Netweb Technologies India Limited (NETWEB.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Netweb Technologies Q1 FY '26 Earnings Call hosted by IIFL Capital Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Renu Baid from IIFL Capital Services Limited. Thank you. And over to you, ma'am.

Thank you, Viren. A warm good afternoon, everyone. On behalf of IIFL Capital, we'd like to welcome you to the 1Q FY '26 Earnings Conference Call of Netweb Technologies India Limited. From the management team, we have with us Mr. Sanjay Lodha, Chairman and Managing Director; Mr. Navin Lodha, Whole-Time Director; Mr. Ankit Kumar Singhal, Chief Financial Officer; Mr. Hirdey Vikram, Chief Sales and Marketing Officer; and Mr. Sanjeev Sancheti, Uirtus Advisors LLP, the IR Advisor to Netweb. Without taking much time, I now hand over the call to Mr. Sancheti. Thereafter, Sanjay sir can open with his opening comments. Thank you. And over to you, Mr. Sancheti.

Thank you, Renu. Good afternoon to all the participants. Before I hand over the call to Mr. Sanjay Lodha for the opening remarks, I would like to draw your attention to the safe harbor statement in the earnings call presentation. I request each one of you to go through that presentation before the Q&A starts, so that you are aware of the same. Thank you. And over to you, Mr. Lodha.

Thank you, Renu and Sanjeev. Good afternoon, and warm welcome to all of you to Netweb Technologies Q1 Financial Year '26 Earnings Call. We are pleased to report yet another strong quarter, continuing our growth momentum. Revenue from operations grew by 102% year-on-year to INR 301 crores, with an operating EBITDA rising by 127% year-on-year to INR 448 million and PAT increasing by 100% year-on-year to INR 30 crores. The result reflects the strength of our business model, disciplined execution and robust demand across our core segments. Additionally, in the quarter gone by, we successfully executed a large AI order in the critical defense sector. This deployment contributed to key national initiative, reinforcing India's strategic capabilities and underlying the growing role of AI in safeguarding national interest. India's AI ecosystem is evolving rapidly, fueled by strong enterprise demand, adoption of domain-specific LLMs and SLMs and government trade initiatives aimed at building sovereign digital and compute capital. With integration of AI into digital public infrastructure and rollout of AI mission, the rise of indigenous compute and edge-ready GenAI use cases, the nation is entering into a transformative phase. This shift underscores the growth need for trusted high-performance system and Netweb is well positioned to support this evolution with a focused approach across 3 growth pillars: high-performance computing, private cloud and AI systems. AI continues to be a major growth driver this quarter, contributing 29% of the operating revenue, with a 300% year-on-year growth, highlighting growing enterprise adoption across the sectors. Reinforcing our progress in this space, we launched Skylus.ai in financial year '25, a unified, composable GPU orchestration platform that enables rapid deployment and optimization of AI infrastructure. Skylus.ai strengthens our capabilities in AI systems and contributes to India's vision of becoming the AI factory of the world. With a strong order book, expanding product portfolio and continued investments in capability building, we remain confident of sustaining our growth trajectory in line with our medium-term guidance. I now request Ankit to take you through the financials. Thank you.

Thank you, Mr. Lodha. Good afternoon, ladies and gentlemen, and thank you for joining our earnings call. Before we open the floor for Q&A, I'll provide a brief overview of the financial performance for the quarter and the year gone by. I trust that by now, you have had the opportunity to review our earnings presentation and press release. While our CMD has already discussed the macro outlook, I will elaborate on the financial performance, providing a more detailed analysis of the quarter. Our operating income increased by 102% on a Y-o-Y basis, reaching INR 3,012 million in Q1 FY '26. Our operating EBITDA for Q1 FY '26 increased by 127% Y-o-Y, reaching INR 448 million, while the operating EBITDA margin for Q1 FY '26 was 14.9%. Profit after tax for Q1 FY '26 grew by 100% Y-o-Y, reaching INR 305 million, while the PAT margin stood at 10.1%. Return on equity for the Q1 FY '26 was 22.4%, while return on capital employed for the same period was 30.6%. Our balance sheet strength is reflected by us being a 0 net debt company. The company had a net free cash of INR 475.2 million as on 30th June. We remain focused on our strategic road map and growth priorities with encouraging momentum in the year so far, supported by a strong order book and a healthy pipeline, we are well positioned to drive consistent revenue and profit growth in the current fiscal. With this, I now hand over the call to Renu Baid.

