Syrma SGS Technology Limited (SYRMA) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Syrma SGS Q3 FY '25 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Please go ahead.

Yes. Thanks, Rianon. On behalf of ICICI Securities, we welcome you all to Q3 FY '25 Results Conference Call of Syrma SGS Technology. We have with us today senior management. And now I hand over the call to Mr. Nikhil Gupta, Head of Investor Relations, to introduce the management and take the call forward. Thanks, and over to you, Nikhil.

Thank you, Aniruddha. Hi, everybody. Good morning to all. Welcome to Syrma SGS Q3 and 9 Months Fiscal Year 2025 Earnings Call. We have with us today Mr. J.S. Gujral, Managing Director; Mr. Jayesh Doshi, Director; Mr. Satendra Singh, Chief Executive Officer; and Mr. Bijay Agrawal, Chief Financial Officer, Syrma SGS, to discuss the performance of the company during the third quarter and 9 months 2025, followed by detailed question-and-answer session. Kindly note, during this call, certain statements that will be made are forward looking, which involve certain risks, uncertainties, assumptions and other factors that can cause results to differ materially from those in such forward-looking statements. All forward-looking statements made herein are based on the information presently available to the management, and the company does not undertake to update any forward-looking statements that may be made during this call. In this regard, please do review the disclaimer statement in the earnings release and all other factors that can cause a difference. With this, I'll now hand over the call to Mr. J.S. Gujral, Managing Director of Syrma SGS. Thank you. over to you.

Good morning. A warm welcome to everyone to the Q3 FY '24-'25 Earnings Call of Syrma SGS Technology Limited. The quarter gone by has been a satisfying quarter and the 9 months have also been satisfying, which is reflected in the performance of the company. Revenues for the quarter were at about INR 892 crores, which represented a 24% year-on-year growth. And for 9 months, they were at INR 2,900 crores, a growth of about 40%. What is more satisfying, apart from the revenue growth, is that the steps taken by the management to bring back the margin profile of the company has started yielding results. For the 9 months FY '25, OEBITDA, operating EBITDA, margin stands at 7.2% against a guidance of 7% given at the start of the year. For the quarter, notably, this stands at 9.1%. This gives us the confidence that 7% achievement would be possible. And if any movement, it will be only north of 7% in the coming quarters. PBT also has shown a healthy growth of 37% for 9 months and 144% for 3 months. Export stands at about 20%. Exports have had a subdued, sort of muted scenario because our geographies which we are servicing are essentially America and Europe, and in Europe, it's primarily Germany. And Germany is today the sick baby of EU. It has the highest delinquencies per month. So we have had a muted growth, but the turnaround is visible from the orders and the indications, which we have received for the next year, that is FY '25-'26. I think we'll rebound back, though it will be a painful and a long journey. It is not going to be a 1-quarter sort of recalibration to the original levels. MedTech business also has been a bit slow because of pushout by some customers and delay in the development of the products, which we are very confident that in Q1 of next year it will bounce back to whatever we had envisaged when we have taken over the MedTech business of Johari Digital, which is now known as Syrma Johari Digital MedTech Devices Ltd. On an overall basis, we are confident that we would continue to grow as the industry plus average with the margins, which we have guided, that is a [ min ] EBITDA margin of 7%. We hold that guidance for this year. And when we come out with the final results for FY '25, we'll come up with the guidance for the next year. As of date, we are on track to achieve the guided EBITDA in percentage and absolute numbers, what we have said of 305, 310 something of that rate for the current year. And next year, we expect a growth of about 30%, 35% with corresponding increase in the EBITDA margins. We have onboarded some good automotive and industrial clients in the current quarter. And going forward, which will be '26-'27, we expect significant business from these clients. In '25-'26, these clients will be yielding sub-INR 200 crores of revenues. With this, I hand over to Bijay Agrawal to take you through with the detailed figures. Thank you.

Thank you, Mr. Gujral. Good morning, everyone. I will now take you through our brief financial performance for the quarter and 9 months ending December 2024. On a consolidated basis, my total revenue from operations for the 9 months is about INR 2,862 crores that grew by almost 41% on a year-on-year basis. And for the quarter, it was INR 869 crores, which is with a growth of 23% year-on-year basis. During the 9 months, our robust growth is broadly based on, I think, across multiple industry levels largely contributed by Industrial growth segment, consumer segment and primarily [indiscernible] segment here. Similarly, for the quarter, we had a strong overall growth in the Auto, Industrials sectors again. Our export revenue for the quarter is INR 210 crores, which is approximately 35% of total operating revenue for the quarter. And for the 9 months, it is about INR 583 crores. Our OEM revenue for the quarter is about 13%. And for the 9 months, it is approximately 11.5%. This quarter, we had a strong rebound in the margins led by expansion in gross margins on the back of change in business mix. Consumer sector business is slightly lower than other segments here. The gross margin for the 9 months is 21.3%. And for the quarter, it is with a very healthy gross margin of about 22.7%, broadly 200 bps of expansion on a quarter-on-quarter basis. Our operating EBITDA for the quarter stood at about INR 79 crores with a year-on-year growth of 88% and an operating EBITDA margin of approximately 9.1%. For the 9 months, it is around INR 208 crores, growing 53% year-on-year basis. Similarly, PBT for the quarter is INR 66 crores, again with a growth of 144% year-on-year. And for the 9 months, it is INR 146 crores [indiscernible]. PAT for the quarter is INR 53 crores, again approximately 6% of our PAT margin. And for the 9 months, it is around INR 113 crores. Coming to our open order book visibility as on date, as on December 2024. It is around INR 5,300 crores, which comprises almost 30%-plus of our contribution from Auto segment, about 38% to 40% from Consumer segment, approximately 22% from Industrials segment and balance from Healthcare plus IT and Railway segment business. On the working capital side, currently, as in quarter end, we stood at around 64 days of net working capital days investment. Again, this is slightly higher than the last quarter. We continue to make efforts to keep this net working capital below 60 days on a sustainable basis. Moving to our debt position. We have a gross debt of approximately INR 685 crores against which we are maintaining a [ treasury ] of INR 412 crore, and with that, my net debt position is INR 273 crores. Out of this total debt, which is primarily funded through the working capital, only INR 65 crores is what is the term loan here. Coming to my CapEx for these 9 months, we have spent approximately INR 180 crores of CapEx and largely towards building up this new campus facility in Pune and a facility there in Germany. Some bit of additional CapEx toward some line plant and machinery of stocking for new customer onboarding. My asset turn for the quarter is at 5.5x and ROCE for the quarter is around 13% on an adjusted basis. We expect this to improve further as we work on higher utilization of our CapEx going forward. Slight a bit of update on the merger side, we are waiting for the final order from the [ industry IP ], and we hope we should be able to complete this merger in another 3 to 6 months of time. We expect this year as we have guided broadly previous year also, we expect this full year we should be able to close at around INR 300-plus crores of overall EBITDA for the full year, FY '25. With this, I will hand it over to Satendra Singh, our CEO. Thank you very much.

