Ladies and gentlemen, good day, and welcome to the Aeroflex Industries Limited Q1 FY 2026 earnings conference call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involves risks and uncertainties that are difficult to predict. 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 and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Asad Daud, Managing Director of Aeroflex Industries. Thank you, and over to you, sir.
Thank you so much. I hope I am audible to everyone.
Yes, sir.
Good morning, everyone. I welcome you all to Aeroflex Industries Limited Q1 FY 2026 earnings call. Joining me today are members of our senior management team and representatives from Strategic Growth Advisors, SGA, who is our investor relations partner. I hope that you have had a chance to review our Q1 results and the investor presentation, which is available on the stock exchange and also on our company website. This quarter has been a challenging one, as you have seen from the results. It has been the first time in a very long time where our performance has deviated from our consistent record. The decline in revenue was primarily because of external macroeconomic environment, especially the issues regarding tariffs and the consequent disruption in the buyer segment across several key geographies in the export market.
This regulatory uncertainty led to a temporary dip in the procurement from our customers, which also resulted in delayed orders and also cautious offtake. We believe that this dip is only transitory, and we have started to see signs of stabilization and sentiment coming back to some sort of normalcy. We've also started to see the order flows starting to move in Q2. We remain confident that the impact which has been seen in this quarter will be offset over the remainder of the year, and we strongly believe that the long-term demand for our products continues to remain strong and our strategic roadmap is also firmly intact. Some of the key highlights of the quarter. One of the most significant developments that happened is our entry into the next-gen cooling technology for the data center infrastructure.
We are proud to announce that we have signed a long-term agreement with a listed U.S. corporation, which has a market capitalization of $50 billion. This agreement is for the supply of liquid cooling solutions for the data centers. I think this is a great sector for the company to enter into, considering the multi-decade growth opportunity that this high potential sector provides to the company, not only in India but across the world. Our state-of-the-art bellows plant and our engineering and our R&D team are the key factors that help us to get this opportunity. I'm also happy to share that we have received the first order worth INR 7.8 crores for providing these cooling solutions to the data centers. This order entails the development of advanced flow control components, which will be used for the cooling centers. Now talking about our performance for the first quarter.
Our total income stood at INR 84.67 crores, which is a decline of 6% on a YoY basis. Our EBITDA stood at INR 15.8 crores, which translates to an EBITDA margin of about 18.68%. Our profit after tax stood at 7.7%, which is a tax margin of around 8.46%, which is mainly due to higher depreciation. From a margin perspective, our hoses and assemblies segment continued to deliver strong margins in the range of 22%-23%, which is in line with the trends over the past few years. However, the overall margin for the company is on a consolidated basis, saw a reduction primarily due to a couple of factors. One is the ongoing expansion of operations at our subsidiary, Hyd-Air Engineering, which is currently in the scaling phase.
The metal bellows plant, which has not yet reached the optimum capacity utilization. These are the two projects that we have, it's for the long-term, and where we feel that over the next few quarters, we'll be able to see these two segments contributing both in terms of revenue and also in terms of margin. These are the strategic investments, CapEx, that the company has made. As their capacity utilization increases, we expect operational efficiency to improve and also the margins to normalize over the next few quarters. The segment of our assemblies continues to contribute more than 50% of our total sales, which is in line with our full-year targets.
Despite this temporary blip, we expect to continue with our planned capacity expansion as we see that this is just a temporary blip which will be normalized in this quarter and the growth to resume after that. To sum up, I think Q1 has been softer than what we had expected. But we firmly have the belief for our long-term outlook, and we remain focused on execution, on scaling up, and we believe the business is well positioned to bounce back in the next few quarters with renewed momentum. Looking ahead, in terms of this financial year, outlook continues to remain positive. Our capacity expansions are progressing well and are in line with our long-term objectives and growth. As expected, these ongoing investments led to a slight dip in our margins.
But as the new capacity scale-up and fix cost get absorbed, we expect the margins to gradually increase over the next few quarters. Our foray into the cooling solution space, it provides a strategic opportunity, and it opens new doors to high-growth sectors such as the data centers and advanced thermal management technologies. This will enable us to move from traditional business to enter into this new age, next generation innovation-led industry. We are focused on deepening our capabilities and also strengthening our product portfolio. We are building a more globally diverse presence across the world. Looking ahead, we are confident in the overall growth trajectory of the company. We are putting in all our efforts to fulfill our targets for this financial year. I would like to thank all of you for the continued support and trust that you have had in the company.
