Bharat Electronics Limited ($500049)

Ladies and gentlemen, good day, and welcome to Bharat Electronics Limited Q4 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. This conference call may contain certain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Mr. [ Vikash Singh ] from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, [indiscernible]. Good evening, everyone, and welcome to today's Q4 FY '26 Bharat Electronics Con Call. From the management side, we have with us Mr. Manoj Jain, Chairman and Managing Director; Mr. Damodar Bhattad, Director Finance and CFO; and Mr. Sri Sreenivas, Company Secretary. Without taking any much time, I'll hand over to Chairman Jain for his opening remarks. Over to you, sir.

Thank you. So Manoj Jain, CMD [indiscernible]. So firstly, I will talk about the financial highlights of financial year '25-'26. So the revenue from operations has increased to INR 27,480 crores in '25-'26 as compared to INR 23,658 crores previous year with a growth of 16%. The profit before tax increased to INR 8,075 crores in '25-'26 as compared to INR 7,090 crores previous year with a growth of 14%. The profit after tax increased to INR 6,048 crores in '25-'26 as compared to INR 5,280 crores in the previous year, with a growth of 14%. Our EBITDA has increased to 30% in '25-'26 as compared to 29% in '24-'25. The earnings per share also increased to 8,527 in '25-'26 as compared to 7 523 in year '25-'26. The order book position as on [indiscernible] 2026 is [indiscernible] crores and order acquired till 31st March 2026 in the previous year was INR 30,045 crores. This is a brief financial highlight of financial year '25-'26. As we told in the beginning of the year about the guidance, we have met all the guidance parameters in the last financial year. Thank you from my side as the opening remarks.

[Operator Instructions] First question is from the line of Mr. Amit Dixit from GS.

Congratulations for a good set of numbers, sir. A couple of questions from my side. The first question is essentially that the new orders that we are seeing in defense electronics, particularly centered around new age technologies, quantum computing, drone, et cetera. So how do you see developing capabilities for that? Is it that we are cultivating a system of start-ups kind of working with them to ensure that we get those technologies or we are working with our ecosystem of other subcontractors, stable subcontractors, the unlisted all listed companies in that space? I just wanted to understand your thought process around it, the kind of CapEx that it could involve and how you are building capabilities for these kind of orders that are expected to flow.

[Technical Difficulty].

Ladies and gentlemen, the management side has been disconnected. Mr. Amit Dixit, could you please repeat your question?

Yes, sure, I will. So sir, my question was that in the view of the recent orders and developments in the different electronic space, particularly some of the orders that we have also got in the field have grown electronics, the new age technology of quantum computing. Just wanted to understand that how -- and well, we are developing capabilities for that, whether it is in how it's trading or whether you are cultivating a system of start cultivating those kind of companies that are in new technologies? Or is it through the tried and tested mode, the subcontractors that we already have, the kind of CapEx that would be entailed just want to understand your broad thought process around this. That is the first question.

Okay. Yes, I heard your question properly now. So these cutting-edge technologies, they have to develop it in part of [ ALTAS ] collaboration partner. The partner for us or DRDO, start-ups, academia and our in-house strength. So this drone electronics or drone technology or quantum technologies, whether it's QKD or quantum safe communication, et cetera. We are working on all these 4 pillars of development. So we have done a good hands on, on these technologies and a few POCs are also given to our defense users. So we have totally geared up to tap all these technologies through all these 4 spectrums of working. I hope I have answered the question.

Yes, sir, partially, I mean, I just wanted to understand whether it will entail more CapEx from us going ahead and whether since we are working with a lot of stakeholders, whether it will impact our margins going ahead?

Firstly, let me tell you, margins should be better only when new technologies comes in because new technologies more value addition. So whenever this technology goes to field, definitely, there will be more value addition from us. So margins will be on the higher side only for that. But right now, there are no big ticket projects -- CapEx projects on that. Now coming to CapEx infrastructure built by well on that. Definitely, we have developed a good infrastructure because these technologies require a good computing infrastructure, firstly, because the underlying technology in that is AI. And AI requires a very good computing infrastructure, whether the CPU or is GPUs. So that we have invested heavily. And of the order of minimum INR 100-plus crores in the last 2 years, we have invested and at is around INR 100 plus -- INR 100 crores to INR 200 crores worth of investments are in different stages of approval. So that is the main CapEx, which is required. The building and other infrastructure, testing infrastructure, integration infrastructure, that is definitely much less as compared to the complete infrastructure. And that also we are creating a 3 to 4 places, including our CRL Ghaziabad, our CRL Bangalore, our DSPC, our unmanned system, our network and cybersecurity SBU and our [ Balasamutram ] facilities. So at these places, we are investing on capital or other type of infrastructure. But the CPU from GPU infrastructure is actually created already at our CRL Ghaziabad, CRL Bangalore and software [indiscernible] and PDIC. These 4 places already has been done. Last year, we have done some upgradation of the infrastructure. And now we are going to create one separate high computing high-performance computing infrastructure very full.

