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

Ladies and gentlemen, good day, and welcome to Netweb Technologies 3Q 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 Ms. Renu Baid from IIFL Capital Services Limited. Thank you, and over to you, ma'am.

Thank you. Very good afternoon, everyone. On behalf of IIFL Capital Services, I welcome the team of Netweb Technologies for the Q3 FY '26 earnings conference call. Today, we have with us from the management senior team represented by Mr. Sanjay Lodha, Chairman, Managing Director; Mr. Navin Lodha, Whole-Time Director; Mr. Ankit Kumar Singhal, CFO; Mr. Hirdey Vikram, Chief Sales and Marketing Officer; and Mr. Sanjeev Sancheti, Head of Uirtus Advisors and IR Advisor to Netweb Technologies. Without much time, I'd now like to hand over the call to Mr. Sancheti for his opening remarks, thereafter Mr. Lodha can take over. Thank you, and over to you, sir.

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 the presentation before the Q&A starts so that you are aware of the safe harbor statement. Thank you, and over to you, Mr. Lodha.

Thank you, Renu, and Sanjeev. Good afternoon, and a very warm welcome to all of you to the Netweb Technologies' Q3 FY '26 Earnings Call. We are proud to state that Netweb has delivered a record breaking quarter, achieving its highest ever income and profit. Quarterly revenue stood at INR 8,049 million, registering a strong growth of 141% year-on-year and 165% quarter-on-quarter. The company reported an operating EBITDA of INR 979 million in Q3 financial year '26, reflecting a strong year-on-year growth of 127.1%, while the profit after tax reached INR 733 million, marking a robust 146.7% growth year-on-year. During the quarter, Netweb successfully executed a large strategic order valued at INR 4,504 million, reaffirming its position as India's largest OEM in high-end computing solutions. As communicated earlier, this implementation is of national significance aimed at strengthening India's AI compute infrastructure. In this context, we would also like to give a broader industry update. As many of you may be aware, the global supply chain, particularly for the flash memory and storage, is experiencing a strong demand by the rapid acceleration of AI adoption worldwide. This surge has led to industry-wide price increase along with tighter availability. However, owing to our proactive supply chain planning and long-standing partnerships with key technology providers, we have managed these situations very effectively and continue to support our business requirements without any disruptions. With the execution of this order, the AI systems segment contributed to 64% of Q3 financial year '26 revenue and 48% of 9-month financial year '26 revenue. We would like to emphasize that alongside the accelerated growth of AI, our other 2 core segments of HPC and private cloud are also witnessing strong and sustained demand. This exceptional performance underscores Netweb's steadfast commitment to in-house design and manufacturing of next-generation systems, fully compliant with Make in India initiative and highlights our contribution to India's emergence as a global hub for high-tech manufacturing. Our order book is very robust with organic order book at INR 5,258 million and strategic order book at INR 17,336 million. This order book, along with strong pipeline, positions us for strong, sustained growth over the next few years. Netweb's continued focus on its 3 strategic growth pillars, HPC, private cloud and AI systems, is enabling us to capitalize on strong industry tailwinds. Supported by these core strengths, we continue to remain the technology leader in the high-end computing system space. 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 will 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. Our operating income for Q3 FY '26 stood at INR 8,049 million, showcasing a growth of 141% Y-o-Y and 165% Q-on-Q. Our operating EBITDA for Q3 FY '26 stood at INR 979 million, showcasing a growth of 127.1% Y-o-Y and 115.4% Q-on-Q with a margin of 12.2%. Profit after tax for Q3 FY '26 stood at INR 733 million, showcasing a growth of 146.7% Y-o-Y and 133.2% Q-on-Q with a margin of 9%. Our operating income for 9 months FY '26 stood at INR 14,099 million, showcasing a growth of 92% Y-o-Y. Our operating EBITDA for 9 months FY '26 stood at INR 1,883 million, showcasing a growth of 88.7% Y-o-Y, with a margin of 13.4%. Profit after tax for 9 months FY '26 stood at INR 1,352 million, showcasing a growth of 90.1% Y-o-Y with a margin of 9.5%. Return on equity for 9 months FY '26 was 30.5%, while return on capital employed for the same period was 41.3%. Our cash conversion cycle as of December 2025 stood at 69 days, reflecting significant improvement compared to the previous quarter. Our balance sheet strength is reflected by us being a 0 net debt company. The company had net free cash of INR 1,900.8 million as on 31st December 2025. Our strategic roadmap and growth priorities remain on track, supported by strong year long-term momentum, our healthy order book and a solid pipeline. We are positioned to deliver consistent revenue and profitability this fiscal year. With this, I'll now hand over the call to Renu Baid.