Thanks, Bijay. Good morning, everyone. I think Gujral ji and Bijay covered the numbers pretty well. I'd like to start with the comment, which is to thank all my colleagues in the company who have worked hard to execute the strategy, which we have been kind of sharing with you and executing every day. So thanks to the colleagues. I think we have had this very, very good quarter. To repeat a little bit about the strategy. I think we continue to build for future, which is to focus on the people, to focus on the processes and to focus on the plant capabilities. And Pune, which was opened in October, is one such investment which we have made to build our capability and also to fill in the white space which we have had as a company because we were not present in the Western region. So that kind of takes care of our ability to fulfill the customer needs in the region. Overall, I think we are executing day in and day out on the operational side. So there's a lot of initiatives, which we have done to streamline and improve our processes on the process excellence side. So with this, I think I'll say thank you, everyone, once again. And back to Nikhil to take the questions and answers.

Yes. Thank you, Satendra. Operator, request you to please take us through the Q&A session.

[Operator Instructions] The first question comes from the line of Dhananjai Bagrodia from ASK Investment Managers Limited.

I just wanted to ask you regarding your debt position. Debt has increased year-on-year, so how should one look at that going ahead? And how are we thinking about this?

So year-on-year basis, debt has increased slight a bit primarily basis is the working capital investment. In this quarter, we had additional working capital towards some bit of new -- additional inventories bringing -- related to new customers onboarded. That is key point. Within this quarter-on-quarter, these aberrations may come. But on a full year basis, we have already guided that we will bring down this overall working capital investment below 60 days. That's what we are confident we will be able to maintain on a sustainable basis.

So the 60-day working capital that is sacrosanct?

Yes. That's -- yes. As on this quarter end, December end, we are at 64 days of net working capital investment. But gradually on quarter-on-quarter basis , this can again come down to 60 days. And again, it's a dynamic number. When the business is growing, revenues growing, overall working capital investment it may increase depending on the business. That's how the overall working capital borrowing is also linked with the working capital investment.

And last quarter, we also commissioned our Pune plant, which is yet to give revenues, but the inventory build-up happens when you start up a new plant and you bring in new customers. The prototyping and all that takes time, but the inventory goes up. And as you have seen a marginal increase of about 4, 5 days in working capital, net working capital, which we believe that we are very confident that in the coming quarter, by the end of this year, we should be sitting at about 60 days of net working capital. And this is all working capital and there is more sort of long-term loan of this.

Gradually, this is reducing.

And sir, in terms of order book, what would be the order book for this quarter? And how do we see -- how much do we see that executing over the next 18 to 24 months?

See, Bijay will go into the details. Orders, we normally track it on an annualized basis. As of all the time [ we say ], we are mindful of quarter-on-quarter, but what we are really focused on is what is the long-term story? Is it intact, growing? Or is it having some issues? So we don't -- figures are available, but we don't track orders on quarter-to-quarter basis because in one quarter, a new customer comes, he gives INR 200 crore order, it will show a bump. On an annualized basis, we have a very solid order book, which Bijay will deal with in detail.

So during the quarter, we executed order and -- sorry. No, I think with order book, how long are you seeing that being executed over?

So this is getting executed over a period of 9 to 15 months. The current order book, which is INR 5,300 crores.

INR 5,300 crores. Sure. And sir, lastly, most of our business, excluding Industrial, have Q-on-Q been flat. Is there any seasonality in these businesses in terms of Auto, Consumer and you mentioned Healthcare. But Auto and Consumer, is there any seasonality in the businesses?

See, quarter-on-quarter, it could have bumps because each industry have its own, what you call, dynamics. For example, the auto industry or the consumer industry where we are not present typically stocks up for Diwali in Q2 for the financial year. And the dealer and the sale happened in Q3, but as the production and the manufacturing and the uptake happens in Q2. So this over a period of time gets neutralized and we are on track to achieve the growth rate in the respective verticals, which we have set out to.

[Operator Instructions] The next question comes from the line of Rahul Gajare from Haitong Securities.

And congratulations for the very strong performance in this quarter. Sir, my question is on the margin profile improvement that we have seen. Is it -- if I see your order book composition, I think Auto and Consumer continues to be almost 60% to 70% of your order backlog. So is it that incremental orders that you all are taking are at a better margin? Or what would we really attribute to the margin improvement over here?

