Ladies and gentlemen, good day and welcome to the Avalon Technologies Limited 4Q FY 2026 earnings conference call hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Suman Kumar from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.
Good afternoon, everyone, and warm welcome to Avalon Technologies 4Q FY 2026 post-result earning call hosted by Motilal Oswal Financial Services. To take us through the results today, we have with us from the management, Mr. Pulak Mishra, Chair managing director, Mr. Suresh VR, Chief Financial Officer, Mr. Shriram Vijayaraghavan, Chief Operating Officer, and Mr. Venky Venkatesh, Chief Sales Officer. Mr. Mishra will give an overview of the business performance and will be followed up by Mr. Suresh's remarks on financial performance, post which we will open the floor for Q&A. As we move forward, it is important to bear in mind that any forward-looking statements made during this call are subject to potential risks and uncertainties, both known and unknown. Now, without any further delay, I will hand over the floor to Mr. Mishra for the initial remarks, the CMD. Thank you, and over to you, sir.
Thank you, Suman. Good afternoon, ladies and gentlemen. On behalf of Avalon Technologies, a very warm welcome to our Q4 and full year FY 2026 earnings call. I want to begin by thanking our investors for your continued trust and support. Your confidence in us has been instrumental in enabling us to execute consistently, invest with discipline, and build a business that is both resilient and scalable. FY 2026 has been our best year, and Q4 is our seventh consecutive quarter of growth. But what stands out is not just the growth rate, it is the quality of it. Profitable, broad-based, and consistent across verticals and geographies. We delivered a 46% revenue growth for the full year, higher than our 40% guidance. On net working capital, we reported 112 days, better than our guided range of 120-130 days. Our ROC improved to 20.6%.
On revenue profitability, working capital, and ROC, we have delivered improved performance across all the key metrics. We have also made steady progress in new product introductions, especially on semiconductor manufacturing equipment and power systems. All three of our growth engines are gaining momentum together, and that is the foundation of our journey forward. Moving to the financial highlights for Q4 FY 2026, revenue came in at INR 480 crores. Gross margin was at 33.7%, within our guided range of 33%-35%. EBITDA margins came in at 11.8%, up from 11.5% in Q3. Operating leverage is playing out as revenues scale. PAT for the quarter was INR 41.2 crores. For the full year FY 2026, revenue was at INR 1,603 crores, up 46% year-on-year. Gross margin for the year was 34.3% at the upper end of our guided range. Full year EBITDA margin was at 10.8%.
Full year PAT was INR 113 crores. Average revenue growth over the last seven quarters has been 45%. As of March 31st, 2026, our order book grew 24.7% year-on-year to INR 2,196 crores with an average execution period of 14 months. In addition, long-term contracts with execution timelines ranging from 15- 36 months is at INR 1,245 crores. Order book growth remains well diversified across industry verticals and geographies. India manufacturing operations, which continue to serve both domestic and global customers, accounted for 77% of our revenue in Q4 FY26, delivering healthy profitability at an EBITDA margin of 16.7% and a PAT margin of 12.2%. Revenue from our U.S. operations contributed the remaining 23%. Losses in U.S. manufacturing have continued to narrow, coming in at approximately INR 5 crores in Q5 FY26.
We are working towards a breakeven in U.S. manufacturing in the later part of FY27. Our presence in both India and U.S. gives customers the option to start in the U.S. and later transition to India or come directly to India. In FY26, revenue mix was 38% from India and 62% from U.S. India business grew 29% year-on-year, while the U.S. business grew 59% year-on-year. Moving to segment-wise contributions. Industrial contributed approximately 34% of our revenue, growing at 65% year-on-year. Mobility contributed 28%, growing at 50% year-on-year. Within mobility vertical, rail accounted for 16% and aerospace for 9%. Clean energy stood at 20%, growing at 45% year-on-year, driven by the ramp-up of our energy storage systems. Communication contributed 8%, growing 58% year-on-year. Our mantra to focus on mission-critical complex Box-builds continue to gain traction.
Box-build has increased from 44% four years ago to 56% in Q4 FY26. This highlights the deep integration we have with our customers and drives stickiness and long-term potential. Net working capital continued to improve through the year. On a year-on-year basis, net working capital improved by 12 days from 124 days in March 2025 to 112 days in March 2026. Receivables reduced by approximately 12 days year-on-year. Inventory improved by two days as programs moved into execution phase. Payable days reduced by approximately two days year-on-year. Overall, improvement in net working capital delivered a positive cash flow from operations of INR 57 crores in FY26. We continue to follow a CapEx-light model as returns are approximately 9.9 times. Net debt to equity ratio is around 0.06. Return on capital employed stands at 20.6%, a meaningful improvement from 10% two years ago.
