Ladies and gentlemen, good day and welcome to the Q2 FY 2027 earnings conference call of Aequs Limited. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. I now hand the conference over to Mr. Manav Poal from EY. Thank you, and over to you, Mr. Manav.
Thank you. Good evening to all the participants on the call, and thank you for joining in. We welcome you to the Q2 and H1 FY 2027 earnings call of Aequs Limited. Before we proceed, let me remind you that this discussion may contain certain forward-looking statements that may involve known or unknown uncertainties and other factors. These statements should be viewed together with our business risks, which may lead to actual results and performance differing materially from what is expressed or implied. To take us through the results and answer your questions today, we have the management of Aequs Limited represented by Mr. Aravind Melligeri, Executive Chairman and CEO, Mr. Rajeev Kaul, Co-Founder and Managing Director, Ms. Reenah Joseph, Chief Financial Officer, and Mr. Harish Bang, Deputy Chief Financial Officer. We will start the call with a brief overview of the previous quarter and then conduct a Q&A session.
With that said, I will now hand over the call to Aravind, sir.
Thank you, Manav. Good evening, everyone. Thank you for joining us. At Aequs, we always believed in building manufacturing capability in India means more than adding capacity. It means bringing together the engineering, the processes, the partnerships needed to deliver increasingly complex work for our global customers. First half of 2027 has taken that ambition forward with a growing business, deeper customer relationships, and longer-term programs that give us real substance to the platform we are building. Today, I will talk about three things: how the business has performed in the first half, where we stand in the consumer, and the long-term commitments we are building in aerospace. Rajeev will take you through our operations, and Reenah will take you through the financials. Let me start with the numbers. In the first half, consolidated revenue grew by 50% year-on-year to INR 8,046 million. Aerospace grew 42%.
The consumer revenue has more than doubled. Aerospace continued to deliver strong growth and profitability, supported by the healthy demand and program execution. In consumer, our customer programs continued to progress, but Q2 volumes ramp was slower than what we had anticipated. The customer qualifications took longer, and supply chain constraints affected our utilization. We see this as a shift in the timing, not a change in the underlying opportunity. Given these factors, we are recalibrating our path to the consumer EBITDA break-even, which we had earlier indicated that it will be for Q4 FY 2027. The near-term focus is clear: improve utilization, then turn the capacity we have already installed into profitable growth. That focus also shapes us how we invest. With much of our consumer capacity already in place, we will phase our investments in line with our ramp with our customer schedules.
Turning to aerospace, the most significant development has been the growing depth and duration of our customer commitments. Our order book reached $1.1 billion, up 9% this quarter alongside further expansion of our portfolio. That gives us a long-term revenue visibility across the long cycle aerospace programs. After the quarter ended, we signed new long-term agreements with and expanded the relationship with six Safran entities. They broaden our scope across critical aerospace components, drawing on the capabilities we already built at Belagavi, and they include landing-gear contract for our upcoming Hosur ecosystem. First key milestone was undertaken with a groundbreaking kickstart the development of the infrastructure. Hosur takes the integrated model into its next chapter. At Belagavi, we have built an ecosystem centered on aerostructures. At Hosur, on a 250-acre SEZ and DTA site, we will be extending that capabilities to manufacture aero-engine landing-gear components.
This is not just a bigger footprint, it widens the work we can take on and value we can deliver from India end to end. We are winning programs faster than we had planned, and those wins need investments ahead of the revenue they generate. So we will keep investing behind the demand in the aerospace while staying disciplined how we deploy our capital across other businesses. Looking ahead, aerospace remains on track for the year and the focus across the business is converting progress in our customer programs into sustained production and stronger earnings. The direction we are pursuing is clear. Deepen our participation in global programs, bring more of the manufacturing value chain to India, and build operating consistency that turns top capability into the lasting customer relationship. I would like also to welcome Reenah Joseph, who has joined us as the Chief Financial Officer.
Reenah brings in nearly two decades of experience across the corporate finance, capital markets, M&A, and investor relationship. We are glad to have her part of team, and her experience will be instrumental as we build our next phase of our Aequs growth. With that, I will hand over to Rajeev Kaul, the Co-Founder and Managing Director.
Thank you, Aravind, and good evening, everyone. The strength of our platform lies in how our capabilities come together. Being integrated allows us to take on more complex work and serve a greater share of our customer requirements.