See, the margin improvement, as I've all the time been saying, is a function of the product mix which we sell. For example, in Q3, my Consumer business is only 31%. High-volume consumer business, which is a tight margin business, whereas my Industrial business is 30% for 3 months against an average of 25% for 9 months where Automotive is 24% of revenue for this quarter comes from Automotive. For 9 months, it is 21%. So the product mix change results in this change in the margin profile. And as I have said earlier that, for this year, we are guiding -- we have targeted about 40% of our revenue coming in from Consumer business. The wish and the desire of the management on which we are working with a very focused strategy is to bring this high-volume business to about 35% of our revenue. I would be happy with 30%. But I don't see it happening immediately. If it comes on to 35%, it will never natural positive impact on the margins. Bijay?

Additionally, the operating efficiency, which we have been working upon since last, maybe almost 2 years, both on the supply chain side and maybe operating scale side, both have been at least now delivering on the results side.

Okay. Okay. So this is basically product mix. It is not that the incremental orders that you all are taking or you all getting are at a slightly better margin. It is basically the product mix that is driving really the efficiency over here?

Every industry has its own margin profile and every customer has its margin profile. We always endeavor and strive to increase that margin profile within the industry. For example, if an automotive customer gives me a 22% gross margin, our endeavor is to take it to 24% with some customers, 28% with some customers. So that the blended margin comes down to about 23%, 24%, 22%. So it's a mix of, a, vertical-wise sales and then the endeavor of management that new businesses which we take in the upcoming [ field ] in EV and all that, they should be at a better margin.

So when we say this is business mix, in that business mix this is [ getting covered ] that higher margin business and now we are adding much more in the [ profile ].

The next question comes from the line of Indrajit Agarwal from CLSA.

I have 2 questions. First, what exactly is happening in the Consumer segment because we have had this 38%, 40% of the order book as Consumer last quarter as well that growth over has been tapering. So is it more like by choice? Or there are some execution issues? What exactly should we read through over there?

There are no execution issues -- abnormal execution issues. The normal execution issues running in a factory, they are always there. What we have done in the last quarter is that we have started renegotiating prices for the high-volume Consumer business to see whether we can have a bump in some margins or not. And that is a long-term strategy of the company: to do the high profit, high-margin business; low-, medium-volume, high-margin business. Consumer business will continue to be about -- our high-volume Consumer business will continue to be about 1/3 of my revenue, that's the desire. And that is also guided by the PLI. See, we have a limit on the PLI. So there is no point of bumping up the business, which is not with PLI.

So we are structuring the business in a way so that we can maximize on the PLI side, on the benefit side. And additionally, then improving the overall margin either through pricing and that is where we are [indiscernible] business. On the delivery side, we are keeping as a check here. So we should be keeping it at a balanced number in the overall profile also.

Understood. Sir, a follow-up on that, does low margin also mean low ROCE or asset turns are better so that the ROCEs are offset in the Consumer segment? And secondly, is the Consumer largely exports?

See, typically, in the industry, in the EMS industry, a high-margin business will have a lower asset turn, higher working capital involvement. You can't have all the positives or all the negatives in one. So a low-margin business has a completely significant lower working capital involvement and a higher asset turn. So this is the typical nature of the industry.

And in this -- on the question of the exports side, this is largely a domestic business. So it may be almost -- as of now, this Consumer segment business, about 80%, 85% is domestic and balance is export.

The next question comes from the line of Sonali Salgaonkar from Jefferies India.

Congratulations on great set up numbers. Sir, my question will be regarding, firstly, could you reiterate what is your guidance for FY '25 and also you mentioned for FY '26. Sorry I joined the call a bit late. And secondly, what is the kind of steady margin that we should expect considering -- and we do appreciate that every quarter will have its own product mix changes and every segment will have its own margin.

See, for the FY '25, we had guided a 7% EBITDA, which comes to about INR 3,305 crores, INR 3,310 crores or something around that, north of INR 300 crores. And we are confident that we'll be able to achieve that in this quarter and for the year. For FY '26, we believe and we are confident that we will grow at the industry rate and the industry growth rate is typically 30%, 35% currently. And if we grow at 30%, 35%, then there will be a corresponding bump in my overall EBITDA margin also when the operational leverage has kicked in and all those things. So we are on track to achieve what we have guided for FY '26 early on. This is a wish list. Now we are on track for achieving that.

Great, sir. And secondly, a very important point is that for the last 2 quarters, we have been showing some considerable improvement in our EBITDA margin. This is the second consecutive quarter. So has anything structurally been changed in terms of, a, whether we are targeting certain subsegments within the key segments? Or how should we look at it? Or probably it is -- finally boils down to the function of our product mix change, which could be transitory.

It could be a product mix. See, in Q1, we had 54% high-margin Consumer business and that hit us badly on the margins. In Q2, this came down to about 40-odd percent and we sort of bumped up to 8%-odd percent EBITDA margin. This quarter, it is down to 31%. So the EBITDA margins go up. So EBITDA margins are a clear play of the product mix and operational efficiencies kick in. The endeavor of the management on a long-term basis is to bring down the high-volume Consumer business, which is inherently low margin to below 35%. 35% is the [indiscernible] thing. I would be happy if it can come down to 31%, 32%, 33% and grow our other business. The efforts of nurturing clients over the last 2 years in other sectors like Industrial, like Automotive has started yielding results. And in Industrial, we have got some very formidable names in various applications. For reasons of confidentiality, I will not be able to take the names, but they are a bit superior margins and reasonably decent revenues.

Understood, sir. Very clear. And also is exports a driver of our margin from any way? Is it a higher-margin business as compared to...

Exports is a higher-margin business. Unfortunately, for the current year, we are only at 20% so we're down from 25% because of a slowdown in Germany. Germany is today a sick baby of EU and Trump has just come in, I think it will be a while before the policies get settled down. So -- but on a long-term basis, again, I said we aren't worried about quarter-on-quarter short term. On the long-term basis, we are very focused that exports should constitute north of 25%, possibly 30% of my revenues. Now whether it is '25 or '26, that I really can't say because it's a play of domestic business also panning out in various segments other than the Consumer. But yes, exports are high -- comparatively higher-margin business. And we intend to bring it back on track to about 25% of the revenue, which currently has come down to about 20%.

