Centum Electronics Limited (517544) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Centum Electronics Limited Q4 FY '25 earnings conference call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Jyoti. Thank you, and over to you, ma'am.

Thank you, Anuska. Good afternoon, everyone. On behalf of Nirmal Bang Institutional Equities, we welcome you to the Q4 FY '25 earnings call with the management of Centum Electronics Limited. We have with us Mr. Nikhil Mallavarapu, Executive Director; and Mr. K.S. Desikan, Chief Financial Officer. Without further ado, I would now request Mr. Nikhil Mallavarapu, sir, to start with his opening comments, after which we can open the floor for question and answers. Thank you, sir, and over to you.

Thank you, Jyoti, and good afternoon, everyone. Warm welcome to all of you to our earnings call to discuss the performance of the fourth quarter and financial year 2025. Let me first mention a special thanks to our host of today's con call at Nirmal Bang. Now let me start by briefing you on the key performance highlights for the quarter and the year under review, after which our CFO, Mr. Desikan, will take you through the financial highlights. In the fourth quarter under review, we delivered a strong performance with consolidated revenue from operations growing by 24% year-on-year and 31% sequentially. This robust growth was primarily driven by a strong performance in our Build To Specification or BTS business, especially with our domestic Defense and Space customers. Additionally, our EMS business maintained a solid momentum and contributed meaningfully to the overall growth. EBITDA and EBITDA margins at a consolidated level grew well, driven by higher billings in the BTS segment. Looking at the full year, consolidated revenue grew by 6% year-on-year. However, it is important to note that certain contracts accounted on a net basis rather than on a gross basis. And on a gross basis, these contracts were valued at approximately INR 82 crores, resulting in a gross revenue growth of 13% year-on-year. While standalone revenues grew by 18% year-on-year, the subsidiary revenues declined due to softness in certain customer segments. For the full year, while margins in our core business improved, we faced some headwinds from our Canadian subsidiary. We are taking decisive actions to address those challenges. In our French Engineering Services business, we've initiated certain cost optimization measures and are shifting focus towards Defense and Aerospace customers as we believe this will enhance both utilization rates and profitability going forward. Our total order book position stands at INR 1,736 crores as of 31st March 2025. On a standalone basis itself, the order book increased to INR 1,330 crores, up from INR 1,118 crores at the end of the previous financial year. And this was driven primarily by the strong order inflows in the BTS segment for Defense and Space customers. On the balance sheet front, our working capital has increased at the consolidated level to 87 days, primarily due to higher billings in quarter 4. As you may also know, we successfully raised INR 210 crores from our marquee investors via a QIP during the last quarter, which reflects a strong confidence in our company's future growth potential. The fund utilization has been for debt reduction of INR 115 crores, out of which we've already repaid INR 110 crores, while the remaining funds are strategically allocated towards CapEx and general corporate purposes. In conclusion, I'm happy to report to you a strong turnaround in our performance in the fourth quarter with a very healthy order book and many strategic initiatives on cost optimization underway, we are confident of a much healthier FY '26. Lastly, before I hand over the call to Desikan, I'd like to take a moment to reflect on a very important milestone. As you may have read in our Board outcome, Mr. Desikan, our long-serving CFO, has decided to superannuate. Desikan has been an integral part of Centum for the last 25 years. His journey has been nothing short of extraordinary, and he has been a key driver for our financial strategy and discipline, but also a pillar of strength through many transformations the company has undergone. His contributions have placed Centum on a solid financial footing and built the strong foundation we stand on today. While we will miss his presence and guidance, we are happy that he leaves the company in a much stronger position with the right systems and culture in place. And on behalf of the entire Centum family, I thank him for his unwavering dedication, integrity and service. Mr. Desikan will be succeeded by Mr. Sundararajan Parthasarathy, who has come on board as CFO designate. Sundar brings with him 25 years of rich and diverse experience across sectors such as health care, automotive, energy, infrastructure, water technology, HR services and green energy. A qualified chartered accountant, Sundar was most recently the first global CFO at Agratas, Tata Enterprise and has previously held leadership roles at Brakes India, Sandoz, GE, Xylem and Adecco. With that, I will now hand over the call to Mr. Desikan to take you through the financials for one last time in this role.

Thank you. Thank you, Nikhil, for those kind words, and thanks everyone for their support throughout my career. Now for the fourth quarter at a standalone level, the revenue from operations was about INR 270 crores, which grew by around 49% quarter-on-quarter and 60% year-on-year. The EBITDA for the quarter was about INR 47 crores, which grew by around 120% quarter-on-quarter and 175% year-on-year. With one of the best quarterly EBITDA margins, we have reported 17.37%. The net profit for the quarter was around INR 30 crores, which grew by around 225% quarter-on-quarter and 240% year-on-year. For the fourth quarter under review, at a consolidated level, the revenue from operations grew by 31% quarter-on-quarter and 24% year-on-year to around INR 369 crores. The EBITDA for the quarter was INR 42 crores, which grew by around 115% quarter-on-quarter and 132% year-on-year with EBITDA margin reported at 11.31%. The net profit for the quarter was around INR 22 crores with PAT margin of 5.8%. For the full year FY '25 at a standalone level, the revenue from operation was about INR 750 crores, representing a growth of 18.5% year-on-year. The EBITDA for the period was about INR 102 crores, which increased by around 30% year-on-year with the EBITDA margins reported at 13.6%. The net profit for the period was around INR 53 crores, which grew by 46% year-on-year. For the full year FY '25, at a consolidated level, the revenue from operations were INR 1,155 crores, which grew by 6% year-on-year. The EBITDA stood at around INR 97 crores, which increased by 12.6% with EBITDA margin at 8.37% and net loss for the year was around INR 2 crores. With that, we can open the floor for Q&A session. Thank you very much.