Last quarter was just a blip, and we hope normalcy will resume from this quarter onwards. With this, I conclude my remarks, and now I would like to open the floor for Q&A.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Raman K.V. from Sequent Investments. Please go ahead.
Yes. Hello, sir. Can you hear me?
Yes.
Sir, I just want to understand that in Q4 also, there was a revenue decline due to shipment delays. You mentioned that those will be still lower in terms of in Q1 with respect to most of the late shipments were sent in April. Again, in Q1 there was a delay. Basically, I just wanted to understand, one was that there was a spillover of previous quarter also, and despite that, there was a revenue decline. I just wanted to understand, going forward, will there be revenue decline for next two quarters as well?
Okay. In terms of Q1, the majority reason for the dip in sales is because of the new orders or new decline in the demand from the international market. The exports grew in the last quarter. However, the domestic market grew by more than 30% in Q1. The decline in sales in Q1 is mostly due to the temporary dip in demand. For the next two quarters, like I mentioned, we've already started to see things coming back to normalcy, obviously we'll not be able to give specific numbers, but we have started to already see the order flow from our export customers become much better in the month of June and July, and hopefully in the next few months as well. I believe that the last quarter was just a temporary blip in the growth of our company.
Okay, sir. Sir, with respect to the data center order of INR 7.8 crores, which you received, what is the execution timeline?
It will be executed mostly in H2, as in dispatch.
Okay.
That is clear.
Sir, what is the market opportunity of your product? I want to understand, you are supplying liquid cooling solutions with respect to data centers. What is the total addressable market domestically as well as internationally?
All right. In terms of data cooling, the estimated market size as per market estimate is somewhere around $4.4 billion. Right? That is for the entire cooling solutions for data centers, and we obviously form a subset of that. Specifically, the product that we are giving, it will be hard to give a market size of that particular product. If you see the overall data center cooling market, that is around $4.4 billion, and that is growing at a CAGR of 20% worldwide right now. It is expected to become almost five times in the next seven years. That is the market size in terms of. Obviously, this is our first order that we have received. We also have multiple discussions lined up subsequently as well.
We are hoping that this particular division will have a substantial contribution to the overall business of our company over the next couple of years.
Sir, my final question is with respect to your guidance. You earlier in Q4 guided about 20%-25% PAT growth in FY 2026, as well as a bit of margin improvement. You said metal bellows and Hyd-Air to contribute INR 30 crores each. Are we sticking to the guidance or now that there has been a peak growth in terms of market demand, it will be revised?
Yeah. In terms of our guidance, we had given a guidance of EBITDA growth of 25%. I think as a company, we believe that once we have a certain target, the entire team puts in their 150% in order to achieve those targets. However, obviously, there are some situations which is beyond the control of the members or the company. Right? Our internal target is obviously to achieve our annual targets. Since, obviously, the first quarter has not been as per our planning. We estimate that our growth would continue to be in the range of more than 20%.
20% PAT growth or revenue growth, sir?
No. EBITDA growth. The reason being, PAT growth will be slightly lower because we have higher depreciation. A lot of our investments in our CapEx. If you see the Q1 results, you will see the depreciation has increased. Hence, that is why we have given the growth guidance for EBITDA.
And sir, this metal bellow and Hyd-Air, they start contributing like INR 30 crores each in this year?
Yes. We expect metal bellows and Hyd-Air to start. Hyd-Air has already started to contribute to sales of Aeroflex. Obviously, the scale is yet to reach, but we expect this year that both of them will have a contribution. I think combined, both of them should contribute at least 10%-15% to the overall sales on a yearly basis.
Thank you, sir. I appreciate it.
Thank you.
Thank you. The next question is from the line of Viraj Parekh from Carnelian Asset Management. Please go ahead.