Our focus is on turning that capability into consistent delivery. Let me take you through what it looked like in both the business this quarter. Let me start with aerospace. Aerospace portfolio keeps widening. We added 238 parts in the quarter, up 4% sequentially, taking us to 5,978 products. Every new part widens our engagement with the customer, and as these programs move through qualification and into production, the relationship deepens. We are also adding capacity to keep pace with our customer requirements. In the quarter, we added nine CNC machines, taking us to 229 machines and 2.12 million annualized machining hours. Even with that new capacity, aerospace utilization was 69%, up 8% year-on-year, and 76% in India. The capacity we add is being put to work. At Hosur, we are building on the Belagavi blueprint and extending it.
Alongside forging, machining, heat treat, and surface treatment plant, an ingot casting, ring rolling, and testing and lab facility to be developed by Aequs and our joint venture partner. On our indicative roadmap, the first phase of investment begins with Q4 FY 2027, and commercial production will start in FY 2029. Let me turn to our consumer business and to the guidance we gave earlier that consumer would turn EBITDA positive by Q4. First is consumer electronics. The consumer electronic unit is a new facility that began operating less than a year ago. Our programs are qualified. Our product updates still go through a qualification cycle, although a shorter one. In Q2, that cycle took longer than we expected because it involved process modification and building new capabilities within the facility.
That is part of the learning curve for any new facility, and cycle times are improving as our processes improve. Our focus is on completing this capability build-up and moving into consistent production. Toys. In toys, Q2 was a quarter of the customer transition. Volumes from an existing customer were phasing off while we ramped up our business with Mattel, our new key customer. Scaling work with Mattel involved developing new products to their specification and then ramping up production, which naturally takes time. Volumes in the quarter were also held back by supply chain constraints, mainly certain components of shortages on select products, and weather-related logistic disruption. Our focus now is on completing the ramp-up and scaling the Mattel business.
In summary, when we set the Q4 milestone, we assumed a shorter learning curve at our new facility and faster knowledge transfer as we ramped up new products and customers. The direction has been right. Our processes are maturing, and our customer relationships are deepening. But the ramp has taken longer than we expected, and raw material shortages in toys has slowed it further. We are therefore recalibrating the milestone. Rather than give you a new date today, we want to take the time to work through the scenarios, particularly the pace of the learning curve in consumer electronics and the volume ramp-up in Mattel and toys. To be clear, the fundamentals on which we've built this plan have not changed. What has changed is the pace. We remain confident in the trajectory, and we will keep you updated on our progress.
In aerospace, the job is to take on a greater share of our customer manufacturing requirements. In consumer, it is to move our customer programs into higher volume production. In both, we bring the same engineering-led approach, combining capabilities, strengthening partnerships, and building for the long term. With that, I hand over to Reenah Joseph, our CFO.
Thank you, Rajeev, and good evening, everyone. I will take you through our financial performance for Q2 and H1 FY 2027, the key drivers of segment and consolidated profitability, and our approach to capital allocation as we continue to scale our operations. Starting with revenue. Consolidated revenue grew 45% year-on-year to INR 4,091 million in Q2, with sequential growth of 3%. H1 revenue grew INR 8,046 million, up 50% year-on-year.
Growth was led by aerospace, which contributed 86% of our revenue in Q2 and 84% in H1, alongside with continued ramp-up of our consumer business. Turning to our segments. Aerospace delivered another strong quarter. Q2 grew by 44% year-on-year to INR 3,514 million and 9% sequentially. Segment EBITDA increased 24% to INR 783 million at a margin of approximately 22%. For H1, aerospace revenue grew 42% year-on-year, while segment EBITDA grew 29%. This performance reflects healthy demand across our programs and consistent execution.
Improving capacity utilization in aerospace, driven mainly by India operations, continue to support operating leverage as we absorb the capacity we have built. Our consumer business continued to scale. Q2 revenue grew 52% year-on-year to INR 577 million, and H1 revenue more than doubled to INR 1,311 million from INR 632 million last year. Segment EBITDA was a loss of INR 401 million in Q2, compared with a loss of INR 77 million in Q2 FY 2026, and a loss of INR 763 million in H1, compared with INR 151 million last year. Two factors explain this movement. First, following the commencement of commercial operations, the operating costs of our new consumer capacity are now being expensed, whereas the corresponding costs in the previous year were pre-operative in nature. Second, the business incurred costs associated with the introduction of new product variants, along with higher headcount to support the ramp-up.
As volumes build, improving utilization and cost absorption remain the key levers for the segment's profitability. Coming to consolidated profitability, Q2 reported EBITDA stood at INR 245 million, with a margin of 6% compared to 16% in Q2 last year. The year-on-year change is driven by the consumer business for the reasons I just outlined, and the two periods are therefore not directly comparable.