Great, sir. The second question is essentially on the semiconductor. So if you could highlight part of our total COGS in semiconductors and the recent increase in semiconductor prices, whether we are able to pass it on or we have to absorb this.

Let me tell you our semiconductors right now are imported because still in India, that infrastructure is just coming up. But semiconductors, although they are a very, very important component for us. But there are other cystosystems, other technology components, including compute resources and other things are there. So semiconductor per se is around to 17% to 19% of our material cost OP, we can say value of production. So that is there. So [indiscernible] semiconductor cost increase, it increases, it affects only this portion only. So overall, on the margin enter, it may not affect us that much. And of course, we are in the process of indigenizing some of the technology itself. And that way, we will compensate for this price offset.

Next question is from the line of Umesh Raut from Nomura.

This is Umesh out here. Sir, my first question is pertaining to submarine program that is being talked about in between India and European OEM, and this is probably getting finalized with [indiscernible] with the value of close to INR 90,000 crores. So about this program, what kind of opportunities in terms of flow-through orders that BEL can expect?

Definitely in [indiscernible] Marine program, or ship base program. major electronics comes from BEL. Of course, in these programs, especially the P75 eye program, there will be some foreign component also because the foreign partner is working with MDL and of course, indirectly is working with us also. So some [indiscernible] component with good indigenous content will be there. But there are some components which are homegrown and which will be inducted as part of this. So I can again tell you more than 50% to 60% of electronics in this program will be from BEL. And we are in very, very advanced stage of discussion with MDL and with this foreign partner of MDM for that program. So there are around 6 subsystems we call as part of the submarine program. Their technical names are communication suit, navigation complex system, the combat weapon control system combat information system, target of fire control system, side fire control system, like that, some fixed subsystems are there, which are primary are electronics driven. So these are subsystems will be part of our well.

Understood. Especially on this only. So in per shipped cost or per submarine level, how much of electronics could be the percentage cost of total shipbuilders value roughly ballpark number, if you can [indiscernible]?

I can't tell you exactly, but around 25% to 30%. Typically, comes to electronics portion generally. But in this particular one, because there is a foreign element also, it is not totally homegrown or in-house. So that's why the radio may likely vary 5% plus/minus on this number.

Understood, sir. My second question is pertaining to QRSAM program. Where are we in terms of finalization I think in last call, you mentioned probably by March or June end this year. You are signing this contract with the customer. So any update about this? And once we get that program, how soon we can expect execution to start? And whether we will have similar set of margins as compared to our existing business or margins could be lower in initial stages. And probably, it could be more battled in terms of higher margins?

Okay. So as I told last time also, we were actually hopeful that by last year -- last quarter itself, we may get the first quarter of this year. So we are still fully optimistic that before June end, we may get this order, there is only 5% to 10% chance that it may slip to July. But otherwise, we are confident as of today also that by June end, we may sign this contract. All the formalities are other evaluations are technical CMCs, et cetera, different stages are there. They all are now in the process of necessary approvals at various staging ministries. So we are confident that in the next 1, 1.5 months, it should be over. Worst case is met by 1 more month. So we are not expecting more than that delay as of today. And regarding the program, once we signed the program within 18 months, we are supposed to be the first off production model. So we have already started gearing up the initial homework what is required for this, we have already started so that we don't want to slip on this first target of 18 months. We will definitely give our first off production model within 18 months of signing the contract. And after that, only the real bulk supplies will start. Regarding the margins, et cetera, it is too early to say whether it will be a bit more than that, a bit less than that because once we finalize contract -- to back contract with our [ Tier 1, Tier 2 ] to suppliers. Then only we can come to know how much may be that. But definitely, it will be similar in orders only may not have too much change, but exact quantification of the project will come to know until we signed a contract with our [ Tier 1 and Tier 2 ] suppliers.

Understood. My last question is more on the bookkeeping side. If I look at other expenses for the quarter gone by, those were up by about 36% year-on-year. Any one-off provisioning that you did during the quarter?

These are basically regular provisions due to increase in operations. For example, governance warranty as the turnover increases, we need to provide more for the performance warranty and certain other expenses, which are in line with the scale of operations also. There are some, of course, LD-related expenditure also in this. So overall, based on scale of operations, this expenditure has increased.

So provisioning for the full year FY '26 more or less were similar FY '25?

Total provisions.

Yes, total provisions as a percentage of sales were similar to FY '25? Were there any increase in FY '26?

No, FY '26, definitely, they are not increased. It's almost similar only on the similar pattern.

Next question is from the line of Dipen Vakil from PhillipCapital.

