Rashi Peripherals Limited (RPTECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 months FY '25 Conference Call of Rashi Peripherals Limited. [Operator Instructions] I now hand the conference over to Ms. Savli Mangle from Adfactors PR Investor Relations team for opening remarks. Thank you, and over to you, ma'am.

Thank you, Sagar. Good evening, everybody, and a very warm welcome to you all. Thank you for participating in the earnings call of Rashi Peripherals Limited for the third quarter and 9 months of financial year 2025. Before we begin, please note that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinion and expectations of the company as on date of this call. Statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. On the call today, we have Mr. Kapal Pansari, Managing Director; Mr. Rajesh Goenka, Chief Executive Officer; and Mr. Himanshu Shah, Chief Financial Officer. The management will take us through the operational and financial performance for the quarter and 9 months gone by, following which, we will open the call for Q&A. I now request Mr. Kapal Pansari to take us through the company. Thank you, and over to you, sir.

Good evening, everyone, and welcome to all of you to discuss our operational and financial update for the third quarter and 9 months ended December 31, 2024. Along with me, I am joined by our CEO, Rajesh Goenka, and our CFO, Himanshu Shah. And our financial results, media release and investor presentations are made available on our website as well as stock exchange for you to refer. The year 2025 is poised to witness a significant acceleration in India's technological landscape, driven by advancement in artificial intelligence, generative AI and automation. These innovations will enable businesses to adopt a comprehensive 360-degree approach to meeting evolving customer expectation and enhancing value creation. The government of India's steadfast commitment to digitization in recent years has played a pivotal role in positioning the industry for growth, allowing it to outpace global trends. The Union Budget 2025 reflects India's growing commitment to domestic electronics manufacturing, aligning with the vision of Make in India and Digital India. The increase in tax-free income threshold to INR 12 lakh under the new Tax Regime is a welcome step that will drive higher disposable income, directly influencing demand for consumer electronics, IT peripherals and gaming products, which are the key focus areas of architect. Additionally, the government support for electronics industry and its effort to rationalize custom duties on critical components will make local manufacturing even more competitive, strengthening India's position as a global electronic hub. We also welcome the push for global capability center in Tier 2 cities, which will accelerate digital adoption and create new opportunities in emerging markets. This initiative supports the Digital India vision, which aims to empower businesses and citizens across the country. The measures to promote domestic production of critical electronic components will ensure a more self-reliant and resilient electronic supply chain in India, fostering growth in the ICT sector and enabling technology to reach every household. As India continues to grow as a digital powerhouse, the semiconductor industry plays a pivotal role in sustaining these innovations. The government's focus on local manufacturing and investments in R&D will help India emerge as a global hub for semiconductor solutions, driving the future of technologies across industries. While the opportunities are immense, challenges like semiconductor manufacturing and workforce development remains. By addressing these gaps through policies, industry collaboration and upskilling, India can fully harness the potential of embedded solutions and AI technologies, paving the way for a connected and inclusive digital society. In conclusion, the next few years hold great promise for India's digital transformation. As we move forward, the key to success will be embracing innovation, adapting to rapid changes and fostering collaboration across industries. The future is bright and with the right strategies India can shape it into a global digital leader. I now hand over to Rajesh, our CEO, who will discuss operational updates for the quarter.