Sequentially, EBITDA rose 14% and margins improved to 6% from 5% in Q1, partly supported by other income, which increased from INR 67 million to INR 106 million, reflecting Forex movement. For H1, reported EBITDA was INR 460 million compared to INR 841 million last year, with a margin of 6%, against 16% in H1. Beyond the consumer ramp-up, material consumption increased due to aerospace product mix, employee cost rose with headcount additions in consumer, and other expenses increased on account of higher subcontracted labor and consumables.
Other income was also lower year-on-year, reflecting Forex movements again. Our joint ventures continue to deliver stably margins and cash flows. Including a proportionate JV share, Q2 revenues stood at INR 4,480 million, up 44% year-on-year, with EBITDA of INR 331 million at a margin of 7%. For H1, including the share of our JV revenues, reached INR 8,781 million, up 48%, with EBITDA of INR 638 million at a margin of 7%. The JV EBITDA contribution grew 47% year-on-year in H1. The JVs are central to our integrated ecosystem, which allows us to manage the full value chain, from forging and processing to machining and final assembly. At the bottom line, Q2 net loss stood at INR 522 million, broadly stable compared to INR 532 million in Q1. H1 net losses was INR 1,054 million, compared with INR 167 million last year.
Besides the lower EBITDA, the year-on-year movement reflects higher depreciation of INR 347 million due to pre-operative expenses in the previous year on account of our consumer asset, an increase in our tax expenses of INR 135 million, mainly on account of current tax provisions in our profitable aerospace operations in India, and higher finance cost of INR 37 million, driven by interest on term loans. In Q2, finance cost increased versus Q1, mainly on account of Forex impact on borrowings. Turning to balance sheet, total assets stood at INR 27,739 million at the end of H1, compared with INR 26,905 million at March end, reflecting a continued investment across our operations. Receivables increased by INR 341 million, and inventory by INR 1,157 million, both driven by aerospace growth. Net working capital days improved by 15 days to 136 days in H1 FY 2027, from 151 days March end.
With receivable days reducing to 68 days from 78 days, inventory days coming down from 155 days from 168 days. This was partly offset by lower payable days of 87 compared to 96. However, absolute working capital requirements increased to support the growing aerospace program and the ongoing consumer scale-up. This is also reflected in our cash flows. However, we closed the year with a cash balance of INR 1,710 million. Borrowings increased by INR 1,576 million to fund capacity expansion and capability enhancement across aerospace and consumer. As a result, net debt to equity stood at 0.5 x compared to 0.2 x at March end. H1 capital expenditure was INR 1,597 million, supporting our ongoing manufacturing investments.
To support our next phase of growth, the promoter group has committed an investment of INR 6,500 million through preferential warrants, reflecting their strong confidence in Aequs' growth plans and continued commitment to the business. The investment is intended to support our capital requirements, including development of the Hosur aerospace ecosystem, capacity expansion, strategic joint venture investments, and working capital requirements. With INR 3,250 million payable upfront upon allotment, which is 50% of the total preferential amount and much higher than the required minimum 25% limit. The balance, which is actually payable within 18 months, is actually going to be paid by end of December next year. This infusion will complement our internal accruals and debt financing, strengthening our equity pace and providing greater financial flexibility. This is an important step in supporting expansion plans while maintaining a balanced capital structure and a disciplined approach to capital deployment.
I will also like to briefly update you on the proposed amalgamation of three wholly owned subsidiaries into Aequs Limited. The objective remains to simplify our group structure and improve operating efficiency. The scheme was not approved under the fast track route on technical grounds, and we are evaluating the appropriate next steps. This is an internal restructuring matter and has no material impact on ongoing business operations. To conclude, our financial priorities remain closely aligned with the next phase of company's development. As we continue to expand our manufacturing capabilities, the emphasis remains on improving operating efficiencies, strengthening cash conversion, and maintaining a prudent approach to capital allocation. Our focus is on ensuring that the investments we make are aligned with business requirements and support sustainable financial performance over the long term. Thank you. I will now hand back to the moderator for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may please press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets and also please limit your questions to two per participant. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Renu Baid from IIFL Capital. Please go ahead.
Yeah. Hi. Good evening, team. The two questions from my side. First is, given that consumer business ramp-up is still subpar or below the initial expectations, can you share update where are we in terms of the ATP portfolio yield ramp-up? What's the current failure rate? Given the context of the current first half results, what is the revised guidance for the full-year FY 2027 for both consumer as well as aerospace with respect to revenue and EBITDA? That's the first question. Second question is, given that we had the recent promoter equity infusion, which was not initially outlined. With this, does it change any external equity fundraise plan, which was planned for FY 2028, or that continues to be on card in addition to the preferential equity infusion from the promoter group that we've seen recently? Thank you.
