Ladies and gentlemen, good day and Welcome to the Avalon Technologies Limited Q3 FY 2026 earnings conference call. As a reminder, all participant lines will be in a 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Jignesh Thakur from JM Financial. Thank you, and over to you, sir.
Good afternoon, everyone, and a warm welcome to the Q3 FY 2026 earnings call of Avalon Technologies. To take us through the results today, we have with us from the management Mr. Kunhamed Bicha, Chairman and Managing Director; Mr. Bhaskar Srinivasan, President; Mr. Suresh Veerappan, Chief Financial Officer; Mr. Shriram Vijayaraghavan, Chief Operating Officer; and Mr. Venky Venkatesh, Chief Sales Officer.
Mr. Bicha will give an overview of the business performance and will be followed up by Mr. Suresh's remarks on the financial performance, after which we will open the floor for the 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. Bicha for his initial remarks, the CMD. Thank you, and over to you, sir.
Thank you, Jignesh. Good evening, ladies and gentlemen. On behalf of Avalon Technologies, we extend a very warm welcome to our Q3 FY 2026 earnings call. We thank our investors for your continued trust and support. Your confidence in Avalon has been an important contributor to our consistent progress in execution, financial performance, and operational discipline. Q3 FY 2026 marks our sixth consecutive quarter of sustained growth. We delivered improved performance across key financial and operational metrics, including revenue growth, profitability, order book growth, net working capital days, asset turns, cash flow from operations, net debt to equity, and return on capital employed. We have also made steady progress in new product introductions, including semiconductor manufacturing equipment and power systems. The external environment is also supportive of our long-term growth. U.S. tariffs have reduced from 50%- 18%, benefiting our U.S. export business.
In India, the government direction towards India Semiconductor Mission 2.0, with a focus on semiconductor equipment, aligns well with our capabilities and recent business wins. 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. Overall, we believe we are well-positioned from both a company and market perspective. Q3 FY 2026 saw the highest-ever revenue and profit after tax in the history of the company. This is supported by well-diversified growth across both verticals and geographies. With improved business visibility, a better macro environment, and ongoing project ramp-ups, we are revising our FY 2026 revenue growth guidance upward to around 40% from the earlier guidance of 28%-30%. Moving on to the key financial highlights for nine months FY 2026. Revenue for nine months FY 2026 was at INR 1,123 crores, representing a year-on-year growth of 48.7%.
Our average revenue growth over the last six quarters has been 46%. Our focus on manufacturing complex box build systems continued to gain traction, with box build contribution improving from 49% in FY 2025 to 53% in nine months FY 2026. As of December 31, 2025, our order book grew 26.5% year-on-year to INR 2,016 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 1,183 crores. Order book growth remains well-balanced and diversified across industry verticals and geographies. Gross margin for nine months FY 2026 was at 34.6%, at the upper end of our guided range of 33%-35%. EBITDA for nine months FY 2026 was at INR 116 crore, reflecting a growth of 59.2%. EBITDA margin improved to 11.5% in Q3 FY 2026, supported by operating leverage.
Profit after tax for nine months FY 2026 was at INR 72 crores, an increase of 83.3% year-over-year. Profit after tax for Q3 FY 2026 was INR 33 crores. India manufacturing operations, which continue to serve both domestic and global customers, accounted for 78% of our total revenue in Q3 FY 2026, delivering a very healthy profitability with an EBITDA margin of 16.7% and a PAT margin of 11.9%. Revenue from our U.S. manufacturing operations contributed the remaining 22%. Networking capital continued to improve during the third quarter. On a quarter-on-quarter basis, networking capital improved by 13 days from September 2025 to December 2025. Receivables reduced by eight days sequentially. Inventory declined by three days sequentially as programs moved into execution phase. Payables also improved by two days sequentially. Overall, the improvement in networking capital supported a positive cash flow from operation of INR 51 crore in Q3 FY 2026.
We continue to follow a CapEx-light model. Asset turns improved from 7.5 x in FY 2025 to 9.5 x in Q3 FY 2026. Net debt remained low with a net debt-to-equity ratio of 0.04. As a result, return on capital employed improved to 18.8% from 11.3% a year ago, reflecting continued efficiency in capital utilization. On the topic of tariffs, the long-awaited trade deal has been announced with U.S. tariffs on imports from India reduced from 50%- 18%. During this period, we were able to recover 99% of the applicable tariffs from our customers, supported by a long-standing presence in the U.S., deep market understanding and strong customer relationships. More importantly, this period of elevated tariffs helped us accelerate on new set of business opportunities. Alongside wins in the domestic Indian market, we accelerated new program wins in the U.S. for U.S. manufacturing.