Good morning, sir. Thanks for the opportunity. Just a follow-up question on the first participant. In the last quarter, you said there will be some spillover of orders to the next quarter in May and June. Given that Q1 has also been weak, should we assume that if the spillover was not there, the numbers should have been lower than what you delivered this quarter?
The last quarter, there was the spillover of the dispatches, the orders. In terms of the dispatches, it moved on to this quarter. Yes, this quarter, obviously, the demand was lower, specifically in the early part of the quarter. But like I said, July has been a good month where we are seeing the things coming back to normalcy and also with this new project that we have and that we have received. I think we have a lot of positive things happening in this month already and start of this quarter already. I think a blip, and I think we expect the Q2 to be normalized and then Q3 to see back the company into the growth trajectory.
In terms of percentage terms, how much would be the spillover from Q4- Q1?
I would not have the exact percentage right now, but I can get back to you post-call.
Sure. The second question, sir. We are seeing that things will get normalized in Q2 and the rest of the year. If I am correct, this year out of Europe has been significantly down for us as a region, and U.S. for, as you highlighted in the last quarter, for the tariff uncertainty. But Europe particularly catches my eye because I think we are at a INR 14 crores quarterly run rate for Europe, which is the lowest in the last five quarters. If I am to assume that we get back to Europe in a similar run rate as last year, it would require a 40%-45% growth from the current quarterly run rate. Can you help me understand if this possible or not?
Yeah. We had a decline in Europe also and also in the U.S. as well in terms of the sales. Obviously, Europe was also significantly impacted because some of our large customers who we sell to, they ultimately use our products in their machineries, and they also have a lot of exports to the U.S. Hence, their demand also saw a slowdown wherein in turn it actually affected us. Europe got doubly affected, one, obviously from the demand itself in Europe, and second, because so far, customers of Europe, they supply their end products across the U.S. as well, and they also got impacted. That is why. Even after this drop, U.S. continues to be our biggest market.
Our focus has been to grow the U.S. market and to increase our presence in U.S. because the European market has been a topsy-turvy over the last few years. We will continue to focus on increasing our presence in this key market. Also, like I mentioned, we have seen an up in demand in this month, in July from some of our European customers that they believe that the things are starting to get back to normalcy. Also, recently with the deal with the EU and the U.S. I think that's also going to help the demand come back in Europe as well.
Got it. Got it. Thanks. I'll get back in touch.
Thank you.
Thank you. The next question is from the line of Prem Luniya from Astute Investment Management. Please go ahead.
Hello. Thank you for taking my question. So, sir, actually going back to the first question of the cooling market, which we have cracked in. I wanted to understand the customer in which we have cracked in, was this a replacement of a company who was already providing and now we have started providing, or was it a completely new product? If it is completely new product, if it was a replacement, can you just tell me what was the complete procurement by that company so that I can understand what is the market which we are catering to and what can be-
This is a completely new product and a new project. This product is obviously being utilized in the U.S. and in Europe. But this is the first time in India where this company is utilizing the product manufactured in India for the data center. This is basically a completely new demand. It is not replacing any existing competition or any existing customer. This project is with regards to the new technology, which is the liquid cooling. Just to explain to everybody. The old data centers were generally cooled through air cooling, which was when the computing power requirement was not very high. But now, since over the last 2- 3 years, with the increased use of AI, with the increased use of high power and high-speed computing, air cooling is not sufficient to cool the data centers.
There is a new technology of liquid cooling, where using a chemical and through the process of thermal cooling, there is actually the data centers or the disks of the centers are cooled through this particular chemical, which flows through a piping system. Hence, this is kind of like a new technology, which is, I think, I would say probably less than a couple of years old. Hence, this is a completely new area that we entered into, and we want to supply. Obviously, with the increase in adoption of AI across the world and also in a lot of sectors, not only tech, but also in the non-tech sectors, obviously, there will be a huge demand for data centers. The data centers, especially with high-speed processing and high-power processing, they will require the liquid cooling.
Hence, the demand for this particular cooling system is only going to see exponential growth over the next few years.
Right, sir. Can you quantify that, where do we see this business going to, let's say, 10%, 15% one, two years down the line? Also, will it have the same type of replacement cycle as the other industries where we cater to? Just one more question was on, can you please quantify how much was the market share of Aeroflex in Indian exports of our particular products?
