Sterlite Technologies Limited (532374) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the STL Q1 FY '22 Earnings Conference Call. I am Pankaj Dhawan, Head Investor Relations at STL. To take us through the Q1 FY '22 results and to answer your questions, we have with us Dr. Anand Agarwal, CEO, STL; and Mr. Mihir Modi, CFO, STL. [Operator Instructions] Please note that this call is being recorded. You can also download a copy of the presentation from our website at www.stl.tech. Before we proceed with this call, I would like to add that some elements of today's presentation may be forward-looking in nature and must be viewed in relation to the risks pertaining to the business. The safe harbor clause indicated in the presentation also applies to this conference call. For opening remarks, I now hand over the call to Dr. Anand Agarwal. Over to you, Anand.

Yes. Thank you, Pankaj. Good day, everyone, and thank you for joining our Q1 FY '22 earnings conference call. I'll just take you forward from the previous interaction that we had during our Analyst Day, the STLescope 2021. In that STLescope 2021, we broadly discussed the following points. First of all, we talked about the fact that almost a decade-long digital network creation cycle has started, which is driven essentially by 5G, fiber to the X as well as rural connectivity programs throughout the world. Second, we talked about the fact that we are well poised to leverage this opportunity with our total addressable market now increasing to almost $40 billion. Our total addressable market has grown almost 5x in the last 5 years on the back of both new capability additions and portfolio additions as well as new global markets in which we operate now. And the third part that we talked about focus clearly is towards gaining a higher market share in this increased addressable market of $40 billion with our 3 growth levers. And we will discuss each of these 3 points a bit briefly as we move forward. So on the decade-long network creation cycle, we are clearly seeing that, as we said, 5G, fiber to the X, where X can be home, X can be enterprise, small cells or data centers as well as rural connectivity programs are powering this digital network creation cycle. And 5G clearly is the fastest-growing technology in terms of progression and adoption globally. There are more than 170 5G commercial networks running across the globe now. And the subscriber base is increasing and is -- will almost be close to 2 billion subscribers by 2023 and more than 4.5 billion by 2025-'26. The FTTx is clearly becoming all pervasive and fiber is connecting homes, businesses, data centers as well as small cells across the globe. In Europe, fiber to the homes and business subscribers are expected to more than double in the next 5 years and to reach to almost 208 million. And closer home, in India, fiber broadband subscribers are also expected to reach more than 10 million subscribers pretty shortly. If we are looking, the focus that rural connectivity is taking, we are seeing many, many programs being announced towards that. We saw recently the U.S. President announcing a large infrastructure fund, and almost $65 billion out of that is focused on rural broadband. We saw the Indian government also announcing almost INR 20,000 crores as viability gap funding for the ongoing BharatNet program. So going forward, we are clearly expecting that the network-build cycle to pick up pace driven by these 3 coinciding drivers. And as a result, the optical fiber demand is expected to increase what we saw at about 470 million last year to more than 610 million in the next -- by 2020 -- 2025 or so. In terms of the TAM, in the last 5 years, our clear focus was both in increasing the portfolio as well as in terms of increasing the geographic areas of presence for us. If we see our optical connectivity solution now with the addition of full optical interconnect portfolio, the addressable market has now increased to almost USD 18 billion to USD 20 billion, which is split almost evenly between the optical cables as well as the interconnect kits. With the addition of Optotec in our portfolio, our addressable market with these customers has more than doubled in this segment. On the system integration front, our current addressable market is about $14 billion. This includes all the customer segments in India of telcos, enterprises, citizen networks as well as cloud companies. We also cater to the cloud segment in Europe through our data center interconnect offerings. In addition to that, we're also now moving into Europe to address the FTTx and wireless integration opportunities. Coming to Virtualized Access as well as Network Software product opportunity, it stands cumulatively at about USD 8 billion for us. If we look at the subsegments, Open RAN as well as small cell global market size is close to about $5 billion. Our focus clearly moving forward is to increase the market share in this increased TAM, and we have outlined the clear 3 growth levers