Now, looking at the macro environment, it continues to stay positive. The reduction in U.S. tariffs on Indian goods makes India manufacturing for customers more competitive, and we are seeing increased engagement as a result. Importantly, the period of elevated tariffs also helps us accelerate a new set of business opportunities. We added new programs in the U.S. as customers look to diversify their supply chains and reduce risk. This is over and above the wins in the India domestic business. We have also made progress in expanding exports into Southeast Asia, further broadening our geographic footprint. The government's focus on semiconductor equipment under ISM 2.0 aligns well with our capabilities and business we have recently won in this space. Our efforts to build a meaningful sales presence in Europe over the last few quarters also coincide with the India–European Union Free Trade Agreement.
Taken together, domestic demand, U.S. export opportunity, and new geographies, the structural tailwinds are intact. Now moving to our key growth drivers. Our existing business continues to provide a strong, steady foundation, long product life cycles, mission-critical programs, and recurring revenues across rail, aerospace, industrial, clean energy, and communications. On new business wins, the programs we have been building over the last two to three years are now progressing well. Our energy storage system program continues to ramp in line with plans. Aerospace cabin subassemblies have progressed past First Article Inspection and are moving towards volume. Production of locomotive engine subsystems has commenced. The Kavach anti-collision system has completed testing and is on track for commercial production. In semiconductor equipment, we have completed the project readiness phase with our global partner, a meaningful milestone ahead of volume production expected in FY2027.
For our satellite communication customer, we have successfully completed the first tranche of prototypes for control units and expect volume orders from FY2027. Prototype for industrial processing and power sector customers have also commenced. Three, on our opportunity pipeline, we continue to see healthy and expanding set of opportunities. We are seeing increased interest from aerospace majors in various commodities. We are also pursuing opportunities in advanced metal cockpit assemblies and landing gear components, areas where we have not previously participated. The three large U.S. customers we onboarded last quarter across industrial and defense are progressing from prototype towards production. As mentioned earlier, Southeast Asia and Europe adding new dimensions to our geographic reach. Taken together, all three growth engines are gaining momentum, and we expect this to increasingly reflect in our numbers through FY2027 and beyond.
On revenue guidance, we had previously committed to doubling revenues from FY2024 to FY2027, a target of approximately INR 1,725 crores. We are almost there, a year ahead. That gives us confidence to set our sights on further doubling in the next three years. That is from the higher base of INR 1,603 crores in FY2026 to approximately INR 3,200 crores in FY2029. The order book is healthy. New programs are entering production, and our customer base continues to expand. The foundation for the next doubling is already in place. From a multi-year perspective, we are confident of our growth. On FY2027, we believe our growth story will sustain and continue. We always seek to be conservative and hence guiding for a revenue growth of 24%-27%. In summary, FY2026 has been a defining year for Avalon.
Strong revenues, improved profitability, better margins, a stronger balance sheet, and better capital efficiency all deliver together. Our order book is healthy. Our three growth engines are aligned, and the external environment remains supportive. We enter FY2027 with clear visibility, a strong pipeline, and the confidence that comes from consistent execution over seven consecutive quarters. With this, I will hand over to our CFO, Suresh Veerappan, for a detailed overview of our financial performance. Suresh, to you.
Thank you, KT. Good afternoon, everyone. Let me take you through the financials in detail. Revenue for Q4 FY 2026 was INR 480 crores, up 40% year-on-year from INR 343 crores in Q4 FY 2025, and up 14.9% sequentially from INR 418 crores in Q3 FY 2026. For the full year FY 2026, revenues are at INR 1,603 crores, reflecting 46% growth year-on-year, ahead of our guided range of 40%. Gross margin for Q4 FY 2026 was INR 160 crores at a margin of 33.7%. For the full year, gross margin was INR 550 crores at 34.3%, at the upper end of our guided range of 33%-35%. I would like to note that during the period of elevated tariffs, we passed on substantially all of the tariff impact to customers, so absolute gross margins were not affected.
