IKIO Technologies Limited (IKIO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IKIO Technologies Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Mr. Suyash Samant from Stellar Investor Relations Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us today. We have with us today the senior management team of IKIO Technologies Limited; Mr. Sanjeet Singh, Whole-Time Director, CEO and CFO, who will represent IKIO Technologies Limited on the call. The management will be sharing the key operating and financial highlights for the quarter ended 30th June 2026, followed by a question-and-answer session. Please note this call may contain some of the forward-looking statements, which are completely based upon the company's beliefs, opinions and expectations as of today. These statements are not a guarantee of the company's future performance and involve unforeseen risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect developments that occur after the statement is made. I now hand over the conference to Mr. Sanjeet Singh. Thank you, and over to you, sir.

Thank you all for joining the Q1 FY '27 earnings call. Our presentation has been uploaded on the stock exchange, and I hope you have had a chance to look at it. I would like to briefly touch upon the strategic progress we are making at IKIO and the performance during the quarter. Our focus continues to be on reducing our reliance on the traditional Home Lighting ODM business and building a more diversified portfolio across lighting, hearables & wearables, energy solutions, electronic components, automotive lighting and other technology-led products. This strategy is steadily changing our revenue mix with the other businesses becoming an increasingly important growth engine for the company. Global expansion remains another important pillar of our growth strategy. We now have a presence across 20-plus countries, while we remain focused on further diversifying and reducing our dependence on any single geography. A key focus area has also been strengthening our manufacturing capabilities. Our new facilities are being developed to support new age products, exports and greater backward integration. Block 1, comprising approximately 2 lakh square feet, is already operational, while Block 2 has been partially commercialized in quarter 2 FY '27. Construction of Block 3 is progressing as planned. Together, these blocks will provide significant additional capacity to support our expanding product portfolio and future growth. This capacity expansion is complemented by our strong in-house R&D and backward integration capabilities. With over 3,000 SKUs, an in-house R&D and product design team and capabilities spanning design, tooling, component manufacturing, assembly and testing, we are increasingly positioned to participate in higher-value manufacturing opportunities. Coming to our financial performance. Revenue from operations grew 41% year-on-year to INR 169 crores in Q1 FY '27, supported by continued momentum across our diversified business portfolio. The growth reflects strong traction in the Other Business, improving momentum in Home Lighting ODM and an expanding contribution from international markets. The Other Business had delivered -- has delivered a strong growth trajectory, recording an approximately 54% CAGR over FY '23, FY '26. This momentum continued in quarter 1 FY '27 with revenue growing 53% year-on-year to INR 124 crores, driven by continued traction from new customers and across our expanding product portfolio. Revenues were, however, marginally lower sequentially amid global trade tensions. At the same time, our Home Lighting ODM business continued to improve with revenue of INR 45 crores in quarter 1 FY '27, up 16% year-on-year and 18% Q-on-Q, reflecting improving business momentum and new customer additions. Moving to profitability. EBITDA increased 94% year-on-year to INR 22 crores with EBITDA margin improving to 13% from 9.4% in quarter 1 of last year. PAT increased to INR 11 crores from INR 2 crores in the same quarter last year. The improvement in profitability was primarily driven by revenue growth and operating leverage. Sequentially, however, profitability was impacted by higher raw material prices arising from war-led supply chain disruptions and higher employee expenses following the revision in minimum labor wages. We are engaging with our customers on pricing and expect these pressures to normalize in the coming quarters as revenue scale and operating leverage kicks in. Overall, we believe the quarter demonstrates the progress we are making in diversifying our revenue base, expanding our global footprint and building capacity ahead of the next phase of growth. The continued scaling of Other Business, recovery in Home Lighting ODM, new customer additions and the commissioning of additional manufacturing capacity provide a strong foundation for the company's growth going forward. As we move ahead, our focus will remain on expanding into new products and adjacencies, strengthening our international presence, improving operational efficiencies and leveraging our expanded manufacturing and backward integration capabilities. With that, we conclude the presentation and request the moderator to open the floor for Q&A.

