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

Ladies and gentlemen, good day, and welcome to the Netweb Technologies 3Q FY '25 Earnings Conference Call, hosted by IIFL Capital Services Limited. [Operator Instructions] I now hand the conference over to Mr. Hardik Rawat from IIFL Capital Services. Thank you, and over to you, sir.

Thanks. Good afternoon, everyone. On behalf of IIFL Capital, I welcome everyone to Netweb Technologies 3Q FY '25 Earnings Call. We have the pleasure of having with us the senior management team of Netweb Technologies led by CMD, Mr. Sanjay Lodha; CFO, Mr. Ankit Kumar Singhal; Whole-Time Director, Mr. Navin Lodha; Chief Sales and Marketing Officer, Mr. Hirdey Vikram; and Head of Uirtus Advisors, the IR advising firm, to Netweb Technologies, Mr. Sanjeev Sancheti. Without further delay, I'd like to hand over the floor now to Mr. Sanjay Lodha. Over to you, sir.

Thanks, Hardik. Good afternoon, and warm welcome to all of you to Netweb Technologies Q3 FY '25 earnings call webinar. I will take you through the business and operational highlights of the quarter gone by. While our CFO, Mr. Ankit will share the financial metrics. We are delighted to report our highest ever quarterly income and PAT at INR 3,340 million and INR 303 million, respectively. Our operating income rose by 60.3% year-on-year for 9 months, financial year '25, reaching at INR 7,344 million. You are aware that India's flourishing AI research ecosystem supported by government initiative and industry partnership presents immense potential. Netweb is uniquely positioned to capitalize on these opportunities through our strategic focus on our three core pillars, that is HPC, Private Cloud and AI. Notably, it has emerged as a key growth driver, contributing to around 14.7% to the company's operating revenue in the 9-month period financial year '25, reflecting a year-on-year growth of 136.3%. Moreover, furthermore, our OEM partnership with NVIDIA, we have established a road map to design and develop AI GPU systems based from the world's most advanced NVIDIA Blackwell GB200 platforms. In line with our growth strategy, export contributed around 7.9% for the 9-month period financial year '25 revenue, reflecting our efforts to expand international market presence and capitalize on global opportunities. It also gives us immense pride to share that in the recently concluded NVIDIA AI submit 2024, Jensen Huang, the CEO of NVIDIA, personally endorsed our AI GPU systems based on our own architecture. This endorsement not only strengthens Netweb's leadership in design and solutioning of AI systems in India, but also positions India to emerge as AI factory of world with indigenous design and manufacturing capabilities. Our strong business pipeline and our order book, coupled with ongoing capability enhancements and product expansion would position us favorably for sustained growth while maintaining our technological leadership. I would like to hand over the call to Ankit to provide the update on financial numbers. Thank you.

Thank you, Sanjay sir. Good afternoon, ladies and gentlemen, and thank you for joining our earnings webinar. Before we open the floor for Q&A, I'll provide a brief overview of the financial performance for the quarter. I trust that now you have had the opportunity to review our earnings presentation press release. While our CMD has already discussed the macro outlook, I will delve deeper into financial performance, providing a more detailed analysis of quarter gone by. Our operating income increased by 16.3% in 9 months financial year '25, reaching INR 7,344 million. Our operating EBITDA for 9 months financial year '25 increased by 61.4% Y-o-Y reaching INR 1,002 million. The operating EBITDA margin for 9 months financial year '25 stood at 13.7%. Profit after tax, PAT for 9 months financial year '25 increased by 54.6%, reaching INR 715 million. PAT margin stood at 9.6% in 9 months financial year '25. Return on equity for December '24 was 20.9%, while return on capital employed for the same period was 28.2%. Net debt for December '24 was a negative INR 737 million as compared to negative INR 664 million in September '24. Kindly note that this net debt calculate excludes unutilized proceeds from IPO. The PAT conversion cycle for December '24 improved to 88 days as compared to 100 days in September '24. We remain committed to our growth pillars with a clear focus on achieving sustainable growth and long-term profitability. With strong quarterly and year-to-date performance supported by our healthy order book and a robust business pipeline, we are confident in delivering significant revenue and profit growth for the current financial year. With this, I now hand over the call to Hardik Rawat.

Thank you. We can now proceed to the Q&A session.

[Operator Instructions] The first question is from Aman Soni from Invest Analytics Advisory.

Am I audible, sir?

Yes.

Congrats for a good set of numbers. And I have a first question on the HCS side. So what percentage of our revenue, particularly came from trading firms, particularly from the HFT side, sir?

From which side?

HFT, high-frequency trading?

Yes. Actually, we don't segregate our revenue in terms of basically as regards to the HFT vertical separately because basically, there are customers -- we have some large customers there. And basically, like Rabiton, NK Securities and all. But basically, we don't segregate our numbers separately for the HFT domain, particularly. But basically, they are our customers for our two segments. One is the higher -- one is the high-performance computing that is the HPC and second is the Private Cloud and MSCI. For both the two segments, they definitely goes into the HFT segment.

Understood, sir. So sir, like recently, the change in the expiry. So do you see any kind of slowdown happening in this particular category?

I don't think so, basically as regards -- their algos and all those, they are trying to work actually, but basically, HFT, the customers are robust and they are already -- they have been investing. They have been getting orders from them, and they have been investing actually into this. So primarily, we are not into the transaction side of it. Please understand that. We are primarily -- basically we help them so as to basically develop their algos in a better way so that they get better performance, better results once they basically, they use the algoso. The development side of it, wherein they use a supercomputer, so as to basically improve their algos along. So in that segment, we are pretty fine and there is a regular demand which we are seeing. And plus these people are also not only restricted to India, our customers are restricted to international, also. We have customers like basically Tower Research. We have customers like Societe Generale and basically, so it's a very, very mature and a large range of customers which we have.

