Zen Technologies Limited (ZENA) Q1 FY2026 Earnings Call Transcript & Summary

And thank you for joining this Q1 FY '26 Earnings Conference Call of Zen Technologies Limited. The results and investor presentation have been uploaded on the stock exchange. To take you through the results of this quarter and answer your questions, we have with us today Mr. Ashok Atluri, Chairman and Managing Director; Mr. Afzal Malkani, Chief Financial Officer; and Ms. Abhilasha Atluri, Investor Relations Officer. We'll be starting the call with a brief overview of the performance, which will be followed by the Q&A session. I would like to remind you all that everything said in this call that reflects any outlook for the future, which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainty that the company faces. With that said, I'll hand over the call to Mr. Ashok Atluri for the opening remarks.

Good morning, fellow investors and friends. So this quarter has -- just to come to the brass tacks, this quarter has been kind of disappointing even for us. And we expected a little better than what we have done and around I think INR 60 crores or so because of some design changes asked by our end user because of the evolving reality of war, we had to accommodate those changes in specifications and our execution has spilled over for that particular product into Q2. And so we expect the key benefit in the Q2. But overall, our feeling is that the government is very serious and again, while Operation Sindoor has hastened some purchases, the regular purchases like simulators, they took a little back stage kind of thing. And so -- but again, we do feel that the simulator that we said by H1, we should have another INR 650 crores, we still feel that orders will come through by end of September. But the reality is that the regular procurements were kind of little slowed down because of the new emergency procurement happening after post Operation Sindoor. So -- and one thing bright spot in the whole thing if we can say that is that subsidiary, ARI has been performing well. And we feel that this year, they will ask almost INR 170 crores of top line to our turnover that will be 100% subsidiary by the end of the year. Now we hold 76%, but it's transitioning. And the UTS will again at least add INR 80 crores, even if you were to take out our cross transactions. So another expectation was the EBITDA and PAT were in line with our expectations and what we had indicated to the customers. But -- so this is the overall picture. And I'll just to quickly run -- request Afzal to run through the financials, and then I'll continue from there. Afzal, can you take over, please?

Yes. Sure, sir. So good morning, everyone. So as our CMD, Mr. Ashok Atluri has mentioned that in Q1 FY '26, results reflects a temporary execution timing adjustments with the quarter subdued revenue and profitability largely attributable to the deferral of a significant amount of worth of equipment shipment to Q2 FY '26. Despite the softness, the consolidated performance was supported by the strong contributions from our subsidiaries, UTS and ARIPL. And now coming on to the results, let's begin with a quick update on stand-alone performance for the Q1 FY '26. Our revenue from operations was INR 111 crores compared to INR 253 crores in Q1 FY '25. The degrowth in percentage terms is around 55%. Our operational EBITDA for the Q1 FY '26 decreased to INR 38.05 crores compared to INR 103.20 crores in Q1 FY '25. Though our total EBITDA is more than 40%, but operational EBITDA is reduced to 34.26% compared to 40.64% in Q1 FY '25. Our profit after tax has decreased to INR 37.12 crores compared to INR 74 crores in the same period last year and profit after tax in percentage terms is still 33.44% compared to 29.20% in Q1 FY '25. So here, there is an increase of around 4%. Out of our total revenues of INR 111 crores, INR 101 crores were contributed by the sale of equipment, while INR 9.78 crores came from our AMC business. Now coming on to the consolidated performance, our consolidated performance is much better than stand-alone performance. So our revenue from operations was INR 158 crores compared to INR 254 crores in Q1 FY '25. The degrowth in percentage terms is 38%. Our operational EBITDA for the Q1 FY '26 decreased to INR 64.70 crores compared to INR 111.35 crores in Q1 FY '25. In percentage terms, operational EBITDA is 40.90%. It is above our benchmark of 35% compared to 43% in Q1 FY '25. Our consolidated profit after tax has decreased to INR 47.75 crores compared to INR 76.81 crores in the same period last year. Profit after tax in percentage term is 30% compared to 30% in FY '25, the same. With that, we conclude our opening remarks and we would now like to open the floor for question and answer.

[Operator Instructions] Our first question is from Jai Chauhan from Trinetra Asset Management.

So I just have one question. Given Zen's dominant position in anti-drone systems with IDDM qualification and successful field testing during Operation Sindoor. Like how do you see the competitive mode evolving as more players enter this space? And what specific technological differentiator will maintain Zen's leadership in the next 3 to 5 years?

