Cyient DLM Limited (CYIENTDLM.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Cyient DLM Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krishna Bodanapu, Non-Executive Chairman, Cyient DLM Limited. Thank you, and over to you, sir.

Thank you very much, and good evening, ladies and gentlemen. With me on the call are Mr. Rajendra Velagapudi, our Managing Director and CEO; and Mr. Shrinivas Kulkarni, our CFO. Together, we welcome you to our Q2 FY '26 earnings call. Before we begin, I would like to remind you that certain statements during -- made during this call may be forward-looking in nature and subject to risks and uncertainties. A detailed disclaimer is available in our investor update posted on our website. We are pleased to share that our Q2 results demonstrate sustained positive momentum across all key performance indicators, including order intake, revenue, margin and cash flow. This progress builds on the solid foundation established in the previous quarter and strengthens our confidence in the path ahead. Our order book growth is now firmly on track, supported by a robust book-to-bill ratio sustained for 2 consecutive quarters and with an outlook to sustain further into the rest of the year. Our strategic focus on the India market has strengthened relationships with existing global clients on our strategic focus on the India market and strengthened relationships with existing global clients has translated into significant wins. We are seeing strong momentum in build-to-spec orders and have secured prestigious awards from global OEMs. These design-led engagements are currently in development and are expected to ramp up to mass production in the coming years, reinforcing our growth strategy and further deepening our customer partnerships. The revenue potential for B2S projects is long, and it is critical because it provides the stability over an extended period of time. So it is great to see our order book building up in this regard of B2S projects. We're also encouraged by the progress in emerging industry segments, especially automotive. We have successfully onboarded a new client and several more accounts are in advanced negotiation stages. Increasingly, clients are engaging us in early-stage product development, which enhances our value proposition and deepens long-term relationships. By engaging in the early cycle, we are able to have a much better control on the supply chain decisions, which eventually leads to better margins and a more sustained business. Our sales team continues to remain focused and optimistic about the promising opportunities ahead. Despite some of the challenges posed by global geopolitical developments, we are actively managing these headwinds to minimize impact on operations. I think it is important to note that Israel is a key market for us and the geopolitical situation there has had a significant impact, both in the quantum of revenue and predictability of revenue where credit is due and thanks to President Trump, we now can expect such stability to return to the region, which will also greatly support stability in our business given the importance of Israel as a market to us. So we're pleased on what is happening in Israel and with some of the stability that is returning in the region. Our U.S. operations, led by Altek, remain a strategic advantage, providing clients with reassurance and ensuring continuity in delivery even in the worst case being close to our customers. This quarter, our revenue mix is significantly stronger, supported by a substantial backlog of high-margin orders, which enhances our confidence in sustaining and growing beyond double-digit margins. I am pleased and you will see the financials that we have reported double-digit EBITDA margins and we continue to see significant traction in those margins. With solid order intake and clear margin visibility, we are confident about maintaining this positive momentum going ahead. In summary, we are excited about the opportunities on the horizon and are confident that the second half will further strengthen our momentum. We remain deeply dedicated to fostering sustainable growth, investing in innovation and delivering long-term value to all our stakeholders. Thank you for the continued support, and I will now invite Rajendra and Shrini to share detailed insights on our business and financial performance. Over to you, Rajendra.