towards achieving that. The 3 focus levers for our growth is, we grow -- the first one is to clearly grow the Optical business; the second one is towards globalizing the System Integration business as well as scaling it in India; and the third one is towards building a strong Wireless and Access Solutions business for us. We will talk about how we progressed on each of the growth levers in this -- in the current quarter. So on the Optical business front, what we are seeing is that both the optical volume is increasing as well as interconnect business is also scaling. Our optical market share -- the fiber market share grew to almost 6.5% globally in the preceding quarter as compared to about 4.5% in Q1 of last year. Also, what we saw that the industry, optical fiber volume grew to 131 million kilometers, which is about 6% growth on a year-on-year basis during the current quarter. In the Interconnect business, we clearly recorded more than double-digit growth in revenues on quarter-on-quarter basis. Our focus is to continue to increase the penetration of our Opticonn, which is the end-to-end optical solution with all our customers. On the System Integration front, we have -- as we informed in the last couple of quarters, we have entered the U.K. market at a time when the market is at a 10-year fiber-to-the-x build cycle with various operators planning multimillion passes towards homes, enterprises, cell sites, et cetera. The U.K. Prime Minister has announced a GBP 5 billion investment in Project Gigabit, which plans to connect rural areas with fast broadband. And we are starting to capitalize on this opportunity. We are very pleased to announce our first win. We have partnered with a leading provider of telecom solutions in the U.K., and we are planning to deploy our FTTx Mantra solution to connect homes with broadband. It's initial about GBP 12 million project, but it provides us the impetus and we expect this project to be completed in the current fiscal. And in order to further accelerate our System Integration business in Europe, we have just announced an acquisition of Clearcomm, which is a provider of end-to-end optical network integration services in the U.K. The company, Clearcomm, has a longstanding relationship with its customers and suppliers, and has a strong reputation as a reliable as well as an agile partner. Clearcomm had revenues of about GBP 20 million in FY '20. It has grown almost at a CAGR of 26% in the last 3 years, and has a healthy working capital cycle of about 15 days. The company has close to 50 employees. In terms of deal contours, the enterprise value of the deal is at about GBP 15.5 million. We will be acquiring 80% in the first tranche and balance 20% shall be acquired in 2023. And the deal is getting financed both by a mix of internal accruals as well as debt. With this acquisition, we create a strong platform to grow the system integration business in the U.K. and then take it to other geographies in Europe as part of our growth strategy. In the Access Solutions business, this also has been a busy quarter for us. We have successfully completed proof of concept for the programmable fiber-to-the-x software solution with Chunghwa Telecom, so open broadband access network. So what this software essentially does for us is the fact that along with Opticonn, which is a solution which is a cable plus interconnect solution, this provides the end equipment. This provides the provisioning -- the active provisioning at the end equipment. And we are able to create a full end-to-end fiber-to-the-x solution, which includes cables, interconnects, fiber as well as the equipment. So this PoC that we collaborated demonstrated how our fully virtualized optical line terminal software stack enables Chunghwa to upgrade its gigabit passive optical network or GPON network to a 10-gigabit symmetric PON network. This is a fiber access technology for symmetric broadband speeds for up to 10 gigabits per second, and this is being deployed in -- for enterprises in Taiwan and very soon it will be deployed for home usage as well. We have also entered in a strategic collaboration with Facebook Connectivity to co-develop general-purpose radio under the Evenstar program. The Evenstar program is a collaborative effort by Facebook as well as global partners to accelerate the adoption of Open RAN technology. And with this collaboration, the product development, promotion and supply chain would be partly funded and promoted through this collaboration. As we plan to develop the manufacturing ecosystem for radio units in India, we are also participating in the PLI scheme announced this year by the Indian government. And the efforts that we are putting have started yielding results. We recorded small revenues this quarter in our Access Solutions business after delivering the new standard WiFi 6 hardware to our key account customer in AsiaPac. Now to talk a bit about our foundational capabilities, the update on that, which we provide on a quarter-to-quarter