The next question comes from the line of Deepak Krishnan from Kotak Institutional Equities.

Okay. Sir, I just wanted to understand on the new JV that -- the new entity that we have formed for laptops, what sort of revenue potential can we see from this new venture that we are entering into? And maybe just on revenue guidance, wanted to check in the INR 4,500 crore guidance still stands? Or is that number sort of revised down with a higher EBITDA margin?

Okay. What I could understand is about the laptop business. And the guidance, which we have given, was 30%, 35%. Does it include laptop or laptop will be in addition to that, is this your question?

No. So the laptop business revenue potential and the INR 4,500 crores revenue guidance that we have given for this year, does it still hold?

Okay. The laptop business has just started last month. It's still in the infancy stage. It will mature in the coming quarters. And in the coming year, it would also mature -- going up to the backward integration of board level assembly, currently it's a laptop assembly. On the guidance of revenue, we are more focused on the margins. And we are very confident that whether we do INR 4,200 crore, INR 4,100 crores or whatever, the INR 300 crore-plus, INR 305 crores of EBITDA margins are intact. Revenue is a play of Consumer business, other businesses. So to us, based on the input of The Street, we are both focused on growing as per the industry rate with margins of 7% or 7%-plus.

Sure, sir. Maybe just wanted to check if any PLI incentive is booked this quarter? And is there any one-off income because the other income is relatively higher. Just wanted to check these 2 items...

One-off income, we had acquired a piece of land for expansion in North. Once they put up the campus in Pune, we felt all expansions should happen in the Pune campus. So we sold off that piece of land in Haryana Manesar and that has resulted in a one-off income, which is shown separately and not in the operational EBITDA.

Sure, sir. Any PLI this quarter?

INR 15 crores to INR 17 crores with the total income for the full year, PLI.

The next question comes from the line of Bharat Shah from ASK Investment Managers Limited.

Yes. Gujral sahib, at this time actually asking Bijay. You have referred to EBITDA margin of 7%. But I suppose what you mean is operating profit margin of 7% because EBITDA margin will mean operating profit plus other income?

It will be an EBITDA margin of 7%.

Sorry?

Without treasury income.

This is operating EBITDA margin, which we are referring 7%-plus.

Bijay, give us an idea.

I'm saying this is operating EBITDA margin, which we are referring 7%-plus. And other income will be over and above that.

Because he kept seeing EBITDA, therefore, I just wanted to clear the confusion because that -- what it means is operating profit margin of 7%. All right. The outlook for the year coming, we were earlier discussing turnover of closer to INR 6,000 crores or thereabout. So is that something intact?

I think we hope to come back with that figure. But with the current estimates, I think there could be a minor variation in that. But with a caveat, the EBITDA margin, which we had guided based on INR 6,000 crores of revenue would be intact.

Okay. Okay. Sir, which means it will be a play on the overall profits. Turnover will be a resultant number.

Yes. Yes, absolutely. So it says that, okay, if you are guiding The Street for x EBITDA margin, absolute figure, then that x can be constituted by INR 100 crores revenue or INR 120 crores revenue based on the product mix. But to us, it is an x which we are guiding the market. That is more important.

Absolutely. Lastly, on the capital efficiency, return on capital employed, what is the progress being made? One element you highlighted that working capital will be sought to be kept below 60 days and hopefully it will improve further going ahead. New facilities have been built. New hiring and talent investment has happened. So physical infrastructure, people infrastructure, other initiatives all are in place. Therefore, hopefully, with the growth of the business, should it result in a measurable improvement in return on capital employed?

That's right. That's what we are also targeting. My overhead costs are much more stable now and the expansions have largely been taken care of. So with this, the way we are anticipating next quarter also, we are targeting like this year we should be closing around 14.5% to 15% of ROCE. And gradually, it should then move towards our targeted ROCE of 20% over the next 2 years.

So by fiscal '27, we should be hugging closer to 18% to 20% return on capital employed?

Yes.

Yes.

The next question comes from the line of Keyur Pandya from ICICI Prudential Life Insurance.

Sir, just to clarify. As you mentioned that, I mean, revenue may vary and the margin may vary so you are targeting for absolute EBITDA. So in that backdrop, how should we think about, say, gross block asset turn? Or is there any other measure, say, EBITDA per INR 100 crores gross block, whichever way, basically how should we think of that measure of ROCE?

So currently, we are at an weighted average asset turn of around 5.6x. With this increase in scale, we are hoping we should be around -- somewhere around 6x of asset turn. And that is where we are saying this year probably we may be much more -- closer towards 14.5% to 15% and gradually then this should improve thereafter.

So anywhere between 5 to 6 asset turn is sustainable and I would say more optimum asset turn that is possible and targeting EBITDA margin -- operating EBITDA margin of 7%, 7.5%. Is it correct?

Yes. Gradually, yes, operating margin will -- again, we see an improvement in the operating margin there or maybe asset turn should improve thereafter, 6 to 7x in that case. That's the...

And you discussed that share of Consumer should or would come down, that should impact theoretically negative to your gross block asset turn and that should be offset by higher margins. That is how it will play out or just want to understand the construct of the ROCE with the mix change.

If we say this 35% or maybe less than 35% of Consumer business, that is actually not a negative growth. There will be a growth and positive, but other businesses may grow at a better pace. So that overall -- in the overall total portfolio, this business should be within the check of 35%. That's what we are saying. So asset turn side, I actually don't see a negative from 6% to below 6% that way, gradually it should improve further, the increase in scale. And as my Pune facility also ramps up, this will also add to my asset turns going forward.

Okay. Last follow-up. So based on current gross block, what is the maximum revenue that we can generate, ballpark?