As customers look to diversify supply chains and reduce risk, at the same time, we have made progress in expanding exports to Southeast Asia, further broadening our geographic footprint. With the tariff reduction now in place, another growth lever comes into play. India manufacturing for U.S. customers becomes even more attractive, strengthening one of our core competencies. As a result, domestic growth, new regions of export and U.S.-focused India manufacturing are coming together, giving us confidence in a strong and well-balanced growth journey ahead. Now moving on to key growth drivers and an update on major programs. We remain encouraged by progress across our three growth drivers. One, existing business. This is driven by long product life cycles, mission-critical products and steady recurring revenues. Growth remains well-diversified across rail, aerospace, industrial, clean energy and communication.
In nine months FY 2026, the industrial vertical contributed 35% of our revenue and grew 67% year-on-year. Rail, as part of our mobility segment, contributed 16% and grew 70% year-on-year. While aerospace contributed 8% and grew 64% year-on-year. Clean energy accounted for 19% of our revenue and grew 35% year-on-year. Two, new business wins. This is built on sustained effort over the past two years with these programs now translating into fresh orders and production ramps across multiple verticals. Our dual-shore model and the new Chennai export facility have supported this scale-up. The energy storage system program is fast-growing and ramping in line with our plans. Also, we are making steady progress in aerospace cabin sub-assemblies. We have successfully completed the first tranche of prototypes for a communication customer where we are manufacturing control units for satellite antenna systems. We expect volume orders to commence from FY 2027.
Our prototypes catering to industrial processing sector and power sector have commenced. In the semiconductor equipment, we have completed the project readiness phase for a key customer, marking an important milestone ahead of volume production. We expect this program to begin contributing meaningfully to revenue during FY 2027. The government's ISM 2.0 focus on semiconductor equipment aligns well with our capabilities and recent wins. We are progressing steadily in this space, partnering with global majors to deliver Industry 4.0 compliant complex systems. Three, opportunity pipeline. We continue to see a diverse and expanding set of opportunities progressing towards finalization with encouraging potential in both size and scope. In recent quarters, we onboarded new customers across industrial and defense segments. Products include mission-critical power inverter platforms, critical components for an integrated battlefield command system.
In what could be the first for Avalon, we are bidding on exciting opportunities in advanced metal cockpit assemblies and landing gear components in the aerospace segment. Further, we are on the cusp of foraying into cable commodity with a major customer in aerospace. Last but not the least, we are witnessing increased interest from aerospace majors in our cable and electronics commodities. These opportunities are long-term in nature, and we hope to continue our focus on developing the aerospace vertical. We will continue to provide updates as projects evolve. In summary, Q3 FY 2026 reflects a period of sustained execution and disciplined profitable growth for Avalon. We delivered our sixth consecutive quarter of sequential improvement, achieved our highest revenue and profit to date, strengthened margins, improved working capital, generated positive operating cash flow, and enhanced return on capital, all while maintaining a CapEx-light balance sheet.
Our growth remains well-diversified across verticals and geographies, supported by a healthy expanding order book, steady progress in new programs, and multiple growth levers coming together. Recent tariff production, announcement of ISM 2.0, progress in semiconductor equipment, and expansion into new export markets further strengthens our long-term growth outlook. With all the three growth drivers gaining momentum, manpower costs stabilizing, and operating leverage beginning to play out, we are well positioned for the next phase of profitable growth. We remain focused on execution and will share our FY 2027 outlook once our budgeting exercise is completed next quarter. With this, I would like to hand over to our CFO, Suresh Veerappan, for a detailed overview of our financial performance. Thank you.
Thank you, Kunhamed, and good afternoon, everyone. Thank you for joining the call today. Our growth journey would not have been possible without your continued trust and support. We are delivering strong and sustainable growth, supported by improving profitability, cash generation, and capital efficiency. Revenue growth was 49% year-on-year in both Q3 FY 2026 and nine months FY 2026. This performance has been accompanied by improvement in operating cash flows, net working capital, and return on capital employed. Over the past few quarters, we have seen consistent sequential progress with each quarter building on the previous one. This reflects the strength of our diversified business model and our disciplined approach to execution and capital management. Growing domestic demand, the government's ISM 2.0 focus on semiconductor manufacturing equipment, and recent trade developments with the U.S. are strengthening the Indian electronics manufacturing ecosystem.