Yes. We can now start with the Q&A session.

[Operator Instructions] The first question is from the line of Seema Nayak from ICICI Securities.

Congrats on a great quarter. So my first question is, can you tell us the timeline of execution of strategic deals? Is it the same as before? Or are there any changes? And second is regarding the HCI and HPC segment growth, which have been rather slow in this quarter. So what has caused this muted growth? And how will the growth pan out going forward?

So basically, our guidelines on the execution of the strategic order remains the same. Basically, we had guided that 1 order needs -- should be executed by Q4, actually got preponed to Q3. So basically, you already saw that. And we -- though we target to basically -- we target to do at least 1/3 of the order in this year, basically overall, so guidance remains almost all valid and in the same lines. As regards to your second question on muted growth of, basically, our -- the HPC and private cloud segment, I completely -- I think that's basically -- I think that's not true because basically, the growth for -- of both the segments have really been growing constantly. But what happens is since basically there is a large order execution, so on a Q-on-Q basis, we could -- yes, yes, so basically, we cannot -- basically what happens is in our kinds of business, it becomes very difficult to measure anything on quarter-on-quarter basis actually because basically, we have different -- we have very large enterprise and government customers. So order execution since basically, as I mentioned to you, as is the large strategic order, I have not guided that it will be done in Q3, which we pulled it to Q3. The same way basically quarter-on-quarter, it can become -- it can vary. But overall, basically, our -- both these segments, as you might have seen in the Q1, Q2 and the overall 9-month results had -- are very robust and really are -- because all those areas are really demanding, like basically supercomputing is growing at a good way, and private cloud, again, the data center market is booming.

So I'd just like to add here, Sanjeev here. So if you look at the YTD growth, then we've done -- these 2 segments have done over 20%. And there will be some quarters that some segments will do better and some segments will be lagging behind. But overall, I think these 3 segments will continue to grow at a very strong pace, as we have guided earlier. Of course, we have to remove the strategic order and then see the growth of the other segment, the AI segment.

My next question is regarding exceptional items. So many companies have announced cost from implementation of new labor codes. So any reason we have not announced?

So Seema, there is no material impact of new labor codes on our financials because as per the new labor codes, there is a revision in the wage's definition, and we are already -- we were already compliant on the structure that new labor codes have kind of clarified. So that's why there was no impact on us.

Got it. Congratulations.

The next question is from the line of Nishant Gupta from Kotak PMS.

Congratulations on a good set of numbers. I had just one question, more of a strategic question as such. How do you foresee the budget for AI mission evolve in coming quarters as the initial allocation orders were only for INR 4,500-odd crores and 10,000 GPUs? When do you think further orders would get placed? And what would be our win percentage within that?

The government focus is phenomenal on AI, actually. As you might be aware that recently, the new AI impact summit is being held from 17th to 20th of February, where Prime Minister himself is supposed to be sharing the stage with NVIDIA CEO, okay? So basically, there's a lot of focus and impetus from the government on the AI side of it. And AI mission has been there. And basically, we have always been saying that AI mission will -- basically will roll out, and you already started seeing it roll out, actually. So as I have been telling continuously, there are 2 parts of AI mission, actually. One is they will be taking GPUs on lease from the CSPs and then offering it to the start-ups and basically various kind of bodies who are working on citizen-centric services so that -- so has to enable those kind of development. The second part will be wherein the government will be clearly buying the GPUs for their own -- basically own data centers and all. So second set of things are yet to come, but the first has just started. So there is a lot of pressure on the government also to increase their spending. And I think that a phenomenal planning and phenomenal execution is going on, on that case. And plus basically, there is a lot of assurance, and there is a lot of -- the statements from the government clearly indicate that they are ready to even offer more money. So I don't think money is a challenge, but primarily, the spending has started, and I think it will gain momentum as the time passes on.

If I could just clarify one small thing. So in the earlier case -- correct me if I'm wrong, in the earlier case, it was -- the order was placed for 10,000 GPUs and INR 4,500-odd crores. And in that, I believe we have won INR 2,170-odd crores of strategic order, which you had announced last quarter. Now, has this entire INR 4,500-odd crores tender been released and orders been placed or we are still left with certain orders being placed within that INR 4,500-odd crores?