With the product mix, which we have said about 35%, 37% Consumer and all that, we should be able to achieve INR 6,500 crores or INR 6,000, INR 6,500 crores of revenue with this gross block with marginal addition of balancing equipment and all that.

The next question comes from the line of Bhoomika Nair from DAM Capital.

Congratulations on a good set of numbers. Sir, just wanted to understand how JDHL has performed in the quarter and for the 9 months, if you can share revenues, EBITDA and PAT and the outlook for the same? And my second question is on the Auto and the Industrials segment. We've seen order backlog growing quarter-on-quarter, but I guess I got the -- I'm not sure if I got the number right, but you said that Industrial was about 20%, 25% of the total order book. So if you can just give some outlook on Industrial, what are the new segments, what order we've seen because it seems a little lower than our historical trend.

So I can explain the MedTech business and then maybe, Gujral, you can add on the Industrial piece side. Our MedTech business is slightly subdued in this quarter, which we have already explained at the start of this call that we are expecting this to rebound from next quarter onwards or maybe this current quarter onwards, let's say. So as of now, the last quarter, this business has done approximately INR 20 crores, INR 25 crores of revenue with a less than INR 10 crores of EBITDA -- around INR 10 crores of EBITDA that way. And going forward, we see this should rebound better on a quarterly basis.

See, on the MedTech business, we are building the platform and there has been a slight sort of a delay in customer listing, customer approvals and all those things. But we are very confident that in the coming year -- so we are delayed, pushed out by about 9 months. But in the coming year financial fiscal '26, I think MedTech should come back to what we had envisaged. And thereafter, beyond '26, it should grow because the customers, the designing and the products and the areas, which we have entered in the last 1 year, we have recalibrated the entire business in the medtech space so that we are now more outbound, more customer-centric rather than executing businesses, which were historically coming in. So more outbound and customer-centric than inbound business. I still believe that I maintain that in the coming years, MedTech business should be a very reasonable, decent chunk of our business. Currently it's at about 6%. Now if we grow at 35% and business has also grown at 6%, it has a natural growth, but I expect it to grow at a faster rate in the coming year.

So sir, I mean, what is the current minimum? Where do you expect? What is the order book out here? And when you're saying '26-'27 you'll see a significant ramp-up, what kind of revenues are we looking at from this business?

I would not be able to share the revenues, to be very honest. But the pipeline, the product development pipeline, which we are today catering to, including designing, which would go into production in the coming years, I think, gives us the confidence that in the year '25-'26 we should be closer to maybe INR 160 crores, INR 150 crores, INR 170 crores or INCR 200 crores, but it's a bit early because it also involves designing. It's not a pure, plain manufacturing of a product which has already been developed.

So in the order book also, business in totality is contributing almost 7%, 7.5% of my total order.

Okay, okay, okay. The second part was on the Industrial business, if you can throw some light on how the order intake has moved and what is the outlook in terms of new client additions, et cetera? And which segments are we seeing growth being driven by?

Our current order book on the Industrials side is about 20%, 22% of my total book. On the subsegment side, we see a lot of traction on the smart metering business side mainly and a lot of -- we have added one more new customer recently and previously, as we have explained, our [indiscernible] business is also now picking up gradually. So we see this subsegment will perform much better than the Industrials side. Additionally, we are working on the renewal piece, which is kind of a solar segment here in this case and maybe other power supplies business, which will contribute to this particular segment.

Just to add on to what Bijay and Gujral covered on Industrial. It's a combination of Indian business as well as exports business. So in exports, I think we see -- we have a couple of customers, which we would not be able to share the names at this point, but we have the business logged in and that should start trickling in, in the FY '25, '26. So we would see a growth over there from those customers.

And just delve on the applications within the Industrials segment, utility metering, including smart metering, whether for gas, electricity or water is one dominant component. Power supply and power management units for data centers is another dominant segment. Industrial cleaning, wet/dry steam is a decent-sized business. Then we have into the renewables like solar trackers or solar inverter, which is developing, which I think in the coming years should go up. And then it would be like automation: communication cards, automation cards, whatever, I can't think the name, decent, very good orders from a global giant for interface cards. And this goes in a very, very high volume.

The next question comes from the line of Aniruddha Joshi from ICICI Securities.

Yes. Sir, 2 questions. One, what is the total PLI benefit that we would have booked in 9 months? And also means in a way, is the money received or is it accounted for? That is question number one. And secondly, we have seen now back-to-back slowdown in the Consumer business. So how do you see the outlook from a -- over next 2-odd years? And also, as I understand, generally, Q4 is quite heavy from an ROCE perspective. And Q1, Q2 are strong because of demand for water purifiers. So Q4 and Q1, we should see a higher revenue share of Consumer business, is that understanding correct also?

On the business part, the Consumer business, which is not high volume is going as per track and that's a high-margin business. It's not a low-margin business, though it's clumped in the Consumer segment. And for this quarter and the coming quarters, we are in track to grow as per the industry rate with the margins which we had guided. Again, end of the day, it is a focus of the management to give margins and see that the margins consistently over a period of time inch upwards. So with that in mind, you have a flexibility to play with the product mix without sort of sacrificing the margins and still doing the business. As I said, we are renegotiating some of the prices to see what incremental margins we can get. So that's a work-in-progress. On the PLI, I think Bijay will take that answer.

On PLI, for the full year, we are estimating it should be around INR 15 crores to INR 17 crores. For the 9 months for current financial year, we have accrued around INR 14 crores.

Okay. And what was the number last year, 9 months?

Last year also full year number, I don't have the 9 month number back here. But last year also for FY '24, this number was around INR 16.5 crores, full year -- FY '24.

The next question comes from the line of Aditya from Investec.

Sir, my question again is on the PLI scheme. I remember in one of the earlier conference calls, you had indicated that there is a PLI benefit of almost INR 45 crores in respect of FY '24 of which our share would be around INR 15 crores. So just want to clarify these numbers that we are saying, is this our share which we retain and which we kind of record as income in our book of accounts? Or it's the total quantum that we have received in 9 months of the fiscal?