Thank you, Kapal. I extend a warm welcome to all the participants in this today's call at 6:00 p.m. in the evening, and we really appreciate your participation. Some of the highlights that I wish to give before I move ahead is, as you all know that the overall global market sentiments currently are not very favorable because of the various global scenario that are coming in, and that has some impact in the Indian economy also, particularly in the metro locations. But despite all these global and some Indian challenges, I would not say slowdown. Rashi Peripherals continues to grow so much so that in 9 months to 9 months, we have current growth of 33%, which is much higher than what we had planned. While the growth is sluggish, the prospect for 2025, as Kapal also mentioned, is very encouraging. And all the third-party reports also indicate a double-digit growth in terms of industry in the year 2025 and 2026. We at RP Tech continue to strengthen our DNA, our core, which is our reach, which is our breadth. And as a result, on a Y-o-Y basis, our current reach or the products that we sell are now available in 721 towns of India, which has increased from 705 towns. So we are directly in short selling in 721 towns of India. Even our customer base, our partner base also continues to increase by a similar percentage. So earlier, we had 9,900 customers. Currently, as we speak, we have more than 10,700 customers. And the good thing is that the major customers in terms of numbers have come from Tier 3 and Tier 4 cities where, obviously, we see a little bit extra growth. Another very interesting thing I want to share is a product gap that we had in our solutions as far as ICT industry is concerned, which was printer. We were waiting for years to have printer in our portfolio. Finally, we have now started the formal distribution of HP commercial printers. So now this complete -- almost completes the basket of ICT products for us. On the customer front, we continue to foray into new verticals, new opportunities. And as I mentioned in last quarter also that we forayed into quick commerce. Quick commerce business is going strength to strength. We have added more and more brands, more than double-digit brands. We are now doing in quick commerce, and that business is accelerating. To support this business and our regular business, we've also set up an in-house call center. And currently, we are -- as we speak, we are handling and managing more than 500 inbound and outbound calls daily with more than 96% attendance instantaneously. Further, we also delve about the embedded business. So again happy to share that our embedded lab continues to flourish and -- which is in Bangalore, and we have some very good new design wins, which will help us to get business in near future. Rashi Peripherals further continues our commitment to sustainability by supporting e-waste collection drives. I would remind everyone that all the 52 branches and warehouses of Rashi Peripherals in 52 cities of India are also e-waste collection centers. So anyone and everyone can just walk in and give his e-waste and which will be collected. So with this some highlights, I would now like to hand over to our CFO, Mr. Himanshu Shah, who will walk us through the financial highlights.

Thank you, Rajesh, and good evening to all the investors who have joined today's call. I would like to take you through the financial highlights for the third quarter and 9 months of the financial year 2025. I'm happy to inform you that on a consolidated basis for 9 months FY '25, total income grew 33.5% to INR 107,996 million, EBITDA rose 13.2% Y-o-Y to INR 2,649 million and PAT surged 62% to INR 1,570 million. On a consolidated basis, the quarter 3 2025 looks like total income stood at INR 28,263 million, up by 7.7% Y-o-Y. EBITDA was at INR 699 million, which grew by 2.3% Y-o-Y, and PAT stood at INR 321 million, up by 29.4% Y-o-Y. Working capital days was at 54 days as compared to 55 days in 9 months FY '24, thereby highlighting our operational efficiency. On an annualized basis, the ROCE and ROE stood at 11.89% and 12.89%, respectively, for December 31, 2024. If you look at segment wise segregation on trailing 12-month basis out of our 2 segments, 60% of our revenue was contributed by PES, which is Personal Computing devices, Enterprise and Cloud Solutions. And 40% is contributed by LIS (sic) [ LIT ], which is Lifestyle and IT Essentials. Region-wise bifurcation when we look at 66% of the revenue was contributed by metro regions and rest of -- was from non-metro. Recently -- I'm happy to inform you that recently, we also received rating upgrades from CRISIL and our revised rating like we have entered the AA club and our revised rating from CRISIL stands at AA- Stable from CRISIL A+ Positive and short-term rating to CRISIL A1+ strong CRISIL A1. With this update, we now open the forum for question and answers. Thank you, sir.

[Operator Instructions] Our first question comes from the line of Abhishek Kumar from JM Financial Limited.

I have 2, 3 questions. Actually, first question is actually on the whole GenAI opportunity that is there in front of us. We executed one order in the first half of this year. Just wanted to pick your brain on what do we see going forward? Are there more such opportunities in the pipeline? And where do we stand vis-a-vis competition on the GenAI data center opportunity? That is my first question, and I'll ask after this later.

Okay. So Abhishek, I think this answer is that GenAI/datacenter business opportunity continues to be immense as the deployment and availability of the chips also increases. However, what we can only see that the initial [ Europhia ] was that to set up large data centers at one time. Now it seems that there are phases where the installations will start happening, which I think is a good thing. And the best thing is that the government also has released a tender, which they are very about to award for AI usage for not only education institutes, but other at a very subsidized cost. So as a result, the consumption also will get triggered. So in short, the answer is that yes, it is very positively. It's only that we think that it will be in a phased manner. And to answer your question about Rashi Peripherals, so Rashi Peripherals being one of the leaders in this segment, we are well poised to be, if not the leader, but amongst the good ones is what I would say.

Okay. That's helpful. Any deals which are currently there in the pipeline around data center, et cetera, like the one we executed those large deals? Or they are still some time away?

Yes. So that's why I said that there are a few businesses. I would not call them as deals because they are not very large, but there are a few of them. They are undergoing in phases. And just as an example, Government of India that I mentioned under the AI mission, they have announced 18,000 GPU requirements. But you never know when actually the implementation will happen.