Thank you, Krishna. Good evening, ladies and gentlemen. So it was pleasure to welcome you all and kick up our Q2 results with the business update. As Krishna highlighted, Q2 has been an exciting quarter from both business and financial perspectives. We have made significant progress across emerging sectors, particularly in automotive and build-to-spec areas. I'm pleased to announce a new logo to a B2S order from a Japanese electric vertical takeoff and landing urban air mobility company focused around the future of mobility. So this program is currently in the development phase and is expected to enter market production in the coming years, reinforcing our global suspect. We also secured a strategic bid from a key automotive client specializing in EV charging solutions. With India-based company backed by a global giant represents the high potential account with a short sales cycle. We are optimistic about this relationship evolving in a multimillion dollar opportunity in the near future. In addition, we are in the advanced discussions with several promising companies and we expect some of these to convert into key accounts over the next 1 or 2 quarters. I think we also strengthened our portfolio of the B2S and we have made some investments in those areas, and we have seen the order intake from 2 of the customers in B2S in this quarter. So all these wins contributed to a robust order intake for the quarter. We reported order intake of nearly INR 500 crores with a book-to-bill ratio of 1.6. So this exceeds the expectations we set in our last call of maintaining B2B ratio of above 1 and is a testament to the consistency and effectiveness of our sales efforts. For H1, our cumulative order intake crossed INR 1,000 crores, reflecting a year-over-year growth of -- reporting growth of 130% year-over-year. So with a strong pipeline and continued traction in the India market, we expect this momentum to carry into H2, setting the stage for a strong FY '27. So while we are not providing a formal guidance for FY '27 early indicators suggest that we are well on track to resume our growth trajectory. And on the strategic update, I think I just mentioned about earlier on the investments what we already did on the B2S and in terms of some of the inorganic so I'd like to just bring it to our M&A strategy is focused on enhancing client proximity, strengthening our capabilities and ascertaining entry into new industries such as rail and automotive. So if you look at our strategy, what we just called it as asset, which is a strengthen, expand and transform. So strengthen here, our focus is to mine our existing customers and build the strategic client relationships and focus on the domestic market, which we have seen where we are just seeing some of the opportunities where we have already won an opportunity in the electric charging stations. And we are -- some of the orders are in the pipeline, which we'll be expecting in Q3. So that's what the focus is continuing on the domestic market to grow. And the build to spec, I just already mentioned some of the deals which we had, and we'll be strengthening build to spec going forward. And in the expand area, I think we are going to focus mainly on the non-A&D sector, continuing where -- what we are doing on the A&D, but is on the expansion, the non-A&D is where are more focused predominantly on industrial, medical and the automotive, in particular, the electric vehicle infrastructure. And in terms of organic, I just highlighted early so we are just looking at some of the acquisitions in the North America and Europe regions. And on the transform side, I think on the product side, we have focus internally, which we have identified the investments we are making to have our own products which is IP led by us, and we continue working on those things and expand. So that's what we are looking at to transform the IP products-led organization. And to summarize, the order inflows are gaining consistent momentum, which you have seen a book-to-bill ratio of 1.6 in this quarter. And we also expect for the year, as of now, what we see is the book-to-bill ratio may go to 1.4 to 1.5 for the year and pipeline strength based on the traction what we are seeing within India and B2B segments are really encouraging. H2 outlook is really promising setting the stage for the growth to revive year-over-year growth story starting from Q4 FY '26. And margin improvement is driven by a favorable mix and scale which will continue for the next few quarters. And just on closing, as we look ahead, we are entering a phase where our capabilities, global reach and sectorial diversification will continue to unlock new growth vectors. With the resilient core and bold vision, we are confident in our ability to deliver sustainable value to our stakeholders and share the next chapter of our journey with the purpose and momentum. So with that, I will now hand over to Shrini for the financial update. Thank you.

