Centum Electronics Limited (517544) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Centum Electronics Q1 and FY '27 Earnings Conference Call hosted by Avendus Spark Institutional Equities. This conference call may contain 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 a guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Juzer. Thank you, and over to you Juzer.

Good morning, everyone, and a very warm welcome to you all. My name is Juzer Haveliwala from Valorem Advisors. We represent the Investor Relations of Centrum Electronics. On behalf of the company and Valorem Advisors, I would like to thank you all for participating in the company's earnings conference call for the first quarter of the financial year 2027. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management beliefs as well as assumptions made by information currently available. Audiences are cautioned not to place undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Nikhil Mallavarapu, Joint Managing Director; and Mr. Sundararajan Parthasarathy, the Chief Financial Officer. Without any further delay, I request Mr. Nikhil to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Juzer, and thank you, and good afternoon, everyone. Welcome to our earnings conference call to discuss performance of the first quarter FY '27. And let me extend a special thanks to our hosts at Avendus Spark for today's call. Let me start by taking you through the key business highlights for the quarter, after which our CFO, Mr. Sundararajan Parthasarathy, will take you through the financial performance in greater detail. We have started FY '27 on a steady note with revenue growth in our stand-alone business and continued strengthening of our strategic positioning across high reliability electronics. At the outset, I would like to highlight that the first quarter was somewhat muted compared with our expectations for the full year, both in terms of growth and margins. This is primarily a function of the quarterly variations in project execution and revenue phasing, particularly in our bid-to-spec business. Based on the momentum we are seeing across our businesses, our order pipeline and customer engagements, we are confident that the stronger execution expected in the subsequent quarters will enable us to deliver against full year growth objectives. As we mentioned consistently, we encourage investors to look at our performance and outlook on a full year basis. During the quarter, stand-alone revenue grew 11% year-on-year to INR 205 crores, while we closed the quarter with a stand-alone order book of approximately INR 1,800 crores, representing a robust 31% year-on-year growth and providing strong visibility for future growth. One of the most significant developments during the quarter was the successful completion of the restructuring and exit from our overseas subsidiaries. As many of you would recall, we initiated this strategic exercise last year with the objective of sharpening our focus on our core India business and ensuring more disciplined capital allocation. During the quarter, the French court approved the acquisition of substantially all operating business and employees of Centum T&S Group SA and certain subsidiaries to the successful bidders, which were MBDA and SII. Following the transfer, these entities ceased operating activities and were deconsolidated from our financial statements effective 4th of June 2026. Subsequently, the French court converted the process into liquidation judiciaire and appointed a judicial liquidator on 2nd July 2026 to oversee the remaining wind-down activities. Importantly, with the operating businesses now transferred and restructuring process substantially completed, we do not expect any further liabilities in relation to these subsidiaries. This allows us to put this chapter behind us and move forward with a much sharper focus on our core India ESDM platform with greater management attention and capital directed towards our stand-alone business. Sundar will take you through the accounting impact of these developments in greater detail. Let me now move to our operational performance and business highlights. Our build-to-specification or BTS business continues to have a strong underlying demand environment. Revenue in the quarter was impacted by the project execution schedules, but our order book remained healthy and grew approximately 40% year-on-year. Looking ahead, we expect continued strong order intake through the year across several of our key programs, particularly in the areas of space, radar, electronic warfare and air navigation. This gives us confidence in the growth trajectory of the BTS business as we move through the year. Our Electronic Manufacturing Services or EMS business also continued to perform well with the revenue growing 20% year-on-year and order book expanding 23% year-on-year. We are ramping up well with our semiconductor equipment customer and the demand remains solid and is in line with our expectations for the current year. And importantly, based on customer engagements and opportunities we are seeing, we believe there is visibility to surpass our current expectations over the next 1 to 2 years. More broadly, we continue to see increasing opportunities across industrial automation, electrification and grid automation. During the quarter, we received a strategic partner award from a leading global industrial and energy conglomerate. We value this recognition as a strong endorsement of our engineering capabilities, execution track record and long-standing customer relationship. This also reflects an important area of focus for Centum going forward. We are increasingly working with global customers who are implementing localization strategies in India while simultaneously responding to growing global demand for advanced electronics. We see an opportunity to leverage our engineering capabilities, manufacturing scale and high reliability expertise to become a deeper partner to these customers as they localize and diversify their supply chains. As part of this strategy, we have initiated the NPI process for a number of -- a number of electrification and grid automation products. These programs are expected to start contributing meaningfully to revenue growth over the next 2 years and provide another important growth avenue for our EMS business. Across our other focus areas, we are tightly integrating our engineering services and EMS teams to deliver differentiated design-led manufacturing solutions, enabling customers to seamlessly transition from product design to high reliability manufacturing. This approach strengthens our value proposition, enhances customer engagement and supports improved margin profiles. We have made encouraging progress in building this capability and are optimistic about securing our first DLM program wins in the coming quarters. Our objective remains to move further up the value chain by combining our design and engineering expertise with advanced manufacturing capabilities. In summary, with a robust order book, strong expected order intake, expanding customer engagements and a healthy opportunity pipeline across both BTS and EMS, we believe Centrum is well positioned to capitalize on these structural opportunities. With that, I would now like to hand over the call to our CFO, Mr. Sundararajan Parthasarathy, who will take you through the financial performance for the quarter in greater detail.