[Operator Instructions] The first question is from the line of Mayank Agarwal from Scientific Investing.

Congratulations on the good set of numbers. I have a couple of questions. And first question is regarding the margin trajectory, like given the current quarter headwinds, geopolitical scenario, and manpower expansion, like how do you see the margin trajectory going ahead, like once the normalization has been done and the operating leverage kick in?

Yes. Hi, Mr. Mayank, thank you for asking this question. So margin trajectory -- on the margin trajectory, we were -- we are actually still, I would say, in line to what we had guided for the year. Our margins would definitely have -- would have been slightly better compared to where we are today if the geopolitical scenario would have been normal or close to normal. The problem with the gross margins today is we are in times which I would say is similar to what happened during COVID because lead times have gone up like anything. And if you also follow the pricing of the basic raw material like metals, plastics, copper, even the electronic semiconductors, so the pricing have shoot -- has shot up like anything. And on top of that, the lead times of the electronic components have gone up from a generic 4- to 6-week lead time to, in certain cases, over a year. So the effect of that is that we are doing a lot of spot buying like we used to do during COVID. And in the last year, you probably would have seen some normalization happening. And we were on that track on that path. But the last few months due to the war scenario, things have changed drastically again. So in order to make sure that we are in line with our deliveries and we are able to service our customers well, we are, again, like what we did during COVID, doing a lot of changes in terms of the electronics due to the change in the lead times plus pricing. So that -- this is the major reason which has hit the gross margin to that effect. But at the same time, I would also like to apprise that we are working really hard at the back end. We are talking to our customers. And on top of that, we are doing whatever possible in our strength in order to maintain the gross levels where we are today. Otherwise, the effect would have been even higher. So we are doing all of what is possible to maintain the steady momentum.

Okay. And one more question like across the commercial and in-store refrigeration and automotive LED lights & lamps and if we look at the broader non-lighting segment, like what gives the company a sustainable right to win? Like could you elaborate on the key customer relationship capabilities? And how do you see growth and continue...

Your voice is a little muffled. So it's...

Is it better now?

Slightly better.

Yes. Actually, I wanted to understand like across commercial and in-store refrigeration and automotive segment and even if you look at the non-lighting segment, like what gives the company a sustainable right to win? Like if you can elaborate on the key customer relationship? And how do you see growth and contribution evolving from this segment over the year?

So yes. So that's a very interesting question. So basically, what is happening, and if you would have had a chance to go through the presentation also, then in the presentation also, we specifically highlighted the diversified revenue mix, how we are changing over the years. So there's a very good slide in the presentation, which shows that change ranging from FY '23 going up to FY '26, where our shift from our conventional ODM Home Lighting business, where at one point in time, our dependency was way too high, and that was always something of concern for all the investors. So today, if you look at that mix, so Other Business has been growing steadily and the dependency also has come down drastically. So just to give you an idea, just one second, at one point in time, we were somewhere close to around a little over 50% dependent on the ODM Home Lighting business. And today, if I talk of the same thing, like if I talk of last year, then that figure came below, so from around 60% to now somewhere close to around less than 20%. So that is the kind of change that has happened. And that is due to our constant growth in the newer verticals and even the other segments like our refrigeration segment, the in-store segment, plus the hearables & wearables segment is now doing fairly well. And even our -- when I talk of the in-store segment, we've -- it's been around 2 years when we expanded geographically also. So even during the war period, we are still maintaining decent numbers, the kind of decline that we were expecting that didn't happen because even in that region, we have diversified geographically into many countries and not just restricted to 1 or 2 countries. If that would have been the case, the numbers would have been totally different. So this is how we are placing our business because 6 years back before COVID, the world was a completely different place as compared to where we are today. So keeping all of that in mind, our main, I would say, focus or key area has been to diversify our business first into different product categories, different verticals and second, into different geographies so that we don't put too much of our eggs in one single basket. So going forward, these will -- obviously will be our growth engines. Like automotive, we have recently started. We are making very good inroads into some good -- very good customers, the industry leaders. And this also -- this category also holds a lot of opportunity and not just into automotive lighting, but also into other areas, but that is something that will come at a later stage. But yes, so the -- what you mentioned about commercial refrigeration, in-store lighting, automotive and even the non-automotive or -- sorry, non-lighting categories also, a lot is happening in the background. And these will definitely be our growth engines.