Coming to our Q3 FY 2026 performance, revenue for Q3 FY 2026 was INR 418 crores, up 48.7% year-on-year from INR 281 crores in Q3 FY 2025, and 9.2% sequentially. For nine months FY 2026, revenue from operations was INR 1,123 crores, delivering a year-on-year increase of 48.7%, supported by diversified growth across industries and geographies. In Q3 FY 2026, revenue mix was 36% from India and 64% from the U.S. For nine months FY 2026, the revenue mix was 38% India and 62% U.S. India grew 35% year-on-year, while the U.S. grew 59% year-on-year in nine months FY 2026. Gross margin for Q3 FY 2026 was INR 143 crores with a margin of 34.2%. For nine months FY 2026, gross margin was INR 389 crores with a margin of 34.6%, representing a year-on-year growth of 42.7%. Margins remain within the guided range.
During the period of elevation tariffs, we were able to pass on over 99% of the tariff impact to customers. As a result, there was no material impact on absolute margins, although gross margin percentage was impacted by approximately 100 basis points during this period. EBITDA for Q3 FY 2026 was INR 48 crores, up 38.5% year-on-year, with a margin of 11.5%. For nine months FY 2026, EBITDA was INR 115 crores, up 59.2% year-on-year, with a margin of 10.4%. Margin expansion during the quarter was driven by operating leverage as revenues continued to scale. PAT for Q3 FY 2026 was INR 33 crores, up 35.9% year-on-year, with a margin of 7.1%. For nine months FY 2026, PAT was INR 72 crores, up 83.3% year-on-year. Profitability continues to strengthen, delivering sustained profitable growth.
On the new Labour Codes, our existing practices are largely aligned with the requirements, and we do not anticipate at this stage a material impact on the group's financials. The estimated incremental impact of INR 33 lakhs has been recognized in the quarter. Financial implications will be further evaluated as relevant rules and classifications are notified by the government. Moving to the balance sheet. Net working capital days improved to 118 days in December 2025 from 150 days in December 2024, a reduction of 32 days. Inventory days improved from 103 day- 97 days, while trade receivable days reduced from 94 days - 72 days over the same period. Trade payable days increased from 46 days - 52 days.
On a quarter-on-quarter basis, net working capital days improved by 13 days from 131 days in September 2025 to 118 days in December 2025, supported by improvement across inventories, receivables, and payables. In the previous call, we had guided net working capital days in the range of 120- 130 by March 2026, and we are currently below this range as of December 2025. Cash flow from operations was positive at INR 51 crores in Q3 FY 2026, supported by improved working capital management and profitable growth. As of December 31st, total debt was INR 143.2 crores with cash equivalents and investments of INR 130 crores, resulting in a net debt of INR 29.8 crores. CapEx for Q3 FY 2026 and nine months FY 2026 was INR 10.7 crores and INR 35.1 crore respectively. We continue to operate a CapEx rate model with asset turns at 9.5 x.
Return on capital employed improved to 18.8%, compared to 11.3% a year ago. Avalon's dual presence in India and the U.S. provides strategic flexibility. Our India operations offer a cost-efficient and scalable manufacturing base, while our U.S. facilities support localization and tariff management. This positions us well to support customers amidst evolving trade dynamics. With improved business visibility, we have revised our FY 2026 revenue growth guidance upward to around 40% from the earlier guidance of 20%-30%. To summarize, Q3 FY 2026 delivered strong operating and financial performance, supported by broad-based growth across segments and geographies. We continue to see growing demand from Indian customers and increasing program activity across other geographies, including the U.S. and Southeast Asia. With our established track record, dual-shore operating model, and expanding capabilities, Avalon is well-positioned to capitalize on the opportunities ahead and support customers through the next phase of growth. Thank you.
We request our moderator to open the floor for questions.
Thank you very much, sir. 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 handset 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 Sumit Sinha with Macquarie. Please go ahead.
Yes, thank you very much. Couple of questions. First, congratulations on a good quarter. Secondly, talking about the guidance implication, 40%, that is obviously very strong, but that implies that fourth quarter revenue growth of about 20%-21%. Is that your continued conservatism or are you thinking about it from a high base perspective? Because last year, fourth quarter was also very strong. Secondly, you obviously went through a series of investments to increase your operational capacity. Are those investments done? Secondly, we are talking about your growth being much higher than probably expected, at least externally. What sort of these high asset turns, when do you need to probably reinvest to kind of continue to grow at a high pace in fiscal 2027? Because that seems like several new customers coming on board, large customers coming on board in fiscal 2027. Thank you.
It is dynamic to that extent.