Yes. This is a net basis like whatever we probably may need to share. So this is these numbers, which we are quoting are on a net basis, which should be our share retention.

Okay. So INR 14 crores that we have received in 9 months of the fiscal year is roughly our share.

Yes.

Correct?

For the current financial year.

Understood, sir. And this will be in respect of entirely FY '24, correct?

In respect of current financial year. Current financial year, what we are saying we should be around INR 17-odd crores of which 9-month number will be around INR 14 crores on a net basis.

And we record it on a cash received basis or we you doing it on an accrual basis?

We are doing it on accrual basis.

Understood. Because last year, sir, wasn't it the case that we thought of doing it on a cash received basis, and therefore, we weren't really recording a lot of PLI benefits. And we have spoken about PLI benefits coming into the books of accounts in the following year.

So that is something previously in the initial start of the very first year, we were doing -- we were [indiscernible] the first approval there. So we should take them later on, it is now [ constructively on all approvals ].

So the first year is always a tough year when the entire application that will be vetted by the department and the agency is nominated by it. So that takes a lot of time. And hence, we were conservative to not account for it. Once the products are approved, the CapEx is approved, then it's only a data, which generate sort of how much sales and how much is the PLI. So it's a pretty simple methodology. And hence, as per the industry practice, we have migrated to accrual basis.

Fair point, sir. So does that mean that in one particular year, we would have recorded on cash basis PLI benefits, which was made for the preceding year as well as on the accrual we would have recorded the benefit of the same year?

Yes. Previously, [indiscernible] into approval that is not current year accrual basis so there is...

Sure. So this year like INR 14 crores is in respect of current year accrual, but we would have recorded on -- for cash for preceding year also, right? So overall, PLI benefit that we would have recorded would have been higher, there would be some amount for FY '21 as well?

So for previous year, it is all linked to [ delivery ] basis. So that's how it is slightly different that way. But current year [indiscernible] we have accrued around INR 14 crores.

Sorry. Sorry, your voice was crackling a little.

From previous year, it is linked to the receiving of the cash, but currently -- for current year related, we have accrued around INR 14 crores.

That's a fair point, sir. I'm just requesting for one simple data. INR 14 crores is in respect of this year. Have we recorded any amount in respect of preceding year FY '24 as well, which we may have recorded on cash basis?

Preceding year related, it is linked to the receiving of the amount, which will happen gradually.

The next question comes from the line of Sumant Kumar from Motilal Oswal Financial Services Limited.

Can you talk about the Railway order inflow? And also, what are the subsegments we got order for Railway?

Railways?

Yes.

Railways, I think we had guided that this year we'll be doing about INR 70 crores of revenue from the Railways, and we are on track to achieve that revenue this year. New product approvals are in pipeline. So till those product approvals by RDSO happen because every product has to be approved by RDSO, it will be tough to give a figure. But I believe that next year, this figure should be higher than INR 70 crores. Even if it's a 50% growth rate, it will be about INR 100 crores. So anything between INR 100 crores or of INR 100-plus crores in Railways in FY '26 is what we are targeting.

Which are the subsegment in Railways sir?

Sorry?

Which are the subsegments in Railway in the product side?

These are just really the brake controllers. The bulk of it will be signaling equipment and other products which go on the wagon. But bulk of it would be the signaling system for the railways. So it will be a mix, 50% what goes on to the locomotive or what goes on to the wagon and 50% goes on to the infrastructure, which is the signaling.

The next question comes from the line of Bharat Shah from ASK Investment Managers Limited.

Gujral sahib, earlier you mentioned that a big turnover from the current infrastructure can be around INR 6,500 crores, which means virtually before the next year ends, we will need today's physical infrastructure to prepare for the growth ahead.

See, we have this facility in Pune where the equipment can be plugged in. We have just got 2 lines in Pune that has capacity to take in a like number of more lines. And then, yes, for '26, '27 onwards, we will be constructing within the same campus a production facility to taking up for the '26-'27, '27-'28 because there will always be an overlap. But the bulk of the cost is the land, which has already been acquired, the building and all that cost, but it's not comparable to what the land cost is.

So which means if we need to raise the capacity, we can do it fairly quickly.

See, currently, for the 9 months, my capacity utilization is around 70% or a little less than 70%. So if I have done INR 3,000 crores or INR 2,900 crores of revenue at 70%, so this takes us to INR 4,000 crores in the new [ assets ], which we have just put in, which are not taken into the capacity would yield initial results. The Pune facility has just been set up, so we don't count that into the capacity because it takes time for us to build the output from a new plant. You have to get customer approval, you have to get quality approval. But with this asset base, with some marginal balancing equipment, INR 6,000 crores, INR 6,500 crores is achievable. And this would also depend upon the product profile. Hypothetically, if I was to do only Consumer, then it could be even more than INR 7,000 crores. But with a low volume, high mix, all those things, the blended output should be about INR 6,000 crores to INR 6,500 crores.

So basically, as we get into the next year at some stage, we're going to have to unlock new capacity to prepare for '26-'27. So basically, what we are saying is that can be done reasonably quickly at Pune facility to raise the overall production capacity.

Yes, you are right. You are right. It takes about 6 months to set up -- since it's not a vertical growth, it's a single story growth in Pune, it takes about 6 months to set up a manufacturing facility. And by the same time, you order the equipment and you can sort of align the receipt of the equipment with the completion of construction.

Sure. And Bijay, just one issue. For the current year, what is the likely tax rate for the profits?

This is approximately 23% to 25% there. For the quarter, it is lower because there is the other income, which attracts some lower capital gains tax, so that's where it is lower. Otherwise, it will be around 23% to 25% current year.

And the next year would be presumably be similar?

Yes.