The one thing that is sort of again, in 2023, they were open tenders, IDDM category from Indian Air Force and the other tender from Indian Army. And in both the cases, we were the resultant single vendor. And again, at that point in time, there was no other player who was able to demonstrate what the Government of India needed in terms of wide band requirement. Now typically, a wide band, most of the anti-drone system that have been developed in the country, they are meant to handle commercial frequencies and not noncommercial frequencies. What Zen had done much earlier, had done lot of R&D investment in anti-drone system to expand the scope to be band independent. It doesn't matter which band whether commercial or military or any other band, we should be able to detect and jam it. That was a mandate that we had given because as Zen Technologies, we always said that it's not just winning RFPs, but winning wars for the country is important. And fortunately, at that point, they did go for a wide band because most of the customers were going only for commercial band. The Indian Armed Forces did go for wideband and they bought it. So what we see is even recently, very recently a couple of months back, there was a demonstration of this system -- our indigenous system. And still to the best of -- we did not come across any company that had indigenously designed and developed wide band. So they are trying to cheat in terms of wide band. What they are saying is -- so one of the guy was saying that, listen, we are doing wide band. I said what do you mean by wide band. And they said, like, we do -- in the wide band, we do 900, 2.4 and 5.8 gigahertz. There's no -- in the wide band, you have to do anything from 100 megahertz to 6 gigahertz or 8 gigahertz whatever the condition. So they are trying to play around with the word wide band. Wide band means anything and to the best of my knowledge, none of these companies have that. So we stand -- we still stand a good chance if they really go for this -- the product with what is actually being used and will be used in future. We stand a good chance. There are a lot of people who are coming and saying, and by the way, when that time the RFP was called, there were 12 people who came for the pre-bid, but only 2 came to the actual trial. So lot of claimants were there, even then in '23 and '25 they are still increased, but we will have to see who will actually come to the trial, getting their equipment because Government of India is very, very serious, and they are -- if somebody gets foreign technology or some pretended technology and tries to sneakily qualify it as indigenous, the government will really, really go after them. And in '23 also during the pre-bid meeting, a lot of people asked, how are you going to verify that the technology is IDDM, indigenously designed, developed and manufactured. So the officers there were very, very. Listen, we are going to go through your soft code, your software code, and you have to explain each and major blocks in that. We may dig deep wherever we want, then you'll compile in front of us, the whole software and then you will run the anti-drone system in front of us and the electronic, all the PCBs, designs, the Gerber files, everything we've taken. And we also want a GitHub, the version control system that you have in place, which -- when was it started, what are the different versions. Similarly for mechanical engineering, CAD drawings, exploded SOLIDWORKS use, simulations, which we have done. So I think with all these strict checks in place, Zen has a very, very good chance of getting substantial anti-drone system orders. So I think, yes, that's the confidence we have, but only as things open up, we expect the tenders to come up pretty soon and we'll see who are the participants. But again, they have to physically demonstrate it and prove that it's indigenously designed, developed and manufactured. I hope I have answered your question, Jai.

Yes, sir, understood. And sir, the core competency that you mentioned, is there -- this product patented?

Yes. So what we do is in terms of patent, there is the technologies that can be easily copied and done. We look at the product and you say, listen, this can be easily patent. This can be easily copied. You get an intuitive idea about it. Those kind of IP is typically patented by us. But when the IP is extremely cutting edge, like where the algorithms are very, very hard fought complex, we don't patent that because we don't want anybody, any foreign country to copy that and create that product. So yes, so some parts are patented, but some parts are not patented due to the sensitivity in them. Yes. But as you said, yes, it is patented.

Our next question is from CA Garvit Goyal of Seven Islands PMS.

First question is on the execution side. Like you mentioned, some of our contracts are deferring to Q2. So I want to understand here, when you mentioned when you are writing in the PPT, like this year is going to be a muted year. So what does that mean? Like is it in line with the FY '25?

Yes. So very frankly that will all depend on the order book that we have by Q2 -- end of Q2 and we are not able to put a real figure on to this, whether it will be as much as or a little less or a little more. But yes, but we are not able to put a figure on that. But again, as I have been saying on many occasions that our confidence of the overall revenue for the next 3 years including this year, next FY '26, '27 and '28, we still feel very confident that we can achieve the INR 6,000 plus crore target. But for this, to your question, that we are not able to give the exact figure for this year at this point in time.

Okay. And you mentioned in the PPT, like we are expecting significant orders in the next couple of months, right? So what is the execution time line for that, existing order book and along with the orders that we are looking to get?

So the -- whatever orders that we are planning to get by Q2, our intention is to execute it within the same year. So that is what the preparation is going on. And again, there is a kind of -- because of the internal policy of the company, we don't buy the raw material in advance till we get the order especially government orders. And we -- even though it has never happened, but we have seen companies going down where preemptively bought raw material in anticipation of orders because the order never came through and these companies went bankrupt. So we are being cautious in the sense, but everything nonrelated to actual procurement, getting the drawings ready, every discussion with our vendors, making them ready for taking the orders from us, all that work is being done. And so our anticipation is if these orders come, can we -- how much of it can be executed in the next 2 quarters, Q3 and Q4. Our ambition would be to execute all of it, but I think some of it will get into the Q1 of the next year.

Just a follow-up on your reply. You mentioned about raw material procurement. Are you facing any challenges in the terms of uses of any rare earth metals, which is currently restricted by China?