Thank you, Sumit, for your kind words as well as the questions. I will try to answer all of them. If I miss something, just ask me. We have always maintained that we will do asset turns between 7- 10 x, and we will continue to do so. We still believe there is enough capacity looking apart from the two new facilities coming up for space. We still think that our CapEx is around INR 50 crores a year, which is lower this year, but will be around INR 50 crores a year for the next couple of years at least. In the next two or three years, we may look for a larger facility or duplicating what we have in Avalon, but not in the near term or midterm. Again, on the first part of your question is that, yes, we are conservative.
Because the different programs cut in at different times for us. This last nine months it has been tariffs, no tariffs, what tariff, what percentage. We were really reluctant to come out with a specific number because we did not know what the tariffs are going to do to our business. I am very happy to say the team has managed this very well and you have seen this growth in spite of the tariffs, coming in both in India as well as in our geographies. In saying that, we are expanding to other geographies also, so that we will never be in this situation again where the tariffs destroy our future. We will have it diversified, but our focus will also be on export, just not India. India is very key to our larger growth. Did I answer everything, Sumit, or is there something else I missed?
I think there was one question about your operational investments that you started at the beginning of the year, and you had said
Yeah
that they will end by the third quarter. So has that, other investments made, maybe it was headcount, maybe it was systems and operations. Are those done?
Yeah. You can see that in our numbers itself. It has been flat quarter-to-quarter. There will be some swings as you grow at this pace. But by far, I would say for the existing programs, we are well covered. But our hope is that we get much larger programs in the future, so we will have to focus on basically people-based investments, to get the right person on board. So in the short term, I think it is going to be flat or plus or minus a few points. Suresh, you want to add something to that?
I think I have covered it.
One final. Yeah. Sorry. Go ahead, Suresh.
There will be a combination of existing programs which continue to ramp up from pilot phase to ramp-up phase. Then there will always be new programs which will come in parallel as well. I think, with the kind of pilot programs which are expected to ramp up, in the near term, we are covered in terms of investments, but it is going to be a combination of both.
Got it. One final question. In terms of this 99% recovery of tariffs, is there an INR number that you can give us, like what was the leakage? I am just trying to understand if that goes away, that does not become a headwind, how much your margins could expand next year.
Typically, we do not share a tariff absolute number over there. Just to give you a heads-up on that, let us say without tariff, our gross margin percentage could have been better by 100 basis points.
That is perfect. Okay. Thank you very much. Congratulations once again.
Yeah.
Thank you, Sumit.
The next question comes from the line of Tanay Shah with DAM Capital. Please go ahead.
Hi, sir. Good afternoon, and congratulations on a great set of numbers. Just wanted to confirm the numbers which you spoke in the opening commentary. You said that revenues from U.S. this time was around 64%. Is that right for the third quarter?
That is correct.
64-36, right? And manufacturing was around 7. Could you just repeat the manufacturing number for me, please?
Sure.
For the third quarter.
In Q3 FY 2026, U.S. manufacturing is 22% and India manufacturing is 78%.
Perfect. Thanks for confirming that. Now, secondly, in terms of areas of growth, right? We are obviously seeing a lot of broad-based growth across applications. Across each segment, could you potentially highlight what are the particular clients which you are working for? Not in terms of names, but rather applications. Going forward, how do we expect that? We just spoke about how the existing base is obviously going to grow. If you could just highlight some color on that. Further, the incremental growth which is going to come through, what are those applications which you are kind of looking at?
That is a tough one to answer when you are chasing broad-based growth. We would have a time when certain parts of industrial will be split into different verticals. Let us say when there is meaningful growth in the semiconductor equipment, we will split that out from the industrial vertical. What we are seeing is growth in a lot of our segments where we are focused, and we are going to go deeper into the segments because some of the customers we have are Fortune 100 type customers, where there is enough room to grow apart from the new customers. So whether it is a commodity or a capability, we are going to target that. Did I answer that question for you, Tanay?
Yeah. Sure. Sir, obviously, the Indian operation margins have been extremely strong, right? I think we are scaling up out there quarter-on-quarter. Would you sort of give some update on how we are looking to improve the U.S. burn, which we are kind of seeing right now quarter-on-quarter? Obviously, we are ramping up manufacturing out there, but any direction which you would sort of give in terms of the U.S. margin profile?
Sure. With respect to U.S. manufacturing, which constitute 22% of our business for this quarter, the PAT losses are at around INR -7 crore. If you look at the last couple of quarters, it was approximately at around INR -9 crore each quarter. We have been talking about a possible operating leverage opportunity in U.S. manufacturing as well, alongside India manufacturing. The beginning of that is what we see this quarter. We believe the next year, with the growth in energy storage systems and some of the new businesses that we have won in U.S. can help in that direction. So we are trending towards a direction of a better profitable profile in the U.S. manufacturing as well.