Understood, sir. And sir, lastly, on the order flow side, like, do you see any substantial order flow coming or any color on it, like if you see as compared to last quarter also, our order book is quite a bit constant. So how do you see it?

Yes. Actually, I have to understand my order book actually. It looks to you it is constant, but it is not constant. Like I'll give you an example. Like basically, like what happened is, we -- the first thing you have to understand that my order book is not like basically, which takes around 6 months to 1 year to complete. The life of my order book is somewhere around 12 months to 16 months, okay? And maybe somewhere sometimes it is even 8 months, 8 weeks, 8 weeks to -- 8 to 12 weeks to 16 weeks, actually. So please let it complete, okay? So what happens is that, like, basically, I had an order book of around, I think, INR 370 crores last quarter, okay? So basically, out of that, already INR 250 crores already got converted and got built. So that's the reason you are seeing a term plan, the numbers are approximately. It will be INR 225 crores also. So basically, that got built. So basically, if you really see out of the INR 334 crores, that basically is around INR 225-odd crores would have got built on the order book itself. So the current order book is INR 360 crores. So what happens is that order book has just doubled actually in real terms because INR 225 crores went out of it and basically more got added. So still, it is at INR 360 crores. So basically, if you really see, every quarter, the churning of the order book is happening, the order book is a new order book for me. It is not the old order book. I think only 20% or 30% of the old orders are there in the order book, all the rest of the orders are new. So basically, you have to understand that. It's not like basically, we are not kind of a company which is just trying to have an order book, which will get some buildup and we keep on billing something of that nature, doesn't happen that way. So basically it gets converted into our revenue as well. So we are very pretty happy with the growth of [indiscernible] because basically around INR 250 crores got billed, but still basically, I'm standing in my order book is still standing at INR 360 crores, that itself say that, that my order book is very, very robust and the pipeline is helping me grow.

The next question is from Hardik Rawat from IIFL Securities.

Congratulations on a good set of numbers. Sir, I wanted to ask, firstly, the state of our current order book, and I think you just alluded to that. So our --the execution cycle of the current INR 360-odd crore order book would be roughly 8 to 12 weeks. Would that be correct to understand?

Can be, average you can take around 12 weeks. It is between 8 to 16 weeks. Some orders get executed within 8 weeks. Some orders get executed in 12 weeks. Some in 16 weeks. So you can take average, you can keep it around 12, 14 weeks approximately.

Got it. And sir, another thing that I wanted to ask was that our EBITDA margins have dropped on a sequential basis. So I understand that 2Q was an exceptional quarter in terms of margins. But even on a Y-o-Y basis, there's like a 30, 40 bps contraction in margins. What has led to this contraction for the current quarter?

Yes. So basically, I will handle the first part and then maybe let Ankit take the technical part of it. So what happens is that, basically, you have to -- if you see year-on-year, actually, really speaking, the margins last year and this year, I think margins have really gone up a little bit rather than going down. So you should take a note of it, Hardik, that basically last year, if you compare it to December last year to December this year, the margins have really gone a little bit up only, but very, very marginally. So margins are constant. My first one is that. But the second question is while basically this quarter, the margin did not expand much is that, that we were executing from large orders. And sometimes what happens is that our kind of business, you cannot judge from quarter-on-quarter basis, okay? So basically, you have to see it on a basically year-on-year basis. I have been telling it again and again. And basically, once we are executing some large orders, it can be some bits up and down. That can always happen. But still basically I'm very confident of maintaining a 14% EBITDA, which I have always guided, 13% to 14% I have been guiding. But basically, I'm very confident of maintaining that 14% kind of EBITDA on complete year numbers.

So Hardik just to -- sorry, Hardik, just to add, if I'm audible, my operating EBITDA margin has gone up from 13.6% to 13.7% on a Y-o-Y basis. I think you may be looking at an EBITDA margin, which includes other income, that's why you look at is that you have to look at the operating EBITDA margin. Other income will go down because we are utilizing our IPO funds and obviously, that will go down. The other income will go down.

No, I was referring to.

Hardik, if you want to add something.

EBITDA margin. Yes, Ankit?

I wanted to add on similar lines that on operating EBITDA front, our margins have improved. And even if we see in absolute terms, we have grown by -- we have grew by 61%.

Got it. That's helpful. Another thing that I wanted to understand is that are there any large project orders currently in the pipeline that are -- that we're expecting to convert to our order book anytime soon?

I think, Hardik, the numbers which we have shown, basically, I think what is the L1 number we have shown. So basically, the INR 360 crores is the confirmed order book, which we have, and we are basically L1 for around INR 340 crores, okay? So basically, this gives you a very robust outlook. At least I don't know whether how you're feeling, but at least I am feeling that basically, this is a very, very robust outlook, which is -- which you have, because INR 360 crores plus INR 340 crores made a huge number, actually, really speaking. So L1 is basically the orders which we have won, it may take some time for them to come. But basically, we expect some of them to be coming in this quarter also. So I think -- and as regards to your question on large orders, we don't have basically -- we are working on several orders. And basically, orders are normally -- I don't think we have specific announcements on any orders as such.