Yes. So we don't have any such problem in the -- in our products till now and our raw material are clear as of now. So Chinese banning has not impacted us. But again, once we place the orders -- I think most of our products are electronic based and China dependent is almost 0. So we will not be having any impact on that, except our subsidiary Vector Technics, I think they may be having some impact on there because of the rare -- the magnets that you are talking about, but they are also working on creating alternate sources at this point in time. But for Zen's order book our order execution, it should not pose any problem.

Next question is from Dipen Vakil of PhillipCapital.

Sir, my first question is, sir, in your presentation, you have mentioned that out of INR 750 crores of order book, INR 600 crores is from your core business which we believe consists of simulators and ADS. So can you give us a breakup as to how much of it is simulator, ADS and amongst the rest of INR 150 crores, what would be the breakup?

Sorry, this is the order that we are expecting in the Q2 you're talking about or...

No, no, no. Your current order book -- your current order book.

Yes. So in that, I would say about -- so if you take out the AMC out of that, that's about INR 200-and-some crores. The actual anti-drone systems is INR 64 crores, and the training simulation is about INR 292 crores, I think, yes.

Got it, sir.

Yes. Yes, INR 282 crores. INR 282 crores is training simulators and anti-drone system about INR 64 crores.

Got it. Sir, now I wanted to understand a little bit more on your order wins. So you are expecting INR 650 crores of order wins in next two months. So are those on the advanced stages of negotiation? And -- or there's a bigger pipeline, which is at play and from which you're expecting INR 60 crores because this also excludes the emergency procurement as per your opening remarks?

That's right.

Yes. So I wanted to understand a little bit more on to the ordering. So which segments -- are these purely from simulators or even the anti-drone system or as a part of that?

So this is purely simulators. And so I'll tell you where we are is that we are the only the last man standing as of now. So we think that -- because -- so the likelihood of order coming is almost certain. There is no -- we don't think there is anything in that. It is only when will they actually sign and give the order to us. So there is no other competitor in this at this point in time. So we expect that the order will come through. But again, as I said earlier, because of the emergency procurement, this was a little slowed down or probably by now, we would have got it. But otherwise, to your question, it was all simulator related and we are already the only person who has qualified. And so our expectation is that we'll get the order for sure.

Got it, sir. Sir, and just a small follow-up on the previous participant's question. What would be the lead time for you from the time you win the order to start commencing on the deliveries because since you have mentioned that you will be executing most of the products in the same year itself. So I just wanted to understand the lead time from winning the order to execution?

Typically, the lead time is around 4 months for simulators, but anti-drone system it is a little larger, can go up to 6 months or little more than that because of the electronic and certain components that need to be ordered. But otherwise, yes, the lead time -- the maximum lead time for any raw material is typically 4 months for simulators and 6 months for anti-drone systems.

All the best for your INR 6,000 crore target.

Thanks, Dipen. Appreciate that.

Our next question is from [ Akshay Patel ] from AK Investments.

Sir, my first question is that despite the fact that we are the single vendor for Government of India. And currently, for the past one year, we have not got significant order inflow. So what might be the reason for the same?

So one thing is that the simulators are in the process, they are being processed. And the orders -- actually orders have been very, very slow. They have been reduced by a trickle. We think that the cycle has slowed down a bit. I think intuition says that and even the facts say that, that these were orders that we should have probably got a little earlier. And again, as I said, that government has some emergency things to do. So the regular procurement is a little on the slow track. But again, this should have happened much, much earlier, much earlier to even Operation Sindoor. And we should have had a very good order book position and the execution should have started by now. But again, we understand in the case of anti-drone systems, we understand that it's a very, very evolving field. And as we speak, government is making changes to the specs because these -- now they have been proven in war and the kind of threats that actually happen and the ability of the country to have this technology in-house because everything that's happening is evolving. Earlier, we used to think soft-kill is enough because all the drones are controlled from ground to the drone, there's always a control going on. And then we did the soft jamming where you can -- you can block the frequencies by using jammers. But then the drone guys came up with another thing called autonomous drone that could go just by the GPS. They don't need any ground control. They will be preprogrammed with the destination and they could go. And then we came up with spoofers where we can spoof, and actually drone is in India. You can spoof that it is in some other country, maybe in China or something like that, and it would get lost. And then to come over the spoofing, they came up with AI-based technology like vision-based technology with wave points, et cetera, and now we are actually saying that to ensure that the wave point is eliminated, we have to use hard skill techniques like shooting it down using various weapon systems, et cetera. So this cat and mouse games is going up. That's very -- that's why it's very essential that when the government buys this product, they buy it from an Indian IP ownership company, because in any upgrade of this software level and all that can be done very, very fast if it is indigenously designed and developed. Just imagine if you buy it from a foreign country, they are going to ask for an arm and leg. They'll say and for all you know they'll say, listen, I can't upgrade your product. What do you do? You go and buy new products. But in India, I think we have a very open architecture where these evolvings are accommodated very easily and they're upgraded everything, even if it's a hardware upgrade, we are talking to them, at a reasonable price we upgrade them. So that's why I think this is very essential that the company -- the country goes on the same path of the IDDM procurement. So yes, so because of these changes that were happening, the order flow wasn't up. They are not -- they are still finalizing, I think, but thanks to the Operation Sindoor, the actual threat is now crystallized, the specs are finalized. And when they come out with this, I think significant orders will come in for even anti-drone systems.