You also will have to recognize that, in the last nine months, that was the best thing that we could have had, where having a U.S. manufacturing. So some of the programs are getting started prototyping there, and hopefully in the next six months to a year, we may start moving some of it to India manufacturing. It is just not a factory to factory, it is also the future of export business in India is tied to that factory.
Perfect, sir. Perfect. Thank you so much for answering our questions and wishing you all the very best. Thank you.
Thank you, Tanay Shah.
The next question comes from the line of Archit Shah with B&K Securities. Please go ahead.
Thank you for the opportunity and congratulations, sir, for a very good set of numbers. My first question is regarding tariffs. Earlier, because of 50% tariffs, we were planning to increase our U.S. manufacturing for some tariff-sensitive clients. Now what is the outlook on clients, especially on the stickiness and their comfort level after being better off in terms of geography versus our Asian peers? Do we still stick to increasing U.S. manufacturing or are we keeping it at 20% around?
Thank you, Archit. The ideal goal for us is 80/20. We've always kind of said that. Today we have a set of customers who have come to U.S. Some of them want to stay in the U.S., do not want to take a risk for a couple of years with all these things changing on a daily basis. So they have decided to, next two years, they're going to make it there. Another half is going to move when things settle down, right? Because some of these programs take six months to a year, at least, to get going. We have started on these programs, so we will not change the prototyping from our U.S. location. When the time comes, of course, cost does matter to the customer. He will make the choice when to move.
In the short term, we don't expect any major reaction because these are large customers. They have made their policy decision, or I would say, strategic decision, to do one year in the U.S. and then move. They have the option to do that, and once things settle down with these tariffs. Because tariffs also is very relative, right? It's one thing today, and then things could change in two months. Okay. The good thing is business is coming from all sides. Did I answer your question, Archit?
Yeah, kind of. Just one thing I didn't understand was since you're recovering 99% of tariffs.
Yeah
How does it impact your gross margin still by 100 basis points, when you said that if there were no tariffs, then your gross margin would have been better by 100 basis points, right?
I will take this. It is Suresh here. Absolute gross margin does not get impacted, but the gross margin as a percentage, because we incur tariff and then we pass it on to the customer. Both the numerator and denominator get expanded to that extent. As a percentage, optically, it could have been 100 basis points better.
Okay, got it. My second question is regarding our manufacturing margins. Firstly, despite our U.S. manufacturing base increasing to INR 192 crores, our EBITDA margin is at -7% only yet, which was the same that earlier at INR 30, 40 crores also. Are we still investing over there? What kind of scale do we need to achieve to start seeing the declining trend? Secondly, on India margin, 16.7% are very strong. Are those sustainable numbers or is it just quarterly dips and on annual basis we should expect around 13.5% or 14% for sustainable margins?
Sure, Archit. First things first, most of our business, if not all of our business, are recurring type of nature, long-term businesses. There is nothing one time or one quarter from a business perspective. These are all longstanding customers for us. That is our key strength. With that said, our India manufacturing revenues, which constitute 78% of our business, delivered 16.7% EBITDA and 12.2% PAT. This significant number is something that we have been talking in the previous quarters as well, where operating leverage can come and help once the revenue scales. That is what probably we are seeing in the India manufacturing side. With respect to the U.S. manufacturing, the energy storage system business as well as some of the other new businesses started kicking in and we have been discussing about this in our calls over the last four, five calls as well.
Overall, the PAT has reduced from INR -9 crores in Q1, Q2, the last two quarters, to approximately INR -7 crores now. Like you rightly said, the EBITDA losses are slightly higher than the previous two quarters, primarily because of product mix. If you look at from a fuller basis, let's say if we give it another quarter or two, from a fuller basis, I think it should get better as well. In a summary, I think U.S. manufacturing also within later part of next fiscal year can get much better than where it is today.
Okay. Sure. That's it from my side. Thank you so much, sir.
Thanks, Archit.
Thank you, Archit.
The next question comes from the line of Vipraw Srivastava with PhillipCapital. Please go ahead.
Hi, sir. Good afternoon. Just quickly from the order book side, we have seen a 25% growth on the order book side, whereas revenue has grown by more than that. Any reason why this slowdown or we are expecting a pickup in quarter four?
Thank you for the question, Vipraw. For me, we believe the order book has done really well in the last quarter. It's grown 26% looking on a year-on-year basis, and the business is growing faster. But the key is, we're not tying all the orders. We've been giving a 14-month number, which is at INR 2,000 crores. And we are giving you a number which is for 14 months - 36 months, which is INR 1,083 crores or so. INR 1,183. So totally we have INR 3,199 if you look at that for a three-year period. We've got orders from 3 years - 15 years after that. We are not counting all that in the order book.