basis. We have strengthened each of our 4 foundational capabilities, which are technology-led end-to-end solutions; key account management; ecosystem alliances and investments; as well as building top talent and culture within the organization. And we'll discuss an update on each of them, starting with technology-led end-to-end solutions. As we had discussed at the STLescope, we have established ourselves as an end-to-end solution provider for fiber to the home, fiber to the X as well as 5G networks. We have recently launched Accellus, which is a wireless solution that brings together both micro and macro radio, the RAN intelligent controller as well as with an ecosystem of the orchestrator across the various parts of the network to lead this transition towards 5G, WiFi 6 and more open source technologies. What is extremely heartening to note that in a very short span of time, we've been recognized by Gartner as a key 5G RAN vendor, and among Top 10 vendors to watch out for by STL partners on -- for this Open RAN technology. We have been also -- on the key account focus is also leading towards multi-portfolio engagement. We've been enhancing our customer engagements, both with current and new accounts. While we have nurtured existing key accounts such as BT Openreach and Airtel to write their multiyear strategic network build plan, we have also opened door to new accounts such as a 5-year contract for radio units in the U.S. as well as a digital transformation contract in Africa's multi-country telco. Also, as we participate in multiple geographies, our key account focus is leading towards more than one -- or a multi-portfolio engagements with our key customers. We now have a diversified participation funnel across the globe with more than -- now the funnel is more than 60% towards our key accounts and -- in which we are engaging into multi-portfolio engagements across our optical business access as well as the system integration solutions. In terms of investments, as we announced, we are also going closer to the customer by setting up solution centers, both at U.S. and U.K., with an enhanced capacity for cable in these markets. This investment of about INR 2 billion is going to increase the OFC capacity from 33 million kilometers to 42 million kilometers, which will make us one of the largest in terms of optical fiber cable globally. Our technology focus is towards clearly developing the comprehensive product portfolio for Accellus, which is just talked about. We are also continuing to do annual investment of about 3% to 4% of our revenues in developing this portfolio as well as the other portfolio for the FTTx. If you look at our portfolio, we have successfully launched WiFi 6, 5G, multi-band radio as well as our indoor small cell Garuda in the last couple of quarters. We have also successfully piloted the programmable FTTx solutions in this quarter. And we are in the developmental phase for the RAN Intelligent Controller, which we shall be launching in the upcoming quarters. So the portfolio is fully building up both at our end as well as in collaboration with the ecosystem Open RAN partners, we are clearly positioning ourselves as someone who can offer an end-to-end networking solution. Coming towards talent, top talent and culture, we have now built a clear global leadership team, and we continue to strengthen that team globally. In areas of -- newer areas of growth like Optical Interconnect, System Integration in U.K. as well as Access Solutions, we are continuing to strengthen the team. Along with the leadership team, we are also strengthening the overall team strength in these areas, both with experienced people as well as very, very great talent coming out of the best schools globally. Coming towards the pandemic, which we saw, especially in India at a very, very major scale in the current quarter, it has been an extremely challenging time for all of us. During these times, we clearly stood by each other and extended the best possible support to our employees, our communities in which we operate as well as the larger ecosystem. We extended complete support in terms of -- in any case of -- few cases of loss of life that we had for the ecosystem employees, we are extending full support in terms of employment, medical cover, education as well as skill building to the family members. We created an STL family team of employees, which acted as a noble body and coordinated support to all employees from symptom status towards post-treatment stage. We have conducted vaccination drives as well as continuing to provide full vaccination at various locations in which we operate. And clearly, clearly, this is fully not over, but we are very, very vigilant team towards providing the support at physical level, at medical care as well as all kinds of counseling services. So with these foundational capabilities, we are extremely confident that we are on our path to deliver our financial targets. And I would now hand over to Mihir to discuss these financials.

