics or agricultural drones. So everything I talk about in this is mainly related to the different use cases of drones.

Sure. Okay, sir. And sir, last question on the Aerospace side. We had one of our anchor clients where we had good wins and we have got a good growth in that Aerospace division as well. Any thoughts in terms of growth being led by the key client or we are diversifying the client base there?

Sorry, I missed the last part. Can you repeat that?

Any thoughts on -- is this loaded in favor of 1 key client, anchor client that we have or it's diversifying across many multiple clients, smaller clients, which could ramp up? Is it dependent on the sole key anchor client? Or how are we diversifying that part?

Yes if you look at the Aerospace vertical, unlike, say, Automotive or any other vertical, there's a small set of OEMs as Airbus is growing this Bombardier into a smaller extent in [ rail. ] So typically, when we work with an OEM, a lot of it comes from the OEMs that are doing well. And at the moment, obviously, Airbus is doing extremely well and we have a long relationship with them, a good track accord. So of course, we also do a lot of work with Bombardier in Canada. So we expect a lot of the growth in the Aerospace vertical specifically to come from the commercial aerospace side from one particular OEM, which has had a lot of success in terms of selling a lot of aircraft and has a lot of deliveries, which will go right up to 20, 30. So it will be based on one client. Of course, what we're also trying to do in Aerospace is to look at going beyond OEMs into Tier 1, et cetera. We have signed a small order in the U.S. with a company where we doing engineering for their interiors -- the cabin interiors, which go into the aircraft like seats and galleys and trolleys and stuff like that. But I would say a lot of the demand in Aerospace for us is really dictated by one big client.

[Operator Instructions] The next question is from the line of Faisal Zubair Hawa from H.G. Hawa & Company.

My question is about the Defense offsite. Do we have any kind of more Defense offsite that we may have tie-up spot and which could yield us a very big business in coming years? Second question is, sir, with regards to your estimate for FY '26 of INR 1,600 crores revenue, does it include our Defense business or this only the software services business? And thirdly, sir, while our attrition at workforce level has come down, our attrition at top level, CEO and CFO has always been a point of concern for investors. So what kind of systems are we putting in place so that we are agnostic to the leader who is at the helm of affairs? And secondly, sir, with regards to Mistral, how do we want to now incentivize first as we can retain the old team at Mistral because this is also very IT-related business and which has been built up over the years and with any kind of [indiscernible] the team could cause some kind of problems to us in the future?

Yes. So Faisal thanks a lot for all your questions. So I try and remember all of them and answer it in the same order. I think firstly, your question was on Defense offsite. What we are seeing is that the offsite business is actually declining in India, it's not just for us, but across the board. The reason being that offsite was meant so that there could be a technology transfer, which could happen to India. Otherwise, there was a penalty in very simple terms. Now what most foreign companies that have been doing is that their pricing in the penalty to their contracts. Therefore, they don't do the transfer of technology. So when we talk of defense, predominantly the Make in India, it's [indiscernible] programs, which is a big driver for us. And everything that we talk about in terms of production, in terms of prototype wins, et cetera, across the whole electronic warfare area. Most of it, I would say almost all of it is electronic warfare. Of course, we have a small part of the business, which we do for some French multi-national through a subsidiary in AXISCADES. And that is the manufacturer of test benches for a couple of clients. So that will continue but that was sort of more legacy. So we don't see much offsite business going forward in Defense. We see more of them making India initiatives, which is a huge driver for growth. So that's point number one. The second question you had about the INR 1,600 crores, does that include Defense? Yes, definitely it includes Defense. In fact, Defense is one of the big drivers, which is part of that because we -- given the differentiators that we have and the relationship that we have, we expect to grow Defense and that will be a big contributor to the revenue ambitions and the EBITDA ambitions that we have. So definitely, it's part of it. Third question of your [indiscernible] on workforce on CEO and CFO. Well, we've been around here for now 2.5 years, you're right. I think in the past, there has been concerns. There's been a fair amount of attrition, et cetera. But I think like we have sort of spoken about this in the previous calls, we are -- both me and Shashi people who have stayed in companies for a long tenure. So from our perspective, definitely, we don't switch a lot. Secondly, even from a company's perspective, there are financial incentives, there are stock options, which are all performance-based vesting. So those are incentives, which are sort of meant to keep the key management image and the these are not just the CEO, CFO, it's obviously across the board. But since you asked the question of CEO, CFO, I mentioned that. Lastly on Mistral. We have, again, rolled out a stock incentive plan, which we are in the process of finalizing, everything is almost done and dusted. We are very confident that we'll be able to retain all the key talent and in fact, we have also promoted some of the key leaders of Mistral to very key leadership roles across the group. So for example, one of the cofounders is Rajeev Ramachandra, he now becomes the Chief Delivery Officer for the entire group and he's instrumental in working along with me to drive some of the profitability and EBITDA improvement actions. Mujahid -- Muju, who is the CEO of Mistral, we will look at how we can consolidate the different business under him and he will play an integral role both for the defense as well as for the previous business. So if anything, we are working extremely closely. I think that integration has gone very well. And of course, in addition to career progression opportunities, we're also looking at financial incentives and stopping centers to retain the talent out there.

And sir, is there any thinking within the company to demerge Mistral and listed separately also because it's pure IT business, and it does get confused by the stock market with the software services business, which is much more commoditized?

All I can say is that we will -- we do understand the point about there being 2 different entities. So we will look at how we can consolidate. I think anything beyond that, as you will understand, it's very sensitive information. So I really can't talk about it but we will definitely look at the clearer structure going forward. As to whether we monetize it or not, unfortunately, I don't think I'll be able to comment on this today.

And sir, can you just elaborate on the role of Mr. Abidali Neemuchwala and how he is really guiding us because he comes from a very, very large platform, and to him to even agree to become a Chairman of a company, which is much more smaller is a big thing. So I mean, what kind of goal that is setting us and what kind of specific inputs that the company is utilizing at this point of time from him?

So Abid is the Chairman of our Company, and as you know, he was the CEO of Wipro and my association with Abid started when I was in Wipro as well. So we have worked together out there. And I and the Board, we have requested Abid to come in and steer the company because, like you said, he's got a lot of achievements under his belt. He's run lot of businesses, he is based in the U.S. He knows how to scale businesses both from a top line perspective as well as a profitability perspective. So we obviously benefit a lot from his advice. He's on board with us just for more than 5 months and of course, he is relatively new as far as the other board members are concerned. But from our perspective, we are obviously looking at how we can leverage his guidance and how we can have the benefit of his advice, and wisdom and experience.

[Operator Instructions] The next question is from the line of [indiscernible] from Essen Investments.