Thank you, Rajendra. Ladies and gentlemen, thank you for your interest and time -- in joining the call today. I'll walk you through the financials for Q2 initially, and then we'll also look at the H1 as a summary. We did a revenue of INR 310.6 crores, which signifies a growth of -- degrowth of 20% year-on-year. Our order backlog, as Rajendra indicated, we had an order intake of close to INR 500 crores in Q2 which means we have added another INR 159.3 crores to the order book, right? So a further increase in the order book to INR 2,291 crores. EBITDA is INR 312 million or INR 31.2 crores. Despite the year-on-year degrowth in revenue, we've been able to keep the EBITDA almost flat. The reason being the expansion in margins and so it's more than 100 basis points increase sequentially and 192 basis points increase in margins year-on-year. Now this margin growth is despite the loss of volume so that means even though we had under absorption because of the volume loss, we've been able to get to a double-digit EBITDA margin because of the quality of revenue. And what I want to assure you here is the order backlog that we see has a similar quality of revenue. So that as we grow our business, we will see this further expanding. We reported a profit of INR 32.1 crores or INR 321 million. This is 108% growth year-on-year. However, I want to call out an event which is not normal. And therefore, we are reporting the normalized PAT as well here. As you all remember, we had made an acquisition about a year ago, and there were certain performance conditions to which the earnouts were tied and those performance conditions have not been met. And therefore, the earnout is reversed in the books, which comes in as other income, giving you as an extraordinary gain time. I want to assure you that the acquisition is intact. The company is doing well. It's just that the performance condition is not met. So we are looking at Altek as a very key acquisition and a milestone for the company, and it does position us very well for growth in the U.S. markets. With that, the normalized PAT margin was 4%, which is 8 bps increase, but the reported profit margin was quite high because of the onetime item at 10.3%. Okay, on the revenue trend. I think as you can see the growth trajectory is back in Q2 compared to the last quarter. We also have EBITDA growing in Q2 compared to Q1, and the EBITDA percentage is reaching a double-digit number. The PAT is broken into 2 parts there, which is included the normal PAT as well as the reported PAT, and that's what you see it in terms of trend. And looking at other metrics which are critical for our business, our order back book is now showing a continuous -- this is the third quarter where we are seeing a continuous increase in the order book. As Rajendra highlighted, we have had more than INR 1,000 crores worth of order book -- order intake in the first half of the year and taking into account the revenue that is reported, the net increase in order book is significantly positive. We've also made some improvements in the DIO in the second quarter. You'll see the seasonality, the Q1 numbers are usually low and therefore, all the metrics around the net working capital show an elevated number. But we see improvement as we go through the year. So we see that the net working capital has actually dropped to 139 days from 165 days. This also means that we have generated positive cash. This is the fourth quarter in a row where we've had positive FCFs. Now the reported FCF is INR 27 crores but that's also because there is a land acquisition in Mysore for building our own factory, which has resulted in that reported number being a little lower than what the operational free cash flow, which is INR 46 crores. We see improvements in DSO. We see improvements in the customer advances as well. And all this has positively contributed to the net working capital for the current quarter. Some of the mix that we have been seeing in the past, we see the industry mix on the left side, where we -- aerospace is about 37%, defense is 8%, industrial is 30% and medical is 16%. If you remember this from a year ago, this was very different. This was very heavy on aerospace and defense, which was close to 70% of our business. With the acquisition of Altek and the growth we are seeing in Industrial and medtech segments, in the rest of the business, this is a much healthier portfolio and a mix that we are comfortable with as we go along. We are also focused on expanding this industry mix into other areas, which without compromising the whole -- the characteristics of a low volume, high mix business. From a product category standpoint, we see a higher mix of box builds coming into our business and the box build year-on-year growth stands at around 34%. And then because of that, the PCBA mix has declined. This also augurs well for the business because box build tends to be more sticky in nature. It's also a slightly higher margin than the traditional PCBA. And the geography mix of that, I think India continues to grow for us with the large order coming down, I think we had a significant India business ramp down. But as we grow the rest of the India business, you'll see a higher mix going forward. Currently, we are tracking to about 85% rest of the world and 14% India. This is a slightly detailed view of the financials. I will not go through all the details here. The important thing here is from a reporting perspective, I also want to highlight the effective tax rate appears to be low because the other income that came because of those extraordinary gains are not in the nature of the normal profit. It's a capital -- more on account of capital gain and therefore excluded from the purposes of taxation. And if you remove that then our ETR stands at 25.8%, which is in line with the earlier quarters. Other than that, I would only say the employee cost and other expenses have increased Y-o-Y due to the inclusion of U.S. operations, which are -- generally the employee portion there tends to be higher than the resources in India. But the net number to look at there is the EBITDA, which is the double digit and a healthy growth of 192 basis points year on. We also have provided a summary of H1 financials. This gives further color on how we are doing on a half yearly basis. As you all know, there is some seasonality in the business, typically, our businesses tend to be between 40% to 45% in H1 and 55% to 60% in H2. We expect similar trends in the current year and therefore, it makes sense to measure first half of last year with the first half of the current year. When you look at that, I think even from that yardstick, the EBITDA margin has increased by a healthy 157 basis points. And even the normalized PAT is lower because of the volume drop. We are recovering from that loss of business. steadily, as you can see the sequential growth coming into the business. And by the end of this year, we would have completely overcome from that loss of business resulting in a year-on-year growth as well. Last chart is on the IPO funds utilization. I think we have almost at the -- in the third anniversary after the IPO and have used up most of the funds that we raised. And then the only one that needs to be sort of spent a little more is on the capital expenditure. We will keep updating you in the coming days on how that is sort of -- and that is getting played out. But we are healthily placed at 93% utilization of the cash that was raised during that time. We also have a healthy cash balance despite the IPO money getting exhausted, we are comfortably placed today to fund any growth that might come in the coming years. So with that, I'll -- we'll open the floor for Q&A.