Just to add to that, K.B. So Vipraw, if you look at our FY 2025 revenues, it was approximately INR 1,100 crores. Today, we have an order book of INR 2,016 crores, just to put that in perspective. Secondly, for many of the new programs, we'll be probably having prototype orders right now getting reflected in the order book. So once it ramps up, the volume views can come and get added in the later quarters.
Sure, sir. That makes sense. Lastly, sir, on the ISM, since you mentioned ISM in your introduction. Just quickly, is the company planning to go for any of these incentives in terms of goods, capital in terms of manufacturing equipment, or you are just optimistic that as semi fabs comes to India, you are benefiting as a manufacturer? Or you directly want to enter the ISM scheme?
To answer your question, there has been the OSAT piece, then there is the FAB piece. We do not know the full details yet, but the ISM 2.0 talks about semiconductor equipment. This is exactly where we have forayed in. We believe, let the details come out, and we believe there will be something for us to finally use some PLI scheme, ISM schemes to keep going. It is one of the industries of focus for us.
Right.
Also remember, we have just got into one customer. There are a few hundred customers out there.
Sure.
Put that into perspective.
Sure. Thanks a lot, sir. Thank you.
Thank you. The next question comes from the line of Santhosh Seshadri with Avendus Spark. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just wanted to ask first question on this ISM 2.0. So, what is the sort of revenue opportunity and TAM size that you're talking about with respect to capital equipment manufacturing? That's my question number one. Is there any import substitution angle that you're seeing here, or is it mostly an export market?
I missed the first part. You're talking of semiconductor equipment or Yes?
Yeah.
Yeah. This is primarily for the export market. It will come back to India, it is just not for the Indian ecosystem. That is why we are very much excited that once the approval, most of it is done and with production starting. This is the first set of equipment we are making, parts of larger machines. We anticipate to see more parts come through as we go forward. It is not only for India, it is primarily for the global market.
Thank you. The second part of the question is that, any way to size this market opportunity in India and globally?
No, we do not want to go there since we have our own calculation of where we need to be. Let us get the approvals and the production going, and then we will probably comment on that when we move this into a separate vertical in the near future.
Thank you. Just one last question on this. From the India U.S. treaty. Can you quantify the impact of this proposed tariff reductions, if you could give some color on the duty advantage that you have versus Mexico or other Southeast Asian countries? That would be great.
We have been in the U.S. for the last 25 - 30 years, so we understand the market well. In the last seven, eight months, there has been a lot of customers on the fence because I cannot say I can make it in India faster, better, cheaper, but you pay 50%. A lot of people have just put a hold to it. But today, with the 18% number, you are better than a lot of the Southeast economies, better than China. I think overall, India stands to gain across the board. I am just not talking about Avalon now, but across the board. And with the combination of having the U.S. front-ending and India back-ending over the future, that is, I think, the dual model we have. It is where customers are confident as well as they know.
It is just not set in stone on the status, like somebody changes their mind every few months, like what happened with South Korea recently. So, being in the two locations helps us quite a bit because customers are not as concerned as just taking it out and having one country specific.
That is it. Yeah, that helps. Thank you. Maybe if I may just ask one more question on this impact of commodity price increase in your business. I understand that it is a passthrough for most of the EMS companies. But can you discuss if there is any lag in that passthrough, and how should we think about the impact of commodity pricing increase on gross margins.
Yeah. Hi, Santhosh. Shriram here. Yeah, recently we have seen some commodity price fluctuations. Like how we do with the tariffs, we are very active in terms of working with our customers to recoup possible. Obviously, a lot of this, there are puts and takes here based on different customers, different materials and scenarios. So we are actively working through that and we ensure, to the best of our ability, these things are covered. And you are trying to collect in the same quarter? Yeah, and within the same quarter usually.
Just to add to that, we were able to maintain our gross margins within the guided range of 38% - 35%, sometimes slightly more, over the last five, six years. That is something that we've been doing in the past.
That should continue, right?
Yes. That should and always should, yeah.
Yes. Thank you very much.
Thank you, Santhosh.
The next question comes from the line of Karan Sanwal with Niveshaay. Please go ahead.
Thank you for the opportunity. I have a couple of questions regarding our semiconductor business. If you could broadly highlight how big is the opportunity that we are anticipating in the semiconductor space and what exactly-
Can you just repeat the question? We just lost you for some time. Can you repeat the question, Karan?