Okay. In terms of the replacement cycle for this, it will be difficult for me to give a number because this is the first time that we are developing this product. Mostly it depends on the quantum of the cooling that is being utilized. Obviously, there will be requirement for replacement parts or spare parts, and also the contract that we have signed with the company involves supply of spare and supply of parts in case of any replacement as well. In terms of market share of Aeroflex's exports, I do not have the exact number in terms of market share, but I would say Aeroflex is the largest exporter of hoses and assemblies from India. We are by far the biggest player in terms of export. Also, we are the largest in terms of the domestic market as well.
We are the leaders both in the domestic market as well as in the export market. Difficult to give an exact market share number, but we are number one by far.
Sure. Thank you so much.
Thank you. The next question is from the line of Aastha from PKF. Please go ahead.
Hi. Good morning, sir. Thank you for giving me this opportunity. Sir, can I know what will be the revenue contribution from each of the segments going forward, and what was the contribution from each of the segments? I understand that you have given the split between assemblies and the other segment, but did we get any revenue from metal bellows?
Yes. We had about approximately INR 1.3 crores of business in the metal bellows. We expect that over the next couple of years, at least 10%-20% of our revenue should come from these businesses. Plus these, the new liquid cooling solutions project, that will be executed using our bellows facility and our machinery for bellows. That will also see a significant uptake in terms of the percentage of contribution from this particular division.
Sir, this 10%-20% will be by which year?
This is I'm talking about, in this year, with all the new projects of bellows, of liquid cooling and of Hyd-Air , 10%-20% of the business we expect in this year from these particular divisions. It will be difficult to give an exact percentage, so a ballpark figure of 10%-20%.
Sir, what would be the margins in metal bellows?
In metal bellows, the EBITDA margins is around 28%-30% at an optimum capacity utilization. Obviously, right now, the utilization is not at that capacity. Hence, you're not seeing those margins in the numbers. But once the bellows plant reaches a certain capacity utilization, we'll see the margins of 28%-30%, because the gross margins in the metal bellows range anywhere from 50%-60%.
Okay. Sir, what is the order book as of now? Do we have a certain order book in each of these segments?
In terms of metal bellows and for obviously in terms of the liquid cooling, we have already mentioned the order that we have received. In terms of Hyd-Air and bellows, obviously the scale at which they are right now, the order book is small. But we are seeing that we have started to. We have also got certification from the American Society of Mechanical Engineers, which is one of the requirements for metal bellows. We have already received that certification. And we have also applied for a couple of more certifications for metal bellows, which we are expected to receive by September or October of this year.
Sir, but my question is that, do we have any order book in hand? I know that we have approximately 8 crores in metal bellows, but apart from that, for assemblies or other segments as well.
Yeah. We divide our orders. In terms of the overall business of Aeroflex, we have two sets of customers. One is those customers who give us a tentative quantity on a yearly basis, and then they place periodic POs based on their quarterly requirement. And then we have certain projects that we work with the customers. These are long-term projects wherein we start working with them on prototypes, then testing. Obviously, first comes the design, then prototype, then testing, and then it goes into production. And then we have the set of distributors or assemblers who buy the regular product from us, and they mostly buy on two containers, one container basis. Those are ongoing orders which happen on a quarterly or a monthly basis.
Okay.
We specifically do not have a specific number for an order book of a certain value or a certain amount.
Got it. My last question would be that, who else we are competing with when it comes to data center liquid cooling products? If we are competing with a player in India as well as in the foreign market, and in the foreign market, how much would be the price difference in percentage terms?
Okay. Right now, the project that we have got is for supplying to the India market. The U.S. company has received the contract for the data center cooling for the India market, and we need to supply our products in the India market. Specifically in terms of price comparison, it will be difficult to tell you, because once we foray in the international market, only then we will be able to share with you the exact price comparison. In the international market, our competitors are already supplying these kind of systems to the data centers, the likes of Senior and the likes of Parker. Both of them are supplying the cooling systems to the data center. They are our competitors in this segment as well.
Okay. Thank you, sir.
Thank you. Ladies and gentlemen, anyone who wishes to ask a question may press star and one on their touch-tone telephone. The next question is from the line of Jeevan. From Jeevan, please go ahead.