And like if I can ask one more question. Like earlier, you had guided like at the peak utilization at a INR 300 crore company can do 4.5 to 5x of asset turn. So like if you can just give an expected timeline to reach the full utilization and at the peak utilization, what can be the margins? Earlier you had told it can go from current margin to 17% to 18% EBITDA margins.

Yes. So I mean, if you look at the EBITDA margins from last, I would say, around 15 to 18 months. So there has been a sort of a steady trend where the margins have been improving because of all the new verticals, they started to kick in, they started to generate revenue. So we are leveraging the economies of scale. All of that is now -- that has started happening. And talking of the asset turn, I've always said that we will definitely reach to the level where we were before making -- infusing the capital into the business after -- post the IPO. So that should happen. I mean, this is something that as a team that we discussed and the way we are looking at the business, minus whatever is happening globally because there are certain things which are out of our control, which are not part of the plan, but then certainly something happens. So if things sort of stabilize and remain clear for the next maybe 2 to 2.5 years, so we expect that to happen within the next maybe 3, 3.5 years is what we are targeting.

And like -- let's suppose the peak utilization can we go back to the earlier margin we used to operate around 22%, 23%?

So that I believe I have discussed about margins in the previous calls also. So that is why it is safe to say that we -- what we are looking at the way the business is progressing, 17% to 18% is what seems feasible and what is practically feasible because earlier, our business mix was sort of restricted. But today, we are very much diversified, and there are certain categories where the margins are lower than there are certain categories. So that is how we intend to keep our business also growing because certain categories, where we see a lot of growth in the near future, where we don't have to really invest a lot into capital, but at the same time, can bring out good revenues in the near future, but lower margins. But then there are other cases also where the revenue -- the top line is not going to be that big or the growth is not going to be that dramatic. But at the same time, the bottom line is going to be better. So the business mix is going to continue like that. So that is why the feasible or practical number that we can think of is somewhere close to around 17% to 18% once we achieve certain levels of economies of scale and the new plants are also up and running, with at least 50% to 60% of plant utilization.

Okay. Great. And just one accounting question, like if you see the tax percentage, tax rate has been very variable in the last few quarters. And like this quarter, it has been around 35%. So what should be the sustainable tax rate going ahead?

Just allow me a moment. So this has to do with the deferment of the reversal of tax. So -- but going forward, these things will also sort of stabilize.

[Operator Instructions] The next question is from the line of [ Harsh Bhanushali from Surge ]

Sir, there was a dip in the gross margin numbers from 44%-45% to 41%. Any particular reason for the dip?

So the gross margins, like I've been talking about the gross margins because of the geopolitical tensions. So like I mentioned in the previous -- during the previous question also, the lead times, the pricing of the raw material because for our -- all of our products, the major the 4 -- 3, 4 type of raw material or components that we use is all types of metals. And if you look at the pricing of the metals in the past 4 to 5 months only, where the prices were during January, February and where they are today, there's been a lot of volatility. Prices have been going up, then there was some slight correction. Then again, they went up. So all of that is happening. So metals for one, all sorts of -- so we use a lot of MS, aluminum, copper in all the products that we manufacture. Then apart from that, the electronic components. So there, not only the pricing, but the lead time. So semiconductor prices have gone up. They have actually doubled in certain cases, more than doubled and that too with 5x to 6x higher lead times than where they were at one point in time. So I mean, I still I am waiting for an order that I placed in January for a particular semiconductor part, which we still haven't received. And the lead time generally for that part used to be around 4 weeks. So -- but why we are still able to maintain the production growth and everything is because we are an ODM manufacturer. So if that part -- I cannot wait for 6 months and tell my customers that I'm not getting the part in stock. So what we do is we keep changing the designs. We keep the parameters spec, everything same, but we keep changing the design. This is the same strategy that we applied during COVID as well, which actually helped us in gaining a lot of market share too, where some of our peers were struggling. A similar thing is happening right now. And so that is the only reason the gross margin has got a hit. And in fact, because of this strategy, we are still able to make sure that, that hit is not as high as the gap in the pricing is. That is due to our -- the R&D team and our purchase team working together and making sure that, one, we are able to provide the goods on time. And second, we are able to manufacture the products at a price which is still reasonable for us to manufacture.