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

Sir, my first question, we have added a new logo in the EV space. Given the volatility in the EV market, like which are the subsegments we are focusing on within EV like charging infrastructure, powertrain. And I just want to understand what kind of margins we are getting in the EV space and how these orders are profitable?

This is Rajendra here. You said about Japanese customers eVTOL that is electric vertical takeoff and landing [indiscernible] so if you're asking about the automatic infrastructure, the EV charging. So that is basically EV charging state. So we are working out in terms of some of the assembly [indiscernible] which goes into the electric charging stations, which are available today right in the public area. So that's where we got an order from one of the customers in India.

Yes. To further elaborate on that point, we are going to go into that part of the automotive sector, which is sort of on the infrastructure side of things, which are not -- the margins are quite comparable with the rest of the business.

Sir, regarding this Altek acquisition, I think it's been increased material cost, employee and other expenses significantly which impacted our profitability. And when we can expect Altek operations will achieve profitability? And what kind of synergies we can expect maybe what kind of time frame we can expect?

Yes. So right now, we have -- some of the opportunities going on with the Altek with our unit there in U.S. in Torrington. So some of our existing customers, we have submitted some of the quotes and they are in the positive direction. We will be expecting some of those orders will be coming in this quarter. And a similar thing we are also seeing this synergy coming from [indiscernible] year 2. So where they are working with one of their customers, we are seeing some synergies here in India too. So that's why -- the synergies are happening from both the sides and mainly from -- at this DLM India, we are seeing a lot of synergies happening into the [indiscernible].

Okay, sir. Sir, on that build to spec side, I think we are targeting 5 percentage of revenue by this year and I just want to understand what are the factors to scaling this business? I think this is a high-margin business. So what are the factors to scaling in this business? And when we can expect it's more than 15% kind of contributions maybe next 2 to 3 years' time frame? If you could share more clarity on this business?

I think the contribution going to the number what you said will take a lot of time. But what we have currently is the contribution, I mean, whatever the share of the business, the B2S. So it will increase in FY '27 based on the orders what we have today which I said we have one of the one I mentioned about the VTOL for a Japanese customer. I think the last quarter, we just mentioned about one another U.S. based company where we had B2S activity. I think there are the few of other things which are in the pipeline. And we definitely see that our B2S revenues will go up in FY '27 compared to what we have currently...

Okay, sir. Sir, my last question on the defense and aerospace side, defense has grown significantly. Aerospace has grown significantly, while defense has impacted based off their large one order competitions. And I just want to understand, is there any broader delays in different procurement cycles? And what is your visibility on new difference program awards?

So right now, I think we are still working out with the customer with whom we worked in the past. So still, they did not get their orders from the Indian MOD. So we are just working with them. So once they have it, I think probably we'll be getting those orders back from it.

[Operator Instructions] We will take the next question from the line of Praveen Sahay from PL Capital.

My first question is related to the margin. On the sequential basis, there is improvement in the margin, while the contribution from the aerospace or Medtech, which I believe is a higher-margin business contribution has declined Q-o-Q. So is that the industrial business which you are doing have a higher margin as compared to the other segments?

No. I think most of our businesses are quite homogeneous. I think the margin profiles across the industries that we have are quite comparable. So it's the overall mix that has changed, right, in the order book that we have today, where there was -- up to last year, there was one large customer with a large order with low margins, and that has gone away. The mix of the business is favorable now in terms of the margin expansion.