Understood. My second question is on this quarter. The growth for this quarter on a Y-o-Y basis appears a little muted. So just wanted to understand, was there any spillover of orders from Q3 to Q4 that explains slightly muted growth? Or was there a general slowdown in demand that we witnessed?

So if you, Abhishek, compare from Q3 to Q3, then we have almost 7.7% growth, right? So which is not very bad. The truth is that first half of the year, definitely, the demand and consumption was pretty rapid. But as we move post Diwali, the consumption pattern has been a little bit slow, particularly in the metro cities. So ideally, if we go by the market, then we could not have grown. But Rashi Peripherals being highly penetrated and deeper into Tier 2, Tier 3 cities, we could get additional business, which resulted in the 7.7% growth on a Q3 to Q3 basis.

Understood.

And while we speak, I'd just like to add on 9 months to 9 months basis, we continue to have a 33% growth.

Yes, that is well appreciated. I was just wondering on the Q3 numbers, but point taken. One question on margins. If we look at -- I mean 2 parts to this question. One is, other expenditure seems to have gone up, and therefore, ex of other income, the operating EBITDA margin seems to be less than 1%. So what explains that? And a related question is what explains a sudden spike in other income?

So other expenses have gone up majorly like -- major part of it, almost more than 70% has gone up because of 2 reasons. One is the ForEx loss on the big deal, which we did, that has been booked under the other expense head and which has been compensated by the debtor, which is reflecting in other income. So there is a netting of effect in other expenses and other income. Second is the advertisement and sales promotion expenses, which are normally gets reflected or gets netted off with GP. So that is the effect. So effectively, net-net on a PAT basis, if we see percentages may look, as you mentioned, 1% EBITDA looking like is just a fallout of accounting treatment. Otherwise, the impact is not that much.

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

Sir, a few questions from my side. So sir, ForEx losses we have booked, can you just quantify that number of what ForEx loss we have booked? Or is it equal? Like we have booked -- we have about INR 45 crores of other income, which will obviously include normal other income also. So if you can just clarify that, that will be easier for us.

So like in INR 45 crores of other income, the ForEx loss compensated is amounting to around INR 28 crores, and INR 28 crores is the compensated, INR 28 crores.

Okay. And INR 28 crores in other expenses also, which is netted off?

So other is the advertisement and sales promotion, which is another INR 28 crores, which is getting -- gets set up in the GP in our business model.

Okay. So net-net, we had no impact from this transaction, right? Like net-net, we lost nothing.

Yes.

And the other part of other expenses which have gone up is because of your increase in advertisement and sales, that is what you're seeing?

Yes, that's what. Others are normal, like freight, there is an increase of 5%, I would say, from INR 11 crores to INR 16 crores freight, which is on the basis of the sales mix and various sectors, which geographies get delivered in a particular quarter and all. So those are normal business expenses, which happen in normal course of the business.

Okay. And can we expect such because this is because of that one large deal. So for other large deals also, could we see a similar kind of impact coming in the future?

The ring-fencing of risk associated when we take such large exposures, we cautiously and consciously make sure that those risks are being fenced either contractually or in the [ understanding ]. So that's...

Okay. Okay. And sir, how many enterprise do you -- did we do this quarter? Like if you can quantify the enterprise deals, we had a very strong pipeline until H2. So in this quarter, like if you could quantify some deals, that would be helpful.

Yes. So in terms of -- if you see the regular business, if we have grown by, say, about 15% enterprise business, we have grown at about 30%, 35%. But it will be very difficult to quantify a number of deals and values of deals in this forum.

Okay, okay, okay. Great. Okay. That is helpful. And what would be your, sir, debt figure for 9 months FY '25, if I can do, gross debt?

So gross debt is at INR 1,100 crores.

Okay. INR 1,100 crores. And we are expecting this to jump off a little bit more and by Q4 as we are chasing [ below? ]

More or less the same range, I'm expecting in short term until we realize the money is on this big deal and settle those transactions.

Next question comes from Miloni Mehta from Monarch.

I wanted to understand how is the demand for AI PCs going on? And also, how is the replacement cycle playing out? So any comments on those 2 things?

Yes. So Miloni, AI PC, there is publicity everywhere across. However, AI PCs today cost around INR 1 lakh, which is a little bit on the higher side for Indian, not only consumer, but even for commercial applications. So therefore, the percentage takeoff is slower than expected. However, in the coming quarters, we are expecting more affordable notebooks and desktop, particularly notebooks -- AI notebooks to come in and which will actually increase the share.

Okay. And on the replacement cycle demand?