However, since both revenue and costs were grossed up by the tariff pass-through, gross margin percentage was optically impacted by approximately 110 basis points. Adjusting for this, our underlying gross margin performance was better than the reported percentage suggests. EBITDA for Q4 FY 2026 was INR 57 crores, up 37.5% year-on-year with a margin of 11.8%, up from 11.5% in Q3 FY 2026. For the full year, EBITDA was INR 173 crores at a margin of 10.8%, reflecting year-on-year growth of 50.9%. The sequential margin improvement reflects operating leverage as revenues scale. PAT for Q4 FY 2026 was INR 41 crores, up 59.5% year-on-year with a margin of 8.4%. For the full year, PAT was INR 113 crores, reflecting year-on-year growth of 78% and a margin of 6.9%. Finance costs for the year were INR 15 crores, and depreciation was INR 34 crores.
On working capital, trade receivable days improved from 84 days to 72 days year-on-year. Inventory days improved from 86 days to 84 days as programs moved into execution phase. Trade payable days moved from 46 days to 45 days. Overall, net working capital improved by 12 days year-on-year to 112 days in March 2026, better than our guided range of 120 to 130 days. On a sequential basis, net working capital improved by six days from 118 days in December 2025, supported by improvement in inventory. The sustained improvement in working capital supported cash flow from operations of INR 57 crores in FY 2026 compared to INR 25 crores in FY 2025. As of March 31, 2026, total debt was INR 183 crores with cash and investments of INR 143 crores, resulting in a net debt of INR 40 crores.
Net debt to equity ratio stands at 0.06, a very comfortable position. CapEx for Q4 FY 2026 was INR 21 crores and INR 56 crores for the full year. Assets turns are at 9.9 times, and return on capital employed improved to 20.6% from 15.7% a year ago. A consistent and meaningful improvement. As KT mentioned, we doubled our revenues ahead of schedule. We are now committed to doubling again from the higher base of INR 1,603 crores in FY 2026 to approximately INR 3,200 crores by FY 2029. The balance sheet is clean, working capital is improving, and operating leverage is playing out. The financial foundation for that journey is firmly in place. With that, I request our moderator to open the floor for questions. Thank you.
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 the touch tone for 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 comes from the line of Tanay Shah from DAM Capital. Please go ahead.
Hi, sir. Good afternoon, and congratulations on an amazing set of numbers. I think we've truly seen all our efforts translating into the growth which we've delivered. Sir, my first question is on any potential supply chain disruptions with respect to components. The order books are strong, and we're seeing healthy growth coming into the quarters. But any sort of supply chain disruption which was seen?
Shriram, you want to answer that?
Yeah, sure. Hi, Tanay. Right now, there are a few things here and there, but nothing that's adversely affecting us. As you know, we service mostly industrial mobility and clean sectors. For these, at the moment, visibility is okay.
All right. Do not expect any major pressure on margins or anything of that sort, given the supply chain problems.
As we see it now, we do not see any effect. Okay? Saying that, what I would say is we saw the tariffs, which was the question of last year, right? We managed through that. I think our growth margins will hold between the range we have specified. Yeah.
Sure. Sir, my second question is on all the incremental growth drivers which we spoke about across sectors. Could we possibly speak a little more about them in detail as to what are we trying to do out there? Just a little more on the product specification, if you could, and the potential size which it can deliver for us into our revenue going forward.
Tanay, I will give you the verticals that growth. Industrial is 34% of our business. It grew at 65%, and it will continue high growth rate. Mobility is at 28% of our sales, it is growing at 45%. Clean energy is at 20%, growing at 45% again. You are going to see a broad-based growth. It is not lumpy because in our business, a lot of it is once a business comes in, it sustains for the next 5-10 years. It is not which comes and goes. And products do not change over a period of time. Once it comes into production, it normally stays. And these are larger Fortune 100 type companies who are working with us. I do not see too much of a lumpy sales. Once it comes in, it is going to stay.
Understood, sir. My last question is on the U.S. manufacturing. Obviously, it's inching up on a quarter-on-quarter basis due to the tariffs. What do we expect it as a percentage of sales going forward? Should it be at around this 20%-22% or should it logically inch up a little higher with the U.S. execution happening with our customer out there? If so, then the control on margins out there and how do we expect to break even and how soon would that be? Thank you.
I'll talk about the first part of your question and Suresh will talk about the second part. You're seeing growth from outside. Close to 77%-80% is made in India for India and for export, and that is our focus. How we get customers into this model is why the U.S. factory. That is the primary reason. The secondary reason during the tariff times and all that, it was easier to onboard customers in the U.S. and then give them time to transfer to India. We anticipate this 80, 20, 78, 22, that kind of range. That is what is in our planning. The more that comes to India manufacturing, the better off we are. This is something which we need for our future as well as the confidence from customers on having local support. Suresh, you want to answer the second part?