Got it. Next, I wanted to dwell up on the exports business. It's good to see that exports you had mentioned that we'll see some exports, and we already -- 9% of the top line is being made by exports. Any focus or vision which in terms of what this exports as a composition of revenue could be land at in FY '26? And are there any export orders in our current order book or L1?

Yes. First thing is that, to answer your question, the last question first, that there are some export orders in the current order book. But basically, as regards what we've also personally -- what I have been guiding from day 1 only that we are trying to build up capabilities so that we can start exports. So basically, you should be happy to note that, that we have already started that. And basically, because as I told you that our products are very well made, and we have a complete solution. So we have huge demand. but we have to clearly start basically so as to find ways so as to service them internationally. And since my products are being sold to large enterprises only and mature enterprises only, then basically it makes sense that I make a good foothold outside before I start selling it. So I think basically, it is in the same direction we've started doing it, wherein basically, if you see private cloud and FCI, which is again a very, very good segment for us, and we have started to push it and the efforts have started. But if you ask me to guide approximately what I will say it would be around 10%, 11% of my revenue only because we are growing at you please understand, we are growing at a rate of 30%, 35% CAGR. So my domestic sales is also ever growing. So in that situation, I think export, I don't think will be around 10% -- more than 10% to 11% of my complete sales for the next 1 year or so, something around that.

And the margins, like you had mentioned in the previous call will be very similar to domestic at least starting out?

Yes. Actually, please understand that basically, I have to price my -- because it's not that I'm not trying to -- it's not a kind of a competitive bidding or something of that nature. I have to price my products very right, so that there is an interest in the market. And people feel value in that, basically my products, actually, okay? So I can definitely command more margin. I think maybe 1 quarter if I want to expand my margin, I can do that. But that will spoil -- the customer will -- will not feel good about it. And basically, what happens is that I see it as a long-term strategy, wherein customer needs a new solution, he comes to me because he knows that I start my product at a very, very appropriate margin. So that's the reason that is happening. So my pricing strategy for domestic and export will remain the same. It can go a few basis points up actually because as I've been mentioning to you, as the AI business will be growing, that will push the margins a little bit on the upper side. But basically, overall, if you see the margin profile will remain the same.

Understood. That's helpful. One last question will be with regards to revenue. So we are now at the end of the third quarter, and if you want a year-to-date basis, if I look at, our growth has been 60% on -- for revenue and roughly 5% PAT. Any guidance you'd like to give or maybe update in terms of the full year FY '25 numbers on revenue if you want to delve into that?

Ankit, actually -- sorry, the Hardik, actually the thing is that...

[indiscernible].

Go ahead, Sanjeev.

I don't think we are very keen to give near-term guidance. It is too much of trying to speculate. I think the -- our long -- medium-term guidance remains to be 30% to 35% on the revenue. We would not like to guide absolute near term.

The next question is from Akshay Kaila from CD Integrated Services Limited.

Sir, am I audible?

Yes.

Okay. Sir, I have a couple of questions. So sir, my first question is regarding the -- recently, there was a news of restrictions from the U.S. regarding the export of the GPUs and our country is in the list of 50,000 GPUs per year. So could we -- in the future, can we have some supply chain crunch or something like that and due to that, we do have our restrictions in the growth?

Thanks for the question. Just to clarify, we don't see any problem coming our way because anyway such restrictions are largely for those countries, which are expected to use such GPUs or such conference for different kind of user scenarios. And U.S. is also trying to regulate this only for that purpose. But anyways, when there is an engagement at the government level or even at a large enterprise level, there is no such problem expected to come our way. So that's very good. We don't foresee any challenge for our business in coming quarters.

To be as explicit, actually, really speaking, like U.S. government doesn't want it to be one of the GPUs to be sold to the negative countries, which they don't want to sell them actually. I will not like to name them very clearly. The list is already available. So basically, that's the reason they want to restrict it so that it doesn't get diverted to those areas. We are always -- basically, they are always more and welcome to use for the AI for the government use for the enterprise use and all that, there won't be -- there is no restriction, particularly on that. And basically, there are -- there is a lot of compelling technologies which are available. So I don't think there should be any challenge on that.

Next question is from Depesh Kashyap from Invesco Mutual Fund.

Sir, just wanted your thoughts on the India AI mission, which has got an allocation of around INR 10,000 crores since you do not directly bid for the tenders, right? So I just want to understand what is your addressable market or your role in this entire mission? And when should it start flowing through your pipeline order book and the revenue, please?

Yes. So basically, actually, India AI mission is a large project from the government. And actually, we are very closely working on it. And basically, there are two parts of it. One is government wants to set up its own complete 10,000 GPU cloud actually, which can be made available to the AI people, AI developers and start-ups and all that. I think -- basically, we had already built AIRAWAT, which was a PUC for that purpose. And today, basically, AIRAWAT basically full with the queue for more than 6 months people have been waiting. So there is a huge demand. So government want to set that up. And basically, we are very much instrumental in setting that up. So basically, all the 10,000 GPUs are not going to come in 1 day, but basically, that will definitely -- to be split between the time period cannot be defined maybe 1 or 2 years approximately. So we are part of it. It will be -- government is seeking advices from us on the design, and we are trying to give them the advices on that. And the complete RFP should be expected sometime in this, in 2025 mid approximately. And then the tenders will roll out, and we'll definitely bid for those tenders, and will basically help government to set those kind of basically GPU clusters. So as we have not included it in the pipeline, we have not included it in our funnel, because it's a large project. We don't want to overshadow our projects, our funnel and all that. So it will basically be added as soon as the RFPs are there. As soon as we start bidding, it will get added. I hope that's the most transparent answer I can give you.