[Operator Instructions] The first question is from the line of Rupesh Tatiya from Intelsense Capital.

My question is, I wanted to understand which are the programs in Indian defense ecosystem you are present in? I mean I don't think we have ever talked about it. So if you can give some color about whether you're presenting Sukhoi, you are -- some missile programs, some -- what are the naval programs? Some color on that would be really helpful.

So very quickly, as you may have noted from our earnings presentation, Defense, Space and Aerospace account for more than 50% of our overall revenues. And this comes from all the 3 different service offerings that we provide. So we have certain projects which are in the Build-To-Spec domain where we are responsible right from the design to manufacturing of the products. And in the standalone entity on this part, our customers are typically the public sector units, DRDO, ISRO and also hopefully in the coming future, directly to the Tri-Services as well. And then we -- similarly, we also do in the EMS part of the business where we are manufacturing products to customers' designs. And in this part of the business, it's largely export-oriented to global customers. And these, again, span different applications and different programs, and we are a strategic supplier and integrated into the global supply chain of these large global OEMs. And then the third is also on the Engineering Services front. We engage with, again, the global OEMs on designing parts of their global programs and R&D pipeline. So to answer your question in terms of more specifically which programs that we are engaged, again, on the Build-To-Spec side of it, our strength lies broadly in a few domains here. So first is space systems. So Space has been an area that we have been involved for well over 23-24 years. And we have moved up the value chain from being a niche microelectronic component supplier to now delivering full satellite payloads. And to that end, we have certain programs that are ongoing for defense applications where we are designing and manufacturing and delivering payloads for electronic intelligence applications and a few others. Then apart from this, coming to -- radar is another area that we have a strong presence in. We build various subsystems for some critical programs, one of them being the VL-SRSAM program. We have an important contribution to that, which we just won a significant order in the past year. Apart from that, also on land systems has been an area that we have been present in. We have been onboard many different missile programs manufactured by BDL. And in addition to that, also on tank electronics, we have a strong presence on the different tank platforms, including the T90, where we have indigenized various Russian imported items. These are a few. Then in addition to this, on the EMS part of the business, we are also on board several different programs, both again on a global level as well as in India itself. And this -- the key ones that you would hear about is on the Rafale itself, the Rafale fighters, where we are again building critical electronics for the platform across the radar and electronic warfare system of the platform. And in addition to that, we are also exporting electronics to customers in the Middle East, which are, again, more on missile programs, not necessarily for India, but for global requirements as well. So these are just a few examples of the points. But yes, it is clearly an important part of our overall business.

So in one of the slides, you have given your standalone order book split, right? So BTS is INR 664 crores and EMS is INR 665 crores. So this INR 664 crores in all of this, is it correct understanding that we will create prototype, we will give it to one of the DPSUs or directly to the ministry, then we'll get a part number, then there will be some production in future? Some of it is already production and then some of it is production in future 2-3 years. Is that a fair understanding on this INR 664 crores of order book on the BTS side in standalone?

Yes, yes. That's right.

And then final question, sir, is on standalone between EMS and BTS, can you give some idea about the relative gross margin?

I'll maybe speak a little bit more at probably the EBITDA margin level. These are clearly different margin profiles basically because the Build-To-Spec obviously involves the whole design and associated value add that goes with it. So your typical EBITDA margin for Build-To-Spec can be in the range of 20% or so. And whereas on the EMS side of the business, it's more Build-To-Print, and that is typically in the 10% to 12% level or so. In terms of gross margin, it can vary again depending on contract to contract. But typically, a normal industry benchmark on the EMS side of the business is material cost percentage of somewhere in the range of about 75-odd percent, whereas on the Build-To-Spec side of it, it can be much lower than that, maybe closer to 50% or so. So that should give you a high-level picture of these.

And maybe just to conclude, this INR 175 crores BTS revenue, is it fair that it will grow at a high rate in the next 3-4 years and we can hit, let's say, INR 300 crores, INR 400 crores revenue in 3-4 years?

Yes, that's the objective. I think with the increase in the order book that we've experienced in the past year, we feel that we are on the right trajectory to do that basically.

The next question is from the line of [ Chirag Kachhadiya from Ashika Institutional Equities ].

Congrats on a good set of numbers. So a couple questions. So in the beginning of FY '25, you mentioned that group -- EMS reached its own terms of growth for the FY '25. So at this time which vertical do you think that in FY '26 will lead this role. And second, if I look at the EMS order book, growth has been -- FY '25 growth has been -- '25 -- showed muted kind of growth, cycle negative; so on that you mentioned that we and BEL will jointly develop a category -- subsidiary. So from which industry source client are coming and when you expect that growth will look -- will you start giving more color.