Thanks, Renu. This is Reenah here.
Yeah. Thanks.
With regards to your first question with regards to the consumer business on yield, I think as mentioned, the trajectory is right. There are various factors which Rajeev outlined in his call, which we said that are impacting the scale-up and ramp-up. Some are internal, some are external, some are just a learning curve. There are conversations ongoing, and we are recalibrating that plan. Taking that into consideration, let's split it in two parts. Aerospace pretty much well on track in terms of its growth plans and trajectory. There's interesting, as you can see, we have already signed two agreements during the year, which are very much in line in terms of the growth potential. With regards to the consumer business, there's a recalibration happening.
I think give us some time and we will come back to you with regards to where we land for the year end. As I mentioned, the consumer business is where the recalibration is happening. Aerospace is pretty much on track. With regards to your question number two, on the fundraise. Well, you rightly mentioned that, yes, we have done an IPO. The IPO was done with the specific proceeds. Subsequently, I think at the same time, we have set ourselves a trajectory where we've said that there'll be capital deployment till FY 2031 for various requirements. As you know, there is a lot of initiatives happening, strategic initiatives happening on the aerospace side, and the entire business is growing.
Taking those factors into consideration over the next 12 - 18 months, that is where we thought it is prudent to raise capital, which is aligned with our requirements, and that is where the current fundraise comes into play. Hope that answers your question.
Sure. Just a clarification. What I was seeking for is initially management had guided that there would be an external equity fundraise in FY 2028. Given that we have had this fundraise within a matter of six months, do you think that the 2028 fundraise plan is still on track, or is that not required? I clearly understand that in consumer business, loss funding requirements have gone up. Funding is both for aerospace as well as the consumer part of the business. Should we still anticipate
Sure.
Yeah.
Renu, this is Aravind. We see the significant capital requirement is going to be there still for our growth, what we have seen laid out in one aerospace itself. Because we have given overall guidance of 4x- 6 x growth in 2031. That does require a capital requirement. Question is that 4x- 6x growth is going to come only with the capital deployment, whether it is consumer or aerospace. We are not deterring away from the 4x- 6x the guidance of 2031. That means that capital will be required. As you said earlier, our aerospace is accelerating faster than what we anticipated. We are already moving our capital towards aerospace within this year for that matter. Our 2028, we still see the potential capital raise that may be required to support our overall requirement of 2031.
Sure. Got it. Thanks much, team. I will get back in the queue with follow-up. Thank you. Best wishes.
Thank you. The next question is from the line of Deepak Krishnan from Kotak Institutional Equities. Please go ahead.
I hope I am audible. My first question, I just wanted to check, given that you are not giving numbers, but what are the different scenarios that you indicated were possible for consumer? By the year-end, what is the utilization number that you are targeting? If you could highlight both of those facts, that is one. And CapEx done in consumer to date, and do you still intend to spend that INR 500 crores, given that they are going slightly slow right now?
First is, coming to the consumer utilization, we still are targeting 40%-50%. That still remains there. And with respect to-
Sorry, could you repeat that? Could you repeat that? I could not hear it, sorry.
Yeah. With respect to the consumer utilization, we still guide towards around 50%, the utilization in Q4.
Sure.
With regards to your CapEx question, I think while we're recalibrating the profitability trajectory, we're also recalibrating the CapEx deployment. As Aravind mentioned, a larger portion of the capital outlay will be towards aerospace. There'll be some deployment towards consumer, but that is towards more enhancement of capabilities. But a larger portion will be towards aerospace, for the time being.
Sure. Maybe, Rajeev, you could just highlight on the various scenarios that you were indicating for consumer, and maybe just on that, on your CapEx question, maybe you could just sort of indicate overall CapEx spend this year, and then we can take a proportion between aero and consumer. Just the aero guidance, the previous question, what is the aero revenue and EBITDA guidance you have for the year?
Harish.
Deepak. So, your first question, of course, on the overall CapEx. If you see first half of the year, we have done about INR 160 crores of CapEx, again, predominantly towards aerospace. Second half, we would see that the CapEx deployment would be almost equal. Our initial guidance, what we had given, INR 660 crores, we may end up doing much lesser than that. The proportion would be equal in terms of aerospace and consumer.
