AXISCADES Technologies Limited (532395) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of AXISCADES Technologies Limited, hosted by MUFG Intime. [Operator Instructions]. I now hand the conference over to Mr. Sumeet Khaitan from MUFG Intime. Thank you, and over to you.

Good afternoon, everyone. I welcome you all to the earnings conference call to discuss quarter 2 and H1 FY '26 results of AXISCADES Technologies Limited. To discuss the results, we have from the management, Dr. Sampath Ravinarayanan, Founder, Chairman and Managing Director; Mr. Shashidhar S. K., Chief Financial Officer; along with the senior management team of AXISCADES Technologies. They will take you through the results and the business performance, after which we will proceed for a Q&A session. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website. With this, I now hand over the call to our Chairman, Dr. SRN sir. Thank you, and over to you, sir.

Thank you. Dear shareholders, welcome to the earnings call of Q2, H1 FY '26. It has been 3 quarters since I had the privilege of resuming my role as Chairman of your esteemed company. As you are all aware of, during this period, we have launched our Power930 initiative, setting an ambitious revenue target of INR 9,000 crores by 2030. To achieve this vision, we have taken up the following initiatives. We are aiming for a robust year-on-year growth of 40% in our core business areas for FY '26 and FY '27 with further acceleration of over 70% growth projected for FY '28, FY '29 and FY '30, once our infrastructure is fully in place. I'm glad to inform you that we are on track to achieve about 45% growth in our core domains this financial year, FY '26, and same 45% growth in our overall EBITDA. We have forecast visibility to achieve similar numbers for FY 2027. Also, we are building a pipeline and silo to replenish the pipeline that can help us to achieve 70% of the growth -- 70% growth for FY '28, '29 and '30. We are focusing on nonlinear growth moving from services to solutions. For this year, FY '26, we have set a goal of improving per capita EBITDA by 30%, and we are glad to inform that we are on track in H1 to achieve this. As informed to you in every earnings call, last 2 occasions, we are investing in various world-class infrastructure and facilities. First, our Devanahalli Aeroland facility of about 165,000 square feet for electronic semiconductors, artificial intelligence and test systems is now ready and a portion of this is already operational. Work has started in ambitious 3 million square feet Devanahalli Atmanirbhar Complex, which once completed, will be among India's best private sector for radar, unmanned warfare and offset fulfillment facility. To grow at this pace we set ourselves and cater to the growing demand for proven cutting-edge solutions, we need to forge strategic alliances with global majors and technology leaders. We have signed with various foreign OEMs and technology leaders over the last 2 quarters, which you are well informed about this. We are proactively reviewing our business portfolio and strategizing on areas that show stagnation, negative growth or limited intrinsic value. To ensure that we remain focused and agile, we have engaged a strategic adviser and are making consistent progress in sharpening our business priorities. The result of which will be known by the end of this quarter or Q4. We assure you that we are firmly on track to deliver long-term sustainable accelerated growth that gives all of you the best value on your investment. I wish to express my sincere gratitude for your ongoing trust and support as we undertake this transformative journey together. I'm confident that together, we will build the future defined by enduring growth, operational excellence and lasting success. Thank you.