Yes, sure, sir. The other thing -- so right now, 19 companies have according to press article 19 companies have bid for this AI mission. So if my understanding is correct, we will be working with -- partnering with one of the companies who are there, right? So any color on how many companies are you partnering with? Like how much of this 10,000 GPUs you can actually address in the next 2, 3 years?

Actually, this tender is not for 10,000 GPUs. Please understand that. Since the government cluster is not ready. That's the reason they have come out with basically a tender, wherein they -- it's a stop arrangement.

It's an interim arrangement, actually. This is not the RFP. This is just the RFP, which is basically for the impairment of cloud service providers, who can in the -- for the current scenario to address the needs, they can at least provide some GPUs available over the cloud. That was the purpose of RFP. So the current -- the tender which you are seeing, and where you mentioned that there are 19 participants out of it, 13 have got qualified. There is only for that purpose. This is not the RFP we are talking about.

Okay. Okay. So you will be participating directly in RFP whenever it comes?

Yes. I mean, depending on how do we strategize, we can decide. But yes, I mean, we will be -- our complete solution will be -- will qualify for that. That is something which is clear. So whether we participate directly or through SI partners, that we can decide.

Understood. And secondly, I just wanted to understand, I think your cash position has improved this quarter and particularly, your debt has also increased, right? And I think your interest cost also increased. So just want your thoughts on why have you taken the borrowings when it's such a ash rich company?

So okay. So look, yes, definitely, our cash position has improved. And as far as borrowings are concerned, so look, we are working with one of major banks in the country now, and we have got the kind of CC limits with them. So this quarter collections are good out of relation. We have to maintain some kind of borrowings. So we have just borrowed INR 10 crores, which is basically, it gets refunded in the next week and this quarter itself. So there is not -- as such, we are in need of borrowing compared to this December closing.

Got it. And now that you have done with the SMT line, there's no extra CapEx that is required for the foreseeable future, right?

Yes. So SMT line CapEx is as per the IPO proceeds that we have planned, and it's going to happen in the line with the objects that we have maintained.

So basically, CapEx is almost all done, maybe around INR 10 crores of CapEx is already funding and that would be at the most will be coming up.

The next question is from Aditya Moona from Yes Securities.

Congratulations on an amazing set of numbers. My first question was regarding the order book. Could we get a bifurcation as in the current order book, what is the bifurcation for the HPC segment for the private cloud? Could we get some bifurcation on that part?

Since we have already mentioned that we do not do the bifurcation in that manner. So for the order book, there is no such bifurcation which is done at our end. So probably you can basically understand that the pillars we have been talking about. So they correspondingly contribute in that proportion only. So that kind of guidance we can give, yes.

Okay. The same I think we can understand then for the pipeline and the L1 orders, correct?

Yes.

Okay. My second question was regarding -- so basically, we've that AI segment is growing at a substantial grade. My question was regarding the HPC and AI systems. So do we see any further improvement happening in this segment in terms of growth, in terms of the revenue growth?

In case of HPC, are you referring to?

In case of HPC systems and private cloud. In these three segment, the AI Systems is growing at a substantial rate. And we see that it's now.

[indiscernible] available actually. In case of HPC systems as well as for Private Cloud and HCI, and I think we have always spoken about how our pipeline is growing in case of each of these product lines. So answering your question, yes, there is an absolute headroom available for both the product categories for us.

So basically, if you see the presentation very clearly, it will show you that basically, both these categories are still contributing around 32%, 35% -- 35% to 36% segment, would -- each of them around 70% of revenue is still coming out of them and still -- and the company is already growing at 35% CAGR. So definitely, these segments are also growing at almost all at a similar rate, and we see a huge potential. You know how the data center is booming. In Vikram Space Center we recently -- we just basically executed. So basically, that again was there. So there is a huge. So both these segments are also growing. But AI definitely, we see a more momentous growth actually.

Okay. Got it. Got it. My last question, which you have already answered, but I just want to follow back on that was regarding the restriction from the United States on the GPU segment. We don't see any risk arising from NVIDIA as a short-term or a long-term period, correct?

No, no, not at all, no risk at all. I have already answered it -- Hirdey, already answered it clearly.

The next question is from Sandeep Shah from Equirus.

Yes. And congrats on a healthy execution again in this quarter. Sir, I want to dwell more in terms of the export. That is very pleasant to see that 9% of the revenue has come through export. So can you throw some light which country has contributed bulk of the export revenues? And how are you looking to strategize in terms of scaling? You have already answered that in the next 1 year, it would be 10% to 11% of the top line. But just wanted to understand which country and which segments, the demand is coming in terms of the export, either Private Cloud, AI or in terms of the supercomputer?

So basically, as I mean -- Sandeep, thank you for your greetings and complements. So basically, if you -- the business is coming primarily -- most of the export is still coming from the -- as the company has been targeting from the private cloud and HCI actually, really speaking. And the areas also just as per our focus, we have been speaking about it that we want to go -- we want to do with the exports to the Middle East to U.S. and to Europe because basically, our products are very matured and we can try to basically send it to the developed nations. So major contribution from our export currently is from Middle East and some part is the U.S., actually, to answer you.

Okay. Okay. And the verticals where you have sold in the -- especially in the U.S. would be what technology or some other sectors?

Technology, IT, yes.