Congratulations on a great execution on margin. Sir, my first question is on your expressing order book so. Sir, can you help us with the breakup of your existing order book in terms of project-wise and what will be the time line to execute the current order book?

The order book of around INR 74,000 crores mainly consists of some big ticket few items I will just [indiscernible] electronic fuses, the LR, the LCRs for Pages, DMP to [indiscernible] upgrade, spare services and miscellaneous items. [indiscernible]. So these are the major projects which we are going to execute in the next 2 to 3 years. Out of that, I think our items we are supplying here also, although the electronic use is for another 7 to 8 years more -- 7 years more. And we'll be 2 area outage for over 2 years. Remaining our 1, 1.5 years, we are going to execute these orders.

Got it. Sir, possible to quantify some of the big-ticket items?

Yes. Electronic uses around INR 4,300 crores still less for us for next 7 years. LRSAM around INR 3,500 crores. LCA around INR 3,200 crores. [indiscernible] upgrade around INR 2,800-plus crores, Ashwini, around [ INR 2,260 crores ], [indiscernible] around INR 2,200 crores. Spares, services, miscellaneous again around INR 2,700 crores. These are some of the major items, which are to be executed in '26 and beyond.

Got it, sir. Sir, my second question is on the line of your order in guidance for the upcoming year. So excluding QRSAM, what can be the order inflow that you're looking at in FY '27?

This data anyway, I will tell in my closing remarks about the guidance for this year.

Next question is from the line of Mohit Pandey from Citi Research.

Congratulations on strong edition continuing. The first question is on the VAC approvals that we saw last year, almost INR 6 lakh crores. Sir, and this year, we have seen almost INR 30,000 crores of base orders. So is there a possibility of big orders seeing the step-up next year as these orders come into as these approvals coming to ordering?

Definitely that anyway, I will tell in my closing remarks, but we are looking at for this year and beyond. So please wait for the closing remarks.

Understood, sir. Sir, second is on the other income. It seems to have come off. So what could explain that for this quarter? Is that change?

Partially in the year, the average interest rates have been less? Average deal from the bank has been there. That is a major reason for the other income decrease. [indiscernible] also passed some effect on that.

Sorry, the last part, I did not get.

[indiscernible] other income reduction is on account of these 2, average interest reduction and foreign exchange variations.

Understood, sir. Sir. And just also wanted to understand on exports, the share of export orders and backlog seems to be increasing. So what is driving that?

The order book is healthy from export point of view. We have around [ USD 96 million ] order book for this year and subsequent years. Some of the orders are to be executed in 2 to 3 years. That's why once we give guidance about this year, I will tell what is executable in this order book in this financial year, what our plan that I will tell at the end of this [indiscernible].

Understood, sir. And one bookkeeping question. If you can share the amount of advances that are there, yes, so operating cash flow this year seems to have improved. So is it driven by increase in advances? That is what I want to understand.

No. Over the year, the cash flow has been more or less good there, as you can see from the cash balance of the year-end. Advances as the year is around INR 2,500 crores from the customers.

[Operator Instructions] Next question is from the line of Atul Tiwari from JPMorgan.

So my question is, again, on the fact that your order book has not grown this year. In fact, it has been flat for some time. because now your annual order inflows are very similar to your revenue number. So in that situation, how long can you maintain this 15% plus kind of revenue growth? Is it feasible to maintain that level? Or do we come down to a lower level of 12%, 13% over the medium term?

No, definitely, that answer I will tell at the end of this call. But let me tell you, I think last year, although we told that every year, we get some fixed set of order. And every 3 to 4 years, we get some big ticket projects. And that [indiscernible] project will take us with a good healthy position of the order book and execution and a good growth rate. So like this year, QRSAM, definitely, we are going to get now anytime soon. And that way, after 2 or 3 years, we are going to have 1 or 2 big-ticket items in pipeline, which are more than INR 2,000 crores, INR 2,500 crores type of one big ticket item definitely will be there to recoup. Otherwise, the constant outer flow will be there based on our all different type of portfolios. So with that, definitely, we are going to have a very, very good growth rate. And that I will tell you at the end of the program. But let me again assure you, there will not be any downtrend we are seeing. We are highly optimistic for the next 5 years, at least where our main leads are and we are confident we will have higher trajectory only, not at all a lower trajectory.

And sir, in addition to QRSAM, which is likely to come mid [indiscernible]. Could you talk about a few more larger projects, excess of INR 50 billion or INR 30 billion order size, which would come to the company over the next 2 years?

Yes, certainly. So NGC, there are so many subsystems of NGC, next-generation carbide program, which definitely will come this year, and it's few may spill over to next year also, a few subsystems. But at least 50% of the subsystems, we are hoping to get this year only in NGC program, but a true bad and Samata EW Solutions, we are hoping very, very soon. 75, which I listed just before. So there are a lot many subcomponents within that. So we are going to get some order for that this year. Hammer program, we are expecting very soon. [indiscernible], we are expecting very soon. MFRS for naval ships also, we are expecting very soon. So these are some of the big ticket items which we are getting -- going to that mostly in this year itself. A few may speed over to next year, that is '26-'27 and slightly beyond 2020, this mix of the projects which I have listed us now to [indiscernible].