Yes, I would let Hirdey answer that question. But basically, let me give you a brief and maybe Hirdey can take it up from there. So basically, this was -- INR 10,000 crores was the value, okay? And the number of GPUs was not specified, actually, okay? The first thing is that. And second is that, that basically they are not offering the INR 4,500 crores, the GPU order has not come as yet. Basically, it will come in a different way, actually. Maybe Hirdey, if you can explain and elaborate that.

Yes, I'll do so. So basically, there are 2 sets of procurements which are happening right now. One is that we have to build these GPUs -- they want to render these GPU services to the internal CSPs. That is one effort of procurement by Government of India. Second procurement is that -- what you are referring to that they have to do the procurement for on-prem infra, which they have to bring these GPUs. So that is yet to start. So what we have been executing so far or what we have shown as the strategic orders what we have picked up, that is pertaining to the first type of procurement what they have done. So second is yet to start. I hope this answers your question.

Sure. That's helpful.

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

So my first question is, recently, obviously, we've been hearing a lot about the shortages in memory chips, especially for DRAM and HBM. So, a, what is the share of DRAM, HBM in our bill of materials? And how are you seeing the shortage of these chips impacting or having a potential impact on your execution timelines and margins given that most of our orders are fixed priced in nature?

So basically, we'll not build the -- as regards to basically the BOM, normally, we don't share the BOM, actually, that basically the percentage of a component in a BOM, and actually, it varies also as per the user requirement as per basically what they need and what is their application and all that. So it is not fixed as such. So -- but definitely, memory and flash and storage is a substantial part of the BOM. There's no doubt about that. But answering your question on the other side is that basically, as we all are aware that there has been huge shortages and huge price jump, and all this is happening because of the AI demand actually surging worldwide. This is not a domestic event. This is an international event, wherein basically the complete -- the AI demand is surging like anything. And so the manufacturing capability of memory and other things are not able to cope up, and that is resulting into shortages and price hikes. So -- but you see that even that was happening, but still we have performed. All our deliveries and our performance has been -- we have grown, our revenue has grown by such a huge number. That has only happened because basically our supply chain planning has been very, very effective. And since -- basically, you have to understand one thing that the industry is experiencing shortages in flash and memory, but we have -- we managed this challenge effectively through proactive supply chain planning and strong technology partnership. Our focus on high-end niche solutions rather than box pushing allows us to maintain deep and long-term relations with -- relationship with key suppliers, which gives us priority access to critical components such as storage and memory. On new orders, pricing will be aligned with the prevailing market dynamics at the time of the order placement. This approach ensures transparency while allowing us to continue delivering reliable high-performance solutions despite ongoing supply constraints. So it's very clear that basically we are minimally impacted, and I don't think this will impact either our profits or our delivery timeline.

Yes. The second question is, if we looked at the organic growth excluding the strategic order execution, which was done in the current quarter was fairly soft at just about 6% Y-o-Y. So if you can share some inputs in terms of how does -- how is our capacity lined up to sustain the organic growth momentum in 30% to 40% CAGR range, which we have been highlighting over a longer period time frames. And were there any specific issues in terms of delivery deferments or other elements, which impacted the organic growth in the particular quarter? And what would be your guidance on the organic growth side for the annual fiscal '26, annual fiscal '27?

Answering your first -- last question first, as we have been guiding all along that our growth will be at 30% to 40% CAGR, we still maintain that on the organic side, and we will basically -- if you see the order book, that will all give you the confidence, it's INR 525 crores on the -- primarily on the organic side, plus L1 is around INR 300 crores. That makes us around INR 800 crores. So basically, order book is really full, and we have a very good order book on the organic side. That gives me the confidence that it will continue at the same way. Your other question was primarily on the supply -- on the -- basically on the manufacturing capabilities or the capacity. So we have always been saying that we are not a capacity-based organization. We are a capability-based organization. So primarily -- basically, we don't need to make any kind of -- primarily, we don't have any capacity challenges, like manufacturing capacity and all that, because we have very clearly indicated that up to INR 25,000 -- INR 2,500 crores to INR 3,000 crores, we -- our manufacturing facility is almost all very, very sufficient. We don't need to really invest into CapEx and all. So that's not a limiting factor. But what happens is that definitely once a large order comes in, at some point, some smaller orders get pushed into the next quarter. So that may result into some kind of number kind of changes. So that's the reason I always say that in our kind of business, you cannot see anything on a quarter-on-quarter basis. You have to see it at least basically on a year-on-year basis, or if not, H1, H2 kind of a basis.