Thanks, Chirag, for the questions. Could you kindly just repeat again the first question? I got your second question, which was with regard to order book on the EMS part of the business and which customers or segments that we are growing. But could you repeat again the first part?

Yes. So if you look at the FY '25 full year performance, I think you said that EMS has reached its own terms of growth and margin. So for FY '26, which vertical you expect to lead this role in terms of growth in standalone business? And just addition to the order book question, if you look at the year-end order book, it's very muted. So is this a strategic call that we are not taking the contracts in that subsidiary, which is located outside India to manage the margins to reduce the cost and all?

So at a high level, first of all, I think as you rightly pointed out, we have seen strong growth in the EMS business in the past year. And we -- especially when you look at it on a gross revenue basis. And we expect that growth momentum to continue. And basically, at a standalone level, both the EMS and the BTS part of the business should grow for us at a blended rate of somewhere in the range of about 25% to 28%. So you may have a little bit higher growth coming from BTS in the coming year and maybe slightly lesser in the EMS. But we do expect also a healthy growth rate coming in on the EMS business. To answer your question with regard to the view on order book, I think broadly speaking, there's 2 factors there. One is we have -- with existing and new customers -- a typical basis, the order horizon of the firm purchase orders from our customers will vary depending on the way the supply chain situation looks. Now over the past, if you go back to 12 or 18 months ago, if you remember, there's customers still giving us a longer horizon of firm purchase orders. And so we're seeing that firm purchase order horizon slightly reducing because the supply chain is a lot more stable now. But we do have customer forecasts, which are not included in this order book that is being reported. So with the customer forecast that we have, first of all, the visibility is clearly much more and stronger compared to just looking at orders. The second thing is also that, as I've mentioned, we've onboarded a couple of important growing customers for us. And those customers are in the final stages or various stages of qualification because typically, when we receive an order or when we are awarded a business, we go through a prototyping and new product introduction phase, which is delivered to the customers; those are qualified, goes through various types of stress testing and all of that. And once they are cleared is when we start getting firm purchase orders. So with a couple of these customers, as I mentioned, we already have the forecasts for them, but those firm purchase orders are expected to come in, in the coming quarter or 2, which will help us increase the revenue season in the current year. To answer the question, which sectors are coming from, we have a couple of different ones there, one being in semiconductor equipment, where we have an important customer that we've added. And another one is in Biometric solutions. So these are there -- and this -- apart from that, of course, our existing customers itself in the Aerospace and Defense side of it, we've continued to add new part numbers and also some increased volumes on existing part numbers. So I would say, broadly, these are the key sectors of growth that we can expect in the coming financial year.

Just one follow-up. If you can provide a bifurcation of the subsidiary revenue between ER&D and BTS for FY '25?

Sorry, can you repeat again -- the subsidiary revenue?

Bifurcation between ER&D and BTS, the -- subsidiary.

Maybe Desikan, if you could help with that?

Yes. Subsidiary revenue for FY '25 was INR 406 crores, of which INR 187 crores is the BTS and INR 218 crores is the Engineering Services. And Chirag, just to emphasize the point, going back to your question on EMS revenue, the order book coming down, I think the important point to note is that with the stability in the supply chain, which Nikhil explained, the existing customer forecast is there and which is not included in the order book situation. But I can tell you that the demand for -- from the existing customers are robust and it's good. So what is happening is while you see the order book being lower than the previous year, the forecast portion has increased because of the stability in the supply chain.

And Desikan, this INR 187 crores BTS in the subsidiary, the loss or the underperformance in the subsidiary can be 100% attributed to this BTS revenue of INR 187 crores?

So Nikhil, do you want to take that?

Go ahead, Desikan. Maybe I'll just give a qualitative thing, maybe you can add later.

Yes, please.

At a high level, Chirag, a major part of the loss in the subsidiary is attributable to our Canadian subsidiary, which is, of course, doing the BTS part of the business. But I must clarify that even in the BTS for the subsidiary, as Desikan mentioned, we did about INR 187 crores or so of revenue in Build-To-Spec in the subsidiary. Of that, I would say, maybe around INR 70 crores or so of that revenue, INR 70 crores to INR 80 crores of that revenue in the current year was from the Canadian subsidiary, which is where a big part of the loss is coming from. The remaining Build-To-Spec part remains in France, and that is a profitable business that we continue to operate. Having said that, I think we also have seen some revenue decline in our French subsidiary on the Engineering Services side. And that has resulted in, I guess, a degradation of the margin compared to the previous year. But in absolute numbers, the bigger part of the loss is clearly being contributed by the Canadian part, which is where we are taking some very clear measures to fix that in the short term.

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

First of all, congratulations, Desikan sir, for his [indiscernible]. I have 2 specific questions, like we are working on the satellite constellation for ISRO application. So just wanted to confirm, is it related to the SBS Phase 3 program? And also if you could highlight the opportunity in that specific program for Centum and possibly as a whole as well?