Next question is from the line of [ Jatin Sangoma ] from [ Optiver ].

My first question is on Project Kush. So I was reading somewhere that India is peering from maiden firing trial of projects which are Axens and these late July, just wanted -- if you could give some color around that and what is a role and what kind of order we could get for this prototype?

Let me tell you again, the program is pre-added by -- do -- we are one of the largest development production partner for them. So as such, this question is more relevant to [indiscernible]. Of course, when we are their BGP partner, we know what our portion we are developing for them. those portions, various radar, various control centers, communication systems, they are in very advanced stage of delivery prototype realization. I can only tell about what portion I am driving directly, but the total program and trial directive and with mail to be tested first and advanced configuration. These all are decided by [indiscernible]. So this question actually directly relates to them. But me, I am only answerable for these subsystems right now.

Got it. And the second question is on data center. We have the ambition to target the government data in the business. So what's our order pipeline for the business? And are you seeing any success over there?

5 Data center business already, there are so many players, so we wanted to give some unique solution. So uniqueness comes from 2 fronts. One is from a security point of view to give a more cyber safe solution. That we have taken a few leads where we are adding cybersecurity components of ours. But otherwise, the server and other components are costs. So that is one set of target customers for us, where we have got some few hundred crores projects only right now. But the big chunk is waiting for us where we wanted to give totally indigenous to data center solution with hardware and software stake also and cybersecurity component, the homegrown, a few from our own company and a few from our Indian development at feedback. So we are in very, very advanced stage of discussions with them to provide end-to-end totally homegrown data center solutions for a large number of customers. Once we click on that, that order, we are expecting of the tune of INR [ 200 crores ] to INR 10,000 crores, somewhere in between. The first order will be from the right now maybe 200 crores, we already have, but a good leads are there. So we may expect around INR 1,000 crores to INR 5,000 crores type of loss from the first segment of business. but the larger segment of business is through this total homegrown solution of data center, which we are eyeing it a little bit more. So we are in advanced stage of discussions with stat. And then they are [indiscernible] suppliers.

Next question is from the line of Amit Anwani from PL Capital.

Congratulations for a good set of numbers. Sir, first question on the constantly improving gross profit margins. If we see from F '24 to now, we are almost at 49%. So there is a substantial improvement in the gross profit margin over past 2 to 3 years. And considering that you highlighted what is going to come from the current order book for execution. What is your sense on the gross profit margin for F '27?

Again, I will tell you at the end, although I know the answer for many of this because nearly I do not want to repeat that. So definitely, I will tell all this point at the end. But let me get a low, the profit margins are because of mix of products. So product mix year-on-year is slight lari. And based on that, some variations will be us. that we predict at the start of the year. And generally, we are up to the mark of what we predict. So this year also, we have done the prediction and that predicted value, I will tell you in my closing remarks.

Right, sir. Sir, second question, you alluded that we are looking for at least 4 to 5 years of good growth. So just wanted to understand on capacity side, where do you stand in terms of capacity utilization and the CapEx requirement according to the pace of growth, which we are expecting? And how much was the CapEx this year? And what is the guidance for CapEx for FY '27?

Definitely, as you rightly told, if we have to have a good growth, we should have a good investment plans also. So it is not only the projects, it's the capacity also has to be augmented. And that is a continuous journey in but knowing a large base now. And with that large way, this type of a growth -- double-digit growth require further investments. We already done a good plan for that. And last year, I think we had INR 900 crore capital expenditure as book growth this year, anyway, I will tell you at the end, it will be definitely much more than that. But we have much more bigger plans for the next 3 years, some big projects at the [indiscernible] and value facility, they are in pipeline for us. In addition to our Ghaziabad and Bangalore, large investments are planned to upgrade the facilities for diversified products. And a new dimension of the products which we are going to talk in that a large CapEx project current pipeline. So that put together, I'll definitely will make sure that we don't have a capacity limitation when we executed the project for years to come.

All right. But currently, where we stand like 70%, 80%? How much from the current capacity is still a possible 1 more year, 2 more years?

No. It is nothing like that and it is paper 1 year or 2 year, et cetera, because we have, again, a mix of products, something we produce in-house. At component level, still module and system level. And some of the projects we are doing on the system integration capability. So system integration-related projects, require much less infrastructure, much more skills. At component or subcomponent level, it requires a great capital infrastructure also specialized infrastructure. So as such, we can't tell you my present capacity for how many more years we have to invest at different places for different type of infrastructure like for semiconductor component assembly and manufacturing. We require SMT cans and our clean rooms and our different type of MMIC related handling type of processes, et cetera. At the other end, we require large space for metal integration type of projects. So we are investing on both fronts. As said, we are not seeing any choking for us. for next few years, maybe 3 to 5 years, as said, there is no thing for the capital infrastructure. But we are continuously adding so that we don't face this type of talking for next [ 10 to 50 ]years also.