Okay. Okay. Okay. And the second question is, we have already launched our architecture on the Gray SOFA GPU. So just wanted to understand the client response in terms of that? And is there any competitive pressure? And when do you expect the architecture on Blackwell GB200 to get ready and how people are pursuing because NVIDIA at a frequent and fast rate, they are actually launching new innovated platforms. So in that scenario, if the demand is getting cannibalized because of the new platform where we have already worked on a whole architecture.

Yes. So basically, NVIDIA works on a very, very dynamic mode Sandeep ji, as you may know already. So basically, GB200 is the latest platform, which they have just -- just -- they started talking about it sometime in November on the new architecture, and we started working along with them at that point of time. So I cannot tell you particularly precise this. I think we have a very strict NDA again. So I can only tell you if you time to market, it will be along with the worldwide launch of the architecture accordingly, we'll be doing it. So we are very much in time to market. And I can give you some idea that within next 4 months, you should have the GB200 platforms rolling out basically from our side. We are seeing a huge traction in demand on it, and definitely, we are ready to address that.

Okay. Okay. And any -- the question is in terms of Grace Hopper GPU, how is the response, especially in domestic market once we have launched it?

Yes. So Grace Hopper, we have already launched. Grace Hopper, we are getting good responses. We are working on basically large requirements because we can understand that these kind of architectures are being used primarily for large requirements actually. So we're working on a couple of large requirements, and we are seeing a good demand around that and that those will get added to our order book.

Okay. Okay. And another last question is, generally, in the fourth quarter, we see further improvement in working capital with some collection comes slightly better in the fourth quarter versus the earlier 9 months. So whether that trend will continue in the fourth quarter as well? And is it fair to assume the PLI accounting and the claim will happen in the fourth quarter, that would also be additional tailwind in the fourth quarter?

So Sandeep ji, I would like to mention here that, yes, we will maintain the collection trend that we have done in last year as well. As you understand that we have maintained the share of the government customers this year as well. So the collections usually happen in the last quarter as compared to the government clients. So we will definitely be in a better shape in cash position. And for PLI thing, it's in the process, we'll obviously tracking that thing. But overall, yes, collections, cash conversion cycles will improve.

Sandeep ji actually, you have to understand that, that we are a growing organization. We have to focus on growth and I have -- my history of bad debt is very, very poor. So I'm really not worried basically, even if basically, if you see last quarter, my capital working cycle improved, okay? And basically, I'm really not -- I don't -- I drive my business, cycle under, you should understand -- you should give us the confidence that we are growing at such a huge rate. Once we grow at the huge rate, actually, my first focus is growth, actually. And I no breadth of cap. I don't have any debt. So basically, I don't have much of a pressure there. Though I'm not a finance guy to commit to this. But telling you very clearly, this quarter also, I'll be clearly focusing on growth, as I have been doing in the past, and I'm very sure, definitely, cash convergence cycle should also improve.

Next question is from Onkar Ghugardare from Shri Investments.

Congrats on a good set of numbers once again. My question was regarding you have already -- you have been maintaining this 30%, 35% revenue guidance. So just wanted to know, not quantitatively, but qualitatively, the profitability will be in the similar lines? Or like is there any scope to expand in 2-year time frame?

Yes. Actually, As I answered, we price our product very rightly actually, as I have been telling that again and again. So basically, the profitability may go up by a few basis points, but would be in the similar line, actually, maybe around 14% EBITDA basically which we are promising, well around that, it will be there.

So basically, revenue and profitability will be on the similar -- growing on the similar lines. Maybe, profitability...

No, no. Revenue guidance -- revenue guidance will continue to 30% to 45% in the medium term, okay? And that's where the guidance is, the EBITDA margin may be around 14%. So we are not expecting significant expansion because when you are growing so far, you will have to maintain pricing, which is comfortable to everybody.

Thank you, Sanjeev, for clarifying that clearly.

Next question is from Ankur Jain, who is an Individual Investor.

Am I audible, sir?

Yes.

Yes. Yes. Sir, actually, like wherever I have heard the last con calls, you have always maintained that the second half of the year will definitely be better than the first half. And around 2/3 of the business should come from the second half. Am I right, sir?

Yes. But basically, every time it doesn't remain the same, but basically, you have seen results already. The first -- Q1 was very good for us this year. But the Q2 also seems -- Q3 also seemed to be good. We did good substantial growth in that. So -- but basically, I don't think we'll be able to maintain that 1/3 or 2/3 a lot, I'm not sure about that.

Okay. So that's what I wanted to ask because like for the fourth quarter, it would bring a lot of pressure on the expectations for the revenue as well as profit because like if we see it in that terms, first 2/3 1/3 around. So it means it would not be the same this year, right?

Which will -- it will not impact, if you look back to the last quarter's conference call, this question was asked and we did say that it will get tempered because in the first half, especially the last quarter, the growth was very high. Obviously, finally, whether revenue figure is sitting in this quarter or next quarter is one cutoff date, right? If the billing happens on 30th of September, it goes into the first half. If it happens on 1st of October, it goes into the second half. So while generally, it has been 1/3, 2/3, but there may be years when it could be different, right? And finally, that's why we always look at Y-o-Y -- YTD, Y-o-Y rather than quarter-to-quarter [indiscernible].

Okay, sir. My second question is that, sir, around the INR 47 crores is remaining annualized out of for the construction work and around INR 145 crores for the equipment. So means is there -- can we expect some another SMT line or something like that in some coming 3, 4 months?

So I would like to correct here, it's not INR 145 crore, it's INR 145 million. So all this together, we have INR 21 crores of unutilized [indiscernible].