Just to add to that, in FY 2026, 79% of our business is from India manufacturing and 21% is from U.S. manufacturing. It has been around this range of, let's say, 19%-23%, which is what we have been discussing in the earlier calls. The operating leverage benefits are expected both from our India manufacturing as well as from our U.S. manufacturing plants. That's the way forward we are looking at.
All right. Thank you. Thank you so much for answering my questions and all the best.
Thank you, Tanay.
Thank you, Tanay.
Thank you. Our next question comes from the line of Adhiraj Singh from Amicus Capital Partners. Please go ahead.
Sir, firstly, congratulations on a good set of numbers. I just had a couple of questions. First, when we look at the growth, we are growing by 46% this year. We have added about INR 500 crore of revenue this year. How much of this additional revenue or growth is coming from new customers, programs? Essentially, programs, customers that you would have onboarded one and a half to two years back. How much of the growth would be from vintage programs and customers?
It is very broad-based, and depending on the size of the customer cut in, it could vary anywhere from 35%, 35%. Two-third, one-third is what you probably need to look at. But it varies. You may have a certain much larger customer cut in and that varies a little bit. But the next year they become existing customers, right? And we are developing and managing these programs into production at least 18 months ahead. So, that gives you a broad range on what we think it is.
Just to add to that, Adhiraj, so typically the average life cycle of a customer with us is very long. The product life cycle is also long. So, a customer who is this year annual will become an existing customer when they continue for over a period of 8- 10 years.
No, sir. That I understand. Adhiraj, I just wanted to understand in this INR 500 crore, how much would be coming in from, let's say, programs that you would have started one and a half years back, and how much from the vintage programs?
Out of INR 500, 70 will be existing year, and then 30 will be approximately. Okay.
Okay. Understood. Second question, sir. A number of your peers are getting into components manufacturing, like PCB manufacturing and have got ECMS scheme for that. Do you have any plans to get into components manufacturing?
We are very focused on what we do. We are a box-build, high-end box-build, complicated technology-oriented box-build. We will look for further business in that segment instead of trying to do a greenfield, though there's lot of money available for that. We think there's enough growth in what we do. Managing growth is what we strive on doing. I think instead of going in multiple directions, we like to stay focused and deliver on what we say.
Sure, sir. Thank you so much and all the best for FY 2027.
Thank you.
Thank you. Our next question comes from the line of Santhosh Seshadri with Avendus Spark. Please go ahead.
Yeah, good afternoon. Thanks for taking my question. Basically, could you request-
Sir, sorry to interrupt you, sir. Mr. Santhosh, in case you are using the speaker mode, may I request that you use your handset mode, please. Your audio is not very clear, sir. Thank you.
Fair enough.
It sounds better.
Yeah.
Santhosh.
My first question is on the quarterly revenue trajectory across different verticals. Maybe specifically for the clean energy as well. Given that the U.S. business is ramping up and there is a usual one-two seasonality that we have observed historically, how should we think about the quarterly dynamics? Also if you could give some color on the cadence for other divisions as well. That would be helpful.
For us, that doesn't play out as much. We try to level load our production across. Our customers tend to do that. Only certain businesses which are government-oriented could have this issue. But we have not seen that as much. If you look at quarter to quarter, it's been fairly consistent, whether it's growth or whether it is, you know. In clean energy, we're going to see growth for the near future or foreseeable future. It's not seasonal for us, as far as we know.
Got it. Just to be clear there, our first quarter FY or maybe first half FY 2027 revenue could be sequentially higher than last year, right?
Santhosh, Suresh here. We would request you to look at us from a three-year perspective. In the opening remarks, KT, you would have highlighted that from a higher base of INR 1,000 crore in FY 2026, we are looking to double it in FY 2029. We generally do not give a quarterly revenue growth guidance.
Saying that, we are very confident.
Fair enough. Just one more question. Given our aspiration to double revenues over the next few years, and considering that our asset turns are already closer to 10 times, how should we think about the incremental CapEx and also about the timing of CapEx in capacity expansion?