Basically, it will be higher aerospace
Yes
lesser consumer, bottom line. Because your utilization was supposed to ramp up to the levels, and we have no reason to deploy capital unless your utilization goes up beyond to the level where it needs capital infusion.
With respect to your question on the various scenarios you are looking for, that is what we want to take some time to come back, instead of telling you, "These are the scenarios." Because we want to really evaluate all the possible scenarios and come back with what is the scenario which we will go with.
Sure, and maybe just the aero revenue and EBITDA guidance for the year. That is the last question on my end.
We are on target.
Sure. Okay, cool. Thank you. I will get back on the queue.
Thank you. The next question is from the line of Vikas Singhvi from ICICI Securities. Please go ahead.
Thank you for the opportunity, sir. My first question, I would like to know that if you look at the aerospace, our revenue jump had been much higher than the EBITDA. Is the mix basically peculiar this quarter? The mix is a little bit on the lower side, or how should we look at it? Secondly, the $1.1 billion order book, the execution timeline, if you could say, it would be more of a front-ended or majority of it is back-ended after 2029, 2030. This would help us.
Hi, Vikas. Your first question on aerospace revenue and EBITDA. Yes, revenue grew higher, and EBITDA was kind of lower than the growth of aerospace revenue. Predominantly two things. One is, the higher other income share in the previous year was higher, and also this year, we have added SG&A cost for our revenue growth. Again, it is more of a timing, rather than any underlying change in the trajectory.
Also, to a certain extent, our titanium content is increasing as a business. Whenever you do titanium content, typically, because material side increases. That also kind of contributes to a certain extent, but sometime it is quarter-to-quarter variation that happens.
Noted. On the order book execution cycle?
Order book execution cycle, typically, as we always keep telling, it is five to seven years. Like $1 billion, whatever, $1.1 billion, whatever it is, five to seven years.
There are exceptions to that. I mean, we have signed a 15 year contract.
Typically.
But typically, it is a five to seven year range. Majority of it.
What exactly I wanted to know that the peak-out period is on the latter half of the decade, or could be next two to three years, since our aerospace execution date had been higher than what we anticipated.
See, these are all dependent on the program ramps, okay, and customer demand. That is how it is built. It is not latter half of, first half. But typically, as customer forecasts come, the ramp, and also the ramp of the new product, when we are introducing the new product introductions, what parts we want, the scaling up on that.
Noted. Sir, just one question on the consumer segment. I know you are recalibrating your approach, but given the capacities are already largely in place, at what utilization levels do you think that you would be able to break even?
We have communicated about 50% is where our EBITDA break-even point is for the business.
Actually, I wanted more on a PAT side because that is where we are actually targeting previously, right at the end of this year.
Look, we already guided it is going to be FY 2030 is when our PAT positive from consumer is going to be. It's a longer duration because there is a significant commitment exists already, so we need to get through that.
Noted, sir. That's all from my side, and all the best for future.
Thank you. Participants are requested to please limit your questions to two per participant. The next question is from the line of Gaurav Nagori from Avendus Spark. Please go ahead.
Yeah, thanks for the opportunity. The first question, again, on the consumer electronics. First of all, given the utilizations have gone down in this quarter from 22%- 17%. So, in your last 10 months of running this plant and the experience from that, what is the real bottleneck because of which you're not able to take the utilizations beyond 25%-30%? If you can be more qualitative in terms of any processes which is a real bottleneck, or it's the changes from the customer on the version or the qualification from thereoff or any other reason, if you can be more specific on that's number one. And number two, would there be any pressure, let's say, from the OEM who would want you to ramp up this capacity sooner?
And if you're not able to, leading to, let's say, any material business impact if you're not able to take up the utilizations to beyond 50% in a certain timeline.
Let me split it into two parts. First part is based on the utilization coming down. Utilization coming down for the consumer, there are impacts on the two. One is consumer electronics, as I mentioned. There is a product update happening, which also has to go through the product qualification cycle. We assumed a shorter timeframe, but it took longer timeframe. It was also coupled with the, we had to also bring some in-house capability in-house. That was the first part on consumer electronics. Second is we faced a disruption in the supply chain in the toys segment. Certain product components which were supposed to come got delayed from the supply chain constraint. Along with it, there was a logistic disruption due to the weather in which material got delayed.
These are the two impacts basically, which resulted in the lower utilization than what we did in the previous quarter. With respect to your second question now, customer demands are still there. Customer is currently working with us to improve the overall utilization and everything. I do not see currently any impact resulting from whether it is getting delayed has impact on the customer price or moving out and all those things from the demand perspective. They are still working with us continuously to get increase our utilization. Does it answer your question?