Thank you, Dr. SRN. This is Shashidhar here. I'm the Group CFO of AXISCADES Technologies Limited. And I thank you for joining us today for the Q2 and H1 FY '26 earnings call, and I appreciate your continued trust and engagement as we share our progress and outlook. We are pleased to report that AXISCADES has delivered another quarter of robust growth and operational excellence. For Q2 FY '26, our consolidated revenue is at INR 299 crores, marking a 13% year-on-year increase and a strong 22.7% sequential growth. EBITDA for the quarter is at an all-time high of INR 47 crores, up 41.5% year-on-year with EBITDA margins expanding to 15.7%. Profit after tax stood at INR 23 crores, reflecting an 89% year-on-year increase. For the first half of FY '26, revenue grew to INR 543 crores, up 11.2% year-on-year. EBITDA for H1 was at INR 81 crores, a 25.7% increase with margins improving to 14.9%. PAT for H1 is at INR 44 crores, up 51.6% over last year. These results underscore the strength of our core domains, which is aerospace, defense and ESAI, which contributed to 75% of H1 revenues and delivered EBITDA margins of 19%. The company continues to recalibrate its other verticals to make the margin accretive. The non-annualized diluted EPS for H1 FY '26 stood at INR 10.21, a 53% increase over previous year. Our transformation journey continues in right earnest. The Power930 initiative, led by our Chairman, is guiding our ambition to reach $1 billion revenue by 2030. We are targeting, as what Dr. SRN explained, over 40% annual growth in our core businesses for FY '26 and FY '27, with further acceleration as new facilities become operational. Our shift from a service-centric to solutions and product-driven model is already visible in our improved revenue mix and margin expansion. The significant investments, which Dr. SRN explained, will be funded through internal accruals, strategic investments by our partners and some amount of bridge funding by the banks. With a consolidated net worth of INR 700 crores and a net debt of around INR 50 crores, the company is in a comfortable position to sustain debt for asset expansion. Our operational discipline and portfolio optimization are driving sustainable profitability. Defense revenues grew by 37% year-on-year in Q2 and 31% in H1. Aerospace revenues grew by 16% in Q2 and 12% in H1, and ESAI continues to scale with new engagements in the semiconductor and AI-driven solutions. We have secured major wins in DRDO, DPSU and global OEM projects, and our order book provides strong visibility for the second half of the year. Looking ahead, we remain confident in achieving our FY '26 guidance, both in terms of revenue and profitability, supported by robust order book, strategic alliances and continued focus on operational excellence. Our leadership team is committed to delivering long-term value for all stakeholders as we advance towards our POWER930 vision. Thank you, and we now open the floor for questions.

[Operator Instructions] First question is from the line of Balasubramanian from Arihant Capital.

Congratulations for a good set of numbers. Sir, my first question is, we are signing a lot of MOUs. And what kind of opportunities and when we can expect material order inflows from those MOUs? And what kind of order visibility is linked to global partnerships like MBDA, Indra, and EEA? This is my first question, sir.

Babu, can you take the call?

Yes, I'm Sharadhi Babu, Head of Defense here. We have signed up with a couple of OEMs. MBDA, we already have a decade-old relationship. We are expanding our relationship in missiles. So we are on both ground systems and also we are proposing to manufacture the missiles in India. And we also have a relationship with Indra, which is already materialized, and we are a center of excellence for production of certain systems, including antennas. And also in future, we'll be taking up radar and active protection systems. And we also expanded our counter-drone product portfolio with the relationship with a French company for hard kill options. So all this, including also the drone, we are introducing specialized drones in the Indian market. So all these relationships are going to really pave a very strong revenue growth in the coming year.

Okay, sir. Sir, my second question for this, our new facilities in Aeroland and DAC, how much funding is coming from strategic partners for these new facilities?

Shashi, you want to take or...

Yes. So essentially, we are still in discussion with our strategic partners. By strategic partners, we mean the major OEM customers we are talking to, and that is still in the works. And at this juncture, we are unable to commit a particular number on this particular initiative.

Okay, sir. Sir, I think we are qualifying into critical subsystems for BrahMos and Kusha. What is the estimated total addressable market over the next 5 to 7 years for the components you are supplying, example, TPF, exciter, exciter-receiver, on-board computer, seekers. And what kind of anticipated peak annual revenue contribution is expected from these projects from FY '27 onwards?

This let me answer. Basically, we know the numbers. For example, BrahMos will be 150 systems a year. Kusha is going to be nearly 1,996 (sic) [ 1,906 ] or 476 x 4. So we are looking at capturing at least 10% to 15% in a missile by providing various subsystems for the next 5 years. We cannot get into details at this stage, but that is our target and goal. We are pretty much on track, sir.

Okay. Sir, my next question, the defense payment cycle nearly 120 days. Given expected ramp-up in that revenue, additional working capital may be needed from FY '27 onwards. What's the maximum required incremental working capital for FY '26 and FY '27? And what is the strategy to fund this requirement without increasing interest cost? I think our finance cost is nearly 8% to 9.5% kind of range. If we can get some clarity on that.