Even if you look at -- if you ignore the strategic order on a Y-o-Y basis, we have grown over 30% for 9 months.

Renu ma'am, you want to ask more questions?

No, I'm done on this side.

The next question is from the line of Vinay Menon from Monarch Capital.

Congratulations on a great set of numbers. Sir, a few questions from my side. Sir, that margins have come down for us in this quarter, and we were expecting margins to come down because of the large deal execution. And next 3 quarters, we will continue to execute this large deal. So can we expect margins to be in this range for the next 2 to 3 quarters?

Let me just take this question. So we have guided that we will be about 200 basis points lower at the PBT level on the strategic order because obviously, these are very strategic large order, and they -- and that's the way these orders would come. So if you kind of remove the strategic order of -- and do a weighted average, then you will see that we would have done a PAT margin of about 9.9% in the quarter and YTD above 10%. I mean, actually, we continue to guide the same. In strategic order, we'll be about 200 basis points lesser on the PBT level. And whatever mix we then achieve every quarter, probably you can be guided by that.

Okay. So just to understand because we did 15% margins for the last 2 quarters, and you had mentioned that these are exceptional margins and the range will still be between 13% to 14%. So is that the range we should take for the constant business going ahead?

Yes.

Yes.

Yes, you're right.

You're absolutely right. Because you can very well understand in today's market dynamics, if we are able to just take up orders for INR 500 crores at 200 basis points below, I think we should be complimented for that. We basically -- because it's really -- in this world, which is very dynamic and which is really basically all these kinds of solutions are being sold and adopted, in spite of -- yes, everything, so definitely, that helps. That speaks a lot about our company's products and the range of solutions.

Okay. Yes, yes, completely agree, sir. Completely agree. And just 2 more questions. One is on the cash flow. So first half, we posted INR 100 crore plus CFO. So for 9 months, what's the status? And is there any inventory pile up for the execution which we will do for the next few quarters?

So Vinay, as far as inventory pileup is concerned, so all inventory is basically for our upcoming orders and stocking of our critical components. So there is no pile up as such. If you see, our inventory days were maintained at 60 days as of 31st December. And regarding the cash flows, we had positive operating cash flows in this quarter by close to like...

Quarter was INR 33 crores...

Yes. INR 33 crores.

And YTD was about INR 134 crores -- cash flow from operating activities.

Inventory days itself seems that there is no inventory pile up.

Yes. Yes. No, I just want to understand for Q4, how are we placed so that -- so we can get clarity for the year.

Inventory planning is very good. The supply chain planning has been happening very well. Actually, the technology providers are helping us. So definitely, we are very -- I don't think we have anything to worry on the inventory side actually realistically.

Okay. And just one last question from my side, sir. Like you're seeing the way like ASICs are coming as an alternative to GPUs, and like there is a big risk that GPU demand might just come down H2 of '27. And how are we placing ourselves for that? Because we do have a very good relation with NVIDIA, but are we looking to build relations with people who are in ASICs, like Google or Broadcom? Is that a plan for the company?

Actually, really speaking, if you really see the kind of -- today, you are seeing that memory shortages, shortage of storage and everything is happening because of the AI demand surge, okay? So what my personal feeling is that we are at the tip of the iceberg, actually, really speaking. People may talk about bubble and all, but basically, what my feeling is definitely AI has just started. And basically, if you see the demand, the worldwide demand, that answers it very well. Nobody can sustain that. But there is a wishful thinking that we need a substitute, definitely. So Netweb is a very open company. We are not married to anybody that we have to work with only NVIDIA or somebody else. So we are very clear, and we are always open to working on new technologies. The only thing which we work is that we work on complete technology indigenously. We design our hardware, we manufacture our hardware, our software, everything in India. So basically, it may be Google, it may be anybody else, we are more than glad to work. If there is market adoption and market dynamics desire that, we are fully capable of doing that.

The next question is from the line of Akshay from AK Investment.

First of all, congratulations for the great set of numbers. Sir, I was just having a question regarding our order book. Our organic order book is strong. And obviously, the L1 is -- combined is around more than INR 800 crores. But for the strategic order, are you seeing any kind of deal or any big size of order for the next -- longer term for next 1 to 2 years?