Yes. We can now open the session for Q&A.

[Operator Instructions] We have a first question from the line of CA Garvit Goyal from Nvest Analytics Advisory, LLP.

Congrats for a decent set of numbers. My question is on the margin front. Our margins are pretty decent in this quarter. So, what is the ongoing trajectory for next few quarters in terms of EBITDA margin?

The margins basically because the guidance from us on the margin is around 14%. And basically, our guidance will remain the same actually because basically in quarter, sometimes margins can be a little bit up by a few basis points up and down. But overall, the guidance for the EBITDA will be around 14% and the PAT will be around -- between 10%, 10.5%.

So in this particular quarter, what is driving this significant margin?

So I'll explain, Garvit. During the quarter, the margin performance was benefited by a favorable mix of small-sized order and a medium-sized AI deal, which actually led to an uptick above 14%.

Got it. And secondly, on the AI part, what kind of trajectory do you see now? Because in this particular quarter, our growth percentage is very high. And you mentioned it is mainly because of the AI, right? So, how do you see AI as a segment going in the next couple of quarters considering the kind of activity we are seeing in the terms of LLM and whole?

Yes. Garvit, actually, you know that basically, the traction of AI is not only restricted to India or something, it's all over the world. And India is definitely -- India has decided to become the AI factory of the world. And basically, government is putting a lot of momentum and a lot of impetus is being provided on that. The industry adoption is really heavy. The better you adopt to AI, you increase your efficiency. So, that is the real situation actually. So basically, definitely, if you remember, AI used to be 7% of my business. Last year, it became 15% of my business. But I like to guide that AI will be around 20% to 22% of my business. So basically, my earlier guidance was around 20%, but I'd like to raise that guidance to maybe 22% because we'll have to understand my other segments also growing. The 3 segments which we have are all growth segments. Today, the supercomputing, the private cloud and SCI, you see how the data center is growing. You see how NSM 2.0 is coming. So, other segments also growing, though AI is growing at a better rate. So basically, still we feel -- I would like to commit that basically, I'd like to say that by the end of the year, it would be around 22% of the total share will be occupied by AI.

Got it, sir. And lastly, on the guidance part. This year, we were having a guidance of around 30% to 35% growth, but this quarter has been really good for us. So, would you like to revise the guidance for this year?

Actually, the guidance, we have already said that we are not revising the guidance, but it is 35% to 40%, which we have been saying. We'll be definitely growing by that basically. And if you see, I think this is the ninth quarterly result I have presented after the listing, and you might have seen that we have been consistently growing at that rate actually without failing even in 1 quarter. So primarily -- so we'll plan to maintain that.

And also, I would like to add here that we don't want to get into short-term guidances. We will guide once a year, and we'll follow through on that.

The next question is from the line of Shubham Agrawal from Yes Securities.

Yes, yes. So in AI system and enterprise workstation, I can see the growth is almost INR 600 million year-on-year. So, can you tell me how much is it from private enterprises and how much is it from space and defense sector?

Basically, yes, you can carry on.

So if we talk about this quarter, so it's close to like 23% to 24% came from the government and the rest was from the enterprise.

In AI system and enterprises, you are talking about? Or is it total AI...

Yes, AI systems. Correct.

Okay. And just similarly for private cloud and hyper?

Come again. We did not get your view.

Yes. In private cloud and hyper?

Overall revenue from the government this quarter was around, I think, 60% was from the government and 50% was from enterprise, overall revenue.

Overall, yes, yes. I got it. So in AI system and enterprise growth, so 20% was from government and rest was from enterprise. That's what we told. HCI, similarly, how much would be from government and...

I don't have those numbers, but HCI mostly is enterprise and HPC, basically, the government share is more. Overall, I can tell you that in the total turnover, basically of INR 300 crores, 40% revenue came from enterprise and 60% revenue came from government.

Okay. Okay. And just one more last question that is this government work in AI system, is this a repeatable work? Or is it a one-time order kind of thing?