For me, it is not aspiration. We are going to do that. The doubling. Saying that, see when we started talking of doubling in 2024, we were supposed to double by 2027. We are close to one year ahead of that schedule. We are close to doubling already. We will continue the same momentum. There may be a few quarters up or down, but if you look at us in a three-year timeframe, we will do what needs to be there to do that. Did I answer the question or the last part you said?
From a CapEx perspective.
From a CapEx perspective, as far as we know, we will continue. Our aspiration is to keep the ROCEs higher than 20% and keep the asset turns between 8 and 10 times. We still believe that with this CapEx, as well as we know today, we are going to have that for this rate of growth.
Any particular timeline that we are contemplating to spend this CapEx?
Usually, we say $50 million-$60 million, maybe a little bit over the next year. That is annually, yeah.
Santhosh, in FY 2025, our CapEx was $58 million. In FY 2026, our CapEx is INR 56 scores . For us to continue this trajectory of growth, we do not foresee any major CapEx. It is nothing in the near term that we can say.
Thank you very much, sir.
Thank you. The next question comes from the line of Mehul Panjwani from Fortisense. Please go ahead.
Hello, sir. Thank you so much for the opportunity. Am I audible?
Yes, Mehul, you are perfectly audible.
Okay. Thank you so much. Sir, my first question is about how much of our future audible growth can we expect from the box-build and system integration opportunity versus the traditional PCB assembly?
If we historically look at it, around three years back, we were around 44% of box-build. Our aspiration is to grow that number. Today, last quarter, we are at 56%. We will continue with that trajectory, and for us, that is why we are very vertically integrated to achieve that. Okay. We will continue down that, and that is our goal. We may start with a certain commodity, but our goal is to do the whole box in a two to three-year period with the customer.
And sir, what kind of margin retention, how much high margin can we command for box-build compared to the traditional?
Usually it is higher because it is vertically integrated. I do not want to get into how much. Because that depends on industry, that depends on vertical, that depends on commodity. If there is more of a certain commodity, you will have a better margin. Ultimately, we look at it as a box.
Right. Sir, I am not sure if you have answered this one, but my question is about what is our margin aspiration? Currently, our margins stand at 11%. Do we have any operational levers to improve our margins beyond 11%?
If you look at our 80% of the business, which is India manufacturing, EBITDA is at 16.7% and PAT is at 12.2%. We are already higher up than 80% of our business. This quarter, I think it was 77% of our business.
Okay.
Okay. With U.S. breakeven and with the leverage playing out there after breakeven, we see some room to improve.
Right. Sir, are we expecting any CapEx in the financial year?
Our annual CapEx has been the last two years in the range of $55 million- $50 million. We see something similar there. Nothing major at the moment.
Okay. Thank you very much, sir.
Thank you, Mehul.
Thank you. The next question comes from the line of Sumit Sinha with Macquarie. Please go ahead.
Yes, thank you very much. I echo some of the sentiments. It has been a really strong year and great execution. I guess my first question would be in terms of your guidance for next year. I know last year you started at 18%-20% year-over-year growth, and you ended the year at 46%, so that has been tremendous. Should we assume a certain degree of conservatism for the guidance that you are giving for fiscal 2027? The geopolitical situation is pretty fragmented right now, so just wanted to get some color on that. Second question is, in terms of your Make in India for India, that revenue growth showed 13% year-over-year. Is that basically because of a high base? I have a follow-up question after that.
Okay. On your first question, Sumit, you ask the question every time. We are generally conservative in nature with the things going around in the world. Every time we want to summit higher, with the macroeconomics, we want to be conservative. Number two is that the programs cutting in are fairly large in size. It could cut in this quarter or the quarter from now, which we do not control as much. Our customer does. Ultimately, it is all there. It is when it cuts in and how it cuts in, at what time frame, right? That is the conservative nature of what you are saying, apart from the macroeconomics.
In terms of the percentages that you mentioned, Sumit, if you look at FY 2026 as a whole, then the India manufacturing business grew by approximately 33%. The growth has been broad-based across industry verticals, across geography, across manufacturing location as well.
Got it. One more final question from my side, and this is a real inflection that I saw in your filings in rated free cash flow, which I define as cash flow from operations minus CapEx. Is that something of a goal that you want to continue to stay in the positive territory with that metric?