No, no. So we are going to stick to our object. So there is nothing new which is coming, which is just whatever was envisaged in the ofer document, we are going to complete that. Most of it is complete. Some of the payments are to be made, all that once happened, it will all get capitalized. Mostly, most of the capitalization will happen in the current financial year.

The next question is from Deekshant B. from DB Wealth.

Yes. Congratulations, sir, the rate growth by our company has really been commendable. I have two questions. Firstly, regarding -- with our remuneration package for our Chief Sales Officer, which is Mr. Hirdey. I understand that the growth is being driven by the great sales work done by the team. I want to also understand what part of his compensation package has ESOP structure linked to it.

Basically, I think we -- this was already discussed in DRHP and basically con call has to disclose -- the public information has already been done.

Sir, could you please help us out understand this? Because it is the largest remuneration at INR 14.63 crores. And we want to know that what is the future outlook on the equity component given to our sales people and our research people, which will be Mr. Mukesh Kola.

Actually thing is that no fresh equity has been given as such. Whatever was given, basically, whatever was given from the ESOP pool was given before the IPO actually.

Okay. I completely understand, sir. It's just from the perspective of retention as well as expansion. That's the whole logic for asking the question. Nothing else there. Sir, the second question is on our growth. As you mentioned that we are growing enormously. And we are now focusing towards our export markets as well. The guidance has been in the 30% to 35% range. And forgive me if this sounds too ambitious, but what is stopping us from growing at 50% of the market is having such a good sale trend, if we are able to do that. Is that also aligned to things like that, sir?

Because if you really see, this is the eighth quarter result, which I have presented, seventh or eighth results if we have presented actually. So you are seeing a continuous growth year basically, quarter-by-quarter, you have seen it, actually. So basically, we are dealing with enterprise customers. We are dealing with large government customers and businesses with primarily with more mature people actually and enterprises. So what happens is that the business outlook is also to be in a mature fashion. It cannot be just not like kind of a contract manufacturing or something wherein we can just increase it. So basically, I think the healthy growth rate, which we are clearly trying to maintain is the long-term perspective which we are trying to maintain. So I'll still stick to that 30% to 35%. Though we are striving to grow even faster, internal all efforts are there, but the guidance would be around 30% to 35%.

Great sir, 100% agree. Sir, just one last question here on the government RBI basically has announced that they will be now focusing more on creating cloud infrastructure or giving banks some cloud infrastructure on their end. Are you seeing any sort of interest from RBI on this particular front related to Netweb. I asked this also because we have worked so well with the government sector, and we have such good ties with the government sector. That's the whole thought process here. Are we seeing any growth there?

Yes. See banks are already getting on the cloud or private cloud solution is very, very appropriately designed for that as basically some of the large GSIs whatever basically their core banking software, they are trying to use our completely private cloud and HCA solution. And basically, we see a lot of traction around that side also, but we actually like to club it into the private cloud and HCI segment. And basically, that will really be part of it. And as you rightly said, definitely, we are seeing some kind of a basically a good traction coming in from that segment.

Next question is from Akshay Kaila from CD Integrated Services Limited.

Sir, my question is what might be our capacity utilization in the quarter three? And since we have commissioned the line in May 2024. So do we have any capacity constraint for the near term?

Yes. Actually, as I have been telling you from the time of IPO only, we are not a capacity-based company. We are a capability-based company. So basically, capacity always we have actually, but basically, we have new capabilities because we don't -- we are not worried about capacity. Had we been worried about capacity, we would have been from [indiscernible] contract manufacturer or something. So capacity is not a barometer at all for us. Whatever basically, we need for production, we have that capacity. Primarily, we try to invest in capabilities. So basically, in case we want to do something latest wherein we require new machinery, so as to develop that capability in India, we have a Make in India company, then we try to invest more in capabilities and capacity.

Okay. And sir, my second question is regarding the growth guidance that you have already answered that and maintained the growth guidance from 30% to 35%, but I was referring to some news and they were saying that India is growing at a very exponential growth rate. And for the next 2 years, data center and AI capacity is going to increase by around 55% to 60%. And for the longer term till 2030, it is -- it will be growing at 29% to 30%. So are we being conservative on the growth guidance over there? Or can we -- can you put some more color on that?

Actually, whatever I'm guiding, I'm guiding on terms of long term. First thing is that. And plus, basically, we are not only into AI, AI is trying to build up slowly AI is showing more growth, but we have other segments also like supercomputing and private cloud and HCI, which we have been doing for years together. They are also growing. So I think I'm very, very optimistic about what exactly the guidance I'm giving on growth. I'd like to maintain that.

The next question is from Aman Soni from Invest Analytics Advisory.

Just one question on the order inflows. Like I missed that like you communicated on the project that we are going to get. So what new projects are we going to get in next couple of quarters, sir?

I do not understand your question. Can you repeat.

About some large orders [indiscernible] we have responded to that. So as we have mentioned that our funnel and overall pipeline and order book, that is basically quite in a sustained manner. So we have not disclosed anything about any specific large orders as yet. But as you can see, the order book, the L1 pipeline, everything is basically entire. So that gives you enough confidence that we are progressing.

the next question is from Navneet Singh, who an individual investor.

So actually, I'm intentionally learning about the capability expansion that we have in the near future.

So capability expansion, I think we have already mentioned that the new setup with the new plant which we have set up, that is capable enough to take us to the journey of INR 2,000 crores and all. So that gives enough confidence that we are capable enough to sustain up to that kind of growth level. And beyond that, yes, we are working on the strategy to basically go beyond that as well. So that is in progress.