Basically, most of our -- because our -- we really don't work on annuity kind of business. We work on complete solution deployment. The solution deployment has been done. And basically, so the projects which were on hand, those are definitely been over. That has been built. So it is not repetitive.

So the nature of our business is such that -- please appreciate that the nature of our business is that when we don't do annuity business, every order is unique and then we get refresh orders in future. So it's not that the same order will again get repeated. Next time maybe some other business, some other solutions, some other customers, some other solutions.

[Operator Instructions] The next question is from the line of Akshay from AK Investment.

Congratulations for the great set of numbers. Sir, my first question is about the orders, large AI orders in critical defense sector that we are talking about. Can you put some more light on that, how the customer profile or something like this and whether that was a government order or private enterprise order, as you said that we got 23% to 24% from government in AI segment and rest is the private enterprise in Q1? So, can you put some more light on that? And are there any other projects in pipeline for the subsequent quarter for AI workstation?

Yes. So basically, to answer your question, primarily, we don't specify the particular order details on our calls because of confidentiality reasons, okay? So basically, we have already mentioned that around 23, the amount of orders which have been from government. But it was not a single order, it was multiple orders. There was a large order from defense side. In interest of nation and in interest of company secrecy also, we would not like to diverge the details of exactly the dynamics of the order very clearly. But to answer your question, is there such orders future in the order book? Definitely, if you see my order book and you see my basically the L1 kind of a thing, which is around INR 700 crores, that would be having good number of AI systems segment order as well. As I have already mentioned to you, I have guided already that the business will be around 20% for the whole year. So we will definitely -- my funnel, my order pipeline, everything is in that direction.

Okay, sir. Okay. Fair enough. And my second question is about balance sheet. So, our net current assets have gone up sharply by 48% in Q-o-Q basis. So what might be the reason, whether it's the inventory or something like this?

Can you come again? You were not that audible.

Yes. Am I audible now, sir?

Yes, tell me.

Sir, our net current assets was INR 302 crores in March '25, and it is INR 445 crores in June '25. So it has gone up sharply by 48% Q-o-Q basis. So, what might be the reason for the same?

So it is due to the increase in the receivables. That is the prime reason. And because -- why it happened because the sales generally happened in the later part of the quarter, which led to the increase in receivables and that's why the net current asset is looking a bit higher as compared to March.

Okay, sir. All right. And last one short question is whether our pipeline -- order pipeline includes the IndiaAI Mission orders or some visibility?

No, I have been categorically saying that IndiaAI Mission is not included in my pipeline.

The next question is from the line of Renu Baid Pugalia from IIFL Capital.

So my first question is, if you look at the cumulative value of order book and order pipeline, for last couple of quarters, it has been ranging at just about INR 700 crores or sub that level. So based on your reading of the order pipeline, how do you see growth coming in the cumulative book for us, both L1 as well as the order backlog closing position? And if you could also highlight key segments where do you see the pipeline building up for the next 6 months for us? That's the first question.

Yes. So Renuji, actually, the thing is that our kind of company really, the order book is -- we will not be able to give you the visibility of our growth actually because as you know that our order book gets closed between 8 to 12 weeks actually, okay? So basically, the real business outlook, basically, we are a pipeline-driven company and pipeline is INR 4,000 approximately-odd crores, so which is a huge number actually. So basically, that pipeline has been growing substantially. And you know that around 60% of the conversion ratio we have primarily on the pipeline and pipeline basically takes around 6 months to 18 months to convert. So, that gives me the very clear confidence that we will keep on growing at 40% CAGR. And if you see the pipeline mix is also somehow basically mixed in the same way of the 3 segments, that is supercomputing, cloud and AI. We are seeing more opportunities in AI. That's the reason the AI growth is more than the other 2 segments. But all the 3 segments are growing, and our focus and niche is helping us to concentrate and to build our pipeline also accordingly.

Right. And how about certain large ticket size government projects on the HPC side, how is that part of the business shaping? Are there any material large ticket size projects, which could be a couple of billion rupees plus in ticket size?