Thank you, Anand, and a very good day to everybody. Indeed, with the financial -- with the foundational capabilities that Anand just discussed and our focus on specific growth levers, which are on the back of the industry opportunity of this network creation cycle, we indeed are looking at translating that into financial performance. This quarter's result is also a small step in that direction. I will quickly take you through the key aspects of this quarter's results. As you see on the screen, our order book grew from INR 103 billion same time last quarter to INR 112 billion, out of this INR 42 billion is executable in this fiscal itself. We also have a substantial about 23% of O&M revenues which will start kicking in, in FY '23, and that will be a nontrivial contribution to the revenues as we go ahead from FY '23 onwards. Our revenue mix is again moving in the direction that we intend it to move. From a customer segment standpoint, it is moving towards the telco heavy side. From a geography, EMEA and the Americas are -- those markets are contributing heavier to our mix. This is on the back of some notable wins that we've had, a large multimillion dollar deal with the European telco for our Opticonn solution, so on and so forth. We clearly want to make sure that we expand and sever the growing European market, the U.S. investments that are happening as we go ahead. And this mix of our revenues in this quarter is a small indicator of the direction we are intending to take and are able to take. On the execution side, well, there was a bit of a hiccup again in Q1 on the execution side because of the pandemic's second wave in India. But post that, our execution is running at full speed. Some of our key projects, which all of you are aware of are either towards the end of completion or coming along very well. Project Varun at 95%; Mahanet above 90%. The fiber rollout for the larger Indian telco is inching at halfway mark so on and so forth. Of course, we have an addition now, the U.K. Gigabit network which we will kick start. Of course, we have those 2 -- completing more than 80% completed on data center hyperscale project in the EMEA market as well. So overall, we continue to expand the geographies, the kind of projects that we are doing, and we're taking steps ahead in this direction. Moving to the specific numbers of the P&L, very happy, despite, as I mentioned, a little hiccup on the pandemic side, overall, happy that despite the pandemic, we clocked INR 13.09 billion of revenue at an EBITDA of INR 2.38 billion, that's an 18.2% EBITDA margin. We did a PAT of INR 1.16 billion. The revenue is a growth of 49% over the same quarter last year. Overall, we expect the underlying momentum to continue. The quarter-on-quarter dip is primarily because of some pandemic impact in Q1, but we would aspire to get back into the quarter-on-quarter growth momentum that you've seen over the last 4 quarters. We certainly intend and aspire to get back on track, and there's no reason we should not be able to. As we had shared with most of you all who joined us at the STLescope earlier this month, we want -- we plan to reach INR 100 billion annualized run rate by Q4 of FY '23. This will be on the back of a very focused strategy. It translating in the form of growth levers that Anand also laid out earlier in the presentation. Our growth will come from optical connectivity business, through globalization of System Integration and then how we build our Access Solutions business. We are confident of reaching this number, and we are taking steps ahead as we go on this one. Just laid out the abridged version of the financials here. As I mentioned, the first column, INR 13 billion at an 18.2% EBITDA and a PAT of INR 1.16 billion. Overall, we are committed to what we have on our minds every single day, revenue run rate of INR 100 billion by the fourth quarter FY '23. We are watching the net debt very closely to make sure that we get to a 0.5 net debt equity ratio by, again, the fourth quarter of FY '23, and ROCE objective remains at 20%. I think very, very comfortable that we are moving towards these objectives. And we'll continue to communicate to you of our progress towards this. I think one more piece, which we would want to now share with you all, as we have shared in the past as well is our commitment to our ESG targets. We've been endeavoring to be a responsible leader and not just to make a world connected but also inclusive and responsible. It results in actions such as how we source what goes into our products, how we design the material so that there is minimal impact on the environment, how our partners develop those materials and obvious disposable -- disposal methods. Just to share some examples. We've diverted 135,000 metric tons of waste away from landfills. And not just divert away from landfills, but also reduced it at source and recycled and reused them as inputs. So we plan to grow in an environmentally responsible manner. On the sustainability part, we are fully aligned with the UN sustainable development goals. We make efforts to reduce our waste. 100% all our manufacturing locations are 0 waste to landfill certified. We have reduced the carbon footprint by 50% over the last few years, and recycled more than 1.15 million cubic meters of water. We are actively and continuously working on reducing and minimizing emissions at our manufacturing and other facilities, overall, again, to make sure that we create a connected, but sustainable world. On the governance side, and this is something that is very, very close to my heart as well, is we are very focused on the best board governance and internal practices at multiple levels. We've built an advisory council with about 60% of our advisers, who have global experience of building technology-led businesses. Our independent directors come in with -- they are of repute, coming in with stature and bring a lot of new thinking in terms of the global experience diversity as well as, of course, gender diversity. We were -- currently, we have 2 of the big 4 auditors who are looking at our statutory and internal audits, and we are committed to very, very high level of external inputs and validation to what we are doing. On an operating level, we've built a very focused system, executive committees, business level management committees to make sure that we drive the business goals in a very structured manner at the same time with adherence to our code of conduct. I think while we continue to do all of this, our ESG goals are even more ambitious. We -- our goals include impacting 5 million lives by about 2025, undertaking 5 million plantations, where -- while reducing our carbon footprint by 50% by 2030. We are looking at replenishing 5 million cubic meters of water again by 2025. And all of these efforts, we will need your support and help. But we continue to keep this as an important target for the organization and are fully committed to achieving these targets. In summary, from an industry tailwind perspective, we are indeed in a decade-long network creation cycle, driven by 5G, FTTx, the rural connectivity programs, all of these are being rolled out as we speak, and we see a good 10 years ahead of this activity and growth that we need to contribute to and as a company will benefit from. Of course, to be able to do that, we've worked in a very focused manner over the last 5 years by building geographical capabilities/forays and product portfolio capabilities, thereby increasing our TAM by 5x to now $40 billion. This -- now we have to focus on making sure that we play well in this and increase our market share. Of course, very, very structural 3 growth levers: grow the optical business, we are growing capacities there; globalizing the system integration business, entry into U.K. is one subset; and then on the Access Solutions side, we've started to build that in an accelerated manner, not just with our R&D spends, but also going out now into getting customer validation and eventually revenues. I think we are -- as Anand briefly mentioned, we're strengthening our foundational capabilities through our E2E solutions, very, very focused approach on key accounts and the relationships there, making sure we have the right ecosystem investments. Very, very proud to be able to now acquire the top talent from the world. And all that, we hope that will take us to our plan of $100 billion revenue run rate by the fourth quarter of FY '23. Net debt/equity of less than 0.5 and ROCE north of 20%. So with this, we come to the end of our opening commentary, and we can move to the Q&A now.