So this 41% gross margin -- 40%, 41% gross margin is what you say is sustainable for the year?

Yes. So see, again, coming back to the gross margin thing, last 4 months, the pricing has been very erratic. So even if where we are today in terms of raw material pricing, we should still be able to maintain this gross level going forward, unless there is something which is, the war escalates, or there are more countries getting involved, something like that. If that happens, then if that is, it's going to be a different story. But looking at the scenario today and where the prices are today, they are not in normal range. But even where they are today, we should be able to maintain these gross margins.

Sure. Sir, other question was regarding the Other Business. The revenue has taken a dip again this year. Is this a seasonality factor or some other thing that is going on again due to war?

So basically, the dip -- if you're looking at the dip, that is on Q-on-Q basis. But if you look on -- look at the numbers year-on-year, so I think approximately last year, if I talk of quarter 1, we did somewhere close to around INR 120 crores. I'm just giving you an approximate number. And if you look at the business this quarter around, we did the same value in the Other Business segment. So in this quarter, we did close to around INR 124 crores, which was the entire business from the last year quarter. So quarter 1, generally, in our case, is always one of the leanest quarters. And then comparison with quarter 4 is generally something that we generally don't do. But if you do a Q-on-Q -- year-on-year comparison, that is where the real picture lies because quarter 1 of last year is comparable to this one and likewise, quarter 2 and quarter 3 because quarter 1 is generally the leanest.

Understood, sir. Sir, just last question. Could you help me with what -- how do you look at other businesses, for every business like home, auto, hearables & wearables? Could you please paint a picture for me of how do you see this year particularly?

So if I talk of Other Business, like what I just referred to the kind of growth that we have seen, if you look at it from a quarter -- year-on-year, sorry, perspective. So that business has been steadily growing at a good pace. And in fact, all the verticals are actually doing really well in the Other Business segment. And if this quarter, the war situation would not have been there, then definitely, our numbers would have been even better. So we -- I would say that we missed an opportunity of close to around at least INR 10 crores to INR 15 crores of business that could have been possible if situation would have been normal. So the trend is going to be similar, although we are also focusing on the ODM Home Lighting business, we are adding new customers. So earlier in the Home Lighting business, more than 95% of the ODM Lighting business used to contribute around -- used to -- that 95% revenue used to come from one single customer when I talk of the ODM Home Lighting business. But today, it is again getting diversified. So within that portfolio, now we have around 3 to 4 customers. We are adding more. And that trend will also continue into the Home Lighting business, and that is why you also see some growth happening in that segment, too. So that will continue to happen. But definitely, Other Business segments because there is a lot happening, and we are in that path of continuously diversifying. So the categories that today we talk of are not the only categories that we are working on. There are other things that we are working on, too, which will eventually keep coming in the coming quarters.

Sir, of all the verticals, which vertical are you most optimistic about for this year?

I cannot point out a single vertical, to be honest, because our -- what we are doing in the Middle East is also showing a lot of promise. Although there is a war situation right now, but the moment the thing normalized. So we -- there is a lot that is happening there. We are making some really good connections. We are adding more people in the team. We are diversifying there as well. So there is a lot of traction happening in the developer segment there, too, apart from the in-store that where we are already quite successful. So that is something that will continue to happen. And if I talk of the domestic in-store and the rest, that will also continue to grow. Then automotive lighting, which we have very recently started, that also holds some good promise, but also that is new. So the numbers are not going to be big, but definitely, it holds a lot of potential. And also the hearable & wearable segment, that is there also we are doing consistently good now. And the margins in that vertical have also become somewhat reasonable, where we were struggling during the first, I would say, 6 to 9 months. So that also is now sort of on track, so where we wanted to be. So these are the categories where I cannot really point out one single one, but all of these put together will definitely be our, both growth drivers. And then there are certain other products in the non-lighting segment where like the product that we developed for Honeywell. So that association is also going strong. And in fact, we are with them also thinking of some other regions apart from India also.