Yes, sir. And so can you assume that there is no scarcity of the demand, but just order has been delayed by some time because of some geopolitical issues. And if your answer is yes, then can we on that after this first half order inflow will pick up. And for the next year, we will have a good amount of inflow. And also, we have previously talked that from FY '27, we will also receive some order inflow from U.S. as well because we have set up in U.S. as well. So what is -- can you put some light on this?

So your first question was, yes, I think H2 will have a significant order inflow. There's no doubt about that. And we expect the order inflow considerably for anti-drone systems in addition to simulators, and we are expecting -- we hope that we win as many as possible out of that. With respect to the U.S.A. thing, I think U.S. very interesting developments are happening as we speak. As you know, we acquired this company called ARI. They have a full fledged setup of network of dealers in America, in South America and other countries. So we are interacting with them. In fact, they also have in Japan, far east, they're pretty strong. So we are talking with their vendors who are actually already engaged with the armed forces there to push our products from U.S. and even from India. So we expect that by FY '27, there will be really significant orders coming in. And we will be able to supply to not only the U.S., but South America also through the U.S. contact.

Mr. Patel, may we request you to return to the queue. There are several participants waiting for their turn. We'll now move to our next question. That's from Darshil Jhaveri from Crown Capital.

So a lot of my questions are nearly answered. So I just wanted to know like in terms of order flow you're already in negotiations and those parts are delayed, but what about the emergency procurement, is there a sizable opportunity available there also? And what would be the time line for us out there as well?

So if the government requires they issue the RFP and repeat, typically, they will have to finish the procurement by March. Even though there have been cases where they have extended it to June and September, but typically, the mandate is that please complete the placing of the orders by -- before March. And most of the case -- most of the times it so happened that they are able to complete the order placement sometimes even in Q3. They issue the thing and within 45 days they try to complete it. There have been cases like that. So our confidence is that all the orders should flow in before -- will be concluded before March end. And whatever orders then gets -- they should be placed by them. So did you place -- did you ask any other question other this?

No, one more question I have is regarding our export opportunity, like I think last year was very good for our export. And this year, we have INR 100 crores in, I think, our order book for exports. So I understand Indian government has been a bit slow, but what about other places because I think drones right now are the in thing where every country wants them, right? So -- and it's a big threat also to every country. So how are we placed in being able to get a newer market and export? Are there any plans like can you just elaborate a bit more like what opportunity and what is our role in that, sir?

So exports in terms -- we have been getting a lot of inquiries and a lot of visits in the past few months. And especially after Operation Sindoor, the Government of India has been doing a considerable job and there are -- we are getting inquiry for anti-drone systems also. And we think that H2, we should be -- at the second half, we should be getting some orders in export. But FY '27 will be a significant year for in terms of exports. So yes, exports will start coming in H2 is what our feeling is. And they will be both for simulators and for anti-drone systems. But a big year for us will be FY '27 in terms of exports.

Sir, could we quantify which all countries are there? And is there some qualification required like we have these qualifications like in general in pharma USFDA or something like that, like we have for any country that we are qualified to be able to provide to these and what all countries are we targeting to export to, sir?

So we will -- I'll broadly speak in terms of regions, we talk about Africa, we talk about Middle East and we talk about CIS countries, and we're also now looking at Southeast Asia. So these are the major regions that for obvious reasons, some countries don't like being named when the negotiation is going on or something like that. Again there is secrecy involved in that in the sense that if we -- if they know that we buy, we are buying simulators for this, this product they will know we have the equipment. And if they know we have this equipment, they'll also be able to assess that this is the strength of our equipment even though most of the times the Wikipedia gives a good rate, but they expect us not to reveal it. So we honor that so we never name the countries. And so we think that in these 4 regions will be -- significant orders will be coming. Of course, the U.S. and the South America market and the NATO countries will be something that next year, we expect some orders to come through in that region also.

Our next question is from Amit Dixit of Goldman Sachs.

Couple of questions from my side. The first one is that recently Defense Secretary has been on air mentioning that simulators are the way forward for expediting the procurement of defense equipment and part of reforms in DAP. Are we seeing some traction from the government, some feelers. I know these are early days. But still, are there some feelers that in long term, there would be an enhanced use of simulators in various platforms, including Air and EV. That is my first question.