Hello. Am I heard, sir?
Yes, I can hear you.
This quarter one is due to the tariff issue with its slumpiness or normally also quarter one is weak as compared to quarter two or quarter three, or quarter four?
Generally, Q1 is obviously one of the quarters which is generally, I would say, sometimes it is weak because of certain. It will be difficult to confirm that. The reason being, because our business depends a lot also on the project. Some of the projects can start in Q1, so we can see higher demand in Q1. Difficult to just say that whether Q1 is always weak. Sometimes it is weak, sometimes it is strong. One of the major reasons for the dip in the sales, like I mentioned, is the temporary dip in the demand from the customers. It was to a great extent, it was related to tariff. Reason being, I might not have informed in the earnings call, but the tariffs on our products increased by almost 3x . It was earlier approximately about 3.5%, and it increased to 10%.
That was also a significant cost addition to our customers as well. They had to bear an additional duty of 6.5% on the product. Hence, we saw a temporary dip in the demand from the customers, especially those who are the distributors or who are assemblers who wanted to reduce the inventory, who wanted to understand the market because a lot of the panic initially was that due to this high tariff, there will be a significant decrease in the demand. Hence, none of the customers wanted to carry a large inventory with them. These were a few reasons where we saw that because of the tariff issue, there was a dip in the demand, which ultimately led to the dip in the order flow and then ultimately the dispatch.
A follow-up to that previous caller. You said that certain competitor in the cooling solution is there abroad. Is there any competitor in India also, as we are the only supplier in India for the cooling solution to the data centers?
From whatever information that we have, right now we are the first ones to enter into this space in India in terms of manufacturing of this product. That is why the company that we have tied up with have chosen us as their supplier for the data cooling solution. This is a completely new business for India as well.
Thank you, sir. I will come again.
Thank you so much.
Thank you. The next question is from the line of Jyoti Singh from Arihant Capital Markets Limited. Please go ahead.
Yeah, thank you for the opportunity. Just few clarification. You earlier mentioned on the expansion on the focus. So we are focusing on Europe more or on U.S. because Europe we already have good presence. And another on the data computing liquid cooling side. Any RFQ on the order book side in any certain geography we can discuss? Lastly, on the competitor name side, you mentioned few, but it was not very clear. So we can discuss on the data center cooling liquid side competition, what are there. Going forward, still we are seeing a demand impact because of the tariff. If anything, we can discuss on that side. Thank you.
Yeah. Okay, thanks. Your first question was Europe versus U.S.A. So U.S.A. remains our biggest market and the focus of the company remains the U.S. Europe, over the past 3-4 years, has seen a lot of ups and downs, I think more downs than ups. The U.S. was impacted right now because of the tariffs that I already mentioned. But U.S. will continue to remain our dominant market, and we will continue our efforts to focus on the U.S.A. market in the near future as well. In terms of the RFQs, the orders we have already received the order for INR 7.8 crores for providing the components for data cooling for data centers. In terms of competition for this particular segment, I mentioned Parker Hannifin, which is a listed company in the U.S., and Senior, I think they are based in U.K., and they are also listed.
These two are our competitors in this segment as well. Your last question was on tariffs. I think I have already mentioned about tariffs, that one of the major reasons for the decrease in demand in the first quarter was largely driven by the issue of tariffs.
Okay, thank you, sir.
Thank you.
Thank you. The next question is from the line of Saumya S. from Insightful Investments. Please go ahead.
Hi, sir. Thank you for the opportunity. I just had a confirmation. I couldn't hear you when you gave the exact revenue for metal bellows for the quarter. Did you say INR 4.8 crores or INR 1.8 crores?
No. INR 1.3 crores.
INR 1.3 crores. Okay, got it.
Yeah.
That was all. Thank you.
Yeah. Also, just to update to everyone, I think in terms of also, obviously, we've not yet had any questions on that particular point, but I just wanted to update to all the members on the call. In terms of our QIP. A lot of the people had spoken to me previously about the plans for the QIP. I just wanted to update to everyone that the whole idea for the company for the QIP was primarily for inorganic acquisitions. To update to everyone that we will only proceed for the QIP once we have finalized the terms of the acquisition. Any acquisition that we do will be value accretive for the shareholders. The QIP will only be done once the acquisition opportunity. Hence, I just wanted to update this to all the members.