All right. Sir, finally, on status of the MCA projects, so we are hearing that land has been finalized for that INR 15,000 crore project. So any status from your side in terms of and any development which might have happened on that side?

Yes. Certainly, as you may be knowing that we are one of the 3 selected bidders for receiving the pre-RFP related metrics already happened. So now we are affecting mostly the month end or next month. The formal will be received by consortium partner, [indiscernible]. So LNT will receive the RFP mostly anytime in the next 15 days to 1.5 months. And then we will start responding to the RFP. Regarding development and the land acquired, et cetera, that is done by the [indiscernible] because, again, here, we will be the DCP partner only for the 5 number prototypes. But the program is being run by our aeronautical development agency. So that land and the test facility is actually taken by EDA, and that will be used for MCA program. So we will also use during this development jointly with EDA, that facility also. But we are also -- we start investing on our own infrastructure once we receive RFP and once we are selected as the selected bidder, then of course, we win our investment on capital will increase. Right now, we have only done the basic plan, assuming in case we are the selected bidder, what we have to do. So that time of plant only they have done, but real execution or real investment will only happen once we are selected as a successful bidder at the outcome of this RFP.

Next question is from the line of Ankur Sharma from HDFC Life.

Questions have been answered.

Next question is from the line of Harshit Patel from Equirus Securities.

Sir, firstly, on the pricing in the nomination based contract when the new PBT norms were announced by the Ministry of Defense, like in FY '20, it was expected that the margins would come under pressure. On the contrary, margin for not just you but the defense ecosystem has expanded. So what has enabled this performance?

As I told last year also, again, I am telling you it is indigenization. Indigenization of critical technology, indigenization of modules, system subsystems. That has definitely helped all of us for that. And that's why we are putting all our efforts in increasing this indigenization score for all of us. So one thing is by our own in-house efforts we have created even a separate indigenization cell in Bell to closely monitor our own development as well as the development done by our MSME and other startup and other partners. We are closely monitoring and supporting our ecosystem partners to increase this indigenization the more faster we do indigenization, the more profitable all of us will be. That much I can assure you, it is only and only in digitization, which has really helped all of us Understood. So sir, when we indigenize a certain system or a module, that is definitely known by BIO by the Ministry of Defense by the ecosystem. So when are the other placement comes why the Ministry of Defense is not cutting down on the price.

Understood. Why they are letting PSUs and the entire ecosystem makes some -- I mean much more margin than what they have traditional [indiscernible]?

The thing is, firstly, the goal of MOD is to support the industry and to create a good environment of this renegotiation. So definitely, this should not cut the route itself. The thing is when they do benchmarking of the price, there are various methods of benchmarking what is the price of this item, if I import, let us say. That is our price benchmark price. With that -- and then we do subsequent cost optimization and initiation. That can be flowed back by us for our profit, which we will evidently what we do with these profits. This profit we again flow back in the capital or in the R&D. So this cycle also don't want to break. They are actually supporting us to do more indigenization or more at [indiscernible] and the quality allows that to happen.

Perfect, sir. Sir, lastly, if you could update us on the term trade program, are the quantities and core finalized by? And when do you think the stabilize from our end could begin in terms of development of the such systems that we see the other player that is also involved, where are we in this particular program?

Again, the question should be asked from [indiscernible] because it is [indiscernible] and DRDO, not cash, sorry, LRD. They are the DRDO partner is lady, who is the original designer of [indiscernible] is a system integrator of [indiscernible]. So the question should be asked to them, when and what stage these tests are. As far as I know, they were in the very, very large stage of testing and clearing this. But exactly, I don't know because the question is more apt for LRD and HL. As and when they finalize, they will issue RFPs for the subsystem or components to us. As for my record, as of now, I have not received any inquiry from them for this program. So that much is -- my side status, but correct [indiscernible] you can get either from LID or from ICL.

Next question is from the line of Sumit Kishore from Axis Capital.

My first question is on the net working capital cycle at the end of FY '26. It seems to have increased sharply as compared to FY '25? Could you speak about the variances which have led to this outcome? If the receivable days have also gone up by about 30-odd days. Your comments, please.

Yes. Current ratio is around 1.97 as compared to 1.76. You are right that receivables have gone up in the current year as compared to last year. There are some constraints from the customer side during the previous year, which money we have subsequently received in April and May. So there is a reason why at the year-end, the number appears to be higher than last year, but this amount work was to be received in the previous year has since been received in the current year.