[Operator Instructions] The next question is from the line of Ankur Gulati from Genuity Capital.

Can you give us some reason why LED business growth has higher...

Sorry, Mr. Ankur, I can't -- I'm unable to hear you.

The LED business growth seems to be higher, which is a bit of a positive surprise. So anything specific which led to this growth?

So you're talking about the ODM Home Lighting business, right?

That's right.

Yes. So in the ODM Home Lighting business, like I mentioned earlier, we are adding -- we've added some new customers. So that new business coming from those new customers has sort of added the additional revenue to that vertical. And that, like I said, that will continue to happen. This momentum should work out for the coming quarters also. And that is something that we are -- that's a different team that is continuously focusing on making sure that we add more and more customers to this vertical and make sure that there is some additional revenue coming out of this category because it's one of the oldest categories that we have in lighting, and we would definitely want it to -- we would want to carry forward with the legacy of this business.

Sir, 2 questions follow-up. One, in earlier calls, the guidance given was that this business will stay flattish, especially because of Signify impact as well. So should we pencil in, let's say, at least 20% growth from FY '26 base of INR 170-odd crores?

So you're talking about the full year number, right?

That's right.

Yes. So the full year number that we achieved during the last year, which was somewhere close to around INR 170 crores.

That's right.

So that the average comes out to be around INR 42 crores. So the average of INR 42 crores was because I think from what I remember, the first few quarters were relatively better and then there was some sort of dip which was happening. So what we are doing right now is we are just adding more customers and making sure that correction in the dip happens. So if I talk of this year also, then we are close to that average of INR 42 crores. In quarter 1, the figure is somewhere close to around INR 45 crores, so which is very close to the average of last year. So that is why you can say that it's a correction in the dip by adding certain new customers. And going forward, we could see some slight correction going forward as well. But the final number for the entire year should not be drastically different to what we achieved in the previous year.

So same as INR 170 crores broadly, right, which means sequentially...

Yes, INR 170 crores, give or take, maybe an uptick of INR 10 crores, INR 15 crores is probably on the charts, but we'll see how it goes.

Fair enough. And the other business grew by 53%. So is it possible to give more details which subsegment drove that growth?

So honestly speaking, it's a combination of all the segments. It is -- I mean, I cannot pinpoint a single segment where the growth -- which led to the growth because all of the segments contributed, if I look at all different segments. So if I'm comparing year-on-year, so every segment, there is a growth. The only area where we -- year-on-year, where we could not see the growth or there was some decline in the revenue was from the UAE business, the Middle East or the Gulf business, and it has its own logic behind it because of the war situation. But at the same time, we are very well placed in that market and the numbers are still very reasonable looking at the scenario, and we are doing much better than our peers there also in the Middle East. So apart from that, all the other verticals, there has been really good growth, and we would want to continue with the momentum, and we hope that this war situation settles down so that we can do well in the Middle East also because in the last few months, there is a lot of hard work that has happened. And like I said earlier also, we are now entering into the developer segment market as well, which again holds a lot of potential.

Can you give us a broad EBITDA margin guidance for these 2 segments, the ODM and the Other Business?

So the EBITDA margins that you see in ODM, which is somewhere close to around -- if I look at the quarter 1, which is -- there has been an improvement, which is somewhere close to around 8.4%. So if I talk of the entire year, there is a lot of volatility happening right now because of raw material and everything. But I think we should be, give or take 0.5% here or there, we should end up close to this figure only for the year if the raw material pricing remains stable or starts coming down. And then on the group level also, even during the last quarter, when someone was asking me about the EBITDA for the next year, so I told them that it is going to be around 13% to 14%, where we are in line with what we had thought of. It definitely would have been around 14% or maybe slightly better if situation would have been different. But yes, this is what we are looking at for the year.