Thank you. The next question is from the line of Maitri Shah from Sapphire Capital. Please go ahead.
Yeah. Hello, am I audible?
Yes.
Yeah. I just had two questions. The first one was, we're supplying cooling system parts. Could you explain what percentage of parts are in the entire cooling system do we cater to?
Sorry, what part?
The parts that we are supplying, what is the percentage of that in the entire cooling system?
Okay. It is difficult to give a number for that. Because the entire system, the project is taken by the company who has ultimately given us this contract. The cooling solution is just one part of the entire project, the cooling project that they have taken. It will be difficult for me to give you a number on that one.
Maybe percentage, like maybe 10% of parts are used in the entire cooling system. Is that-
I will be very frank. It will be hard for me to say, because any number I say will be just a very, very wild estimate. I think we will just wait for at least a couple of quarters when we have started to deliver the cooling solutions, and once we get better understanding in terms of the final usage, only then we will be able to give you an estimate. So right now it will be pretty much, I would say, to give any number on the percentage.
Okay. That makes sense. Previously we said that we are guiding for a 20% growth in our EBITDA, is that correct? Hello?
Yeah. Sorry.
Are we guiding?
Yeah. I missed you.
Are we guiding for the 20% growth in our EBITDA? Is that correct?
Yes. Considering the Q1 results.
There is a 20% growth in our EBITDA with a 19% margin. Are we expecting our revenues to be around the INR 500 crore mark for this year if I-
Our margins will be definitely much more as compared to what we had in the first quarter, right? Generally, our EBITDA margins should range anywhere between 21%-22% on an annual basis. That is what we informed.
This is on the console level?
Yeah. Total, yeah. At a console level.
Yeah, because in the presentation, it was mentioned that we are guiding for a 19% margin, EBITDA margin on console level. Are we increasing the guidance to 21%?
No, I think in the presentation, it was 19% is the margins which is in Q1, not on projection.
It was mentioned.
If you would want to just double-check.
Yeah. Okay. Okay, so we are guiding for a 21% margin.
Yeah, 21%-22% margin. That is what. I think a couple of quarters back, maybe I think last year, our aim is that in some quarter, margins could go up. In some quarters, margins could go down. Our aim is that, like I mentioned approximately a year or so back, that over the next 4-5 years, we expect our EBITDA margins to increase anywhere from, at that time it was around 20%. So from 20%- 25% over the next 4-5 years. That is what we plan, right? Yes, it could happen in one quarter, margins could be 19%, in one quarter, margins could go up to 23%. But what we focus on is, we focus on our long-term targets. Our long-term target is for the next 4-5 years to reach an EBITDA margin of 25%.
Okay. That is it from my side. Thank you.
Yeah. Thank you.
Thank you. The next question is from the line of Dhaval Shah from Fourth Capital. Please go ahead.
Hi, thanks for the opportunity. One quick question. You just mentioned that the tariff has increased from 3% odd to 10%. We recently had a statement from Trump saying that the global baseline tariff will be 15%-20%. One, in best case scenario, if it is 15% and worst case 20%, what's your take on that and what would be the impact on our business?
It will be difficult to predict Mr. Trump what happens. But obviously, any increase in the tariffs tends to have a short-term impact on the business. Like I mentioned, the increase in the tariffs in Q1, impact in Q1, but we have already seen that from July it's coming back to normalcy. Any substantial increase in tariffs tends to have an impact only for a couple of months. In case, for example, if the tariffs further increase, which I hope not, but you'll see an impact for a couple of months, but then over a period of time, it tends to smoothen out. Also, if you see that our growth in our domestic business has been significant in this quarter.
We are also aware of the situation in the international market, and hence we are trying to the extent possible to de-risk ourselves from any external shocks in the international market. Also, if you see this order of almost INR 8 crores from the cooling systems. That will also be a domestic order, so that will also help us in increasing the sales of the domestic business. We are seeing an increase. Right now, the contribution of domestic business to our sales is 28%, whereas, I think almost a year or so back, it was around 16%. You're seeing that the domestic business is seeing considerable increase. I think over the next couple of quarters, this might also increase.