Yeah, understood. Thanks for that. Secondly, on the aerospace segment, the recent orders that you have got from Safran, I am assuming that you need to work on the qualification for those new programs. It is not part of the order book. Is that understanding correct?
Some of the qualifications we have, some of them are new capabilities, what we need to be building. Several of them are going to be built in Hosur. They are more of starting, I would say, commercialization in FY 2029. It is a journey, what we call, as they evolve in Hosur.
Understood. Secondly, on the question on this Hosur facility, is it the land constraint in the Belagavi because of which you have thought of keeping this capacity in Hosur, and because you have the two joint venture partners for forging and surface treatment respectively in Belagavi. So would they also be putting up those capacities in the Hosur? How would that work?
Currently our goal is to basically replicate what we have here, more focused in Hosur, including our joint venture partnership, and expanded capabilities to support the engine and landing gear.
Understood. Got it. Thanks for that. Thank you.
Thank you. The next question is from the line of Archit from Nuvama Institutional Equities. Please go ahead.
Thanks for the opportunity. Just one on the toy space. While we said in the opening remarks that the ramp for the older customer is southwards, and we are ramping up production and utilization for the newer customer, what would be the inflection point wherein the old customer goes down to zero and we offset that with the ramp northwards from the newer customer? Just wanted to get a sense of how toys business will look like when it is at the only customer that would matter in terms of utilization going forward.
Based on the current discussion with the existing customer, we expect within this quarter, coming quarter, phasing out and we completing all the deliveries at this point in time. Those are the discussions. At the same time, Mattel is also going to increase in this quarter itself. Mattel also starts scaling up and increasing this quarter.
Basically third quarter onwards, we will largely see Mattel's revenues completely in the toys piece, right?
Fourth quarter almost completely.
Fourth quarter. Got it.
Yeah.
Understood. That's it for me. Thank you.
Thank you. The next question is from the line of Priyank Biswas from JM Financial. Please go ahead.
Thanks, sir, for the opportunity. My first question is again on the consumer side of things. What I want to understand is, at what consumer sales level, let's say in rupee million terms, that you can probably achieve, let's say, an EBITDA breakeven. I am trying to more understand the unit economics. What is the extent of fixed or semi-fixed costs that are there in the cost mix? Like bulk per what level of sales we should target to get to EBITDA breakeven?
We need to. Because consumer is a combination of our toys and a couple products, few products we have in our consumer electronic side. We look at more of each of these pieces separately and a consolidated basis revenue. We have not evaluated that. Maybe we will have to come back to you separately on that. Maybe we should connect with Harish to get that one.
Okay, that is understood. If differently, let us say for the consumer losses today, how much would you attribute, let us say, a percentage number would also work? How much would you attribute to, let us say, the ATP and how much would you, let us say, attribute it to the toys? Just trying to work that around.
From the scale of investment perspective, its majority is attributable to the ATP.
Okay. Also, just another thing, there is some inventory buildup that has happened both in 1Q and 2Q. I understand some of it is due to the disruptions that are taking place due to the West Asia crisis and otherwise. When can we expect these large inventory levels to unwind? Is there some timeline that we should be looking at?
If you really look at it, we said last quarter, and because we have been more careful in bringing in the material earlier, especially on the aerospace, we had done that. Typically, when we do this, we place order typically for three to four quarters out. Anything which we have to unwind, it is always a six months to nine months affair for us. We should see somewhere Q1 of next year timeframe more normalizing, but also at the same time, we are growing at 50%. More FAIs, our first article, so we will have to bring in. I think we will end up maintaining as we had guided, about 120 days is what we want to shoot at, and that is where we ought to be around, in and around that number.
Just harping on this issue. I remember that earlier there were issues regarding air freight, like availability of belly cargo were those which has impacted us. Is those issues largely sorted, like availability of
Yeah, definitely. New normal has come up. That is what I would say.
Like increased period of the logistics and everything.
There is some cost increases and all those have happened, but a new norm has come. That is what I would say more than anything else.
Okay, sir. That is broadly from my side.
Thank you. The next question is from the line of Sanathya from Unicorn Assets. Please go ahead.
Hi. So first question on the consumer business. Hope I am audible.
Yes.
Yeah. Good evening to the team. First on the consumer segment. Just want to understand that how are we taking it step by step, like we were indicating in last concalls as well, and even to the previous questions you have said that we are taking up time to get ahead in the learning curve and actually exploring out ways how to actually improve the utilization levels. If I see on the cycle part that you were saying of the new approvals, which are shorter in time, but they have to be taken whenever there's a change in the product line or something. Isn't that something that would happen regularly on as and when the original player to whom we are supplying to will change its product categories or specifications?