Yes. Actually, thing is that we -- basically, the projects are definitely there. You know that NSM, National Supercomputing Mission 2.0 is on the verge of rollout, okay? So basically, it's new allocations, new things will be there, definitely. There is a lot of adoption of basically primarily HPC on the enterprise side also. So large ticket size orders are there, but basically, even the medium and small ticket size orders and the number of orders have increased quite phenomenally. So basically, that is helping us. If you see, we are doing HPC for 20-plus years. Still basically, 35% of the total revenue comes from HPC. And you see this is not a trend which changes quarter-by-quarter. It will remain around that only. It will be basically 35% is the average kind of a trend if you see if you really -- we have been maintaining that. So basically, there is enough demand in the market. The market is growing. You know HPC adoption is increasing day by day because the compute requirement is phenomenally increasing. Today, basically, you talk about anything, anything basically needs compute. And you know how compute has been able to basically make our lives more efficient and supercomputing plays a major role in that segment. So, I personally feel supercomputing is an area, which will keep on growing. The second area we are into private cloud and HCI, which you are aware how today, the data center market is growing. You guys know better than me how the data center market is growing and how data center companies are doing better. So basically, I think it's very difficult even to gauge the total market, which is available to us actually at this point of time. So, private cloud and HCI has been a great booster for us. AI Systems and Enterprise, as I mentioned to you 2 years back, it was around 7% for us. It became 15% last year, but I'm guiding it for somewhere around 20% this year. 20% or maybe I'd like to revise the guidance to 22% or something of that nature. So, that's how basically all the 3 segments are really robust, and they will keep on growing. We are very, very confident on that.

Sure. So, second question is on the working capital cycle, while 1Q is not the right parameter. But if you see on a Y-o-Y basis, we have been able to reduce it by close to 17 days. So as looking at the order pipeline and projects which we have on books, how should we expect the year-end working capital to turn for us?

So Renuji, so our working capital cycle typically operates around 90 to 100 days, okay? So again, Q1 is just the start of this fiscal year and working capital cycle, why it's coming -- appearing in June is because it's directly attributable to the robust sales momentum that we achieved in the June quarter. So broadly, the entire portion of these sales had sat in our receivables for June, okay? So, that's the reason that the working capital cycle is appearing like this.

So my question is for the year-end, should we expect this improvement to sustain till March? Or broadly, we should be at similar levels like last year in terms of cash conversion cycle?

Actually, it is very difficult to predict the cash cycle at the year-end. However, we expect that it will range between 80 to 100 days only. That's how our business nature has been going. And the way we had been managing our working capital, it will range within 80 to 100.

Got it. And lastly, I know while none of your order pipeline or order book includes ISM-related projects. But in your view, by when should we expect these orders to trickle down? And both with respect to localization, where are we placed? Any incremental CapEx or broadly whatever we have done until last year will take care of all the local content requirements?

Yes. Basically, we have done -- we have been constantly working in that direction, and we are part of the entire -- basically, we are trying to see what best inputs we can give to the policymakers also. So, we are working towards that. And plus basically, none of my order book and pipeline is including of the AI Mission, as I mentioned to you very clearly. I think basically, the momentum will start definitely this year, which will continue for few more years.

The next question is from the line of [ Anand ] from Seema Wealth Private Limited.

Congratulations on a great set of numbers. I have 2, 3 questions. One is the contribution from the industry vertical, the growth from space and defense has grown phenomenally from INR 9 crores to INR 83 crores, around 81% growth Y-on-Y. So, I'm just asking like basically what would we see a number in the contribution from space and defense as the time goes on? Because right now, I guess the number is around 28% of this quarter. So, where would you see this number going forward from the contribution of space and defense?

So basically, what happens, sir, is that basically, you cannot judge our business primarily from 1 quarter, okay? Because basically -- because this quarter, we had a large order from AI on space and defense that has pushed up the space and defense sector, actually, share more overall. But overall, basically, it will remain in the similar lines as we have been showing earlier. Space and defense, basically, segment will remain on the similar lines actually.

Okay. Okay. Okay. And regarding order book, I just want to confirm the exact numbers. What is the current order book as of this quarter and from the previous quarter? Just a clarification on that.

So, we have already covered this in our presentation. So, current quarter order book is close to like INR 230 crores and our L1 happens to be INR 460 crores for the quarter.