Thank you, Mr. Nikhil, and good afternoon, everyone. Let me now take you through the financial highlights for the first quarter of financial year '26-'27. At the stand-alone level, our revenue from operations for the quarter stood at INR 205 crores, registering a healthy growth of approximately 11% year-on-year. EBITDA for the quarter stood at INR 23 crores, which translates into an EBITDA margin of 11.28%. Profit before tax stood at INR 18 crores, while profit after tax stood at INR 14 crores with a PAT margin of 6.59%. While margins during this quarter were impacted by a relatively lower contribution from the BTS business, we expect the revenue mix to improve as execution on key BTS programs accelerate over the coming quarters. Before I move to the consolidated performance, let me briefly touch upon the accounting impact of the overseas restructuring. During the quarter, following the approval of the French court and the transfer of substantially all operating businesses and employees to the successful bidders, the overseas entities were deconsolidated effective 4th of June. Consequently, the financial statements reflect a onetime profit on deconsolidation of INR 94 crores, while the remaining entities are now under liquidation proceedings. These developments provide greater transparency into the performance of our continuing operations and sharpen our focus on the core India business. Coming to the consolidated financial performance. Revenue from operations for the quarter stood at INR 204 crores, representing a growth of approximately 14% year-on-year. EBITDA stood at INR 24 crores with an EBITDA margin of 11.56%. Profit from continuing operations after tax stood at INR 11 crores and including the onetime gain arising out of the deconsolidation of the overseas subsidiaries, the consolidated profit after tax for the quarter stood at INR 106 crores. Our overall performance continues to reflect the resilience of our core India operations, well supported by healthy execution across both our BTS and EMS businesses, robust order inflows and sustained demand across strategic sectors, including defense, aerospace, semiconductor equipment, industrial automation and energy. We also closed the quarter with a stand-alone order book of approximately INR 1,800 crores, up 31% year-on-year and strong order inflow for the quarter stood at INR 360 crores approximately, that grew by approximately 70% year-on-year, which was mainly influenced by BTS registering a robust 150% year-on-year growth at INR 120 crores. This provides a strong revenue visibility for the coming years. Overall, we remain confident in the strength of our business fundamentals with a focused India ESG and platform, a healthy order book, expanding customer engagements and a strong opportunity pipeline across both BTS and EMS businesses, we believe the company is well positioned to deliver sustainable long-term growth. With that, we can now open the floor for the Q&A session. Thank you.