Yes. So I think there is no doubt about that. In fact, if you go a little earlier, in '21 September, it's in the government or government website, government issued a framework for simulation policy. So in the simulation framework, they very clearly said, you have to start moving all the training on to the -- and also were procurement, if simulated procured -- simulated equipment can be done, then we should simulate the equipment and go ahead faster with the procurement cycle. So I think no doubt about that. And we have seen that growth. In fact, from '21, if you see '22, '23, '24, '25, we have really, really grown from INR 60 crores, INR 160 crores, INR 430 crores to INR 930 crores. So the growth has been significant for us. And we expect that thing to continue, again, as I keep cautioning our investors, that the quarter-on-quarter growth and even sometimes year-on-year may not happen. But overall, the trajectory is set that the government is going to increase more and more and I personally think maybe we have done 7%, 8% of the simulation market till now. There is another 92% to 93% that still needs to be bought in terms of simulators. So there's long playing game -- long game still there for both anti-drone -- and simulators and of course anti-drone systems. But you were asking for simulators, I think there's a huge still market pending to be tapped there.

Sir, the second question is on the recent acquisition that we have done for the company in UAVs and loitering munitions. Now while it dovetails nicely with our -- or complements our existing offering in ADS, but what is the use case over there? I mean, what kind of UAVs, loitering munitions market, we are trying to enter? And how much time it will take us to commercialize that particular product? And if you can highlight some of the products that we are actively looking at in this particular domain?

So again, just to go back a little in time, in '24, we've looked at the field in 2018, we wanted to get into drones. And but we saw there were so many players there, and we thought, listen, I think this is winners curse, even if we win, you'll never basically in drones. And we moved to anti-drone systems. And there, again, there was nobody was working on that. As we say sometimes, the signal -- silence is the signal. So we went into that, and that paid off well. But in terms of drones, in 2024, when we looked, government was blacklisting companies for using Chinese parts. And we think what -- why was the R&D not done? Why was this not done? And we consciously took a decision that we have to get into this field. And then when we started looking around into the ecosystem, almost everybody said, Ashok, these parts are not available, except from a company like a company called Vector Technics, who are actually supplying, but their supply is on and off. But in a strange coincidence, a week later, Vector approached us for investment, and we looked into them. We saw their capabilities and we said we will go ahead and invest. So now these guys are actually -- so our intention was to get into drone system to accelerate the indigenization of complete systems. So when we got -- so now we are firmly into the ecosystem of drones. Now we were looking at what are the other things that we will -- the Government of India will need in case of a war. So we were looking at loitering munitions and TISA has a proven track record. They've executed order with the DRDO. So they have the technology, they have the product. Again, we are doing some very, very high end. Again, again, as I say, that we do not to sell to the Indian government that is just doing well, but it should be -- we aim to become world -- global #1 in that. So we are investing a lot of money now as we speak. And we expect that in 1.5 years, the loitering munitions version should be ready for full fledged demonstration and competition with other players in the field. And we obviously expect it to do better than others in terms of specs, et cetera.

So sir, what kind of drones we are looking at, we are looking at kamikaze drones?

Kamikaze drones. At this point in time, only kamikaze.

Our next question is a follow-up from Garvit Goyal of Seven Islands PMS.

Regarding the emergency procurements, which are happening now due to which regular procurements are delayed. So at the same time, we are saying we will get some orders in future in emergency procurement. So I'm not understanding why did not we get these orders and emergency procurements are currently happening, right?

No. So they have just started, Garvit and it's not they have placed -- finished, exhausted all the funds. We expect that orders will continue Q2 and Q3, even Q3, the orders will continue. And typically, they have to close the -- placing the orders by March of the year. So I think we have -- if they place they'll place for very few emergency procurement till now, but the real emergency procurement has to go in a big way, it will be starting in the next few weeks.

We'll take our next question from Sanjeev Zarbade of Antique Stockbroking.

Sir, could you give us an idea about what kind of opportunity is there for us in the emergency procurement plan of the government?

Our expectation is the emergency procurement will happen in the field of anti-drone system significantly, I think that is one thing. And it will -- they would prefer anti-drone system with hard kill capability. So Zen has been able to -- and typically, hard kill -- unmanned hard kill would be better in the sense that we don't want people to be actually holding a weapon and firing because you become a target very easily. People detect where you are. So you should be able to shoot and scoop they call it or shoot from your weapon and then you move from there. So we have this remote control weapon stations, which are easily loadable onto the vehicles and we have tested them with most of the vehicles that the Government of India is using, and they're working perfectly well that anonymously, I mean remotely you give the coordinates of the drone you can shoot through the anti-drone system, it is able to point and shoot them down. So I think this hard -- the soft kill and hard kill system of anti-drone systems is where the big market is going to be. And I think they'll form part of the emergency procurement. And I think there we stand a good chance of getting some orders, yes.

But would you be able to quantify the overall?

In fact, we really -- in fact, we do not know how much of procurement will be going on this field so till we get the -- till tenders come out, we'll be able to compute or likelihood and then maybe come up with a figure.