Okay. So the more sustainable level of receivable cycle should be what, 130, 140 days of sales? Or...

It has been in the constant around 140 to 150 days for the past 4 years, I think it should be around that level only.

Got it. My second question is on operating cash flow to EBITDA ratio. So basically, your EBITDA in FY '26 was about INR 8,000 crores, and your cash flow from operations as reported in the PSC filing was about INR crores. So which is a conversion ratio of about 19%. In FY '25, this ratio was about 6.8%. And if I look at the cumulative operating cash flow reported over last 4 years, the cumulative EBITDA reported over last 4 years, the conversion factor is about 32%. So I mean, typically, companies in the capital goods sector would have better conversion of EBITDA to operating cash flow? Your comments, please?

See, overall, I mean, breakup of the operating cash flow item base has been given the, I mean, payment, which has been uploaded on the stock exchanges. All the details of individual items have already been given. So that all I can say is so answering you so much technically that what is the ratio. All I can say is the current cash portion is reasonably okay for us to sustain the plans, which you have got for the future.

Next question is from the line of Kavish Parekh from 360 ONE Capital.

Sir, firstly, on the current supply chain environment, given the macro situation, are you witnessing any disruption in sourcing or availability of credit components? And semiconductors you did talk about earlier, but could you also indicate the key countries or regions, especially in the Middle East from which you import critical components and whether you see any impact on execution time lines or margins in the near term?

No. The supply chain per se is definitely slightly affected, especially the Middle East crisis. And some of the subcomponents for major declines, major programs like [indiscernible] et cetera, were coming from Middle East. So definitely, there was a delay of around 1, 1.5 months for us. And that's why we wanted to achieve slightly better revenues. There was a minor setback. But that setback was only for a few months. So overall, I'm not seeing any major impact for our turnover revenues, et cetera. When we succeed the year. So year-on-year, I don't see any much challenge. And the same thing is about semiconductors also. Very, very few semiconductor comes from Middle East, actually some detectors and other high-end detectors, et cetera. otherwise major semiconductor IT, et cetera, comes from Europe or U.S. type of sources are from Taiwan. So we are not, per se, affected that much when we see yearly targets or yearly spend about this Middle East crisis, some variations in month-to-month or up to 1 quarter to next quarter spilling over, et cetera, are there, which are part of life for us. And we are doing sufficient planning based on what so we can speculate. And then make our own targets -- our own monthly targets and quarterly targets based on that. We do some minor corrections, et cetera. But as such, we are not forcing any major challenge for us.

Right. Understood, sir. Secondly, you did highlight regionalization as one of the key levers for margin expansion that you've delivered over the past several years, now a few years now. What will be the current development digitization across your product portfolio? And how has this evolved over the past few years? And going forward, what is the scope of headroom to further increase localization? And to do that, do you see any bottle mix, whether in terms of technology access or local component ecosystem testing cycles capabilities not vendors at setup?

Indigenous content, as you know, now way, government of India policy itself is minimum 60% in all our new projects. So we are the order of 80% to 85%, mostly in our indigenous content for various programs. So it depends upon the different type of products and product mix. our homegrown products or our [indiscernible] products, sometimes that we give 90% also. Some other programs where still we are depending on [ TOT ], which we have taken a few years back. We are around 55%, 60%, 65%. But overall, it will be more than 80%. And right now, the main limitation, which we are porting is about the semiconductors only. Besides subsistence level in our infrastructure in India has been created. So we are not seeing much challenge for that. But semiconductor, it will take at least a few more years before the semiconductor ICs, we start getting India itself. So that will affect us on the [indiscernible] slightly. But next 2 to 3 years is 80%, 85% on an average indigenous content will be there for our products.

Understood, sir. And lastly, any incremental opportunities that you see on the nondefense side or international markets is the export piece to be materialized over the next, say, 12 to 18 months?

Definitely, both of these areas are very, very important for us to maintain this double-digit growth. So non-defense, right now, it is 8% to 10%. We wanted to steadily increase [indiscernible] 20%. And the same thing is about export, which is 4% to 5% right now over a period of time. But that period of time is around 4 to 5 years. We want to increase it to more than 10% of our turnover. But in near future of next 1, 1.5 years, the increase will be maybe 1% or 2%, not more. But definitely give the increasing side only, both fronts. Nondefense as well as exports are increasing. Their contribution is increasing only in our overall turnover of our overall revenues.

Next question is from the line of Teena Virmani from Motilal Oswal Financial Services.

Sir, my question is related to net working capital and part of it you have already answered. My question is related to the customer advances because that number also as a percentage of sales or the number of days has also been coming off from past [indiscernible]. And how do we see it going forward from the new orders that you are likely to get particularly the bigger orders like [indiscernible]? What kind of customer advances will be there. So how to look into this aspect?