Yes. When, I would say, our defense revenues increase, there will be a requirement for incremental working capital. But the fact of the matter is that we should be able to fund it. Our working capital utilization is not to the extent of, I would say, what has been sanctioned. So we should be able to fund the additional working capital from our internal accruals and cash generation.

Okay. Sir, my last question on the noncore segment side, I think it is not doing good. What is the time bound plan maybe next 2 or 3 quarters for either divestments or restructuring of these assets? What is the expected onetime financial impact versus the ongoing margin accretions from this asset closure?

So essentially, as Dr. SRN explained, we are trying to recalibrate these verticals, and it's already showing good progress in terms of the positive margins, which are acquaint in these three verticals. And at the moment -- what's the next question? Second question?

Sir, like whether we are planning to -- like we are planning for divestments or restructuring of these assets?

So that plan is on the table. That plan is on the table, but it is still -- I would say, we are still some way away in terms of, I would say, divulging the details.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, just first up on ESOP cost. So any ESOP cost that we have incurred in this quarter?

Yes, we have incurred an ESOP cost in this quarter. It's not a very significant amount. It's a small amount of around INR 2.5 crores or so.

INR 2.5 crores. And entire year, what sort of ESOP cost we are looking at for this year and next year?

See, we are planning for some additional grants during the course of the financial year. And we expect that it would not be more than INR 15 crores to INR 20 crores for the year.

For this year, INR 15 crores to INR 20 crores.

Yes.

Okay. Understood. And on the big expansion that we are planning, so what's the total CapEx that we are incurring in there?

The expansion is in various phases, and what is planned for the current financial year is the Phase 1, would be about INR 150 crores to INR 180 crores. And for the next 3 years, for the DAC, the aerospace and defense cluster, the plan is to invest close to INR 1,100 crores, INR 1,200 crores.

INR 1,100 crores to INR 1,200 crores in next 3 years?

Yes.

And this Phase I, this INR 150 crores to INR 180 crores will be incurred in FY '26 itself?

There'll be a spillover to FY '27 also, but the total planned CapEx for the current financial year is around INR 150-odd crores.

Okay. Understood. And sir, how should one look at your debt profile?

Our gross debt currently is around INR 163-odd crores. And of course, the net debt is just around INR 50-odd crores. So we are looking at some kind of a bridge finance pending the strategic investment which I talked about. So that would be -- this financial year, it would not be more than INR 50-odd crores.

No, so by FY '26 end, you would have additional INR 50 crores. That's it?

Yes. That's what is being done.

What about the next year? By FY '27, where you see your debt levels...

That's where we are looking at. As I said, one plan is to divest some of our nonyielding, nonprofitable assets, which will generate sufficient cash, plus, of course, the internal accruals and the cash generation from the operation and, of course, the strategic investments we are talking about. That would kind of get clarity, I would say, by the end of the current financial year.

Okay. Okay. But is there any bifurcation, I mean, whatever, let's say, working capital plus your CapEx, so INR 1,100 crores plus your working capital. So maximum how much debt beyond which you will not go. So some sense on that would be very helpful.

See, we don't want to go for debt unless -- if at all we go, it will be bridge basis. We have means to fund this. At this stage, I'm not able to share. Definitely, one is what actually our CFO mentioned that certain nonstrategic, assets with no intrinsic value, by divesting them. That is one definite possibility and it's a nearest option. And other one is bringing funds from the strategic investors. We have good interest in that from various foreign OEMs and other people who have interest in similar things we have. But what we want to do is currently create that, because it's a very new concept, brand-new concept in India and in the defense aerospace world. So we are trying to create a model, a scalable model. With this INR 150 crores, the Phase 1, we will create a scalable model, so that people can see and believe. Then we want to take that investment. So probably we'll do it in the Q1 of next year. Until then, we'll spend. We want to minimize any debt or keep it as low as possible. Even if we do, it will be a bridge fund, not more than that.

[Operator Instructions] The next question is from the line of Koushik Mohan from Ashika Group.

Congrats, sir, for the good set of numbers. Sir, I just wanted to understand on the taxes part on the bookkeeping side and also on the funding side. So if we are going for the disinvestment of the nonperforming core assets, so what kind of value that will be unlocked over there and how the investments will look into the current business that we have?