Okay. And sir, my question regarding the other expenditure, which has fallen very sharply on a quarter-on-quarter basis. So are there some expenditure that we book in the fourth quarter largely?

Yes, I think this is question for Afzal, he will take.

Yes, sure. So reason for reduction in the other expense, if you see in percentage terms, it is 7.35% in Q1 FY '26. And in Q1 FY '25, it was 5.5%. So in percentage terms, it has not reduced. So most of the other expense are semi-variable in nature, so other expense has reduced from INR 14.10 crores to INR 8.16 crores. In last quarter, it was on a higher side, significantly on higher. So the reasons are in the last quarter in Q4, there was a substantial amount of professional charges and incentives, which was variable in nature and linked with the revenue. And also last year consumptions of stores and specs were on the higher side. Last year, there were some exceptional one-off expense like impairment of investments, return of advances, provision of expected credit loss, provision for the warranty charges. So these are the 5 to 6 reasons due to which in Q4, it was on a higher side. But compared to Q1 FY '25, it is in the same level only.

Our next question is from Aditya Moona from YES SECURITIES.

Sir, my question one was regarding the translation of order book towards execution in Q2. Currently, our order book is about INR 750 crores. Out of that, what are we expecting to be executed in Q2 FY '26? Second question was towards the order book. One is the INR 650 crores of orders that we are expecting in the next 2 months, other than that for H2, what is our order intake that we are expecting and the execution time line for that?

Yes. So Aditya, so on question of Q2, we won't be able to give the specific guidance on our quarter on that. And order wise, as we discussed, if we are expecting around INR 650 crores by September for the simulators order.

Okay. Yes. Other than the INR 650 crores in September order, is there any other orders that we're also expecting in H2?

No. As we mentioned, apart from this anti-drone system that is under the emergency procurement, that we don't know whether it can happen or not by September.

Okay. Okay. Okay. And for FY '27, what is our order expectation? Is it something that's going to be much larger than FY '26?

I think that is going to be little -- I think it's larger than -- one second...

Sir, we are not able to hear you.

FY '27, we expect the orders to be much, much larger than what we have done in FY '26. This will be significantly -- again, we have to accommodate what we are projecting that by implication when we are saying INR 6,000 crores, we do expect '27 and '28 to be very, very large years compared to F '26.

Our next question is from Jatin Jadhav from Sahasrar Capital.

Actually, all my questions have been answered. I just had a small suggestion, sir. So there's a company called in U.S. called Duality AI. And I've been to your facility and have seen how beautiful simulator softwares you make. So what their product is essentially they make a digital twin of the environment and use that to generate synthetic data for test training and testing AI models for counter drone and as well as they use it as a simulators for the PPV drone pilots also. So this perfectly fits in Zen Technologies foray and while doing research, a lot of U.S. military, what do you call the bases have given them orders. So it does 2 things. It gives you data to train AI models also and it gives you a simulation platform also for your FPV and kamikaze drones. So this is something you could look into, sir? That's pretty much it from my side. I had no particular questions. They all have been answered.

Thank you so much. I just noted it down. Duality AI and just send an e-mail also just to give more information. But we definitely love the suggestions from our investors. I think we are looking out much beyond what others are doing. I will definitely try to track on this. But again, just to get everybody up to date, we are extremely focused on AI at this point in time, and we have launched a program within the company called transforming Zen into an AI-native company where everywhere, just not the products, just not the R&D, but across operations, across finance, across IT infrastructure, across logistics, everywhere, AI is being used and everyone is getting forced and the results are -- some of the results is something which used to take weeks is being done in a few seconds, if not a few minutes, if not seconds. So things are really, really exciting on the front of AI, and everybody is in a learning mode at this point in time. And I think you will see the benefits of AI find the tech in terms of not only the -- just the product and building LLM within our simulators, which are learning and becoming better as the customers interact with them. But across board, across finance, and I think it will be -- this is a very, very exciting time for Zen and we as [ Zenists ] are very, very hypercharged. But thanks, really appreciate these inputs, we can always -- these are -- they give us idea sometime we can also not only get the idea, but also collaborate with these kind of companies. I appreciate, Jatin. Thank you so much.

Just had question sir, where should I mail you the details on the IR?

It is [email protected].

We'll take our next question from Harshit Kapadia of Elara Capital.

So just a few questions from my side. Sir, you mentioned in the start of the call, some orders got -- some revenues got deferred because of which you were not able to meet your target. I probably have missed it. Can you quantify that value? And secondly, is this that you have already done the production and the customer has not taken that delivery of that. That's the reason why it got deferred? Or is it that you are expecting some orders to come in and you will execute and then it was supposed to deliver?

Orders have been executed -- are almost executed by this time as we speak. But I mean the delay in the order execution was because of the change in specs from the customer. So they were changing till the last moment, and we had to accommodate that. So it was the revenue defer, not the order, actually revenue recognition. So now we'll recognized in Q2, whatever we have deferred in Q1.

So what -- can you quantify that number, sir?