See, the contract for QRSAM is under finalization. So we'd not like to comment much on that as to what are the terms and what are the prices because the detention. The overall advances, as I told you, is around INR 2,500 crores as on 31st March '26. And as far as the operating cash is concerned and cash flow is concerned, as I told, it is good for us to sustain the expansion plans, what we are contemplating in the coming years.

But in terms of the advances that you get from the incremental order interest because order inflows for the company has been fairly good in the last couple of years. the customer advances are not moving in line with those. So how do we depends on the various payment in terms of contract every contract is different, and it depends on the payment terms which are imitate the contracts.

So there are contracts where there are advances stage payments, where there are some other contracts where the terms are a little defend. So it is that the mix of both contracts.

Okay. Understood. So it's not like uniform across all the projects because mostly everything is coming in from a that [indiscernible].

[indiscernible] this term and it is more term and it's the final for all the contracts, it is not that way? And when we do our cost team, we take care of this parameter also. What is our advances or schedule of payment for every program we take based on that. So nothing is alarming assets for us.

Understood. And my last question is regarding the bigger export opportunities which do you think that, that can materialize in over, let's say, in the next 1 to 2 years on the bigger platforms that you are working upon? Like the smaller type of export orders that so far you have been doing?

No, definitely smaller orders, mute were there that the repeat business is there for those orders. But some other big fixed items also, we are working right now and communication equipment was one such project, where last year itself, we have got very good order and opportunity for this type of communication equipment, especially SDR and other and communicate satellite communication system. So those type of large orders are expected for these 2. And after [indiscernible], we have got very good leads for trunketed C4I solutions also, customized C4I solutions for various countries. So there are also a system-oriented solutions. So some big ticket items where base ticket leads are there related to that. But of course, [indiscernible] we have received earlier in the last 5 years, that related repeat order from the same customer are also coming up as a regular business for us.

And how long will it take for these letters to materials? They are of different varieties like one of the lead was metalized last year just, I think, in the month of March, that this year also there are 1 or 2 big ticket items are there. But as you know, in exports, the real challenge is to acquire an order. There are so many geopolitical situations, complications, et cetera. So until we receive an order for us, it is a lead only. We don't really can predict this, I will get by such time. Much more certainty, I can tell you about our own indices programs around Indian programs. But in export, that type of certainty is not there. That's why we take so many lease in our pipeline and then only give you some calculated score based on our experience, how much will definitely we may realize in this year. But there is always [indiscernible] when it comes to export order acquisition.

Next question is from the line of Hardik Rawat from IIFL Capital.

Sir, firstly, I wanted to get a clarification something you mentioned with regards to the P75 order. What you mentioned is that typically, electronic systems make a annuity 25% to 30% of the project cost. And since here you have foreign players, BEL's share would be around 50% to 60%, which would mean that roughly in anywhere between 15% to 18% of the overall project size should come to us. Would that be the correct understanding? [indiscernible] income?

Macro level, you are right, but micro level when we will go to individual line items, it will be a minor plus/minus can be there. But definitely, it is a big order for us. It will be a big order for us. But as I told you, some of the items are coming from the foreign partners. So that partner related work share.

You're talking about the management?

Yes, so [Technical Difficulty].

One moment please. Ladies and gentlemen, please stay connected to reconnect the management back.

Sorry for the technical is, I believe, again. So we will take a few more questions because we are interrupted because of this technical bit. So we'll take a few more questions.

So your answer wasn't audible. I think you were speaking for the summary order in terms of the seat and the execution if you share label further on that one?

You are telling or your prediction of calculation is more or less right. However, there is a small surprise element because some of the foreign component items, how much and what module we will indigenize in that because some of the things they may indigenize from some other Indian partner also. So that mitigate of the foreign component still has to be finalized with them. So that's why this prediction may go up by a few percent here and there.

Got it, sir. And once the order is received, sir, any idea as to how long would the education cycle be? I think what are our expectations once the order is received?

I think it is of the order of 5 years, if I'm not wrong, roughly. Because again, there are fixed submarines. So there is definitely a submarine development plan time line, that will be decided by [indiscernible]. I don't foresee any challenge for us per se, for making those electronic items. But that depends upon the -- some marine development time, manufacturing time. Where that only they will expect my delivery schedule to align with them. So that's why I will align with their delivery schedule. We don't have any capacity or other limitation for the program as such.

Okay. So that's really helpful. My second question is with regards to the new products that are under development, especially the directed energy working system. Sir, if you could -- we could elaborate a bit on this as to what is been doing here? And how are we working with [ TD ] on this model?