You see, Koushik, this is still on the drawing table. At this juncture, we don't want to talk about specific numbers in terms of how much cash we are going to generate out of this. And so we want to park it for the time being.

Okay. And sir, on the taxation part?

You see, your question is why the tax rate is higher, is what you're trying to...

Yes, yes, tax rate is higher. Why is the tax rate higher?

It is essentially because of the fact that one of our entities, as you know, add solutions, is recording a loss, as a result of which the PAT kind of gets drawn down and it gives a feeling that the tax rate is higher. But the average tax rate which we can expect over the entire year should be not more than 25%, 30%.

Got it. Sir, currently, we have a revenue of -- in the H1 is INR 543 crores. And in the run rate, it looks like INR 1,100 crores. So can we expect the numbers to be on the clear path, like INR 1,100 crores to INR 1,200 crores on the top line?

Yes. So as Dr. SRN explained in his introductory remarks, we are looking at a 40% plus kind of growth in our core verticals, which will take you to the number of what we just now mentioned.

The next question is from the line of Pankaj Parab from Molecule Ventures.

Congratulations on great set of numbers. So my first question is on our ESAI segment. So for this quarter, the numbers look pretty slowed down in ESAI segment. So just would like to know how would be the trajectory for the next 2 quarters and how it would be aligned to our 40% growth kind of target? And my second question is on our hyperscalers, that we have 2 partners hyperscalers, and how was the business going with them? And what is the revenue potential for the H2 and next financial year from hyperscalers? That's it.

So I'll answer this question. Yes, there is a slowdown on ESAI because now we are firmly moving into manufacturing-based. So we are setting up the EMS facility. The way we have to grow is only because as it is. Until now, we are doing only the design and giving to third parties to manufacture. We are not involved in manufacturing. Now we are in the process of taking the whole box build. So our Aeroland facility will cater to that. So it will take a little more time. After installing -- the facility is almost ready, the equipment will come in a month's time. After that, these 2 hyperscalers will come. We are setting world-class acoustic lab for one hyperscaler and a world-class flex board facility for another one. So both will be ready by almost like it will take up to March, not only to get ready, to get certified. They have introduced their existing partners for that, and we have to [indiscernible] them. So the process is going on. So that is a little bit slow. I don't expect any improvement in the Q3 and Q4 on ESAI. There will be the similar growth, but which will be made up for other segments, because we want to be firmly on track. As far as the projection is concerned, the hyperscaler 1 will have an exponential growth next year. So this year, we are doing $2 million with them. Next year, it will be around maybe $6 million or $7 million next year, hopefully, if the facility is ready. The other hyperscaler, we are doing about nearly $0.5 million to $1 million. So that will double perhaps, because that will go slightly slower than that. But overall, it looks pretty good next year. But currently, we'll have a growth, but not in the same pace as defense and aero.

Okay. Understood, sir. And my next question is on the CapEx side. So as you just mentioned, there is INR 150 crores planned for the Phase 1. I guess, that is for the Bangalore facility. And Phase 2 will be entirely INR 1,200 crores for another facility. So combining, what would be the revenue potential looking for the company? I mean, to the full capacity utilization? And just one clarification that we are any trying to equity side fundraising for the CapEx or not? That's it.

So sir, we are -- just to give a breakup, we have 3 facilities coming up, though one facility I'm not talking about, Hyderabad, because it is not in the Q2 -- up to Q2, because it was sanctioned day before yesterday. So we are also building a Missile Atmanirbhar Complex in Hyderabad, very prestigious missile facility. And that will also be fairly taken up. That will incur some additional funds. So overall, it will take about 3 years. And this is Phase 1. After that, there is a Phase 2, and there is a Phase 3. So it will be done in 3 phases. First phase will be about INR 150 crores and second phase will be about INR 450 crores, and the remaining will be done in the third phase. And overall fund, let us assume it is about INR 1,500 crores over 3 years, including Hyderabad. We have not mentioned it because it has happened in this Q3. And so overall, as to answer, we are planning to grow at 45% this year and next year, which will take us to a revenue of something like -- somewhere. And from there, all the growth should be supported only by the facilities. So that means if you have to reach about $1 billion, INR 9,000 crores, the delta revenue, whatever the additional revenue should only come from this, which you can do your math. From current level, we have to reach current level plus 45%, plus 45%. And then whatever growth, 70%, 70%, 70% should come only from that. That is the estimate, and this will pay back in those years.