See, I will let Suresh get into detail of it, but from our perspective, we always want to maintain the ROCE. There is a number we strive for. The asset terms we strive for. Unless we do this business, I think we can manage that between eight and ten times asset term. That play in mind, that is what is built into all of us. We try to grow with that. A lot of times, most of this CapEx is going for building an infrastructure. Just to add two points there. A couple of years ago, in FY 2024, our ROCE was 10%, and then right now it is at 20.6%. The second aspect on the operation cash flows, FY 2025 operation cash flows was INR 25 crores, and now we are at INR 57 crores.
Both the working capital improvement, the focus on working capital improvement, and the focus on maintaining a high asset term are helping us get those operational cash flows and maintain and improve the ROCE.
Sure. If I can just add on to that one. When you double your revenues from this year onwards, what is the expected ROCE at that point? What is your goal?
Yeah. I would put it this way, in the past, we have operated at 25%. I would say there is a target for it to match over a period of time, and that should be some goal.
Got it. Thank you very much. Congratulations.
Thank you. Thank you so much.
Thank you. The next question comes from the line of Karan from Nuvama. Please go ahead.
Yeah. Thank you for the opportunity. Congratulations on good set of number. I have a few questions regarding the semiconductor business that we have onboarded. If you could help us understand how are we. If you can quantitatively state how is this program expected to ramp up, and what kind of competition are we doing it against, and what kind of products we would be catering to in this segment?
Yeah. Hi, Karan. It's Shriram here. For the semiconductor equipment, we're building complex Box-builds, right? Really state-of-the-art complex builds. This is a fairly large program with multiple sub-programs, right? These often are very complicated to build. The First Article Inspection takes time, approval takes time. These are very sort of longer gestational programs, right? We are in a journey of getting these approved and getting through deployment, right? This is a long journey. This is not one that cuts in in weeks and months, right? We've been working on this program for a fairly long period of time. We are on the journey, and hopefully in FY 2027, we will start to reach the benefits of this program.
Okay. So this FI has been completed or based on going for certain production segment?
It's in progress. You have some part numbers that are done, some part numbers that are progressing, some that we are yet to start. You've got a spectrum of this progress. Karan, there are multiple products. It is not one product.
Yeah.
I would say 50%, 60% is done and waiting for production approval. The other 40%, we are in the process of doing it, and then we will get it. Reasonable production will start sometime in 2027.
Understood. Also, what would be the major sector apart from clean energy, which will be contributing to our export revenue?
A lot of it will be in aero and industrial, if I can answer that. The growth is broadly current even across India and in U.S. It is not just concentrated in one industry. It is across industrial, safety, clean energy and communication.
Understood. One last question. What would be your client concentration? What would be the concentration of top five, top 10 clients for the full year?
I will let Suresh give the exact numbers. But as large customers cut in, things will start moving up and down for a short period, and then it moves on. Suresh, you want to give the table? Our top 10 customers, that is the one that we shared, which is 61% in FY 2023.
Understood. Okay. Thank you so much, and all the very best.
Thank you, Karan. Thank you, Karan.
Thank you. Our next question comes from the line of Chirag from Keynote. Please go ahead.
Yes. Thank you for the opportunity. Sir, my first question is related to the manufacturing plant for U.S. We have almost doubled the production from the cut now. Just wanted to understand how are we breaking even at the levels for U.S.?
Sure. Firstly, we have been discussing about increasing the revenues in U.S. manufacturing alongside our growth that we are seeing in the India manufacturing. Which is what we are seeing the last one year. The losses have significantly narrowed down. If you look at it a couple of years ago, the quarterly losses were around INR 14 crores. If you look at Q2 of this fiscal year, it was INR 9 crores, and Q3 it came down to INR 7 crores, and in Q4 it has again further come down to INR 5 crores.
There is operating leverage that has started to play out. Having said that, we expect to see ramp-up of many of the new programs, which are at various stages. Some in proof of concept, some in commercial, some in pending to be ramped up fully. With that scale is expected to happen in FY 2027. We see this trend of losses coming down and moving towards breakeven in later part of FY 2027.
Chirag, one thing I realized is that a lot of the customers, we enjoy the margins and we enjoy the profitability in India because it came through this route where it starts in the U.S. and then it moves to India. You can't just look at it from a plant-wide. There's a lot of business effectiveness for India doing manufacturing in the U.S., for instance.
Yeah, I understand. That was the earlier assumptions we had. It was most of the manufacturing towards India move, and now it is like to gain more clients, we are now again starting to route it from U.S. and down the line, probably we would be giving some cost benefits to the client, and that would again shift to India. Is that my understanding correct?
Correct, Chirag. I think you got it right.