Isn't that something that will happen time to time, and shouldn't it have already been known to us, and we should have been calibrated ourselves accordingly? That would be the first one.
Yeah. For the first one, typically what happens is, as you keep building the, as you keep putting the manufacturing, as you're getting into the learning curve, this cycle basically gets shortened over a period of time and everything. We assumed a shorter period of learning curve in this one. At the same time, we had to bring one more in-house capability along with it. Both combined had an impact in this one. It was our this one that will be able to achieve that shorter period of time. But over a period, basically as we go, as you also said rightly, products will keep moving, new products will keep coming in. It keeps improving. The knowledge keeps improving, learning curve keeps improving. So we get used to that learning curve and everything. That's the part of the cycle.
That is why we told that we want to recalibrate at this point in time and come back to you with the full assessment how we will take it forward with various scenarios after evaluating all the scenarios.
Okay. That helps. More elaborately, I want to discuss on the consumer business only. If my understanding is right, then the original OEM wants us to be using the or rather they want to be slowly progressing towards the additive technology or the 3D printing part. How do we see RCell plays in that? Is that the one in-house technique that you were describing earlier?
Look, with the customers, we kind of define the scope of what are we going to do. If that certain capability we have defined that we will do, we will end up doing that. Within there is a learning curve, we will do that. A new capability has a different whole activity. Something which we are not doing today, if we are to do again, it is a different business case for us. Every time we add a new capability, it is a business case that has to be passing through. Otherwise, we don't get into that.
Yeah. Sorry, but I was looking for answer towards the additive technology part. Are we looking to get into that? I think that is the major portion or that is where our customer is slowly progressing and ultimately shifting the entire portfolio that we have right now with RCell. How do you look at that?
Yeah. We don't believe so. We are comfortable with what we are, where we are. We are not looking to add 3D printing capabilities, and that is not something which we are focused on.
Could you share that the material that we are using for the consumer electronics, is it more towards aluminum or is it more towards titanium?
I cannot talk about that at this stage.
No worries. Thank you.
It is fine. Thank you.
Thank you. The next question is from the line of Jyoti Gupta from Ashika Group. Please go ahead.
Good evening, sir. My question is, correct me if I am wrong, that typically, A320neo titanium pylon program, which involves machining, requires approximately 120 tons of titanium annually. What is the current annual titanium procurement and consumption run rate? How much of this would relate to the A320/A320neo program versus other Airbus and Boeing programs? What incremental titanium demand should we expect as aircraft production rates ramp up? Also, if my understanding is correct, the recently announced Safran contracts include superalloy machining, which should not be confused with titanium consumption.
400 tons.
That is part one. Part two of my question is that, the aerospace EBITDA has grown materially slower than revenue. How much does this reflect as an unfavorable program mix, new facility ramp-up, lower absorption of pricing pressure? I know you have answered that in many ways, but I still feel that, it is still not answered because 86% of your revenue is actually aerospace. So ideally, any setback from consumer electronics should not have a material impact on your EBITDA, but it is actually reflecting on the numbers. Could you clarify these two questions, please?
I will take up the aerospace titanium. We have, I would say, more than 1,000 parts, most probably we use the titanium, if not more. I do not have exact segregation. Whatever we do, pylon components is one set of parts. A few hundred of them. Total, I cannot disclose the total of our titanium buy. I would say most probably we are one of the largest titanium buyers in the country. That much I can say. We continue to add the material, the parts with the titanium into the programs. It is not just A320neo. It is every program, whether it will be a 787 or Airbus programs, we have titanium components in there. Regards to superalloy machining, predominantly it is Inconel and some other superalloys, and several of the parts we have signed up, we already do Inconel machining here in the current location.
Hosur is going to be more focused on the titanium and superalloys and steels, what we call hard metal classification, which are more focused on the engines and landing gears. That is what is the focus going to be because the surface treatment of that is going to be quite different than what we do here in Belagavi. That is the distinction I want to give you. Regarding the profitability impact of the consumer in the overall, if at all, the percentage of revenue versus capital, it goes back to the capital deployment. Our capital deployment in consumer today is as much as our aerospace. That reflects on the resources, because of the scale what we are looking to do in consumer is the deployment. That is what is reflected in the EBITDA loss more than anything else. Aerospace continue to perform. We are long-term contract.