Understood, sir. Any equity fundraising plan as of now?

Nothing at the moment. As I said, the strategic investment, which we are talking about, once it gets cleared, we need to decide on the entity into which the capital will come, which most probably will be the SPV, which holds the land as far as Bangalore is concerned. So in the listed entity, there is no plan for any equity dilution.

The next question is from the line of Jatin Jadhav from Sahasrar Capital Private Limited.

Yes, sir. This is Jeevan Patwa from Sahasrar Capital. Congratulations, sir, for a great set of numbers. Only one question. The time line of this missile complex in Hyderabad and this Devanahalli Atmanirbhar Complex. So are we on track for the time lines?

Mr. Jeevan Patwa, thank you. Devanahalli Atmanirbhar Complex, we did the groundbreaking ceremony. We are supposed to complete the first phase by September of next year. We are on track. The first phase will consist of radar manufacturing, assembly and support system, and also antenna manufacturing. This will most likely cater to the Indian defense companies like Indra. So that is our focus. And we already have partners for that and as well as facility will be fully ready, we are hoping. The phase 1 or the next phase will be complete aerospace field shops and aerospace-related facility supply chain management. This facility will be starting in November '26. That should be ready by somewhere around next year December. So that will also be mostly on track. For missile facility in Hyderabad, it is going to be backed by very good orders, we hope. And we are already discussing and that is the reason we have went ahead in Hyderabad, and this will have a strategic partnership definitely. And so we start the work and probably complete -- we have started it immediately, probably complete by March. That will be our third priority. It will get completed by March 2027. That's the plan.

The next question is from the line of Vijay Sarthy from Subhkam Ventures.

Congratulations to you and your team for a wonderful quarter. I just had one question. So there was a recent announcement about the MOU with CILAS to do counter-unmanned aerial systems. Typically, that will get mounted to UAS (sic) [ UAVs ], but has some amount of integration to your existing products. So qualitatively or quantitatively, could you help us understand what is the opportunity size and how this technology fares well against the existing technology that today we have, sir?

Thank you, Mr. Sarthy. See, CILAS is some of the very innovative hard kill laser kill, which is by far the most superior product, which is tested in Ukraine war and NATO and other things. We were privileged to receive the technology and support and part of the whole thing, and we are designing the whole system to be integrated with Indian Armed Forces for handling the hard kill. There is no proper hard kill option available at this stage. We are doing jamming and soft kills so far. Hard kill using laser and energy weapons has never been knocked in a big way in India. So this would be very much needed. There is a lot of interest, a lot of requirements, a lot of excitement about this.

Okay. For education purpose, sir, so there are other companies that are also involved in hard kills today. They've also been showcasing and testing. So how different is ours going to be in terms of...

So, I think we should separately discuss that technology and then...

Okay. Sure. And the other question is, on the defense, we had a very good performance also, apart from other segments, at 22% already. Now we are yet to get the new capacity coming on board and really have the leverage. So do we expect defense business margins to, say, move to 25% in the next two years?

Yes. See, the hard kill options, the other companies, there are various hard kill options, but there are very few companies working on the laser-based hard kill option, and we are in the forefront of leading this technology and also integrating this system. So ours is already a proven system with RF sensing and RF kill options. So adding this along with some more active sensors and also this hard kill option, it is going to be quite a formidable product. And we are sure compared to the competition, we are well ahead. In terms of range and energy produced, which is much superior range, it can -- and the range and the whole energy produced, then the range -- these are the major criteria, payload. So this is far, far superior, probably the best product in the [ world ]. No man, that even government knows this very well. So I don't want to divest the details. I'll be very happy to explain in person to you when you can meet us in person.

Sure. Okay, sir. And one more question, sir, on the defense segment. We had achieved 22% margins today, and we are yet to really get the new facility and really rev up our operations. Given that, do we expect the current 22% to scale up to 25%, 26-odd percent in the next 3 years, or probably when we reach the INR 9,000 crore mark? Is it right to look at it that way, with respect to defense margin?