Yes. On the replacement cycle, I think what is happening is currently, the replacement cycle is very slow, but now -- COVID time heavy purchases were done. Now -- and the replacement actually starts from third year onwards. Third year onwards commercial PC starts replacing, consumers start replacing in the fourth or the fifth year. So once the COVID -- post-COVID 3 years complete, the replacement will happen. Second is Microsoft also is going for an upgrade. So that also will trigger a lot of refresh. So the next year, '25, '26, we expect to be a surge in the replacement and upgrade market, and that is one of the reasons all the third-party reports are indicating a high double-digit growth overall in the market.

Okay. Sir, my other question is related to the working capital days. Basically, on a Q-on-Q basis, we see that they have increased from 44 to 54. So do we have any inventory piled up? Or like can you put some comments on that?

Inventories are at almost same level. The only increase is in the debtors where we have experienced a little slowdown in collections, which over the period of time, gets improved. So we don't see any issues there.

The next question comes from Rohit Singh from Finvestors.

I want to just know...

Rohit sir, sorry to interrupt. You're sounding a bit muffled.

Sir, I want to know actually they have not mentioned any future capitalization plan, any order book. Give some highlights over any capitalization as they mentioned only way 52 cities, they have branch and 721 cities only they are selling the products and service. Any future plan to expand their business in other cities also?

So Rohit, while on CapEx plans and all, I would answer your question, and then we'll hand over to Rajesh Goenka to answer on the expansion plans. So our business typically is not a CapEx-heavy business. When we expand the business, it is offices we open, and we increase our reach. It's not capital-intensive industry, it's more of working capital industry, wherein the only requirement is the working capital. Over to Rajesh.

Yes. And to add to what Himanshu said, Rohit, as far as business is concerned, in terms of reaching the number of cities, I already mentioned that we already had 10% growth in number of cities and number of customers, and our aspiration is to maintain that double-digit growth.

The next question comes from the line of [ Bharat ] Bansal from Blink Investment.

I wanted to ask one question that is on the operating margins. I can see that the operating margins have shrunk a lot. It is somewhat around 0.8%. So what could be the reason for that?

Operating margin, you're talking about EBITDA, right?

Yes.

And which period you are comparing, if I may ask?

I'm talking about this quarter.

This quarter, if you're comparing with the quarter 2 or year-on-year?

I'm comparing with quarter 2.

Quarter 2?

Yes.

So quarter 2, if you see, it's a high activity month for us, wherein we get economies of scale. Secondly, in this quarter, there is a ForEx loss, which has come in, which has been compensated by other income. So you need to -- see, the other income essentially for our kind of business and in our financials comprises of interest cost mainly on the delayed payments. So it is very well integrated with the operations only, sales. If we see that it is in the range of -- for quarter on a stand-alone basis, it is 2.45% EBITDA, which is, I think, on this kind of operations and the business, we give [ an advice ] of 2.5% to 2.7%. This is in the range, normal range.

Yes. I have one last question. What would be the guidance for FY '25 closing and for FY '26, if you have any on the EBITDA side as well as on the net profit margin?

Long term -- in the long run, we have delivered the EBITDA margins in the range of 2.5 -- around 2.5%. So that's what we hope to maintain.

Next question comes from the line of Aman from Finvestors.

My 2, 3 question were already answered. My next question is on AI segment, any change in your strategy in distributing or selling of products enabled with AI tools, keeping in view of DeepSeek effect contrary to NVIDIA? Please throw some light on it.

Absolutely, no. We continue to be gung ho as in the recent past. But at the same time, we don't want to sound overconfident, and we are conscious and alert and studying if there is going to be any impact of DeepSeek. But while we speak, there is no change in strategy.

Okay, sir. My follow-up question on same. Any update on finalization of [ ZY ] tender of 10,000 GPUs as you mentioned in previous con call?

Yes. So what you -- I know what you will also know from newspapers only that the government has already opened a tender, comparison is done, L1 is identified. They are going to award the tender. And once the award is -- tender is awarded, existing players will start providing that capacity, whatever quantity they need more, they will come to distributors like Rashi Peripherals to get more quantity.

Next question comes from the line of Vineet Bansal from [ Pinnacle ] Securities.

I wanted to know more about the order book. So what is the quantum of the order book right now? And how much of that is -- I mean, which is the biggest segment right now in terms of end users from the order book?