A little more than between INR 60 crores to INR 70 crores is my estimate on that.

Okay. Secondly, sir, on the INR 650 crores simulator order, what kind of simulator orders you are expecting, sir, in particular quarter?

So these are Army-based simulators. And I don't want to mention the product for obvious reasons. But they are Army. They're not Navy or Airforce, but mostly Army simulators.

Any particular area in Army you can specify, is it guns, tanks or anything, any color you can provide?

I think as the orders come across, these are a little sensitive things, Harshit and sometimes the government like it. So let us try to get the orders in hand and then check with them and then announce it.

Our next question is from [ Nirmal Rawat Singh ] from Axis Max Life.

Yes. I'm an individual investor, not of Axis.

Sorry, we are not entertaining individual investor. I'm joking. Go ahead.

Yes. So my question was on kamikaze drone, okay? And there was this article in AP about a startup from BITS Hyderabad, 2 guys, they made kamikaze drone and they sold it to our Indian Army. So my question was that we also have got order on kamikaze drones or not?

No, so we didn't get the orders. So this was our DRDO project that TISA our acquisition had done. I think they had executed for DRDO so that has to be productionized and then offer the end user who bought it from them and to other Indian users and overseas also. But we haven't sold anything to the end user till now. It's in R&D stage at this point in time. Yes. But it's BITS Pilani Hyderabad, even we have seen the article. We're pretty excited if they have achieved what they have said, which looks very, very exciting actually, yes.

Definitely, you could consider collaborating with them.

One thing, again, very frankly, Nirmal, what we want to do is if there are companies that have a better product than us and they have had -- we would definitely want to collaborate with them. We don't want to offer something that is second grade or which is not the best in the world, at least best in India, that is the minimum criteria. So definitely, if BITS they have a product that is better than us, we would love to collaborate. And it's quite surprising because Vector is the only guy who do the indigenous components in India, they are also not aware of these guys. So we need to really -- where did they get the components from, et cetera. But if they have achieved this, it's quite significant. And we would love to collaborate with the best in the field.

Our next question is from Manish Gupta of Equinox Investment Advisors.

Sir, with wars evolving more towards drones and anti-drones, particularly hard kill. So does Zen have the capability and technology for hard kill, sir? This is my first question.

Yes. So we were -- there was -- again, there was a kind of a semi-trial, where they call all the capable companies in India for demonstrations Army had called. And we were the only company that actually took hard kill system with guns and all that to that particular trial that was maybe they called it demonstration or something. But they called it actually trials. And so yes, we are not only having anti-drone hard kill system, we have demonstrated it to our end users. And this capability is very deep with us. And it is being at various commands, they have seen the product, the remote control weapon station with surveillance, and they have really appreciated it. And I think hard kill is an area that we are really focusing on. As you -- as we go into the next few quarters, you will see some very good announcements in this area that these are the new products that -- again, these are all in consultation with the customers. Customers have been saying that we want this and so we are going and accommodating their request. The hard kill is one area we really want to dominate by offering the best in the world. So to your question, yes, Zen is in a big way into hard kill and I think that will be a significant area of investment in the coming few quarters for us.

So just as a follow up, sir. In coming years and quarters, sir, what do you feel more optimistic about in terms of contribution to topline whether it's going to be stimulators or it's going to be anti-drone systems?

So I personally think that in anti-drone systems, we'll keep catching up, we'll keep increasing. And so it may go as much as 40% or even 50% of the simulator. So I would say hard kill when we say anti-drone system, we are trying to add other things also like the hard kill system, including surveillance, everything, the camera, the electronic optics. So when we start adding the non-simulator revenues, which would include all and even robotic automated systems, I think they will become a significant part compared to simulators. So I would like to classify not as simulators or anti-drone systems, but simulators and nonsimulators, I think they may become as big as 50-50.

All right, sir. And my, sir, second question is a pretty lemon kind of a thing. I mean, compared to advanced countries like Israel's Iron Dome and we read them in media, how efficient they were, so where does India and particularly Zen stand in this kind of capability, sir?

So the feedback that we have got from our end users is very, very positive, very encouraging in the sense that they were able to thwart all kind of drone attacks. And they -- and we have so many testimonials saying that the products work extraordinarily and we are very grateful that this product have been developed by an Indian company with completely indigenous technology. We got lot testimonies like that. And again, they've also commended how focused and committed our staff were. They were there helping them trying to -- wherever there were gaps our guys were trying to help them. So I think overall, it's been a good experience. And to your question, we definitely think we are in the top 2 or 3 in the world. It's not that we are #1 at this point in time, but that's our objective. How do we become #1? And we definitely need to improve the hard kill game where we try to integrate as we go ahead, that's again, I said, hard kill is the area of focus for us. How do we include missiles and other higher technologies to bring down the drones when we -- once we detect them and especially that they are now becoming AI-based drones where they are doing vision-based attacks, et cetera. All given all this, yes, I think we are not there, but we'll definitely be there in the next maybe 1 or 1, 1.5 years, we should be there at the top of the game.