Yes. So first of all, I think the programs that we are already executing, which I mentioned earlier in terms of the electronic intelligence and all of that, are for defense applications, not specifically under SBS program, but for different applications. But apart from that, SBS is a new program. I'm not able to speak too much in detail about that at the moment. But I can say that there will be contributions going from Centum clearly on this program. And some of it is expected -- broadly speaking, this program will be -- a big part of it will be driven by ISRO and also with private sector participation. And we will be looking to contribute our part in terms of the payroll electronics for the program. So I'll stop at that.

Second question regarding the performance of the subsidiary, we have been talking about in this call and the last call as well. First, generally trying to understand how are we looking at this segment as a whole? And if things are not looking good in the long term, do we any plans to sell it off or divest the business in the longer term, anything we are looking at in the subsidiary segment, if you could highlight?

Yes. So the subsidiary, as I just mentioned, it has broadly 2 parts to it. One is in France, where we are doing Engineering Services and some Build-To-Spec work. And then a second piece, which is our Canadian subsidiary, where we are doing passenger information systems for rail applications. A big part of the loss is being contributed from the Canadian subsidiary, and we are in various -- I would say, in advanced stages of discussions with our customer, basically to explain to them that we are not able to sustain taking these type of losses. So we are exploring a couple of different strategic options that would enable, I would say, a transition to happen in a smooth way with the customer and the ongoing programs, but to be able to plug our losses in a short term. So there will be something that we are doing and we are targeting to have this completed by September or sooner. And that's what I mentioned in the last call, and we continue to work towards that. Coming back to our France Engineering Services business here, the focus remains on operational improvement. So in the short term, as we mentioned, taking cost optimization measures and improving utilization by focusing on improving our sales is the focus for the short term at least. Long term, we will reevaluate at a later stage.

One last question. We talked about the differential between the gross and the net basis revenue that we were accounting for. Would that effect be continuing in the current financial year? Or was it just related to the last financial year? Just clarity on that?

It will not continue. It is only for the last year. In FY '26, the confusion between gross and net accounting will not be there.

[Operator Instructions] The next question is from the line of Nirali Gopani from Unique PMS.

Nikhil, my question is on the growth side. So you said that you expect the BTS and the EMS revenue to grow by 25% to 28%. So assuming the consol revenues grow somewhere above 20%. So what gives us this confidence? Because in FY '25 also on the gross basis, we were expecting growth of 18% to 20%, which came somewhere around near 13%. So how confident are we of achieving this kind of growth in the coming 1-2 years?

Yes. I think as I mentioned, there's 2 things. One is on the Build-To-Spec side of the business with the order intake that we've had, I think the demand side of it is relatively secured. Similarly, on the EMS side of the business as well, we have a clear plan and visibility of which specific products and customers will be driving this growth based on either firm orders or customer forecast that we have received from them. So firstly, on the demand side, I think we have a reasonable visibility. The point where we maintain a close watch is obviously on the delivery side of it. And on that front, I think the key is in the coming year to focus on some of these new product qualifications that we are moving quite aggressively on. And so with -- as that progresses and comes to maturity in the short term, we feel the ability for us to meet the revenues are quite strong. So in summary, we do feel confident that we should be able to grow at a pretty healthy rate in the coming year.

Great to hear that. And if it solves the Canadian subsidiary problem, say, by the December -- by September quarter, for the full year, do you feel on a consol basis, an EBITDA margin of 10%, which you were guiding earlier is possible in this year itself?

Yes.

Yes.

I think.

Yes. Go ahead, Desikan, please.

Yes. That should be definitely possible at a consol level.

The next question is from the line of Sreeram Ramdas from Green Portfolio AIF.

Can you hear me?

Yes.

Yes.

Hello? Can you hear me?

Yes. We can hear you. You can go ahead.

Yes. So you were doing a project for RAW agency, right, the satellite. So what's the progress? Where are we with it?

Sorry, I'm not sure where you were told we were doing something for RAW. We -- I'm just saying that we make electronic intelligence-based payloads. We don't disclose for confidentiality reasons who is the customer. So no -- so the electronic intelligence program that we are executing is progressing well. We've delivered the first set of engineering models for the customer, and it's been well received. And we are progressing on to the subsequent part, and we expect this year that we will have some substantial revenues and billing from this program as well.

So is this the INR 187 crore project? Or is there some other project you're talking about, sir?

Yes. It was totally a INR 300 crore program that split into 2 different...

Orders.

Orders. Yes. Yes. Exactly.

And last question, what is our order bidding pipeline, if you can share some numbers?

The pipeline of orders is healthy. I mentioned this in the past, we're roughly looking at something in the range of about INR 2,000 crores of booking in the next 3 to 4 years. That's what we are targeting. Of course, it's clearly depends on the time lines associated with government procurement processes and so on, which have some uncertainty associated with it. But our target and visibility is to try to book something in that range.

Was that INR 2,000 crores in 3 to 4 years?

Yes. You're talking very specifically about the Build-To-Spec side of the Defense and Aerospace business.

Yes.

EMS -- yes. Yes.

So like pipeline, do we have any pipeline like the orders that we're bidding for, not the potential order book in 3 or 4 years, but the -- like a pipeline of orders that we're bidding for? That's what I was looking for.