So is there any guideline that we will be utilizing that INR 2,000 crores, I guess, annual sales, right?

Yes. So basically, we're already utilizing their capabilities. The new NVIDIA gray super chipsets, which we are making, the new Blackwell, which we are working, they are all working on that only. We are working on all the latest chipsets and technologies. So what Hirdey mentioned is that, that basically whatever investments which we have made, that will sustain us till this revenue of INR 2,000 crores. And when will we reach INR 2,000 crores, that you'll have to do your mathematics yourself.

Understood. Got it. So any guidance that then we will be reaching the annual sales of INR 2,000 crores, are we seeing at our financial year '27?

I would like to give you this -- I would like you to work on this mathematics yourself. I have already told you 30%, 35% growth.

Next question is from Shubham Karni from CA Financial Services.

am I audible?

Yes.

First of all, congratulations on a wonderful set of numbers. I just had a couple of questions. As you can see, we have improved our cash conversion cycle. So what can we target as the cycle for the next 1 or 2 years?

So Shubham, it's -- obviously, it's pretty difficult to estimate cash conversion cycle because it's a moving trend of the customers coming in and vendors we are paying. So -- but what we can guide is that it will definitely improve because March quarter happens to be a good collection quarter. So -- and we are also going on in terms of revenue. So you understand -- there is always a need of working capital, okay? So it's a mix of a lot of moving variables. So difficult to estimate cash conversion cycle, but it will improve.

Okay, sir. And my second question is apart from the GPO restrictions, as you said there, you won't be facing any problem regarding those. But apart from that, do we see any other geopolitical risk with Donald Trump coming in or anything as such?

I think I personally telling you very frankly, I don't see any kind of basically on the kind of business, which we are doing or any kind of business impact primarily from Donald Trump coming in. He was there earlier also. He's back there again. He has been supported by a lot of business houses. So business will definitely grow. And I'm very sure that will basically -- I think my personal view, if you ask me would be that that the world will become a stronger place, actually, more economic activity will happen that will help everybody to grow.

Next question is from Anuj from A3 Capital.

Congratulations for the consistency for the whole of the Netweb team. Sir, my question is on the network switching side, the sitting side of the business. So the business already the order book has started building up and whether that business is margin accretive?

Yes. So basically, the switching side has always started, but we never wanted to make the switching completely as a box product actually. And we have been targeting only on the high-end part of it, okay? So basically, that's the reason the switching growth you are seeing is a slower actually. But over a period of time, as the high-end solutions basically gets more and more productized and more and more adoption happens, this will grow. But basically, we just don't -- as you know, the philosophy of the company is not to sell boxes. So that's the reason basically you don't see that kind of growth, but this is again a good capability which we have on the networking side of it. Everybody wants to keep their networking switches local and secure. We see a good future potential, particularly on the Make in India switches actually. So I personally feel this segment will keep on growing, but this will grow at a slower rate, not basically at the same rate as the other segment.

Okay, sir. And sir, one more question I want to ask is, sir, the nature of our business is like a project based. We get a project, we complet it and that's done. So I want to know what is the service part of it? Like what is the revenue potential of these services? What is the binding contract like for 3 years or 4 years you have to serve?

Are you talking about the last segment of the business, you're talking about overall basically.

So overall business, like sir that the FCS business or the...

So basically once -- whenever we make a sale, basically, we make a sale of around with 3-year or 5-year warranty and services included actually, okay? Because basically, all this is enterprise actually, and that's how we kill our competition, VMware and Nutanix and all that. So basically, what we do is that we sell everything with a complete 3-year or a 5-year kind of. So we have our own SLAs, which we agree to and the entire services and everything has been bundled together for 3 years and 5 years. But basically, we charge our customer in the very beginning once the product is going out of a factory. So basically, there is no recurring or something of that nature. Everything gets built at the very first level only, but the product is supported for 3 years. Some people go for 3 years, some people go for 5 years. So accordingly, basically, it is being done. I hope I'm able to answer your question.

The next question is from Vatsal, who is a retail investor.

Yes, sir. Am I audible?

Yes.

Yes. Sir, my first question is, sir, Netweb is one of the pioneers in technology in India. So sir, why doesn't the company have a Chief Technology officer?

We have basically because the entire organization is full of engineers only. Just basically having a Chief Technology Officer may fit -- our definition is different. A Chief Technology Officer would have been suitable for a company, which is -- which IP is also part of it. But basically, this company runs on technology actually. So R&D is most important again for us. The operations is very important for us. The sales is also technical. So everything is technical actually. That's the reason we don't have a CTO specifically, but we have a CEO, we have got R&D, we have got -- the sales is also completely technical. So I think that's the reason we don't want to basically make -- have a CTO separately.

And sir, secondly, sir, this transitioning towards exports reflect some sort of saturation in the Indian market?

No way at all. No way at all because I think basically, you asked me that what is the part of my export sales. So I told would to be around 10% only. Okay. So basically, because we want to just close the export markets and also grow our market there. That's the reason there. Basically for last so many years, our focus has been primarily in India, and we wanted to maintain that, but we also don't want to lose on the overseas opportunity. Hence, we also want to do exports.

And sir, with the interim CFO getting appointed. So sir, I just wanted to understand that would a new CFO appointment would be there? Or would we be continuing with internal CFO?

We are still evaluating that and that decision we will come to maybe 1 or 2 quarters.

Next question is from Amit Agicha from HG Hawa & Company.