The next question comes from the line of Praveen Sahay from Prabhudas Lilladher Capital.

Yes. Sir, can you give the CapEx number for '25 and '26?

So current till 9 months, I have already spent around INR 180-odd crores. In this quarter, I may spend somewhere around INR 32 crores. So current year, it will be around INR 210 crores to INR 225 crores. And next year, I may spend around INR 100 crores to INR 150 crores.

Okay. And also, in the past, you had announced for the QIP. What's the status for that?

We have the approval from the Board and shareholders together. As of now, we have not initiated anything on that thing. We are internally working on a few of the expansion growth projects. If we need any further additional capital, then we'll probably go for that.

The next question comes from the line of Dhaval Shah from Girik Capital.

So sir, if we understand our progress as a company over the last 2-, 3-year period since we went public, so does it mean that our strategy as a company is now more focused on EBITDA margin, the way you mentioned about you renegotiating the contracts, going back to the customer versus the kind of growth we were talking about and chasing growth. The working capital had expanded and that's why we also thought of doing a fundraising. And now we are more of talking more on the margin front. So what has led to this change in this thought process over the last 2 years? You saw things changing on the customer side, demand front, competition front? If you could help us understand on this part, number one. And number two, going forward, in the order book, Consumer is still high but your Industrial order book is also increasing. So does the increasing pie of Industrial and others, which is Railway and IT also benefit your margin? And will we now consistently be looking at on an annual basis 7%-plus kind of EBITDA margin without other income. These are my 2 questions.

See, we have recalibrated our sort of strategy based on the input and the growth areas available, which I had earlier also said it was not that we were sacrificing the high-margin business for the sake of low-margin business, and that continues even today. We are more focused on generating EBITDA, and that's the recalibration we have done. Why we have done it? It's because of the inputs we have received from various quarters. Correction is always, I think, a welcome thing if it's for the better. We continue to sort of focus on margins with growth at the industry level. Now on your other question of Railways and others, those businesses are factored into our normal plan which we shared. And I'm very confident that going forward what we have guided for this year and next year, we'll be able to achieve that.

Okay, okay. And for this sustainable 20% ROCE, so what sort of margins would it require? Like 7%, 7.5%? Because the way asset turns will change depending on the products. So what sort of margins are we looking at for the sustainable 20% ROCE number?

Bijay?

So I think if we are able to improve the overall asset turn somewhere between 6.5 to 7x with the overall EBITDA margin of 8%, I guess, we'll be nearing towards our target ROCE.

And also better working capital management and control.

Okay. So 6.5 to 7x asset turn with almost 8% EBITDA margin. Now this is possible when we go for what sort of product mix in this? Because the margins are also higher, assets are also higher than historically.

When we talk about margin percentage, that already factors in the different product mix here. So whichever product mix comes, we are able to deliver that EBITDA margin with a lower working capital investments. So automatically, the ROCE will improve a bit.

The next question comes from the line of Vipraw Srivastava from PhillipCapital.

I'm audible, right?

Yes.

Yes.

Yes. Sir, quickly, on the PLI thing, which one previous participant asked. So in FY '24, it was cash based. In FY '25 with accrual based. Is this correct or am I wrong?

So current year accrual only. FY '23 was cash basis. Then gradually we have changed the pattern.

So '24, '25 both were accrual based, right?

Yes.

Okay. And secondly, sir, quickly on the Consumer segment. So you had -- if I remember correctly, you were saying 40% should be from consumers. So if we take 9 months and if you take the revenue mix for 9 months, we already are on 40%. So in Q4, should we see the same mix of business? Or do we see Consumer going up in Q4?

I personally don't see Consumer significantly changing in Q4. At the end of the year, I think will be around 40%, maybe a percentage lower or 0.5 percentage higher, maybe 38%, 39% Consumer business. The endeavor of the management as I've all the time been saying is that to bring it down to 35%.

Right. Right, sir. And sir, lastly, I mean, we do know that in the electronics ecosystem, Government of India is coming up with a PLI on components where they're going to incentivize the component, let's say, like bare board. So do we see some risk from that? And because if your peers backward integrate into bare boards, in your Consumer segment, how do we plan to compete with them?

See, on the backward integration, I have been dealing with it all the quarters. So the backward integration essentially would be into either the PCB manufacturing or the semicon manufacturing. And PCB manufacturing and semicon manufacturing, they are independent business units, business projects to be evaluated on an independent basis. Now hypothetically, if I set up a PCB plant, will it give me a positive rub on my EMS business? The answer is no. I manufacture 700, 800 type of SKUs of all types. There is no way I can manufacture the entire thing in my factory. So maybe some critical boards are manufactured in the factory, but I'll continue to outsource PCB from the PCB vendors. Today also, we have about a dozen PCB vendors for each category seeing the cost and the capability. So these projects are to be evaluated as stand-alone projects. It gives you a derisking of business, fair enough. But there is a, downside if the EMS business goes down, who will use the semicon component which I make? It's the EMS, which is a major consumer of the semicon component. Who will buy the PCB, which I make if the EMS business goes down? So it is to be evaluated as such. Northing negative, nothing positive. It has to be evaluated on a stand-alone basis. If extra parameter with the management is set, jolly well go ahead for it. But it has no significant leg up to my EMS business.

Sure, sir. But sir, I mean, one of your large peers, they have been saying that they will consume the entire PCB board they manufacture internally. So do you think this understanding is not correct? I mean, you can't consume whatever they manufacture internally?

Obviously, there's a difference. For example, again, I'll clarify. For example, if I am making televisions, I'm just making a product [ not meaning why ] I'm making air-conditioners and I make 500,000, 1 lakh, 1 million air-conditioners, then I can logically configure my plant so that I can have that board from my own [indiscernible] production. But in our case, which is a well-diversified portfolio and not concentrated on one model or one vertical or one application, I don't see that situation arising. But yes, if I was to make 1 million televisions in a year, then logically my client can put [ backward ] PCB plant to supply me 1 million PCBs. But still, it has to be evaluated on its parameters, whether it's giving me the returns or not. The value addition, which I'm giving to a PCB manufacturer, which I retain in-house have to justify the CapEx and the ROCE.