Okay. Second question is related to the stand-alone business, which is 40% down, and that is only because of the one large defense order? Or is there something else to also?

That's completely because of that one particular order. There's no other [indiscernible] leading to that business.

The growth in the rest of the business has been 50% or so it's been very significant, 15%.

Last question, sir, related to the order book because last quarter, you highlighted around INR 500 crores, INR 515-odd crores of order intake. And out of that 50% was executable in the FY '26. So is that the part you started executing the last quarter, Q1 order intake?

Yes. The Q1 order intake will be executed over the Q2, Q3, Q4. That's what we said around 50% of that order of the $60 million will be executed between Q2 to Q4 -- which is in the pipeline right now for our H2 revenues, whatever we have is based on some of the orders, which we got in Q1 also.

Is there any part in this quarter?

Yes. Whatever we got in Q2 order intake in that 1/4 of that will be happening in H2.

We'll take the next question from the line of Sameet Sinha from Macquarie.

First question as it relates to Altek. Can you talk about Altek in the broader context of the geopolitical environment. And you mentioned about Israel, but can you just talk about the new tariff situation and your exposure to that? And what's the underperformance at Altek? And if you can talk about the clients -- the inbound increase that you're getting over there? Then I have a follow-up question primary related to B2S about what sort of investments are you planning to make here? And how do you see your value proposition improving because of B2S. And if you can talk about the margin -- higher margin versus the core business?

So on the tariffs. So what I think for some of our customers, we are also working out with them in terms of executing some of the work from Altek. So we are just working with them. So where they are also interested to see that whether how effectively, I mean basically since we are already working on those products. So they to feel that it is easy to transition from India to U.S. to manufacture those products. So we are working out to ensure that they won't be losing any of the gains here. So probably they'll be seeing some momentum and some gains here by moving from India to U.S. So we are working out some of the things. Otherwise, the rest of the customers, we have not seen any major impact in terms of the price. And on your second question, which you asked about the B2S investments, the investments which you said we are making right now, the investments we are doing it for the last, I think for 4, 5 years, we are investing on this, and we are seeing some of those things right now, which we are already manufacturing. The revenues are coming right now for us. So that's what you are seeing those 5% of the revenues this year. So you will be seeing some of the things the revenue is going up. So our investments will continue. I think we are also doing our own IP products-led IP. So there also, we are putting the investments and we are developing the design and products on our board so then going back to the customers and working with them to win some of the things. So we have anchor customers available in those IP-led products which we are working right now.

The next question is from the line of Vipraw Srivastava from Phillip Capital.

Quickly on the other current liabilities, which has gone up, which is the customer advances which has gone up. So any thoughts on that last time it went up...

Sorry to interrupt you, Mr. Srivastava, your audio is not clear, sir. I would request you to use your handset, please.

Yes. So the other -- the customer advances gone up because of that, obviously, the networking capital has improved. So last time it went up because of the particular kind of order we had from the defense line. So this time, any specific reason why it has gone up? Or is this the kind of product we should expect in coming quarters? So any thoughts on that?

So, I mean we constantly look for opportunities to seek advances from our customers. It's not unique and specific to one different customer that we have. Even with our customers wherever we expect a slightly longer sort of inventory blockage than what is within the threshold of our pricing. We don't go and seek that. So it's -- we've been able to get some advances from other clients as well.

And sir quickly on the aerospace east side. I mean, in the coming quarters, what kind of traction you're seeing there? Is the geopolitical situation in Europe helping you out, what kind of growth prospects you're seeing on the aerospace side?

So I mean -- I think not specific to the geopolitical situation, I think it has its own sort of where it plays out. But I would say we are seeing traction in our business overall, not just in North America but also in Europe, right? And so that -- we are on a growth trajectory, and that will continue in Q3 and Q4. Nothing specific. In fact, some of the recent last couple of days, what we have seen on the Gaza, Hamas situation like with Israel, I think that should help us further, right? I think some of the -- while there is no major disruption in the business, I believe some of the decision-making has slowed down. So that should come back into the forefront again. So we will see positive changes going forward.

And sir, last question from my end. This Japanese eVTOL customer, which you have landed, what kind of ramp-up do you expect from them and how many years we can expect them to start contributing to the P&L?