[Operator Instructions] First question comes from the line of Sai Vijay with Capstock Securities.

Sir, my first question is regarding the BTS segment. So given the higher project life cycle of over 2.5 years, our order book has almost doubled since FY '24. So can we expect an accelerated revenue recognition going forward for the BTS segment?

Thanks for the question, Vijay. The simple answer is yes. With the increased order intake that we've had, we expect to have clear strong revenue growth in the BTS business this year and the coming years also. Like I mentioned in the call, this is -- so there is a high level of quarterly variations. But on a full year basis, we are pretty healthy.

I'm sorry, sir, but your voice is breaking.

Okay. So I was just explaining that we do absolutely expect that there will be a healthy growth of the revenue in BTS segment as a result of the increased order book. We have some quarterly variations because of the lumpy nature of this business and the contract. But on a full year basis, we expect to have a strong growth in revenue.

All right. Sir, just one doubt regarding the advances. Around INR 210 crores of advances that we currently have, how much of it is coming from the BTS segment?

So I would say majority of that is coming from the BTS segment only given [indiscernible] business. About 2/3 is coming from the BTS.

Our next question comes from the line of Prateek Shrivastava with Nivesh Investment.

Again, congratulations on a great set of numbers and great progress in the BTS segment. My question is about the semiconductor equipment. This has been referenced in the call also many times. I just want to understand what the semiconductor equipment, can you just give more details on the semiconductor equipment? Again, who are the customers? Have you signed any large global player in that? So just want more details on the semiconductor equipment, sir.

Sure. Thanks for the question, Prateek. Yes. So first of all, what we -- this is part of our EMS business. So it is essentially where we are manufacturing various types of box builds and PCBAs that go into the equipment used in manufacturing semiconductors. So if you talk about the processes such as photolithography or etching and some of these critical processes that actually enable the manufacturing of semiconductors, they are supplied largely by a few -- very few large global OEMs that supply these equipment to the foundries essentially. And in terms of where we are, this is -- we have a global OEM, one of these key global OEMs that we have added as a customer, and we have ramped up over the course of the last year, and we continue to ramp up in terms of new part numbers and products that we're delivering. On previous calls and so on, I had mentioned that our revenue, which was from this segment, which was practically 0 in FY '25 was in excess of $10 million or over INR 100 crores of revenue contribution in FY '26. And we expect this to get to in the range of $25 million to $30 million in the coming 1 to 2 years. And this is where we are seeing a strong visibility, and we -- it's in line with our expectations.

Got it, sir. And since this is EMS and not BTS, what are the margins in this business? And what are the margins we are looking forward in future in this business, sir?

Yes. With the EMS business, considering the sectors that we are addressing, these will be in the range of about 10% EBITDA. They can vary slightly a little bit up and down depending on the customer and segment a little bit. But I would say not a huge amount of variation. Typically, this being a cost-plus model. 10%, 11% is a fairly benchmark EBITDA margin.

And in future, can we use the learnings from this and get more into sort of BTS sort of a model where the margins could be higher in this segment?

Yes. So this is where I was addressing the point around the design-led manufacturing, where we are -- while we have a BTS -- we run our BTS separately in the form of actually building products for defense and space and so on. We also had an engineering services team that was -- which was originally intended or created for this overseas subsidiary that we've had. But with that being basically behind us now, we are refocusing this part of our business to work very closely with our EMS team and our EMS customers to offer more end-to-end solutions or design-led manufacturing solutions. So as those progress, we do expect to have a higher margin contribution from those businesses.

[Operator Instructions] Our next question comes from the line of Darshan Gala with Gala Investment. Yes, sure.

You were just explaining how the margins would be much higher in the semiconductor part of the business. Can you -- when can we expect those revenue to start meaningfully contribute.

No, I didn't talk about higher margins in semiconductor. I said the revenue growth, we have a good visibility on semiconductor, but this is fundamentally EMS business. So the margin stay at 11%.