Yes. So I want to clarify to our -- all audience here that Rashi Peripherals is a value-added leading ICT distribution company. We are a B2B company. We do not do any end customer business directly. We always do through our partner ecosystem. So that's one clarification, Vineet. And second, as far as order book is concerned, so we -- as I said earlier that so far, we have been able to maintain our double-digit growth. So in terms of order book, order execution, everything, we are aspiring to maintain the same thing in the coming quarter as well.

Okay. And my second question is regarding the new embedded lab in Bangalore. So I just wanted to understand a bit about what is -- what do you expect from the lab in a few years? What's the plan over there?

So basically, we inaugurated the lab about 4, 5 months back. And since then, we have been developing various prototypes of various products. And some of the prototypes design has been successful, and then they are approved by various OEMs in the country. And as a result, we have now started supplying those embedded components as well. As we expand into laboratory, we add more manpower. We are enhancing our design capability, solution capability and more importantly, testing capability. So this also will help us to have more and more design wins. In this business, design wins is equal to business. So the more design wins we have, the more business we will have.

Got it. And who will be the primary...

Sorry to interrupt, sir. May I request you to return to the question queue for follow-up questions, please? Next question comes from the line of Aejas Lakhani from Unifi.

Yes, I had a couple of queries. So first, could you just call out...

Sorry to interrupt. Mr. Lakhani, you're sounding muffled. If you're using speaker phone, may we request to use handset?

Yes. Is it better?

Much better.

Yes. I have a couple of questions. The first one is that Rajeshji, Kapal, our understanding was that given the fund raise, we were having a strong pool with low enterprise segment exposure and that should have given us access to grow faster than the industry for many years to come given the fundraise. So how should I read this result? Because if you look at the commentary from the previous quarter as well, we had some enterprise-level deals with the education project and the networking products order. So part of that was sort of executed as called out in the previous quarter. So there is a spillover effect. So if I exclude for that, this shows an extreme amount of weakness. So could you call out exactly what is the demand slowdown that you're talking about? And could you split up across channel-wise as well?

Yes. So Aejas, what happens is if you understand -- if we try to understand Indian calendar quarter-wise, so Q1, that is April, May, June, July, August, September, always are high business months in consumer and commercial both. October, November, December is the lowest quarter in the year as far as ICT business is concerned, I am not talking of other business. And then JFM, the business, again, starts picking up. So therefore, you will see that our H1 business, we grew pretty fast and thanks to some bigger deals. Net result today is that 9 months to 9 months, we are at a 33% growth, which is more than 2x of the industry growth. And our PAT is at 62% growth on a 9 months to 9 months basis. While saying so, as I said earlier, O&D has been a little bit -- Q3 has been a little bit slower than anticipated. January also has been a little bit slower than anticipated. Fingers crossed for Feb and March.

Okay. Rajeshji, but I don't understand that the seasonality impact with 3Q being slow was the session -- was the prelude even in FY '24. So my query is not sort of answered that I get the feeling that excluding the spillover, which was there from the enterprise segment, the revenue growth is very flat and that is where I'm sort of trying to understand because this would effectively mean there's a significant demand slowdown.

So even if I eliminate the project business, still our growth is high double-digit growth. So that means the -- while the market has slowed down, but there's no significant slowdown. Otherwise, high double-digit growth without the project business would not have come.

Okay. Got it. The next one, sir, is you made an announcement regarding the acquisition. So could you speak a little bit about the nature of that business, the kind of products that they do, what kind of margins are there in that segment, what did we really see? And how is that deal sort of structured? Because we bought 70% stake that was disclosed. So could you just call out a little more color on that business?

So this discussion is related to our aspiration to add different and new verticals of the IT industry from a perspective of cybersecurity. While we've made the announcement, we are limited in terms of sharing the transaction. It is under execution of the -- and working of the transactions. The perspective is that instead of starting from scratch, we acquire smaller and strategic industry partners to enter into new segments of the IT industry. This company is focused on cybersecurity, and cybersecurity is one of the fastest-growing segment within the ecosystem.

Got it. Kapal, if you could just expand, I understand the thought of build versus buy, but what are we really buying? Are we buying relationships with suppliers? Or are we buying the know-how? Or are we buying the customer reach? What exactly is it that we sort of see in terms of value add?

I think it's a culmination of vendor alliance the team. It's a very different team. You need a very different skill set from a presales and sales perspective. Clients and the end customer, I think there is some value at this -- in the company. However, with our reach, we believe that we will add value to this company from a perspective of expanding their reach on a cybersecurity portfolio. So I think this is going to be a start. What will help us do is to accelerate our acquisitions of brands for distribution in the field of cybersecurity with a base that is available to us in this company.