So this is basically the B2S project. So initially, we are just working out right now [indiscernible] design. So the actual [indiscernible] only after 2.5 years to 3 years, but it continues for a 9 year...

We'll take the next question from the line of Bhavik Mehta from JPMorgan.

So a couple of questions. Firstly, it's nice to see an order book improving couple of quarters, but how should we think about the duration of this order book in terms of conversion to revenues, are these more like 18 to 24 months order, which leads to faster conversion? Or these are like more longer duration orders and hence the revenue conversion should be more gradual?

I think the one which -- most of the orders are 18 months to 24 months. And wherever we have the B2S orders which we just said there, that is initially the design work. I think -- yes, I think even that also will be only within less than 2 years, whatever we have the orders right now, yes.

Okay. Got it. The second question is, can you break out the order book in terms of the different verticals like which vertical is driving lot more orders compared to others so just a rough split of the order book as per your 4 verticals?

I think it's quite similar to our current revenue mix, I don't see -- we don't see any significant shift in the composition of the order book compared to our current mix today. The only addition is about 20% of the orders are coming in from the build to spec, which is very encouraging as far as we are concerned because we are pushing that business more and more. So yes, I mean, B2S tends to have a longer gestation cycle as Rajendra explained, there is a design element to it, and therefore, the sales cycles are a little longer, but they tend to be secure and very long term in nature, right? Once the production starts it's about 10%. The only other thing I'll say in this quarter, that's very encouraging for us is automotive. I mean we had a very good order -- significant order coming in from an automotive customer. This is a segment where we consciously put efforts first to sort of expand our portfolio.

The next question is from the line of Param Vora from Trinetra Asset Managers.

So what I wanted to ask was what is company exactly doing to broaden the customer base and reduce dependency on top 5 clients? And are there any targets or time lines for this diversification?

I think as you have seen in terms of expanding the non-A&D sector is where we are working out. And we also have the sales team which is basically right now focusing on the new customers. So we are seeing some of those things in the pipeline. So there are a lot of the orders on the pipeline in terms of new customers, where we are driving and also the focus on the Indian-based customers. Okay? So we will be seeing those trends in the next Q3, Q4. So majority of the things will be happening from the India-based and the new customers.

Okay. And another question is like there is a visible shift towards strengthening Indian operations. So do you see India becoming a main growth engine? And will exports always dominate? Is there a scenario where India's share could exceed exports?

India. So India, we'll be focusing on India, but our exports will be -- I mean probably if you look at the mix, exports will be the highest. Then comes to the India so India market growth, we are seeing a good growth in India right now based on opportunities, what we have in the pipeline. So we'll continue to focus on India. And at the same time, I think our aerospace and defense is our core where we strengthen those things and focus on the non-A&D customers growth, I mean, particularly in the industrial and [indiscernible] sectors.

The next question is from the line of Adhiraj Singh from Amicus Capital.

A couple of questions. First, on the order book. So I just wanted to understand in the next 6 months, how much of the order book are we planning to execute?

I mean from the Q2, whatever we got it you said?

Yes, outstanding. So 2,300 is what I see. So how much of this would be executed in the next 2 quarters, Q3, Q4.

No, we will not be able to provide that specific number because that would then amount to the guidance on the revenue itself. So what I'll just say is that there's a healthy amount of that order that is executable for the current...

Okay. My second question is on the U.S. business. So how much of the revenue do we get from the U.S. market and with this tariff coming in, you had mentioned that some of the customers you are not having discussion, the business is going as usual. So what is the reason for that? Are you the sole supplier? Or what would be the reason? And secondly, with the customers you are having the conversation, they are looking to move their supply chain to the U.S. itself or you are working out some other destination like let's say going to Vietnam or I don't know. So something if you can help me understand.