We'd like to just update participants that we'll be closing the call in the next 5 minutes. We'll take our next question from Manan Vandur of Wallfort PMS. As there is no response, we'll move to our next participant. That's Krishna Doshi from Ashika Institutional Equities.

Since we've already mentioned the NATO countries in our con call today. I just wanted an update as to how much of an opportunity are we seeing from that side now that we know that NATO is planning this massive rearmament plan. So what kind of opportunities are we seeing there? Is it possible to quantify? And also it will be more inclined towards which segment of us?

So one thing is NATO countries, definitely simulator is a big thing in the sense that the training and the requirements have gone up. And one thing, one hard reality that I say to all the NATO countries is that even though Ukraine has been really given world's latest equipment and in terms of whatever you see the tanks, the missiles, and handheld missile, everything they were given, but still they did not stand a chance against Russia, which predominantly is using very old equipment. And the realization is that because of training, and we feel that because of that, there is a lot of focus on simulators as a requirement to take on any formidable enemy in the future. So yes, that is there. Second is even anti-drone systems and drones also as we speak, our subsidiary Vector is talking of exporting to both America and Europe and very, very big names at that. So I think the opportunity is there, and of course, anti-drone system. Anti-drone system is something that we will be pushing a lot. And again, once we expose it to their environment, we'll get a real-time feedback. And I think our agility and speed of customizing the product to their needs is much quicker than any of the competition that we have. I think it will be an overall holistic approach, all our products will be pushed in the NATO and U.S. market and South America also.

We'll take our next question from Hitesh Chaudhari of ULJK Financial Services.

Actually, I was saying on the operational side, the margins are fluctuating. So can you give light on which segment is fluctuating this EBITDA margin? Is it from anti-drone system or training simulators?

I'll let Afzal answer that.

So if you see the EBITDA margin, operational EBITDA margin is around 34.27% on a stand-alone basis. And overall EBITDA margin is around 52%. So if we exclude the other income that it is coming around 34.27%. Our guidance is around 35%. As we guided earlier in the simulators, the EBITDA margin is a little bit on higher side and anti-drone system is a little bit on the lower side. But on an average, it is 35%. So in this quarter also, we achieved around 34.27%, almost near to 35% EBITDA. And on a consolidation basis, yes, this time, EBITDA margin itself is around 40% due to the good contribution from our both the subsidiaries for ARIPL as well as AI UTS.

Our next question is from Nikhil Purohit from Fident Asset Management.

My first question is just a follow-up on an earlier participant's question. So in the existing order book, INR 750 crores, what are the time lines for execution? And how much like is executable by this year?

Afzal will answer. It has the AMT component also, so I'll let him answer.

So if you see out of a -- total order book position is around INR 754 crores, out of which INR 148 crores is for the subsidiaries. For the Zen stand-alone basis, it is around INR 605 crores out of which AMC is around INR 260 crores. If we deduct this INR 260 crore from INR 606 crores, then total equipment order is around INR 346 crores. This is purely equipment orders only. So this will be executed in the -- by at least Q3. Maybe most of the equipment orders will be executed in Q2. But yes, a few equipments orders will spill over to Q3 also.

Okay. And what order book are we targeting by year-end for our subsidiaries like if you could also give a breakup for the order book of these subsidiaries? And any -- throw some light on numbers like revenue, EBITDA, PAT for ARI or Unistring, TISA FY '26.

Yes, whatever is stand-alone numbers in this year, you can add INR 250 crores in the consolidation as a top line. Maybe from the ARIPL, INR 170 crores and another is -- from the other subsidiaries around INR 80 crores. After -- obviously, it will be more than INR 250 crores, but there will be Ind AS effect which will be knocked off. So after knocking off this effect, in the -- at the consolidate level, you can add INR 250 crores revenue from the subsidiaries. And EBITDA, this will be in line with 35% and as per the Zen's benchmark and profitability will be also 25% as per the benchmark of the Zen. And we have seen this in Q1 also, they have achieved the same.

Got it. Got it. Just one last question. What will be the CapEx for FY '26?

In FY '26, there is no significant or maybe INR 40 crores to INR 50 crores CapEx will be there.

Ladies and gentlemen, that was the last question for today. I hand the call back to Mr. Ashok Atluri for closing comments.

Thank you, fellow investors. I really appreciate the interaction. And we expect -- again, this year, we expect it to be muted. But the next 2 years, I think we are very, very hopeful that they're going to be very exciting. As a further update, thanks to somebody bringing up the AI part, we are really, really working and getting AI into our products, our operations, everything and that will start yielding results, significant results in the next few months, and we will probably keep you data on that, too. And thank you so much for the interaction and looking forward to the next earnings call with you. Thank you.

Thank you very much. On behalf of Zen Technologies Limited, that concludes today's conference. Thank you for joining us, and you may now click on the leave icon to exit the meeting. Thank you for your participation.