Right. Your export margins would be certainly higher than the domestic margins. Your EBITDA growth guidance takes into consideration increased contribution from domestic revenue and probably decrease from the export revenue, right?
In terms of our margins, yes, exports have definitely better margins, but domestic has a better inventory, better working capital cycle. So profit per unit of time is better in domestic as compared to the international market. But the overall margins in terms of the value might be better in export, but in terms of unit of time, it is better in the domestic market.
Okay. This new business, which is data centre.
I cannot hear you. Hello? You are not audible. Hello?
Hello.
Yeah.
The question is that the new business, which is data center cooling solution, the margins for those business are going to be higher or lower than the current margins, average margins for the current business.
Actually, we have signed a confidential agreement with the customer. So hence I will not be able to share the margins for this particular business right now. Because this is specific to a customer, so it will be difficult for me to share anything right now, because it will be in the public domain, which will be against our agreement.
Okay. All right. Thanks.
Thank you. The next question is from the line of Rahul from TCG Asset Management. Please go ahead.
Yeah. Hi. So basically, I had two questions. One was that what would be the peak metal bellow revenue and Hyd-Air revenue? Like your phase I metal bellow CapEx has already been done. So can you guide us that, what is the peak revenue potential and by which, like FY 2027 or end of FY 2026, you will be able to reach that? That is my first question.
The peak revenue for the steel bellows project would be somewhere close to INR 80 crores- INR 90 crores. The peak revenue right now, considering the current investments that we have made in Hyd-Air, would be somewhere close to INR 32 crores- INR 35 crores. We are also expanding. Over the second half of the year, we will set up more machines in Hyd-Air. Currently, the peak revenue for Hyd-Air would be somewhere close to INR 30 crores- INR 35 crores on an annual basis.
Okay. How much would Hyd-Air revenue go into your internal consumption of your assemblies?
On a ballpark figure, approximately 25%-30% of the sales of Hyd-Air would be internally utilized.
Okay. My second question, sir, is that, basically, we saw very good growth in the domestic market, and your aspiration is to grow by 25% on an annual basis for the next coming years on the basis of EBITDA. I wanted to understand that, is the domestic market that big to absorb this kind of growth going forward? If we see any tariff issues prolong for the incremental future, will you be able to channelize and get the growth by supplying it to the domestic players or is it a bit of a challenge in terms of domestic growth?
Domestic market will not be able to replace completely the export market. Because export being a larger chunk of our business still, will continue to be one of the main focus areas of the company. The domestic market will have growth opportunities. One is obviously in the existing sectors that we are already present in terms of new projects, new expansions brought on by in the manufacturing space. Second, also this new technology of the cooling systems. And the market in India has just started. That is an opportunity. The domestic business, the growth will be driven by one, the existing industries that we have already been into, plus also these new businesses or the new technologies or the new sectors that we are entering into. The growth in the export cannot be completely compensated by domestic. That will not be possible.
The growth in the export will happen, one, from obviously higher demand coming in from our existing customers and also new projects and new OEMs that we have just started to get on board. Those will contribute to the sales in the export market.
Okay. The domestic demand is being catered by other domestic players, is it that, or are we importing?
No. We are manufacturing and the domestic demand is catered obviously by Aeroflex also, and also by the players who are in the domestic market. It is a mixture of both. Aeroflex is also supplying in the domestic market, and our competitors are also supplying in the domestic market.
Any market share data you can share with us for the domestic market that you hold?
Specifically for the domestic market, I do not have a market share data. We have for the overall worldwide market, which is part of our presentation.
Okay.
Specifically for India market, it is not there.
Okay. Thanks a lot for your answers.
Thank you.
Thank you. The next question is from the line of Rahul Kumar from Vaikarya. Please go ahead.
Yeah, hi. Just one question actually. For the exports which you did to U.S., did you have to bear that extra tariff of 10%?
So in most cases, our shipments are FOB or CIF. In most cases, our customers only bore the cost of the tariff.
Okay.
There were like a few, one or two cases where we had to bear, but that was just a very small quantity and a small order. But in most cases, the customers only bore the cost.