Our U.S. business is roughly -- I think for this year, we expect 40% of our business to come from U.S., right? And look, I think there are many conversations going on with customers to see how we can offset the impact of the tariffs. There is no one solution, it differs for different customers, some customers want us to change the ship to location to where their customers are, so that the product is prepared there. Some others are just paying the tariff right now from their pocket and they're waiting for some change to happen in the regulations. Few others are trying to see if we can route the products differently and through different geographies. So I mean there is no one solution. Frankly, it's very customer specific, and it depends on the usage of the part as well. So and we are open. We are discussing with all of the customers. Obviously, we will not be able to pay the tariff ourselves given the low margins in this business, it has to be a solution that we work out with the customer to support.

The next question is from the line of Maitri Shah from Sapphire Capital.

So my first question is the order book currently have, what percentage is from the...

Sorry to interrupt you. Can you keep your mic a little bit far from your mouth because there is an airy disturbance which is coming.

What percentage of build to spec order do we have in our order backlog? So our share of business like orders, what is the percentage in the backlog currently?

What is the percentage of backlog? You're not very clear about the question.

This percentage of build-to-spec orders in our backlog.

I'm sorry to interrupt you, but if you will use your handset...

Yes, I am using my handset.

We got the question. I think basically your question is how much is build to spec in the overall order book that we currently have.

Yes, correct. Correct. Yes.

So we do have more than 10% of the order book in build to spec in the current order.

And how do we see it going forward in the next 6 months for FY '26?

Absolutely, we see it growing healthily because we are focusing on build to spec as a focus area as far as we are concerned, I think that's how we differentiate ourselves from that to some of the other competitors that are there in this space. Design capability is very unique to Cyient DLM, I don't think anybody can boast of having such a large design setup to service our clients with a large experience we have, working with clients, they also trust us on giving core design to us. So it's a focus area. We are growing. We're seeing a lot of traction. In fact, there's a very healthy sales pipeline that we are working on and we expect the build to spec business to grow quite healthily going forward.

The quantification by the end of FY '26 what percentage do we see in our order?

I mean it will be hard to quantify because I think it all depends on the win rate and the customer cycles, et cetera. All I can show you -- tell you is that it's on a growth trajectory, and we'll continue to see work in that.

Okay. And so the B2S orders going into mass production, do we have any idea of how many contracts do we see them going into mass production next FY '27?

Almost all of them will go into mass production, but not in FY '27. We have long design cycles. I think the first manufacturing order might see from '28 onwards. But some are already happening now so small things. Small ones are currently in '27 as well. But a lot of the bulk of the manufacturing orders will come in a little later.

Yes. And now that we're expecting a growth quarter-on-quarter happening in the revenues, do we see a 4Q Y-o-Y growth for this year? Or will that happen in the first quarter of FY '27?

Yes, we are absolutely working towards that, and we expect the growth coming in the fourth quarter of this year.

Fourth quarter or first quarter?

Fourth quarter of the current financial year.

Okay. You do see. And this will be more heavily -- sorry, less from the defense side and more from the industrial side of the business. Is that correct?

Yes. That's correct.

So we do see the Q-o-Q margin improvement as well happening?

Yes, yes.

Thank you. Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to Mr. Krishna Bodanapu for closing comments. Thank you, and over to you, sir.

Thank you very much. And I just want to thank the leadership team and acknowledge what we've achieved this quarter. We've refreshed the BEL revenue, at least the order book is completely refreshed with a much better margin revenue, which gives us confidence that we will maintain the double-digit EBITDA margins at least auditing to the foreseeable future and really grow the double digits because this time we barely [indiscernible] but we strongly believe that, that will grow. The team has made sure that the backlog is built in such a way that we will grow some very good business, both good margin bill to bill business, but also what you heard about this is the B2S business. Some of the contracts that we're talking about run into 20 years, which gives us the stability to then aggressively grow the rest of the business. So B2S is important for multiple reasons, one of which is, of course, the control we have over the supply chain, the stability of the business and the longevity of the business. And I can assure you that after what -- after a tepid approach in Q1, we've seen some good growth in Q2, and this growth will only accelerate continuing to the rest of the year. So I just think it's appropriate to pass on what the board said and complement the management team on where we stand. But I want to assure you that a lot better signs are coming, and we are seeing that based on our order book and where see the business. So thank you very much for your support, and we will again speak next time after this call.

Thank you, members of the management. Ladies and gentlemen, on behalf of Cyient DLM Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.