Yeah. Sir, we wanted to understand how big is the opportunity in the semiconductor space, and what products exactly are we targeting in that space from the customers that we have already onboarded?
What we're doing is part of their larger system. We're not making the whole equipment. These usually are $20 million, $30 million machines, and we are doing small parts of that. Okay? Again, we don't want to give a number, the opportunity. These companies earn hundreds of billions. We are getting our small steps in there with the hope that it's going to be a big part of what we do.
Understood. And sir, apart from the customer that we have already onboarded, are there any advanced talks with other customers in the particular semiconductor space? From the customers that we have already onboarded, do we have any confirmed order book or is it in a prototype stage only?
The first customer is one of the top customers in the world. But we have prototyping, we have orders, proto orders and things going on. Then there's the production ramp, which is what we're waiting for the orders to come in and all that. Saying that, we also have a second large customer in talks, but it's early conversations. We hope to have, as we have to prove ourselves with one, then I think there's a lot which will follow. Because this is a very difficult market in the sense of complexity, in the sense of what we need to achieve. Because of our box build experience is where I think we are succeeding. So I believe it's tip of the iceberg.
Understood. Thank you so much, and all the very best.
Thank you, Karan.
Thank you. Ladies and gentlemen, if you wish to ask a question to the management, you may press star and one. Participants who wish to ask a question may press star and one. The next question comes from the line of Jeetu Panjabi with Investco Capital. Please go ahead.
Yeah. Great going. Great numbers. Thank you. I have two broad questions. One, in the context of the current environment, you kind of talked a little bit about all the excitement that's happening in the semi chain and all the other moving parts. My question is, as a management team, what are the two or three pieces on a 12, 18 month that is most visible and exciting to execute on, both in India and the U.S.? I'll ask the second question after we go through this one. What I'm just trying to get is some color on what seems visible, tractionable and growable quite well over the next 12, 18 months, and what's exciting within that?
So of course, like you mentioned, we've got the semiconductor vertical. We also, in the industrial side, have a certain set of How do I put this? In the transmission business, as the world goes through a power super cycle, whether it's in India, U.S., wherever in the world with the data centers coming in. We are hoping to play a role in which we believe that we have started in India with one of the global majors and start in the U.S. with the other global major. So I think that kind of excites us because this is a 10, 20 year business. When we look for businesses, we don't look for today's orders. Is this sustainable over 5, 10 years, right? So some of the aero businesses are 15-year contracts, so we can invest and reap the benefits for the next 10 - 15 years to come, right?
So that's the aero business is growing. Okay, which is another setting, the number of planes which are coming out. We have number of parts in the two majors through tier ones. And I think that number will grow because the arrow, if you look at it, has grown 60% year over year in this quarter. So these are the type of businesses we look at is sustainable over a long period. Okay. And that's why we're not in the consumer business. That's why we are in certain businesses which come and go, which are price sensitive. We don't get into that in the long term.
Okay. Thank you. And I'm fully supportive of not being in the consumer business and staying focused on the B2B side. The second question is, if we kind of hear the whole commentary so far and what you'll are talking about, would it be fair to assume that the growth rates in FY 2027 sustain at the same levels they've done in 2026? Would it be fair to kind of think of 25%, 30% top line growth and sustainable margins over the next 12, 18 months?
I believe that we will do that number you mentioned and more. We are conservative in approach, but we don't just want to come out and tell the numbers. For example, this year we upward revised because we didn't know where the world is going, three times. And we will continue to do that. But we are very confident of the future. And if you really look at us from a three-year period, of course, there'll be one small quarter here or there where we have an issue. But in the longer term, we are very confident because the number, the businesses we assigned, like the last time, last question I answered, it's for the next 5 or 10 years, right? So once it comes in, it stays there.
Okay. Absolutely.
Just to add to that.
Sorry, go ahead, Suresh.
Suresh here. Just to add to that, the last six quarters, our average growth has been around approximately 46%. Some of the new programs, what we are getting in have a long product life cycle, and we are just in the beginning of the cusp of it ramping up. Which means the amount of opportunity is also exciting for us. It is just that we are in the process of completing our budget so that we will be able to give a better picture for effective 27 once we complete that. Just like the past, I think the next three, five years is looking promising for us as a company.
No, absolutely. I was just trying to get color on high level growth trajectory, and I think that's a very fair comment you've given. My last question is, assuming this tariff deal doesn't happen in the same format, it's been kind of headlined at 18%, da da da da. If it doesn't happen, does that in any way change your trajectory, or is your trajectory teneted on the tariffs playing out as articulated?