Yes, definitely, yes, because basically a lot of discussion is going on. There's a lot of activity happening. But strategic orders, we are not guiding as earlier. Strategic orders we are announcing as we are winning it. So we'll maintain that same stand.

Okay, sir. All my other questions have been answered.

The next question is from the line of Anand B. from KSEMA Wealth Private Limited.

Can you hear me?

I can hear you very well.

Yes, sir. Congratulations on a good set of numbers. I have 3 questions. The first one is regarding your import component, sir, and your hedging quality -- hedging policy for that. So do you have a hedging policy for any import -- the prices of any import corporate fluctuations? And just give a sense of what you have in that.

We have a hedging policy for currency fluctuation, the CFO will elaborate.

Yes. So there is a hedging policy, very well adopted. And to talk about it, we also have forward contract as on December end, which close to like cover our -- 60% of our payables pertaining to the import payables. So we are very well monitoring the situation on currency and doing the effective hedgings wherever necessary. And just to apprise, there is an MTM gain also, although that's unrealized, but it comes out to be close to INR 2.8 crores of gain, which is appearing in our other income category.

So we -- yes, we have a clear hedging policy, and obviously, the accounting is done as per the accounting standards.

Okay. Okay. That's good to hear. And second thing, in your first quarter con call, you mentioned that you have some plans regarding quantum computing. Can you just elaborate a bit on like what sort of plans you have in quantum computing? Is it like making quantum computers or related to software in quantum computing? Can you just elaborate on that?

Actually, then also I told you, please have some patience. Once we have the complete quantum policy, we will come to you, and we will let you know. For basically market interest, at this point of time, for competitive information, we'd not like to share our plans on quantum as yet. But definitely, we are working on the background. Once we have it ready to disclose, we'll disclose it.

Okay. Okay. Okay. That's fine. And my third question is, today, you made basically -- you made -- were saying that, okay, like for FY '26, the topline growth will come to around INR 2,000-odd crores. So -- but would the revenue go beyond that? Or are you still sticking to around INR 2,000-odd crores topline growth in FY '26?

Basically, as earlier also, we don't guide by the final number actually. You're already seeing the company growing at a phenomenal rate. So definitely, basically, we will only guide that our growth will be between 30% to 40% CAGR on the organic front. We will still maintain that.

The next question is from the line of [ Shashank Jha ] from [ SB Capital ].

Yes. Actually, most of the questions had been answered, but I wanted to actually, sir, understand what exactly you do in AI system? Like if you get an India AI order, so are you providing GPUs or you are doing model development? If you are providing GPUs, then why depreciation is not there?

So basically, you will have to understand depreciation is not there, that my CFO will answer you. But basically, what we are trying to do, you need to understand that. We are designing the complete AI server actually, okay? Basically, on the NVIDIA and all these people, we work with them. We have expected the road maps around -- more than around 18 months in advance, wherein we work with all the new design and architecture. We developed a very -- we will develop a very efficient product. We then -- basically, once the design is done, then basically, we buy chipsets from various technology providers. And then we have our own manufacturing capability, where we manufacture it, and then, we finally sell it, okay? And once we sell it, basically that is along with the GPU. GPUs is only component of the server. GPUs by itself will not run actually. They need to be completely a part of the server actually. So GPU come as chip to us, okay? Then that get integrated into the servers, and then, we sell it to the customer. So the ownership is not ours. Once we sell it to the customer, customer runs it -- runs the GPU. Maybe I'll ask Ankit answer it.

So the business model is, when we manufacture servers, we upfrontly sell it to the customer. For customer, it's a CapEx purchase. It may be a CapEx purchase for customer. For us, it's a revenue event.

Okay. So basically, you are a provider -- service provider here, actually?

No, no, no. We are manufacturers. No, no, we are manufacturers. We are a manufacturer...

Yes. So basically, beneath the application layer, we have got the complete stack which we provide. It's not basically that we are a provider of one type of component only. Beneath the application layer, the -- right from compute, the interconnect, the storage and then the complete AI cloud stack, and on top of it, the middleware. So all these things are basically given in the form of a solution by us. It's not basically just that we are supplying the GPUs itself because as we mentioned that GPUs itself will not alone work in the system. So that's the reason it has to be understood as a complete solution which we are providing.

Okay. Then, what is your role in data centers? Like do you have different segment scopes...