Got it. Got it. And just a clarification. So the INR 28 crore ForEx impact, which we have received both on the other income as well as on the line expense, if I were to exclude for that and just look at the line item of expenses, you're saying -- could you call out what is the actual expenses on the advertising and sales promotion front, which has got incrementally -- it seems like a higher number this quarter?

So as far as quarter is concerned, the advertisement expenses are in the range of INR 17 crores as against the earlier quarter, which was much lesser. However, we normally analyze it at 9 months to 9 months. So against INR 17 crores, if you want to compare the quarter, it was INR 4 crores in the corresponding quarter of previous year. Against that, it is INR 17 crores in this quarter.

Okay. And could you just call out what exactly is this significant increase on account of, Himanshu sir?

Campaigns executed during this quarter -- brand campaigns executed during this quarter, which gets recovered from the brand as a part of COGS. So gross margin gets compensated.

Got it. And that will happen with a lag effect, right? So in the subsequent quarters, as you have expensed it, depending on the revenue that you will book, you'll get a support from the vendor.

Accounting happens based on certain criteria. So mostly, it gets recognized in the same quarter and spillover is very less. In case where confirmations from brands get delayed before the reporting -- like after the reporting period, then only it's lower. Otherwise, for this impact, it is already there incorporate.

Next question comes from the line of Sankaranarayanan S. from ithoughtpms.

Sir, my first question is regarding the enterprise vertical. So what is your expectations in future, let's say, from 3 to 5 years down? So how was your working capital cycle is going to reduce? Because you told that it should be -- we should see a 10% improvement in working capital cycle. So how does enterprise vertical really help in managing the inventory or the receivables?

So enterprise -- okay.

So enterprise business, like as you see that our inventories are in the range of 55 to 60 days. Enterprise business doesn't warrant these many kind of -- like these many days for holding the inventory. So definitely, overall cycle gets optimized when we do more of enterprise business, wherein the inventory holding cycle is much lesser than what is the average cycle in the normal channel business.

Sir, but at the same time, your receivable days will be going forward, right, because it is having a higher receivables and payable days rather than the current segment?

So in enterprise deals or the larger deals, we tend to set off the receivable days from the payable days, wherein the credit terms are also negotiated in a manner so that -- so as to make sure that the ROEs and ROCEs doesn't get affected, and we don't end up investing in more into the gap of debtors and creditors.

So in that case, you are expecting the ROCE level to improve from this level, sir?

So depending upon deal to deal, it's why we are very conscious about ROCE and ROE on a transaction level basis also. But if you compare this with earlier quarters, since the capital base has increased, so ROCE and ROE to get established at the previous levels, yes, it will take some time.

Got it, sir. Sir, my second question is regarding the mobile phone distribution. So you have stopped the distribution of mobile phones. So sir, my question is, when did you stop this segment? And what's the reason behind it?

So this mobile phone business ended sometime in 2018, 2019. The main reason for this ending was that at that point in time, we realized that mobile phone is a very extensively capital-intensive business. The cycles might be higher, but the margins are also lower at the same time, which compensates from an ROCE, ROE perspective. But you look at IT industry and the mobile phone industry, smartphones, particularly, this industry is almost from the size of about INR 2.5 lakh crores to INR 3 lakh crores. If you have to make any significant impact and participation in this industry, you need to participate in a revenue of at least INR 2,000 crores to INR 3,000 crores, that required about INR 200 crores to INR 300 crores of capital deployment. When we had stopped this at that time, we did not have enough capital to do a smartphone or a mobile phone distribution business, which was stressing our overall debt equity and the margin profile. Post that this going away from the mobile industry, our total available from a debt equity perspective, from a margin perspective, I think both expansion was possible, and that's what has happened after that.

Sir, one more thing. Does it contribute at a much higher share in the overall revenue during that period?

Yes. Mobile phone, peak volume was almost 40% share of our total revenue at peak, which is also not very desirable.

So in 2019 or '18, you are saying that 40% of your revenue comes from mobile phone segment?

Yes, 39% to be precise.

Got it, sir. The reason why I am asking is, during that period, your working capital days have been in the range of 30 to 40, but in the last 2 years, it has went up significantly higher.

Mobile phone working capital cycles are almost half as compared to IT. So yes, when mobile phones were there, it was much lower. But for IT to IT, if you see, the working capital cycle, what we are operating at, as mentioned in our earlier calls also, yes, we continuously strive to have improvements in that, and we aim to have a 10% improvement in 1 to 2 years' [ time. ] And yes, that is the optimized level, we would say, with our kind of penetrated infrastructure of distribution we carry.