Yes. I mean I can't disclose very specifically that. But yes, I mean, this is all what we're saying is based on pipeline of specific opportunities we're bidding on.

I would probably add saying that we are -- as we maintain, we should be able to grow the revenue by around 20% consolidated and our pipeline is sufficient enough to cover the growth rates.

The next question is from the line of Ankit Gupta from Bamboo Capital.

Nikhil, if you can give the split of BTS order book of INR 664 crores, out of which how much is for Space Defense? And in Defense, how much is for Army, Navy, and Air Force?

We typically don't give very specific breakups in terms of the order book. But at a high level, I would say, space applications are, I would say, in the range of somewhere in about 40% to 50% of that part. And the rest is non-space or more defense side of the business. And this cuts across different applications. So -- yes.

So the 40% to 50% split that you have given for the Space, this is entirely for ISRO or for some defense applications that we have been working on for some time now?

It's not only for ISRO. Even we also work with DRDO on certain defense programs.

Sure, sir. And any update on the emergency procurement which has been announced and the space orders -- the space satellite orders that we have been -- with some news reports have been coming that the procurement time lines have been preponed significantly. So if you can give some updates on the ground situation that you are seeing for our company and overall?

Yes. I mean we had actually had to release a note to the stock exchanges shortly after a lot of these articles have come out. I mean we had confirmed that we have not received any firm request or anything of that sort right now, in terms of the expediting SPS III or anything like that. So we have no specific comment as such on that. But having said that, yes, there's clearly a need for some of the emergency procurements, and we'll have to just wait and see how things turn out eventually.

But any talks, of course, you wouldn't have got the firm orders. It will still be in discussion, but have you seen some urgency from the government side for this?

Certainly. I mean I think...

Not to important?

Yes.

The next question is from the line of Pranav Shrimal from PINC Wealth.

Most of my questions have been answered. Just one question, sir. The order book that we have, what would be the time line? So it is a regulatory order?

So this varies again from business to business. Typically, our BTS order book is executable over --somewhere between 2 to 2.5 years in terms of time horizon, whereas the EMS order book is typically less than 12 months. I mean, at this stage at least. And on the Engineering Services side also, it can be even shorter than 10 to 12 months, maybe even less than that, I would say. So that's broadly how the order book splits up and maybe at an overall basis, something in the range of about 15 months or so to 15-odd months, I would say, 15 to 18 months is what we could look at.

And coming to the Canadian subsidiary, how much is the loss that we have accumulated on our books?

Desikan, will you take that?

Yes, yes. So for the year, the loss was something like EUR 2.8 million. And we have been having around EUR 2.5 million loss for the past 2 years as well.

So, approximately 5-point-something million total loss in our book.

Euro.

This loss can be carried forwarded for -- do we get any certain tax benefits there?

In Canada, yes. Like India or like France, these losses are accumulated and can be offset against the future profits.

And do you see any short-term vision of the subsidiary becoming profitable post the talk that we are having with the customers?

As Nikhil was mentioning, the focus right now is to stop the bleeding in Canada. So the bleeding is basically because we have manpower there, which is the main cost, and we don't have sufficient revenues to cover that. We are exploring different options, talking to the customers, multiple options. So to answer your question, the focus is on to stop the bleeding more than looking for profit in Canada.

The next question is from the line of [ Sai Vijay ] from Capstocks & Securities.

My question is regarding the 2 DRDO orders received last year. Could you share how much revenue has been recognized from these contracts so far?

Again, we don't give specifics about every order that we execute. If you're again referring to the program, which I just mentioned in terms of the space-based electronic intelligence program there, we have delivered the engineering models, but we are still in the progress of completing the like-models and all of that. So we're still in the initial period of delivery or the first part of the delivery in terms of engineering models.

My second question is on a consolidated basis, sir, what is the revenue growth expected? I think you mentioned about 18% to 20%, right, or 20% to 25%, I'm a little confused about that. Could you just clarify on a consolidated basis?

Yes. On a consolidated basis, what we've been going for is 18% to 20%, and that is basically driven by a higher growth rate contribution from the stand-alone entity, which is at over the 25% level. Whereas at the subsidiary level, we will be roughly flat to maybe -- yes, roughly flat, I would say.

The next question is from the line of Harsh Mehta from Perpetual Capital Advisors.

Congratulations on the good set of numbers, sir. My first question is, could you clarify whether your company is involved across the entire satellite value chain, specifically the ground station, satellite launches and satellite manufacturing? Or are you focused on one or more [Technical Difficulty] part of the value chain?

Yes. So we are absolutely engaged on the different parts of the value chain in space from the launch vehicles to the satellite. Even within the satellite, there are satellite bus and satellite payload, and we are on board both of those pieces. So we cut across various aspects of the value chain, perhaps a little bit, in terms of from a revenue perspective, major part of it comes from the satellite itself and a little bit lesser from the launch vehicle and ground equipment at this stage.

So sir, now that the Indian government is planning to invest around INR 900 crores in the domestic ground station network to monitor satellites over the Indian airspace, do you see this as an opportunity for Centum to grow their revenue in these areas of the satellite also?

There are many different programs ongoing in terms of the overall -- the buildup of space infrastructure, and we continue to actively monitor all these opportunities. So we, as a player who's been in the industry for a long time, I think we are confident that we'll continue to grow in the overall space business.