Definitely, we started working with the BDO in this program. Of course, our CRL Bangalore was doing something on their own also jointly with ISC and our own internal strength. But the majority of this BAW development, we are depending largely on the ad the test who is there for the laser-based DW and MTRDC for [indiscernible]. So we are their largest development production partner for most of the DEW programs. However, we have also started in digitizing some of the critical subsystems of these programs on our own. So that overall indigenous content becomes more and more and overall [indiscernible] in this critical technology segments become more and more. So that we are doing with our internal funded programs being spared by our and well supported by our product development and innovation. So that also is in pipeline for us. But majorly, we are depending on DRD right now for these 2 programs, development, and we are supplying some developmental orders for them as well as when we are supplying some user-driven programs. So we are supplying to use some of the DEW is part of our [indiscernible] projects, et cetera. But some of the large VW programs, we are the DCT partner, and we are supplying to them these modules based on the design than by them.

Got it, sir. That's very helpful. Sir, lastly, again, getting back on the point that was highlighted earlier by another participant on our margin. But if I look at our margins, thanks to the kind of improvement that you've seen in gross margins owing to an organization, what you mentioned that these are at record high at about 29-odd percent and congratulations, sir, that we have consistently outperformed what we have guided? Sort of be the question that starting fourth quarter FY '27, we might see some sort of increase in provisioning due to the pay commission changes, although that does not affect us directly, but I'm assuming that you are considering last time when there was a change in the pay commission, we are employed to also to increase by 20% plus on a Y-o-Y basis. Do you expect these kind of margins to be sustainable, at least what we have sort of achieved in FY '26? Is any dilution that you're expecting, how severe this dilution could be? And could the increased employee costs have a hand in this going forward, assuming that gross margin refined by worsenization that we have achieved and that we are going to achieve should remain high. Your comments here, sir, please?

When we give guidance, we take care of all the parameter. So just at the end now in other few minutes when we will give guidance to you for this year definitely, we have taken care of all the parameters, including revision of our employees, which is due in [ 1/1/'27. ] So on the last quarter, we may expect a little bit more rate expenses. Taking into consideration that our indigenization, our all product mix of the year. Based on that only, we will -- we have arrived at the guidance, which I'm going to tell you very shortly. [indiscernible], we can take one last question, and then we will have closing remarks and guidance.

Next question is from the line of Jyoti Gupta from Ashika Institutional Equities.

Great set of numbers. [indiscernible], I do have many questions, but I'll ask this one. With strong cash generation, how is BEL thinking about capital allocation? Is it through higher dividends, acquisitions, technology investments or inorganic expansion?

No, definitely, we should work on other parameters. If we have to grow with double-digit growth for the next 5 to 10 years. So we have our own different plants. We have a strategic planning group headed by a General Manager, who plants [indiscernible] and well supported by our corporate finance group. And they come out with these plans, we are there to do this allocation and which area to invest more for next few years to come. And it is definitely a logical mix of various parameters for various portfolios, which you have mentioned. So that is our internal plan, which we generally don't come out. But let me again assure you, we take care of from all fronts so that our growth is consistent.

I'm sure you will, sir. So I'm hoping over the next 5 years, you will be looking at top 2 to 3 technology platforms of [indiscernible], where you think that you can materially change this revenue profitable to provide?

When it is not 2 or 3, we have at least 8 to 10 different high-end technology-driven programs where we are investing at least INR 200-plus crores on each one of those pathology programs. So they are covering almost all major areas where BEL is right now a leader. So to continue to be a leader, we have to do good investment in those products is technology. So that is there in our technology road map plan that plan we formally don't disclose, but in various technological forums, indirectly, we mentioned that to all of you. Maybe at the next occasion, sometimes when this type of a technical event is organized by you, we will definitely come out and give you those project details. Shall we have closing remarks?

Yes, sir, I was about to say. That was the last question of the day. I now hand the conference over to management for closing remarks.

Yes. So as we told, future outlook for year '26-'27, after taking into consideration our present base, our present product mix, our present order book, et cetera, and seeing all other challenges or geopolitical situations in mind. So we are retaining our revenue growth of more than 15%. So definitely, we are going to have more than 15% of the revenue growth for '26-'27. EBITDA margins will be more than '28. The order inflow we are expecting this year, more than INR 55,000 crores that includes, of course, QRSAM, which we are expecting very soon. R&D investment, we have continuously increased in the last 2 years to keep pace of the technology and to see -- enter into the new areas of business operation. So this year, we have targeted a value of around INR 2,200 crores investment in R&D. And the same thing is the CapEx also, again, 20-plus percent growth. So we are targeting more than INR 1,200 crores as capital investment for this year. And defense to loan defense ratio, more or less it will be [ 9% to 10% ], maybe plus minus 1%. It may vary based on our new plans for nondefense business but that will -- we will anyway tell you in the middle of the year, whether it is slightly changed. But as of now, the guidance is [ 9% to 10% ] for defense and nondefense business. So this is a guidance for the year from my side as a closing remark. Thank you.

On behalf of Bharat Electronics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.