I would like to add to what Himanshu mentioned in that -- I think you're comparing from last 2 years. Prior to this last 2 years was also during COVID times where the supply was limited and the demand was higher. Due to which we had an opportunity, but that is not a sustained level of distribution working capital cycle. I think post-COVID, that normalization has happened, and therefore, you see an increase, which is not really an increase.

COVID time, lower cycle was by design, where supply was [indiscernible] inventories. Whatever was there was sold out.

Got it, sir. And also, sir, I could see from your DRHP that 6 global brands have left from your partnership in FY '22. So if you could throw some light why the brands or OEMs are not willing to distribute products to Rashi Peripherals?

No. I think 6 -- these are all very small insignificant products that we may have bought for repair or something. From a distribution perspective, only one mobile brand is what we separated. Otherwise, there are not -- there are no cases at all. In fact, we take pride that all the brands that did get associated with Rashi Peripherals, right, the last 25 years, ASUS, Logitech, they all continue to work with us even today.

I think 1 or 2 exited the India business...

Only Pixel was there a bit closed outcome. Otherwise, there's nothing.

[Operator Instructions] The next question comes from Tejas Khandelwal from Prudent Equity.

So sir, how much other expense can we expect in the next quarter if we keep aside the impact of the foreign exchange fluctuation?

Voice is not clear. We couldn't get your question. Can you please repeat?

So I wanted to know like how much other expense can we expect in the next quarter if we keep aside the impact of foreign exchange fluctuation?

How much?

Other expense.

Okay.

So I wanted to know the expected other expense in the quarter 4, if you keep aside the foreign exchange fluctuation.

See, quarter 4 projection on other expenses line item per se, it's difficult to throw a number because it comprises a lot of variables which gets involved and gets booked under other expenses. So frankly speaking, like the major components or the regular components to be more specific, in the other expense head remains in the same range, and we don't see any increase because those are of fixed nature like communication expenses, electricity charges, rentals, which are more or less defined. But advertisements and ForEx and all these things, which have dependency on external factors, those only contribute to the divisions which happens under the head.

Okay. Okay, sir. Understood. And sir, I have another question on orders. So as you said, we can expect orders from the data center players who have submitted bids in the recent tender. So apart from those orders, are there any orders in the pipeline for the company?

Yes, there are a few in the pipeline and at various levels of discussions.

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

Just a few questions from my side. One is on the PES, LIT vertical, if you could just expand on what products you saw some slowdown, so we could get some more clarity on that.

Yes. So basically, in broad understanding, LIT is more components and peripherals, and PES is more personal devices like laptop, desktops, workstations. Overall, what we see is that LIT continues to be at the same breadth. The slowdown is particularly into the consumer laptop segments, but commercial laptop segment also continues to be on the positive side.

Okay. So consumer laptops is where we saw some slowdown. Okay. That helps. Okay. And sir, in terms of ROCE, we've always kind of put a target of 15% [Technical Difficulty] like in FY '26...

Your voice is cracking.

Yes, I said that as a company, we've always kind of envisioned to reach that 15% plus ROE, ROCE. So can we see this happening by FY '26? Or will it take a bit more time to reach there?

So I would like to take this question and answer that last 10 years average has been delivered between 17% to 20% ROE. And with this capital raise, which we expect to deploy in the business -- in generating the new business, is something bouncing back of ROE depends on the pace at which we will be able to generate business commensurate to the capital raise. So defining 2026 as a milestone to achieve those 15% or 18% is a matter of how fast the growth comes and what kind of the growth comes, what kind of margin profile it brings, in what segment it happens, there are various factors. Yes, we strive to reach to those levels ASAP.

Okay. Okay. That helps. And sir, like as we won a large deal in Q1, so are we like still bidding for those deals? And are -- is there any pipeline where we can say, expect any kind of large deals over the next 6 months and things like that, which is close to completion or something like that if you can update on that, that will be great.

So as I explained earlier at the start of the call, those large deals have relatively dried out, but then small, small deals consecutively are there in the pipeline and Rashi Peripherals is in contention for the same.

Okay. Great. Great. And on the embedded side, sir, like we -- obviously, we are working on a very small base, but have we [Technical Difficulty]

Your voice is cutting again.

Yes. So in the -- on the embedded business, we saw some good deal wins in the first half. So did we see any of that momentum continue in Q3?