Congratulations for fantastic numbers, sir. My question was like what is the percentage of your revenue which is allocated to research and development? And the second question was with AI contributing 13.7% of revenue in 9 months FY '25, what growth rate do you see -- foresee in the segment over the next fiscal year?

Basically, as I have been mentioning always around 3% to 4% of our revenue is clearly being spent into the R&D, which we have been following for years together, and we still continue doing that. okay? And second is that basically as your question on AI, AI, as I mentioned to you, it was 7%. Last year, it grew by around 133% and it came to around, I think, around 14.7%. I personally feel by other segments also growing. So by end of the year, it will remain around 15%. Next year, it may basically grow by 2% or 3% further more in the total revenue mix.

Next question is from Deekshant B. from DB Wealth.

Yes, sir. Sir, could you just expand a little bit on our R&D for 5G services?

Yes. Actually, 5G ORAN, we are still working on it. Basically, still the R&D team is still working on it, and we are basically making the product ready. Still under development. Still, I think it will take us at least 1 or 2 quarters more to completely have a product ready actually there.

Great. Sir, what is the target market that we are looking at for the 5G Oran services? And how would it help them grow their business?

Yes. So basically, target markets are very clearly the private 5G kind of thing. We are not targeting any kind of telcos and all that. We are targeting basically maybe all the private 5G users like maybe you can say hospitals or maybe different kind of factories and all those manufacturing and those kind of people. There are some regulation issues also at this point of time with the government, and they are also trying to clarify that so the licensing can become much more simpler and much more -- can be much more democratic. And so that basically, since you understand that, that pipeline, again, in area where licensing plays an important role and so that spectrum movability and all those things would be there. So basically, I think that is there. So I hope I answered your question. So I hope I answered your question.

Got it. Sir, on a question for Mr. Hirdey, sir, what is the sort of growth that we are witnessing on the government orders versus the private orders? Because we had a 40-60 split. Do we think that this split will be remaining the same? Or where is the more interest comingfrom?

So see, the kind of response we are getting, as we have always been mentioning that we provide enterprise solutions. So the kind of response we get from government and enterprises that is alike. And that is the reason that also reflects in our business split as well, divided among the enterprise and government side. So answering your question specifically, response is coming excellent from both the sections of the market, be it enterprise or the government. And we see that the proportion is going to remain the same in the coming quarters also. There can always be a slight change. It can be like 55-45 or 60-40 or 50-50. That kind of split is quite expected. But otherwise, we are seeing large opportunities coming our way from both the markets.

Got it. Another question there is like a lot of changes are still happening in the compute part of the business, even from NVIDIA's end by they are making -- for retail, they are making the compute much more cheaper. Is that the same thing that we are witnessing for the compute on the B2B segment also? Are they changing their B2B business compute cost? Are they making their hardware is a bit more cheaper?

See, basically, what you may be referring to is something which is for the edge side of the overall chain of products. And since we are not on the edge side, so the product you may be referring to is a different category altogether. But if you come to the enterprise side of the products, then these products are rather becoming more, I would say, costlier with each generation passing. So from that perspective, it is not that, on one hand, democratizing of technology is happening, but that is helping us to build solution for almost every vertical of the market. That is how democratization is happening. But from the technology cost perspective, that is increasing.

The next question is from Sandeep Shah from Equirus.

Just on the government AI mission, I think you already said that it could be of 2 types, one where we will directly participate with the government and second, we may do a system integration deal with the other cloud service providers. So in that scenario, are we -- you are saying pipeline may create starting from the mid of this calendar year. So what would be the bigger opportunity? Is it directly going with the government or partnering with another system integration or a cloud service provider?

I think that's very clear that the one which has been -- I'm sure what you are referring to is something that the one which is already there in the market. As we have already mentioned that, that is just an interim arrangement and where the CSPs are being asked to get in panel themselves to provide the interim set of services. And anyway, just to share with you, we are even supporting a couple of CSPs for their solutions also at the back end, so for this piece also. But apart from that, the actual one, the on-prem facility, which government is intending to build, that is something which is going to get released sometime soon. And I think that is where we are going to focus more, and that will be definitely a bigger one compared to this one.

So Hirdey sir, is it fair to assume commercialization for us in this segment may start from the later part of FY '26 or FY '27?

See, commercialization assets, you can say, as we have already mentioned that what we are expecting that RFP should come out sometime next year, I mean, fiscal year '25, '26. And as we have always been suggesting that as of now, we have not taken this into our funnel at all. So anyways also, we are maintaining our growth path. So that's not a problem. But with this coming, we can see that by -- yes, some part of it will definitely start coming into our funnel or will take place, I think, by '25, '26 itself. And it can be maybe third quarter or second quarter that I'm not sure of. But yes, that is how we are seeing the conversion of this opportunity into business.

Fair enough. And the last thing, any diversification within HPC and supercomputer where we were largely focused on government where we were looking to diversify into oil and gas and the other segments. Any progress on that side to increase our addressable market in the supercomputer?

Yes. As we have been mentioning from very beginning that we have been expanding our reach in terms of taking parallel computation or supercomputing technology to different verticals. So oil and gas is definitely one of those target verticals where we have been putting in our efforts for the last so many quarters. And same goes with not just limited to oil and gas, we will also be expanding ourselves in terms of taking our HPC solutions to the other verticals and HFP is another good example. So we are anyways on the growth path in terms of adding new verticals.

We'll take that as the last question. I would now like to turn it back to the management team for closing comments.

Thank you for your time. Thank you.

Thanks a lot everybody that, and a great weekend day.

Thank you very much. On behalf of IIFL Capital, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.