See that, the future I think lies in the government, so we can't comment on it. When it changes, it changes. We're hoping it goes downwards and not upwards. If you take the past, how we dealt with the last nine months or 10 months once this tariff thing started, we have not broken our stride. Okay. We have continued growth. It was confusing tell when we are going to grow, but we've been persistent in some amount of luck also that we have continuously grown. I think that will continue. If a curve ball is thrown on us, I think we will survive. Nothing is stock. Because of the long-term nature of our customers and products, it takes months or even a year and a half to change. Even the customers decided, "Let's stick and see what's going to happen." Right.
It's happened in a positive way now, but through the whole process, they've been very supportive to what we're doing.
To add to that t he opportunities what we have are domestic, which is India for India. Over the last year or two, we have also grown the opportunities on India for Southeast Asia exports. Plus, within the last nine months, the U.S. for U.S. is also activating in a nice way. With these three growing, out of the tariff reduction, the fourth growth lever on India manufacturing for U.S. customers has added to that. So our growth opportunities are well diversified, not dependent on one geography or one industry or one set of opportunities. It is well diversified in its true sense.
Okay. If I can sneak in one more quick question, which is this whole BESS opportunity, which we're seeing in a very significant way coming out in power solutions that people are offering end customers, will this over the next two, three years be a significant part of your entire offering? The BESS.
Yeah. This we do because it's country for country, right?
Yeah.
In the U.S., they want to make in the U.S. This we have worked on for four years or more. Okay. Finally, the fruits of the labor has come through and it is going to be a significant play for us into the future. Okay. We've already ramped up and ramping up further, and we are really excited on that. The company is well-positioned to execute it, not only as our customer is. We're well sought after product now. It's the highest end of BESS.
Well, fantastic. Keep up the good work, and we're fully supportive. Thank you so much once again.
Thank you. Thank you, Jeetu.
Thank you. The next question comes from the line of Avinash Nahata with Parami Financial Service. Please go ahead.
Am I audible?
Yes, Avinash, you are.
Thanks for the opportunity. Two quick questions. One is, what is the nine-month number for the cash flow from operations? If I would have missed out.
INR 41 crores would be nine months FY cash flow from operations. Q3 is INR 51 crores.
Nine months you said is INR 40 crores, and-
Nine months is INR 41, Q3 is INR 51.
Okay, got it. With scale, what is the improvement in net working capital possible over the next one or two years? You have done so far a very good job coming from 160- 118. What is the fair assessment from your point of view over the next one, two years?
In the past, we have operated even better than this. With the current growth rate, I think what we had earlier guided was a 120- 130 day by March 2026. We have already surpassed that by reaching 118 days by December 2025. We hope to maintain and improve on this trajectory over the next two, three years. Let's wait for our budget to complete so we will be able to share a little better picture on FY 2027. We are on the path of improving our net working capital.
Yeah, just to add to that, Shriram here. We have had quarter-over-quarter improvement in networking capital across inventory, receivables, and payables. This is a structural improvement that we have been working on for a while, and you are seeing the fruits or the benefits of that now. We are hoping that this continues over the next few quarters, and we will keep updating you as to how we are progressing on this. We expect to continue this trajectory going forward as well.
Yeah, thanks a lot. That is all from my side, and all the very best to the team.
Thank you, Avinash.
Thank you. Ladies and gentlemen, we will take this as the last question. It is from the line of Archit Shah with B&K Securities. Please go ahead.
Thank you, sir, for the opportunity. Just one question. In our clean energy business, one of the large portfolio is the energy storage system in the U.S. We manufacture one of the customers who does this for residential customers over there. Is this revenue for our customer dependent on government subsidy in U.S. for the solar product or energy storage product, battery management products? If so, what is the visibility on government policies over there, and could we be affected by any, let us say, take back the subsidy or anything?
Thank you, Archit. You see, the fastest-growing segment in clean energy in the U.S. is battery systems for storage. It has been growing in the last couple of years, and it is not impacted by the pulling of subsidy in the sense which happened in the wind and some of the other solar stuff. This is the focus for U.S. because of the grid, okay, and with all the data centers coming in, so they are getting closer to home. The only issue is there you have to make it in the U.S., okay? We are well-positioned for that, and that is what we are doing, though some sub-parts go from India.
Okay, one of the requisites that you have to make in U.S. for those parts, and you cannot transfer to India for manufacturing?
Part of it. We do subsystems here and then final there.
Okay. Thank you so much. That is it from my side.
You are welcome, Archit.
Thank you. Ladies and gentlemen, that was the last question for today. With that, we conclude today's conference call. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.