Absolutely. That is what I mentioned that we've got some good design wins and design wins is equal to business. So yes, especially our laboratory in Bangalore is helping us to get some good design wins.

Okay. Okay. And on the enterprise sir, last question is that we had -- we won the [indiscernible] deal, which is about INR 1,500 crores. And I think first half, approximately about INR 2,000 crores is what we were doing. So in Q3, has that number -- can you give me like how much has that number road to like that would help?

So Q3 to Q3, as I mentioned, the number growth is 7.7% in terms of top line and PAT growth is 29% Q3 to Q3.

[Technical Difficulty] for the enterprise division, sir, not for overall. Just on the enterprise division, if you help me, the enterprise deals.

That data is not ready...

P&L is not drawn for enterprise separately. Difficult to answer instantly on those fronts.

Next question comes from Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand this embedded lab business more...

Sorry to interrupt. Madhur sir, you're sounding muffled. May we request to use the handset, please.

Is my audio better right now?

Yes.

Yes. Sir, I wanted to understand this embedded lab business and what kind of financials or economics can we see in this segment? And how is like -- sir, is it like we bid for a particular product or we cater to new products for OEM and then you get manufactured like a contract licensing or something like that? So sir, I wanted to understand regarding this.

So basically, in the embedded business, basically, we have authorized distribution of chips from various suppliers, which includes Intel, NVIDIA, [ Elmos, ] Micron, Western Digital, so on and so forth. So their products -- with their products, basically the chips, we design certain solutions because nowadays everything is automated. Maybe I can give you a random example that in a normal car today, they have more than 25, 30 chips, right? And we are one of the potential suppliers for that. So we work with those manufacturers of, say, automobiles, robotics, education to develop solutions. And once those solutions are done, tested, then there is a gestation period of 3 months or 6 months as an experiment. Once that is proven, then it goes for mass production.

Okay. So we are like a service provider -- so we are like a consulting company to these manufacturers, and we help them design applications for the chips whatever authorized distributor we are. So this business would be very attractive in terms of margin it seems. So what kind of margin would we expect in this business on a steady state? And sir, how big would be this opportunity overall -- on overall basis?

Yes. So what -- I think you are perfectly on spot on that it is like a consultancy business, but this is not pure consultancy, it is buy and sell also. So we sell products and solutions both, and we are also into a design phase. In India, the current market size of this is estimated to be about $1 billion. So you can understand the potential opportunity in India.

Got it. And sir, how big would this be of our current revenue or a very small portion currently?

Currently, we are a start-up, so it's pretty small. But with the progress that we are having, once we break the ice substantially, I think there will be multiple times growth.

Okay. Got it. Sir, just a final question from my side. Sir, based on the design win that we have seen and based on the -- your like optimistic guidance that we assume on this segment, sir, can this segment become 5% of our revenue -- 5% to 10% over revenue over the next 3 to 5 years?

I think I said that currently, the market size is $1 billion, which is $1 billion means about INR 8,500 crores market is existing today and which is growing rapidly. So I hope that itself gives the answer.

Next question comes from Vineet Bansal from [ Pinnacle ] Securities.

Well I had questions about the embedded labs, which [indiscernible] answer. I have one more question. So Mr. Rajesh actually mentioned in the last con call that, that sort of normalizes at the end of the year. So I just wanted to find out like what can we expect this year in terms of debt and how much of that can normalize?

So debt, as I said, it's working capital, which is required in this kind of business. And that's fulfilled by debt -- a combination of debt and equity. Of course, the collection phase, which has gone a little slow and because of the working capital cycle has seen a little increase, we hope to get it normalized in coming months. Depending upon the collection trend and all, the debt level can only be predicted. So we see little correction, but more or less in the same range in terms of that.

Ladies and gentlemen, we would take that as a last question for today. I now hand the conference over to Mr. Kapal Pansari for closing comments.

Hello, everyone. Thank you for joining this call for our results on quarter 3 FY '24, '25 and on 9 months year-to-date numbers. I would only like to highlight that quarter 3 numbers because of seasonality is among the lowest in the year. And therefore, if viewed from quarter 2 to quarter 3, quarter-over-quarter will definitely look subdued. However, on the comparative basis of quarter 3 of last year FY '23-'24 versus '24-'25, we are extremely confident that we will continue to maintain the pace and continue to grow in the market and for the organization, overall, maintaining our numbers of a double-digit CAGR growth that we've maintained over the past few years. Thank you so much, and please keep giving us your confidence and your support, like always.

Thank you so much.

Thank you. On behalf of Rashi Peripherals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.