[Operator Instructions] So we'll take the first question from the line of Mr. Pranav Kshatriya.

I have 3 questions. Firstly, can you tell us about how much is the OF -- OFC capacity utilization for this quarter? And what are the trends you are seeing for the OF pricing across the globe?

Sure, Pranav. So on a capacity front, our new capacity for the cables is now coming up fully on shape. So I would say at -- if I take the full capacity of 33 million, we are now running at about 70% -- 70% to 75% of the capacity. And in terms of the pricing, the pricing for us is largely through long-term contracts. So it has been more stable. We are seeing the demand outlook as well as the supply-demand constraint now becoming -- the delivery times are getting tighter. So clearly, any new contracts that we enter in are at slightly better pricing than when -- what we had seen in the previous years.

Okay. My second question is on this Prysmian lawsuit. Today, we had this news of Prysmian has launched a lawsuit regarding patent infringement on a couple of your products. Can you just highlight us what exactly is this about? And what will be the contribution of the products under litigation?

This is very recent. Right now, it is related to increasing and strengthening our presence within the European market and U.K. And it is not normally done by competition, as a sort of competitive tactic. We are pretty clear that there aren't any IP issues that we have. And since -- but the thing has just come and its sub judice. We will provide more information. But we are absolutely confident that all our products and capabilities, we have our own strong portfolio, and we believe these as more competitive measures being taken in a few markets.

My last question is a little -- I just need bookkeeping answer for this. What is the current net debt for the company? And what was the CapEx for this quarter?

So current net debt for the company is north of INR 26 billion, Pranav. And the CapEx, so CapEx -- while the CapEx outflow was in double digits, we also had an inflow of CapEx through sale of land, which we've reported in the exceptional items. So the net CapEx was quite low.

We'll take the next question from the line of Mr. Neerav Dalal.

I had 3 questions. First is on the recent announcement by Bharat Broadband. So they've come out with tenders for 9 packages. How do you see us playing in this auction? And what do you expect to be the time line for this going ahead? So when do you see tendering to happen and implementation to start?