There is no pricing pressure because it is a long-term contract. Our materials are pass-through, so we do not see that as an issue. As Harish mentioned earlier, Reenah mentioned in her briefing, we are investing in SG&As because we are scaling. There are not many companies out there at our pace growing 40%-50% in aerospace growth. That means there is a front-end investment, SG&A investment, program management, all those need to be strengthened. At the same time, we are adding more capabilities. They all come with the expense. But we are able to manage the growth, and that is why you see that impact, and that is what it is. We believe it is the right investment for the long.
Is this the titanium that you are using, is it sponge or recycled titanium? Just out of curiosity.
It's not a titanium sponge. Every titanium is done through a titanium sponge.
Yeah.
It's a process. A titanium sponge is taken and processed, and it is mostly aerospace grade titanium, different grades of aerospace titanium, whether be it an engine, be it a. It's a 6Al-4V most of the time. That's what it is.
Okay. You expect any further increase in consumption, the cost would be a pass-through and should not impact your margins.
No, it should not.
Okay. Thank you.
Thank you. Next question is from the line of Suraj Malu from Catamaran. Please go ahead.
Hello, sir. Can you help me understand what are the steps that are taken to expedite the qualification in consumer electronics segment?
I think it is not a qualification issue. Qualification has happened. The products keep changing every year, so we have to qualify every time. We are shortening those cycles. If it takes longer, we lose some the ability to ship to the customers. That is what happens. It is every year we end up qualifying product because the products come every year new, some variation of it.
Right. The current product qualification that we have gone through post the current upgrade, do we see that ramping up or is there a possibility of, again, after a quarter or two, we see more updates coming on?
No, it is typically one-year process. We run one year, and next qualification happens. Sometimes it runs two years. Products are qualified. There is no issue of qualification.
Okay. Thank you.
Thank you. The next question is from the line of Amit Yadav from KJMC Capital Market Services. Please go ahead.
Good evening. Thank you for the opportunity. I have a two-part question. The first is on consumer business. Is it a delay or structural profitability issue? As consumer revenue has declined sequentially, while EBITDA loss has actually widened to INR 40.1 crore. How much of this loss actually reflects the temporary qualification and supply constraints? How much of that is from recurring operating cost? What will be the quarterly revenue and utilization required for a break even? How much additional cash will this segment consume before reaching that? My second part is on aerospace. With the aerospace order book being at $1.1 billion and the Safran agreement signed, how much do you think the revenue is expected over FY 2027 and 2029? How much of the INR 650 crore funding that has been allocated will go towards the capacity and working capital need to execute these kinds of orders?
Sir, I will take the first one. With respect to consumer loss widening from INR 361 million- INR 401 million, the INR 40 million increase in the loss came on a INR 151 million fall in consumer revenue. Revenue from INR 734 million - INR 577 million from quarter one to quarter two. Most of the consumer cost pace, including depreciation, plant overheads and workforce, is already in place. It is fixed in the short term.
Volumes dropped and losses widening. I think that is the important thing to address here. Because other things are temporary. Those are more timing, supply chain disruption, qualification cycles and stuff like that.
What about the aerospace order book, sir? Could you give more clarity on that?
Aerospace order book, actually, as I explained earlier, this $1.1 billion, the timeline is around five to seven years. But again, it comes based on the customer demands and everything. So each year, that's how it progresses. But typical life of this $1.1 billion is averaging five to seven years.
Can you just give a ballpark number for revenue expected over FY 2027 to FY 2029?
We have guided 2031.
Okay.
So 5x. We stand by that.
Okay. Thank you so much. The INR 650 crore funding?
Sorry, what was the question? INR 650 crore funding.
The INR 650 crore funding, how much of that will be allocated towards the capacity and working capital need, or to execute the $ 1.1 billion orders?
Sure. See, in terms of overall utilization, about INR 289 crores would be allocated towards the capital expenditure, which will include existing aerospace Belagavi, Hosur, as well as some bit to consumer as well. In terms of working capital, we are allocating about INR 100 crores towards working capital, and then there will be another INR 100 crores towards JV investments and new strategic initiatives, including Belagavi as well as Hosur. Balance would be general corporate purpose.
Okay.
And just to clarify that we are leveraging this. This is contribution towards the term loans. We are going to do about INR 800 crore term loans to support this overall CapEx requirements.
Okay. Thank you so much, sir. I will join back the queue.
Thank you. Ladies and gentlemen, we will take that as the last question. I now hand the conference over to management for closing comments.
Thank you. Thank you for being with us today, and look forward to seeing you next quarter. Thank you.
Thank you. On behalf of Aequs Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.