The second question is more related to back end journey and the future perspective of your comment related to manufacturing.
Chirag, you are breaking up. You are breaking up. May I ask you to talk a little louder?
Am I audible now?
Now you're fine.
Yes, sir.
Right. My next question is more related to a back end journey what Avalon had. We started with manufacturing and then shift our EMS and we shifted to Box-build. We thought from the perspective that this is a higher integrated complex product, and we can serve our client a bit better because first you have better return ratios down the line and growth and maybe from a product to a component, from component to an assembly supply kind of a process. This is like a forward integration. Just wanted to understand how you are remaining focused related to manufacturing Box-build only even if you would have started manufacturing PCB at your end.
Have you considered this fact that this is not going to be value accretive and you want to make sure that it remains an outsourced product for you, and you do not want to get into that complication of manufacturing PCB? Because this anyhow helps us, from the perspective that 90% of the PCB gets imported in India. We are now from the perspective that we can control our value chain and make sure that we keep on growing at the pace we are without any hindrance related to raw material. Just wanted to understand the thought related to this.
Okay. As a country, this is a personal opinion, I believe that we need to have PCB manufacturing in India because as we scale up electronics, as we scale up being a global player, how competitive can we be without subsidies? I do not know. Okay. As a country, we do need it. See, our spend on PCBs is, I would say, less than a very small percentage, not even in the teens. It does not make sense for us to look at it as a vertical integration model. There are enough players coming in now where there will be enough competition to get the PCB cheaper than what we can make. That is our thought process on this, Chirag.
Down the line, it would be correct for me to understand if the manufacturing of PCB starts happening in India itself. This can become a gross margin accretive for us because we would be start sourcing it into India and even further margin profitability can take place for everyone.
Like you said, it is not even in the teens for us, the PCB buy. It is much lower because of our vertical integration. I do not think it will be an effective change. It will be better, but it is not something which we will chase. Okay. Shriram, you want to add something here?
Yeah. I think, Chirag, just to add to that, right? The way we are thinking about this is to grow into more complex Box-builds. In which case our effort is going into more complex assemblies of different things, right? So there the focus is not on getting into deeper down the value chain in terms of PCB, but more up into more complex build.
And the other thing, Chirag, PCB is a chemical business. Okay. It is a very different type of business. And you need size and scale. So it is something which we do not want. Our focus is always to do the complex Box-build. We want to do the $100,000 boxes. Okay. Which will make a lot more business sense in our focus as well as delivery.
And we believe there is enough growth in what we do across these verticals, across geographies. We are also looking at other geographies as well, export geographies as well now. So when there is enough growth with a higher asset and we have one of the industry-leading gross margins in what we do.
Got it. Happy to hear that one direction focus is there. We are not diluting it to start manufacturing something else where we do not have some kind of an edge. Very happy to hear that. Just one last question related to semiconductor that you have mentioned to the earlier analyst. As almost as you said that 50%, 60% of the products have gone some acceptance by the client for now. There is some 40% still in trials and work in progresses. And you are saying that from FY 2027 itself, we can start expecting some kind of a revenue to come into picture. Just a ballpark number, as now the
From the perspective that it is now just one year ahead for us. Just to follow up, how big this can be in terms of order book that we can expect, even if the large program is divided into sub-programs?
Yeah. Things are going very well. I'm not saying no, but these are slow things which kind of take time to materialize. With saying that, our goal is to, in the next two to three years, I would say three years, make it a vertical for us. Okay? You can understand the scope of it. It could be a smaller vertical or we hope it's a larger vertical, but it will become a-
Hello?
Chirag, did you get that?
Sorry, I missed the last part of it. When you said that it will become a vertical.
It will become a vertical for us. So right now it is in the industrial phase, and then we will spin it out in the next two to three years as a separate vertical. You know our size of our verticals, and we hope to have that, whether it is a smaller or a larger vertical, we will be there.
Just to confirm one thing. When you say a new vertical, it is approximately 8%-10% of revenue coming from that, and then it will be divided to another vertical. Is that correct?
Chirag, without putting a number to that, there is enough scope and scale to grow in this. We have just gotten to one customer right now, which means there is multiple customers there, and within each customer, we can get into multiple products. India has just got into the semiconductor equipment manufacturing, and even in the last budget, there was a mention of India Semiconductor Mission 2.0, which focused on semiconductor equipment. Definitely, we also hope for greater things to come here, but we do not want to put a number to that at this stage.