Sure, Neerav. So the current information, which has come through the response has to go by end of August or so. So our -- as we have participated in the previous opportunities, we'll look at each opportunity for providing our end-to-end capabilities, which will include cables, interconnect as well as the -- now the FTTx solution at the edge also. So our participation will be both as a provider as well as a full end-to-end system integration in select opportunities. We believe that the orders -- the whole process should take a good part of this quarter and maybe something in next quarter. And whatever orders come in, part of it will kind of accrue in H2 of the current year, but a bulk of that will be towards FY '23.

Right, right. And my next question is regarding the recent acquisition that we've announced today. What are the margins of the business? And how should one look at this business in the next 3 to 5 years?

Sure. So this is a relatively company, which has been -- which has grown in the last 5, 6 years. The margin is between 13% to 15% during these years, and it has grown at about 25%, 26% year-on-year over the last 3 years. Our focus clearly is to kind of leverage this platform along with the team that we have showcased, that we have built up in U.K. as well. And with the combined capabilities, strengthen that growth. So definitely, with us coming along with Clearcomm, the overall -- both the opportunity as well as growth ought to be faster than this -- the 26% that the company has shown.

Got it. And lastly, just in terms of the extraordinary items that were there in this quarter, there was a sale of land, then there were certain provision charge and impairment charge. If you could just explain in terms of what are these -- what is the impairment charge? And the lease cancellation and the nonfulfillment...

Sure. So we have 3 of these. There is one lease, which we had to cancel. And therefore, that came in as an extraordinary or exceptional item because we had to settle that and pay a certain amount as a part of cancellation terms. So that was one. Second, we had a certain case and we've made provision for that. We -- it sounds -- it's a more conservative decision to make a provision for that case that has been filed against us. And the last is a regular reassessment of certain assets, and an impairment that we felt appropriate to take based on the revised value of assets assessed by the management there.

Just on this, on the nonfulfillment we had, is this something recent? And in terms of the impairment charge, how should one look at it going ahead? What are these assets?

So the first part, no, it's not recent. The assessment and the conservative approach on the provision is something that we decided. This -- we've spoken about some of the -- and disclosed some of these cases in the past as well. And this is -- we've made provisions against that in the past as well. But like I said, as a conservative assessment, I would rather make a provision than be surprised. On the -- sorry, Neerav, what's the question on these...

On the impairment, how do you -- so what was the -- what are these assets and how should one look at it?

I think, again, the impairment is a part of a regular cleanup understanding of which asset is performing how and this is just a part of that. It's, again, a conservative approach to how we would like to keep our balance sheet. There is no substantial risk around that.

We'll take the next question from the line of Mukul Garg.

Anand, I first wanted to kind of inquire on the gross margin side. The gross margin this quarter was one of the highest, I think, in last 8 to 10 quarters. Was this primarily because of a lower share of services? Or was there any impact you had because of price increases or increase in the share of product business? And how sustainable is this gross margin going forward?

Yes. You're right, Mukul. It was largely due to the fact that the proportion of services was slightly lower in the current quarter. So our GM and the EBITDA numbers that we have guided for will largely be in the range that we have spoken about, closer to 17% to 18%. And current GM in this quarter is just a reflection of the mix.

Understood. And the other part was on the order book, there is a decent pickup in the order book this quarter. Is the incremental order flow coming in on the network services or access side? Or have you actually started seeing an increase in the duration of the fiber business? I think you alluded partially to that earlier on the call when you said like you have started seeing some tightening. So has that started leading to some long duration orders coming back into the system?

Yes, absolutely. So during the quarter, it has been most -- a large part of it has been European telcos and multiyear Opticonn sort of engagements, which has included both the fiber cable as well as the interconnect orders. We got some orders for system integration as well as the access part also, but the larger portion has been the optical business and largely through European telcos.

Sure. And the last one was on the regional mix. It was really interesting to see U.S. now contributing 11% of your revenues this quarter. That was a major jump. Is this something, which you see as sustainable or will this remain a lumpy factor? And the second part of this was on the China side. The China JV is not contributing anything to revenues now. Have you exited it? Or is there some sort of a pause there?