And sir, can you also mention some of your competitors in the satellite payload business?

I typically don't give specific names of competitors over here. But when -- as far as addressing the requirements in India in terms of the technical capabilities that we have, especially on the payload side, I would say we have a very strong capability and there are very few other private sector companies would be able to demonstrate. So we are quite -- we have a quite unique and differentiated capability, both in terms of design and IP, as well as manufacturing capabilities as far as this goes.

And sir, lastly, what led to the decline in other expenses? It's down 11% for the whole year compared to last year?

No, this was due to a specific cost reduction initiative that was undertaken in the subsidiary because we knew that the revenues are not growing, rather it is coming down. So we specifically look for some kind of a restructuring plan. You will see not only in other expense also in the manpower expenses and other expenses, both. It was a specific cost reduction measure.

So is this going to be temporary? Or is it a permanent change for the company for the future?

The revised levels will be continued, and our endeavor is to control it at this level and not to allow the increase.

And sir, Centum had recently signed an MOU with Indra Sistemas from Spain. What's the update on this MOU?

The MOU was with regard to a specific opportunity for space debris tracking radar. And that was an opportunity that we have bid on, but there has been no progress in the specific RFQ in the past couple of quarters.

And sir, the space-based surveillance, which we talked about earlier also, has the government accelerated this program after what happened in Pahalgam?

As I mentioned earlier, I'm not able to comment anything specifically with regard to this program. We can't be more specific there.

The next question is from the line of Nirali Gopani from Unique PMS.

Just one small clarification. What is the effective tax rate that we should work with?

It will be 26% to 27%.

On the consol basis, right?

Yes. Because there is no profit in the -- the tax is only on the stand-alone profit.

The next question is from the line of [ Chirag Kachhadiya from Ashika Institutional Equities ].

I have a question on CapEx front. So what CapEx are we looking for in FY '26 and '27?

Chirag, did you ask CapEx for the year FY '26?

Yes.

Okay. We are planning to invest about INR 40 crores. That, again, only in the stand-alone, essentially to augment the capabilities and increase the capacities, both in the BTS segment as well as the EMS segment.

So the equipment which we are going to procure can be interchangeably used for BTS and EMS, right?

Yes.

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

And Nikhil, rightly you pointed out, we are going to lose Mr. Desikan. And I must say that what a journey just to be in brief that from 2001 to 2025 and on INR 30 crores-INR 35 crores company, now we are seeing INR 1,150 crores turnover and where it will lead to, nobody knows. But that is the kind of a journey this organization has and he is one of the pillar of this particular journey. Thank you very much, Mr. Desikan, for your contribution to this company. We, investors, are very, very happy, and we will miss you a lot.

Thank you Mr. Pranav for your kind words. Thank you so much. Thanks for all the support for all these years. I know you entered in probably 2002 in Centum Electronics, and you have been a long-term supporter with your valuable inputs and guidance. Thank you so much. Please continue to do so.

Yes. Nikhil, so a lot of questions have been asked, but I just want to say that we are -- people are asking about Defense and Aerospace. This is one of the sectors in which, last time also in the AGM also, it was raised that Indian contribution is rising. Presently, exports are 75% and 25% from the domestic, which is again going to rise. So my question is, that is fine, but what about the other applications? As for example, we are talking about semiconductor. Are we looking at nuclear also, which is also likely to be a very, very big opportunity over the next 5 years? Already government is doing a lot in nuclear space. Another space -- area where I know that Centum has been doing a lot of research and doing a lot of work is ISRO, that is Space. But when we look at it, nothing much greater in terms of the value has been happening. So what is likely scenario in the next 5 years? And what is the kind of contribution we are looking in space, both military and not military part, where Centum is likely to be? Are we going to have some kind of cooperation or JVs in different spheres like even semiconductor is going to be a bigger opportunity even in India at a later date. And so in nuclear or semiconductor or any kind of other industrial applications, where you would like to see, apart from Defense and others?

Thanks, Pranav. First of all, thanks again to recognize, as you rightly did, Desikan's tenure. And as he mentioned, I think we continue to rely on your support and feedback as things progress. Coming to your question in terms of sectors, clearly, Defense is an area that we are bullish on. So we continue to have various initiatives on that front to be able to continue positioning ourselves to go up the value chain and be part of larger programs and key programs at the national level. And space as well, while I mentioned Defense, what we see is even for space, a big target application is in Defense or Military applications itself. So we continue to leverage and build and grow our space capabilities in the coming years, but perhaps with still military or defense-oriented application. We are still not seeing a huge firm demand in terms of nondefense applications, but we continue to monitor and see that especially in India. Apart from these 2 sectors, I think, yes, as we mentioned, semiconductor equipment is something that we continue to look at, which we've added a customer that can be a big driver and contributor to growth for the coming years. In addition to that, industrial applications is an area that we are also exploring more. In various aspects of industrial applications, I think we are looking at the nuclear specifically still, I guess, at the early stage, which not much to say about that as yet. But we are seeing some clear opportunities as far as industrial equipment for renewables, grid automation, electrification and so on. So there's -- that's an area that we have been in, and we are also seeing more indigenization with the increased CapEx at the national level for these kind of products. So industrial is certainly an area that we will be in and we will continue to grow. Then I also talked about the biometrics area, which again is something that we feel can be a revenue contributor of something substantial as we go forward. We're building a good partnership with a global OEM on that front. And we feel that can also be a good opportunity. So these are, I would say, the areas that we're looking at. Automotive has been an area that we've also been pursuing, especially on the EV side of it. And while we've started, we've added certain customers, the past year, we've seen this, I guess, be relatively muted, but we still continue to explore and look at that and feel we can play an important role in the overall electrification in Automotive side also in the future.