Got it. Thank you. Thank you so much, sir.
Thank you, Chirag.
Thank you. The next question comes from the line of Arpit Jain with Wallfort Financial Services Ltd. Please go ahead.
Hi. Thank you and congratulations on good numbers. Am I audible?
Yes, Arpit, you are.
Yeah. I came across a recent news that a company in the Middle East has disrupted the supplies of raw materials at PCBs and pulled up their prices. I just wanted to know regarding the tightening of the availability of PCBs, how has that impacted us and our inventory, and how has the pricing impacted us too?
Arpit, see, most of our pricing is a passthrough.
Okay.
Passed through to our customers. There has been some increases, but it will always be passthrough, so it is not something which will affect. If you look at over a five-year period, our gross margins have averaged between 33% and 35%, or sometimes even higher. We always aspire to keep that. Even if some of these prices increase, we pass it through to our customers. Did I answer your question, Arpit?
No. Regarding the inventory thing, regarding the shortening of the availability of PCBs, how do we hold those in our inventory and what is our outlook on that?
You want to answer that, Chirag?
Yes. I will take that, Arpit. We manage this actively with the help of our customers. We work very closely with them as to what kind of inventory we should hold for their products. We always keep our eye out. Where we feel it is getting tight, we will hold more inventory. Where we feel the lead times are good, we do not have to do so. This is actively managed across programs, across commodities, whether it is PCB, metal, wire harness, whatever it is. These are fluctuations that we manage day to day, Arpit. At the moment, nothing that we see is critical. Obviously, there are things that are long lead times and things are moving around, but we are always actively managing them.
Okay.
Take that we change this on a daily basis, Arpit. As of now, we do not see a material impact, but you never know whatever happens geopolitically.
My next question was, I see a growth in PAT year-on-year, higher than the growth in EBITDA. Correct me if I am wrong. I believe with depreciation and with the tax and with interest and all being stable across the year, there is a component of other income that has increased substantially. I just wanted to know what does this other income comprise of?
Other than, we are an export business, like major part of our business is also in exports. There is a both currency depreciation. There is a benefit on Forex income as well, which is part of the other income. It won't be part of EBITDA, but it will be part of other income.
Okay. Thank you.
Thank you. Our next question comes from the line of Mehul Panjwani with Fortisense. Please go ahead.
Sir, thank you so much for the follow-up. All my questions have been answered. Thank you.
Okay. Thank you.
Thank you, Mehul Panjwani.
Thank you. Our last question for today comes from the line of Achal, who is an active Investor. Please go ahead.
Yeah. Hello, I have a question on order book. I have seen that the current order book is around INR 3,006 crores. What is the timeline to execute this?
Achal, the order book is around INR 3,441 crores. Out of that, INR 2,193 crores is executable in 12- 14 months. And INR 1,245 crores is executable between 14 months to 36 months. And we have got orders further than three years, which we do not count in the order book.
Okay. The second question is regarding EBITDA margins. I remember that in previous conference calls, somewhere they have mentioned that the operating margins will increase from Q4 of FY 2026. I just wanted to understand if operating margins are going to increase going forward.
I can talk about the past. In Q4 FY 2026, like you also rightly highlighted, the EBITDA percentage is 11.8%. And if you look at our India manufacturing institutes, approximately 29%, that has generated 16.7% EBITDA. You can see a consistent increase in EBITDA percentage over the last few quarters now. With the increase in sales expected in FY 2027, we believe there is a further scope of operating leverage in both India plan as well as U.S. plan. There is a little bit more scope, Achal.
Okay. Can we get any long-term guidance on EBITDA margins? Because if you see other unit players are able to make around 16%. I think we have still room left to make much more margins from EBITDA.
We generally do not provide guidance on the EBITDA margin percentage, Achal.
Okay.
There is quite an operating leverage scope for us to play out.
Okay. Thank you, sir.
Thank you. Ladies and gentlemen, that is the last question for the day. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
FY 2026 was a great year for Avalon, with robust revenue growth and solid execution. We remain focused on scaling new programs, enhancing capabilities, and investing ahead of our growth. Our entry into semiconductor equipment space marked a key step as we expand into more advanced high-potential technologies and segments. With a healthy order book, expanding customer engagement, and a flexible global manufacturing model, we are well-positioned to sustain momentum through the year and deliver profitable growth. We thank our investors for their continued support and look forward to updating you in the coming quarters. Thank you very much.
Thank you.
Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.