So a couple of points. One is for what we report is Americas includes both U.S. as well as Latin America. But the jump that we saw from 5% last year to about 11% this year is clearly on account of the growth that we are seeing in North America more. And in terms of the China, the China facility, in terms of sale -- what we report is in terms of the revenues from a sales perspective. So the China facility whatever usage that we have is more towards production rather than towards sale in the market. So in terms of marketplace, we are not selling much or hardly anything in China anymore.

Okay. Just to clarify, the North American business, do you expect that to remain sustainable? Or will it be kind of volatile based on order flow?

No, we believe so. We are seeing a great traction, and that's what led us to decide to have a point of presence also. If you would have noticed, Mukul, we first enter a market through sales, then through distribution and then through manufacturing. The fact that we believe it is now sustainable has led us to decide on this investment in the U.S. market as well.

We'll take the next question from the line of Mr. Ravi Mehta.

So with the uptick in fiber prices, as you mentioned, the new orders coming at higher price, is there a case where we can see some improvement in margins despite the mix reverting back to be expected?

Ravi, as mentioned, we take more longer-term sort of orders. So there is clearly an expectation that the orders in the future that we get as well as maybe the profile as the mix starts moving should improve some margins. At the same time, the mix towards the System Integration business is also increasing with the global presence, and our R&D spend consciously that we are now making it between 3% to 4%. So at the current level, we'll continue to guide at the company level to be between 17% to 18%. However, all endeavors are towards making sure that we take every opportunity to make it better.

Yes, sure. And one bookkeeping question. What was the inflow from the sale of land, if you can share that?

The inflow this quarter was INR 67 crores.

So I believe that was the gain. So the sale amount is similar or...

So -- yes, incidentally, we got the first tranche, a small amount last quarter in terms of cash flows, which was equivalent to the cost. So this quarter, we booked the whole gain, which was incidentally the same amount.

We will now take the next question from the line of Mr. Mangesh Kulkarni.

So I just wanted to know about this organizational restructuring, what you have planned. So just more details on that. And second regarding this INR 1,000 crores fundraise we've done. So what is the thought process, just if you could provide some light on that.

So let me answer both. The INR 1,000 crore fundraising resolution is an enabling resolution. We have been taking that from the Board in the past, except for the last one, and that too, because of the buyback we could not. So this is something that we've always done in the past to make sure that we have an enabling resolution in place. On the -- on your second -- on your other question relating to reorganization, we have multiple entities across the world. And this is -- it was felt that we need to make sure that we clean up and optimize the corporate structure, so that's the effort that we're going to make and the other item is on that account.

We'll take the next question from the line of Mr. Dheeraj Dahan. We're not able to hear you, Dheeraj. Okay. We'll take -- in the meantime Mr. Dheeraj comes, we'll take the next question from the line of Mr. Vipul Kumar Shah.

Congratulations for a good set of numbers. My question is regarding our order book. Although our addressable market has grown 5x, why the order book has not kept pace with our addressable market? And I missed the comment regarding this exceptional item. What is the profit from land sale this quarter, can you quantify?

Sure, Mr. Vipul Kumar, I'll address the addressable markets. So the addressable market growth that we've seen is over a 5-year period and our, clearly, order book over this period has grown significantly. So the order book that we are now talking about is on a quarter-on-quarter basis, which has grown, I think, by about 5% to 6% on a quarter from INR 107 billion to INR 112 billion on a quarter-on-quarter basis. And the clear focus moving forward is -- with this higher addressable market is towards both taking a bigger market share of it, and you'll see this order book growing on a quarter-on-quarter basis as we move forward. Mihir, can you...

Regarding the land sale, the profit -- the total cash inflow across 2 quarters, large chunk coming in, in this quarter was approximately INR 75 crores, and the profit on that was INR 7 crores. Of course, in -- we had some other exceptional items, which were negative items in the form of provisions. And therefore, the net exceptional item upside in the financials is approximately INR 16 crores.

In the meantime, we'll take one question, Anand and Mihir, which has come through the chat. The question is from Mr. Anil Tummidi. He wants to understand that if you are participating in BBNL's BharatNet PPP? And also are we participating in the PLI scheme?