The next question comes from the line of [ CA Garvil Goyal from Nvest Analytics Advisory ].

Am I audible?

Yes, please.

Congrats for the decent set of numbers. My one question is on the product portfolio side, like the end industries. So our product portfolio is catering to various end industries including auto consumers and railways and our Industrial segment maybe including power and capital goods, et cetera, as well. So I just want to hear from you like based on your discussions happening with ministries, like is there any change in the government budgetary allocation expected for CapEx and growth in any of our end industry, sir?

See, end of the day, if I go to the utility meeting, which is end user would essentially be government or these big private DISCOM, which come up. And I personally don't see that on a sustained basis there should be any problem in that. Monthly, quarterly bits, some payments not coming to the guy, funding arrangements and all those things is part and parcel of the thing. But on a sustained basis, I don't think funding would be an issue. And again, this particular business is less than -- if my memory serves me right would be less than 20% of the Industrial business. I think I should be doing about INR 200 crores, INR 250 crores, INR 220 crores of utility metering electronics this year. And my -- Bijay, our Industrial will be about INR 1,000?

About INR 1,000.

About INR 1,000. So it's about 20%, 25%, which is directly related to funding from multilateral agencies at the moment. The rest of the Industrial business is purely with private sector. Now you scratch that, that private sector may be a sector selling into data centers or private utilities or power supply, power management units globally or within the country. I personally don't believe that funding should be a crunch for us on a sustained basis. Peaks and troughs will happen.

Ladies and gentlemen, we take the last question from the line of Aniruddha Joshi from ICICI Securities.

Sir, just want to clarify further on the possibility of QIP. So I guess we were contemplating entry in OSAT business. So just wanted to understand any update on that. And secondly, even if the company decides to go ahead with the QIP, will it be for the existing business or will be largely for OSAT, or third, for any acquisition because the existing business seems to be doing fairly well. So I am not sure whether we require any funding in that business as such. So if you can clarify a bit more on that.

We have taken our QIP approval just to be ready for any future growth. We have never contemplated...

Inorganic growth.

We have never contemplated QIP for our existing business related to any kind of working capital funding. That's very clear. Regarding our OSAT plan, we have already communicated previously also we are evaluating. We have been evaluating this business. And once we are clear in our strategy, yes, this business makes complete full sense in terms of overall profitability, business, numbers and capital risk, then only we will plan for it. But QIP, anyway whenever we at least plan, it will be much more for the growth opportunity, not for the existing businesses. The approvals were clearly taken only just to be ready for any future growth opportunity.

And just to add to what Gujral ji and Bijay has said, I think equity raising is the most -- costliest of funding. We are very clear on that, that only when such an opportunity does arise, which requires equity funding, we will raise it. We have enough accrual happening in the business itself to sustain continuous period of growth.

Sure, sir. This is very helpful. Just lastly, understanding on the inorganic opportunities whether we are looking at opportunities in India or internationally? And again, which segments you would be looking at the opportunities? I mean, PCBA or we would like to expand the services in overall EMS portfolio itself or anything else?

Okay. You see, we have all the time been maintaining consistently for last several, several quarters that inorganic acquisition will not be made really for the sake of having a bump up in my EMS business. We would do an organic acquisition if it gives me access to technology, fills in gap in my product offering, gives me access to regulatory approval, then I would look at inorganic acquisition because reinventing the wheel in such cases is a very long, time consuming. Another thing, I think the clarity will emerge in the coming months is Mr. Trump on manufacturing in U.S.A. I'm just sharing my thoughts along, nothing on paper, nothing on plan. But that may necessitate Indian industrials who have a near-shoring facility to the U.S.A. It all depends upon what the plans and what are the policies which pan out in the coming quarters. Currently, we are evaluating what you call inorganic acquisitions. But there is nothing, which has reached the stage where we can share it with The Street or the analysts. They would be in areas of design, they would be in the areas of defense and other things, where we are not present today.

Ladies and gentlemen, that concludes our question-and-answer session. I now hand the conference over to Mr. Gujral for his closing comments.

Well, ladies and gentlemen, thank you very much and -- for an insightful QA session. From the management side, I would like to assure each and every one of you that we are, as all the time, been staying focused on building an organization and institution. Business is a by-product business will happen. But a growth, sustainable growth, in business has to be backed by tangible steps to create the organization to which we are fully committed and we are doing. One of the steps is that [ to install ] stand-alone units, we have started going on the campus to save on the cost. That's one of the long-term strategies of the company. We have commissioned or in the process of final commissioning of our facility in Germany. Germany currently is a bit of a spot. So I can't say today how fruitful that could be. But I'm sure in the long run, it will be a big leg up to my export business. We are very, very mindful of our social responsibilities and diversity and nurturing and retaining talent. Respect, mutual admiration, care of the employees and all the stakeholders is at the core of our philosophy. I'll just ask Satendra to share his thoughts on it for the final word.

Thank you, Gujral ji. Thank you, everyone, for good questions. Your questions are motivating us to think different and make sure that we are doing everything we can to satisfy all our stakeholders, which is, of course, the shareholders, customers, suppliers as well as our employees and society at large. We are committed to a strategy. We're always talking about consistency, thinking long term. Yes, we are keeping a very close eye on the quarterly results like we report every quarter to you. But on a long-term strategy, we are clearly focused on building this organization for the future and we are continuing to invest there. We are definitely encouraged with the progress we have made over the last couple of quarters, and we expect to keep the momentum going. Thank you very much.

Thank you gentlemen. Thank you very much, ladies and gentlemen.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.