So Nikhil, just to add one question that see, we are very good in payloads. We can now build a lot of...

Sorry to interrupt you, Mr. Pranav.

Okay. Sorry, ma'am.

The next question is from the line of Harsh Mehta from Perpetual Capital Advisors.

Sir, I wanted to know what has been the historical utilization of your engineering team in France over the last 5 to 10 years? And how has this changed recently? And what is the current level of activity?

Yes. In the past, I would say it has been at a reasonably good level. In the past year, however, that has slowed down a little bit more specifically in 2 sectors. One is Automotive, which I don't think would come as a surprise to many people, that's been a sector, especially in Europe, which has had an impact. The second one also, in fact, as far as some of the engagements and programs and customers that we have, space actually was something that had picked up quite well for us in FY '23 and FY '22 or FY '23 and FY '24 but has slowed down significantly in the past 12 to 18 months. Some of our key customers there have had even in the past year, announced significant layoffs and resizing of the team to be able to manage the slowdown in the activity and demand that they've seen there. So these have been 2 sectors that have, in a sense, impacted us also. And that's where we are looking to double down and strengthen again the engagements with our defense customers in Europe because that is an area that there is investment and growth happening and will continue to happen over the medium term.

And sir, could you also describe what is your order selection criteria?

We typically have different modes of engagement. I'm assuming your question is with regard to Engineering Services of the subsidiary specifically? Or are you talking about more generally?

I wanted to know about both the part of the business.

Okay. I mean, they vary, obviously, in terms of each service offering, typically in the Build-To-Spec kind of business, our typical order size has now increased to a INR 30 crores to INR 50 crores kind of annual revenue -- either annual revenue or broader value. Whereas on the EMS side of the business, we want to target a customer that can get us to at least INR 100 crore revenue per year kind of rate. Obviously, that happens over time with multiple different part numbers and so on, but that's the objective. On the Engineering Services side of the business, that, again, varies depending on the model. We have certain time and material or consulting type of engagements. And then on the other hand, some service center work unit kind of engagements. And so on the -- here again, what we look for is how to grow with the customer, to be able to get to a $5-plus million or $3-plus million revenue range with several customers and with some of our top customers, how to increase that to $7 million to $10 million kind of engagement over the coming years.

The next question is from the line of Jay Jesrani from Mountain Lion Partners.

Desikan, congratulations again on wonderful years at Centum. I've not interacted as much as Pranav, but last 10 years, you have been fantastic in terms of giving us clarity and openness in terms of approach towards understanding the company. Gone through the tough times. Unfortunately, you're not going to see the great times, but I hope you're associated with them in some way or the other because you have complete knowledge on the company. Nikhil, just taking your question, I just want to know whether China Plus One is still a talk or it's just defense which is the talk. Last time when we had interacted during COVID time, you said that a lot of prototypes are being done where you want to get to the INR 50 crore or INR 100 crore orders, but it takes 2 to 3 years of investment to create those prototypes to get it to the floor and get into manufacturing. Are we any close to any of the orders on such type of companies because of China Plus One? Second is, what is the current employee strength? And how much do you see growing in next 2 years? Do you see manpower being very important, bench strength to be very important to grow this business?

Thanks, Jay. So just to answer your first part of the question, which was with regard to the China Plus One, absolutely, we continue to see that as a theme. And we have added those customers. In fact, I touched on it also earlier on in the Q&A, where we are in advanced stages of qualification with the customers. And we expect this year itself for there to be a good order inflow and revenues coming in from some of these new customers that have been pursuing this China Plus One approach. So we absolutely continue to see that. And it exists with both some of our existing customers as well as new customers that we have in various stages of development. So that's, I would say, the point on the first. The second question, can you just restate that again, please?

Typically, from the employee standpoint of view, because the demand will grow and you need -- yes, you need to grow the employee. Do you need a good bench strength or you need to invest in employees from first to train to a certain level? And what is the current employee strength and where do you see it in the next 2 years?

Yes. First of all, very important for me to just clarify that employee cost and strength is something that needs to be looked at again separately at a stand-alone level and at a subsidiary level. Mainly because at a stand-alone level, we are, at the end of the day, delivering a product, whereas in the subsidiary, we are delivering a service. And so manpower is, you can say, what you're billing is basically the time of our engineers that are working on the projects and so on. So that's the first thing. So with that in mind, I think talking about the stand-alone part of the business.

More on the stand-alone, yes.