Yes. Anil, for BharatNet, we just talked about the part that we'll be participating as a system integrator and as a cable provider for the opportunities which are coming in. And for PLI also, we have made an application under the PLI scheme for the radio hardware. And that -- so there is a participation on the PLI as well.

Sure. Thanks, Anand. And we can take maybe one more question from the chat, which has come from Dheeraj Dahan, who was earlier not able to ask. How does Western World apprehensions regarding China affect you? How would you score against the likes of Huawei and ZTE?

We do not actually directly compete with the likes of Huawei and ZTE. But at the same time, I get the perspective of the question. Clearly, the fact that we are now both in the markets where we operate in as a local provider, where it is U.K., Europe, U.S. So being a local provider as well as coming in from Indian origin is really helping us create a better visibility, better reliability in these marketplaces. So it helps being both local and Indian for us.

Thanks, Anand. We'll take the next question from the line of Mr. Anurag Jain.

Am I audible?

Yes, you are. Please go ahead.

Yes. So I have 2 questions. One was on the manufacturing setup that we plan to establish in U.K. and U.S. So while I understand the logic that business will be more sustainable there, so we want to have more permanent preference. But the logic of setting up manufacturing businesses in terms of cost competitiveness and the India advantage, how does that stack up?

Sure, Anurag. We take this call based both on multiple factors on the sustainability of the business, on the sustainability of the margin in these markets. So clearly, it's going to be a mix of capabilities, what we do locally as well as what sort of comes in from the India facility. And these -- both these decisions we took after weighing in all these perspective of local capacity, local margins and cost as well as sustainability of business in these markets. And the fact that we have been operating the European facility, Metallurgica, for now almost 4 years and increased the capacity there, we have a very good outlook in terms of how to get that balance between keeping the global capacities running while maintaining the margins locally.

Understood. Got that. One last question from my side, which was on the acquisition. So we have done a reasonable bit of acquisitions over the last -- quite a few number of years. So my question was how has our experience been in -- on that front? Have we been able to successfully integrate? Have those acquisitions actually delivered what the intent was? So if you can share some of your experiences there.

Sure. Yes, yes. I would say -- that's a very good question. I would say it has been largely positive. Slight -- I mean, definitely, with each acquisition, there has been some set of learnings that we've had. But through these acquisitions and what we have done is more smaller ticket acquisitions, which are more focused towards capability or a market presence, so whether it was Metallurgica in Italy and Optotec recently or IDS for the data center part as well as the ASOCS investment, each of them added capabilities for us. And I would say, overall, we are extremely happy with our -- all the acquisitions that we have done as well as the approach that we have taken. And our post-merger integration activities have also gotten more robust with every single acquisition. And it's now become an extremely strong playbook from identification to post-merger integration, which keeps getting better with every acquisition.

Okay. So just to dig in a little deeper here, so we've been able to retain the people. We've been able to have knowledge transfers. So all that has -- was possible and well done adequately.

Adequately. Absolutely. So I mean, both from construct of the acquisition itself, key people are part of the approach. But I'm extremely happy to mention that we haven't lost any key person, which were part of the acquisitions that we did, especially the key people that we identified in each of these acquisitions.

Thanks, Anurag. Anand, maybe we'll take one last question, which has come through chat from Mr. Rakesh Shah. The question is, has the business normalized in the services business after a slowdown in Q1?

Yes, Mr. Shah. So currently from the middle of June onwards, now coming back to normalcy, we are clearly hoping and wishing that this normalcy is sustained as we move forward in the current quarter on the services side.

Thanks, Anand. Ladies and gentlemen, with this, we come to the end of question-and-answer session. And I now hand it over back to Dr. Anand Agarwal for closing remarks.

Yes. Thanks, Pankaj. And I'd like to thank everyone for attending this call and continuing to show interest in our company. And I hope that we were able to address and clarify all your queries and comments. For any further questions, discussions, please feel free to contact our Investor Relations team, which includes myself and Mihir, and we really look forward to continuing the conversation with you in the future. Thank you, and have a great day.

Niraj, you can stop the recording please. Thank you, everyone.

Thank you, everyone.