Okay. What are the discussions ongoing with respect to the, let's say, the contracts going forward in terms of the tariffs and the pricing?
When we spoke to our customers starting in the middle of April, a lot of them had the mandate to reduce their procurement temporarily, as they were not sure about the demand for their end products in the market, because everybody felt with the tariffs coming in, there will be a significant drop in the demand in the U.S. in terms of the end products. Hence, the entire procurement cycle got delayed. But what they have seen is that the expected reduction in demand was not as significant as the people had feared. Hence, people have started to see the orders flowing back to normalcy.
Yeah. I actually wanted to understand your contracts with your customers in light of
In terms-
These tariffs now.
Yeah.
That incremental
Yeah. What happens is, a couple of our large customers, we have annual contracts with quantity. They give tentative quantity for the year, and then the quantity on a quarterly basis, based on their market demand, they release the POs. Like I mentioned, the POs for the first quarter when they released, the quantities were lesser than what they would generally procure. Like I mentioned, that was because of the expectation in the market that the demand is going to significantly go down. Hence, few of the contracts that we had, the customer wanted to buy a lesser quantity than the contract.
Sure.
Then, like I mentioned, we have a lot of customers who are distributors and assemblers, and they generally work on orders on a multi-container basis, say, for example, two containers or three containers. They place the order only when they see a sharp decline, they tend to delay their purchase so that they don't have to bear the brunt of inventory.
What's your share of business in exports from these assemblers and distributors and OEMs?
We have three segments. We have OEMs, we have channel partners or distributors, and then we have assemblers. Our split is mostly equal, where we have 30% of our business coming in from OEMs, around 5% of the business coming in from the distributors, and then coming from the assemblers.
Is that the similar mix for the domestic business also?
No. In the domestic business, only about 20%- 25% of the business comes in from distributors and assemblers. The reason being, in the domestic market, we are supplying directly to the end customer. Your likes of your steel plants, oil and gas plants, ports and terminals. We are a direct vendor to them. We supply directly. We have ARCs and Annual Rate Contracts and AMCs. In India, the split is 70 by 25.
Okay. For exports also, again, do you have to reprice your products in lieu of tariffs?
Like I mentioned earlier, the increase in the cost of tariffs was mostly borne by the customer. Generally, repricing for us is not so relevant. On a case-by-case basis, where we feel that the customer might be really adamant on a certain discount in lieu of tariffs, we do it on a case-by-case basis depending on customer, his business potential, his business tenure with the company. It actually depends on the customer, but it has been generally few and far between right now.
Okay. Let's say when you are exporting to U.S., where are your competitors based out of? Are they based out of U.S. or is it China? I mean, their manufacturing facilities.
No. Our competitors are based out of U.S. Our competitors are based in Europe. When we supply to Europe, the competitors are mostly European companies. Then it is the companies who are manufacturing in Türkiye. When we are supplying to the U.S., we are competing with obviously the American manufacturers, plus also manufacturers in Türkiye and Europe who are ultimately supplying to the U.S.
Okay.
And then obviously when we are supplying in India, our competitors are the ones who are manufacturing in India.
Okay. Then for the supplies to U.S., are you not at a relative disadvantage with respect to pricing?
Sorry, I was not able to hear you. Can you just repeat it, please?
No, I think given the tariffs now, are you not at a relative disadvantage versus your U.S. manufacturing competitor?
Not yet. I think tariffs of 10%, because the difference between our cost, the landed, and the U.S. cost is still much more than 10%. Even if a 10% duty which is there right now, we are not at a disadvantage as compared to the American manufacturers. Obviously, if it goes up to 25%, 30%, that's a different case. But right now, that's not an issue.
Okay. Yeah, that's all. Thank you.
Yeah.
Thank you. Due to time constraints, this will be the last question. I would now like to hand the conference over to the management for closing comments.
Thank you so much everyone for your questions. If in case I've not been able to answer any questions of anybody, you can reach out to SGA, who is our investor relation advisor, and they can clarify you on the same. Thank you so much for your time, for listening to us and for sharing your queries. Hope to see you for the next earnings call. Thanks a lot.
On behalf of Aeroflex Industries Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.
Thank you everyone.