Correct. Sorry on that. But about the revenue part, when can it start meaningfully contributing?

So like you mentioned, FY '26 come in, which was [indiscernible].

I'm sorry to interrupt you, management. Your voice is breaking.

Is this any better?

Slightly better, I can say, sir, but still breaking.

How about this? Is this okay?

Yes, this is loud and clear. You may proceed.

Yes. I was explaining to Darshan that the contribution of revenue from this business was 0 in FY '25 and it ramped up to INR 100 crores in last year, more than INR 100 crores. We expect this to kind of double or triple in the next 2 years. So you will see that coming in this year as well as it will further ramp up in the next year. That's what we see.

Our next question comes from the line of Karan Sanwal with Niveshaay.

Sir, I wanted to understand something in line what previous participant asked. So semiconductor, we have already ramped up the semiconductor division pretty well in the last 2 quarters, maybe Q4 and Q3. So should this execution remain stable and the customer tests our product in the real condition? And would there be a linear growth or there can also be an exponential growth as we also qualify the simultaneous other part for the same customer?

Let me make sure I've understood the question correctly, Karan. So your question was with regard to the semiconductor equipment. If these have been tested and validated in the real environment, and then your second question was with regard to growth, whether you see that it's an exponential growth or linear growth. Is my understanding correct?

Yes.

Okay. So yes. So to your first question, absolutely, they are in production. So this is, first of all, a very highly recurring business. You will have maybe certain variability that comes with longer CapEx cycles in the broader semiconductor manufacturing industry. But at least for the next 2 years or 3 years, there is a fairly strong visibility in terms of the demand in the industry. And as a qualified partner for these global OEMs, these products are -- typically have very long product life cycles. And so we have a fairly good level of recurring revenue from this part of the business. Also, in the last year itself for all the products that are already in production, we have gone through the full qualification process and requirements. So that is behind us, and now it is in serial production. But we continue to add also new part numbers from these customers. And as and when we do that, they will go through their respective qualification processes and then go into production after that. So I would say we are very well integrated and now in a fairly mature process in the supply chain. Your second question about growth. I think as we mentioned, this has already been a very steep and strong growth considering the fact that this was pretty much 0 in terms of revenue in FY '25, exceeding INR 100 crores in FY '26. And as Sundar was mentioning, we expect it to more than double going forward in the coming year and so on. So clearly, a steep growth over these couple of years. And we expect, of course, that it will stabilize at a point in the next maybe 1 to 2 years, and then it should be fairly stable after that.

So it would still be a recurring demand after 1, 2 years, right?

Yes.

Understood. And for the products that we are manufacturing for the semiconductor equipment players, are we -- who are we competing with in India? And are we competing with players in other geographies? Where is the competition placed in position for the product that we are already manufacturing or we will be manufacturing in future for the semiconductor plant?

Sorry to interrupt you management; again, your voice is breaking.

Yes. So I was saying that with regard to the competition, as far as PCBA and box build manufacturing for EMS type of business, we are the main supplier in India. We are their first major supplier in India. Our main competition is in Southeast Asia, basically in Malaysia. So there's nobody, I would say, in India that we would directly be competing as far as EMS business is concerned. Having said that, they are adding other parts of the supply chain. And so there are other good companies that have been benefiting from the general shift that they are looking in terms of increasing their overall spend and sourcing from India.

Understood. Sir, also, are we in talks with some other semiconductor clients for similar products or we can't supply to similar products to other -- their competition basically, the customer's competition. How is the understanding over there?

These -- first of all, in the EMS business, the design and the IP of the product belong to the customer. So we are not allowed to sell the same product to other players in the space. Having said that, we are in some preliminary level discussions with other customers also who are looking at India as a supply base for their -- as part of their sourcing and supply chain strategy. So -- but that's still at an early stage. We will update that as we progress.

Sorry to interrupt. Can I request you to come back for a follow-up, please? Next question is from the line of Alok Shah from [indiscernible] PMS.

Am I audible?