Yes, where we contribute to growth. Yes, we will -- we have a program at different levels where we need to keep adding. I think we have a pretty good program in place, especially from the technician level to be able to scale up the resources as we grow. But we also have a strong program around productivity to make sure with the existing resources itself, we are able to do more. Where we continue to spend a lot of time is especially on the management and indirect -- or middle management -- you can say -- level, engineers, that are part of the new product qualifications and so on. That's going to be a critical area and an area where there is a lot of demand for. And so we do look at ensuring that we are investing in the people and the resources a little bit ahead of when we actually need them.

Just to add, Mr. Jay Jesrani, I think on the manpower, your point is absolutely right. Today, more than the business, the challenge or the point is on talent management. And I think the employee retention and attrition are being closely monitored, plus like what Nikhil said, the middle management, we have identified the high potentials and then we are putting them through training programs. So the -- and plus also the productivity measures that Nikhil was talking about. So there are a lot of focus on the talent management, which definitely will guide the growth for this company. From my side, I thank you so much, Mr. Jay Jesrani, I think, for your kind words, and also the specific inputs you have been giving from time to time. It may not be continuous, but they are all taken very seriously and discussed internally and then actions taken upon.

The next question is from the line of [ Anshul Saigal from Saigal Capital Advisors LLP ].

Our contribution from India is about 29% just now. As we get into the next few years, where do we see this contribution going? Will it remain in the same proportion? Or will it rise?

Thanks for the question. I think it's important to note that I think already in the last 3 to 4 years, it has been increasing. And that's a combination of the Make in India push that we've seen in the different sectors that we experience. So I don't want to put a very specific number at the moment, but we will see probably a little bit higher contribution from India. But having said that, we continue to have a very healthy pipeline of export customers, especially on the EMS part of the business, and we will continue to develop and grow those customers for us. So you will not see a complete sort of 180 in terms of major change of going from 30% or 29% to 70% or something like that, but we will see a gradual increase in terms of India as part of our overall revenues. And it is what we are actively pursuing also.

Sure. And I would assume that most of this business is BTS, if not all?

Yes, most of the domestic business is contributed by our Build-To-Spec business. But we do also have some EMS customers that we deliver for globally, but also for their demand in India.

Right. And is it fair to assume that this 29% given the trend in recent years can go to as much as, say, 35%, not really 70%, but say, 35%. Is that a possibility in the next 3 years?

Yes. I mean, certainly, yes.

Okay. Which also then raises the question, given that BTS...

Certainly, as in -- maybe let me just clarify that when I say certainly, I'm meaning it is clearly a possibility. And as I mentioned earlier, what we are looking at in terms of the contribution from Build-To-Spec as well as some of the growth that we are seeing in the EMS business for domestic customers, we should see an increase on the domestic contribution.

Sure. So that then raises the point that this being a higher-margin business, this will mean the mix change will kind of add to margins. And so say, in the next 3 years, Mr. Desikan just mentioned that next year, it's quite likely we'll be at about 10% consolidated EBITDA. So in the next 3 years, where can this number be? Can it be like 11% to 12%?

Yes, definitely. I think that's our goal to improve that from 10% to probably around 12% in the next 2 years.

Great. And also, given the stand-alone growth numbers that you mentioned, say, of around 28-odd percent, what could be the -- I mean, in the next 3 years, this INR 1,150 crores revenue, is it likely that it will double, given this kind of a run rate?

As we have been maintaining, we are targeting 18% to 20% CAGR for the next 3 years.

18% to 20% CAGR, okay. That's very helpful.

Ladies and gentlemen, we take that as the last question. I would now like to hand the conference over to the management for closing comments.

So first, thank you all for participating in the earnings conference call. I hope we were able to answer your questions satisfactorily and at the same time, offer insights into our business. If you have any further questions or would like to know more about the company, please reach out to our Investor Relations managers at Valorem Advisors. Once again, just in closing, I would say that we've continued our path of revenue growth as well as margin expansion. We have a clear plan around that, and we are working towards that. Please don't look at us as a quarter-by-quarter company. Please continue to look at us as a full annualized company because we do have some lumpiness in our revenues. But I think we are on the right path, and we continue to focus on these opportunities and converting them. One more time, I want to once again place on record our deep gratitude for Desikan and all that he has done for the company. He has been a mentor to me and to many of our business unit heads. His wisdom, his steady hand and calm counsel have been invaluable. And for our Chairman as well, he's been more than just a finance leader. He's been a trusted partner through the thick and thin. So thank you again, Desikan, and maybe some last words from you also, please.

Thank you so much, Nikhil, for those kind words. I think anyway, as you rightly mentioned, I'll be here until 31st August. So another quarter to go, probably, I will be along with Sundar, meeting with investors. But I think it has been an excellent support from Rao and from Nikhil, without which I don't think I could have completed 23 years in this company. I'm very happy and proud about our -- my exciting journey here. I think many shareholders, with whom I have been associated for a long time, have been very supportive. And thank you so much, the investors, and thank you, Rao, and thank you, Nikhil. But that important remark that you made, Nikhil, that is we should be looked at as a year-to-year company and not a quarter-to company -- quarter-to-quarter company. I think that's a very, very important remark. With that note, I thank everyone and thank you so much.

Thank you.

On behalf of Nirmal Bang Equities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.