Ladies and gentlemen, good day and welcome to Avalon Technologies Limited Q1 FY 2026 earnings conference call hosted by DAM Capital Advisors. 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 the conference call, please signal an operator by pressing star then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors. Thank you, and over to you, ma'am.
Thanks, Youssef. Good afternoon, everyone, and a warm welcome to the Q1 FY 2026 earnings call of Avalon Technologies. We have with us from the management today, 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 of performance and will be followed up by Mr. Suresh's remarks on the financial performance.
Post which, we will open up 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 now hand over the floor to Mr. Bicha for his initial remarks, the CMD. Thank you, and over to you, sir.
Thank you, Bhoomika. Ladies and gentlemen, on behalf of Avalon Technologies, we extend a very warm welcome to our Q1 FY 2026 earnings call. I would like to begin by expressing our sincere gratitude to all our investors for your continued trust and confidence in Avalon. Over the past two and a half decades, India has steadily emerged as a strong manufacturing base, catering to its own growing domestic electronics demand and to the evolving needs of global markets. India is reducing its dependence on imports, and it is positioning itself as a trusted partner in the diversified global supply chain.
This shift, backed by structural reforms and government-led initiatives, provides a solid foundation for sustained growth in the EMS industrial and positions Avalon well into the future. While global trade dynamics continue to evolve, India's structural strengths, growth drivers, policy support remain intact and continue to support long-term industry momentum.
Building on this momentum, we are pleased to announce a significant milestone on Avalon's growth journey. We have entered the semiconductor equipment manufacturing space. We are partnering with a leading global semiconductor equipment company to provide highly complex Industry 4.0 compliant box builds. This partnership allows us to leverage our core expertise in box build solutions, which currently accounts for 56% of our revenue. This also reflects our engineering depth, manufacturing maturity, and strong track record in delivering complex assemblies for critical applications.
This prototype phase is underway and production is expected to ramp up over the next four to five quarters. We view this as a major technological step forward and a strategic entry into a high potential and advanced segment. Over the medium term, we believe this vertical could become a meaningful growth driver and further strengthen the foundation of the critical growth we are targeting.
Considering a strong start to our FY 2025-2026 and encouraging revenue momentum, we are upward revising our full-year revenue growth guidance to 23%-25% from the earlier guidance of 18%-20%. This reflects confidence in our business outlook. Let me now take you through our Q1 FY 2026 performance. In Q1 FY 2026, we delivered a 62.1% year-on-year revenue growth driven by broad-based demand across industry verticals and geographies. Notably, both our India and U.S. businesses recorded a 62% year-over-year growth, reflecting consistent performance across geographies.
Our gross margins for the quarter stood at 35.5%, exceeding the upper end of our guided range of 33%-35%. This is a 230 basis points improvement over Q1 FY 2025. Our EBITDA margin came in at 9.2% and profit after tax was INR 14 crore. Return on capital employed stood at 17.5% and our asset turns were at 8x , highlighting efficient utilization and productivity.
As of June 30, 2025, our order book stood at INR 1,790 crore with an average execution period of 14 months, reflecting a 22.5% year-on-year increase. In addition, our long-term contracts with execution timelines of 15- 36 months grew by 17.4% year-on-year to INR 1,157 crore. This order book growth has been well-balanced and diversified across industry verticals and geographies. We remain encouraged by the continued momentum across our three growth engines. Existing businesses. This is driven by long product life cycles and deep customer relationships, delivering steady recurring revenues. Two, new business wins. This is a result of sustained efforts over the past two years translating into fresh orders across multiple verticals and ramping into production. Three, pipeline opportunities. This is a growing and diverse set of opportunities that are progressing towards finalization with encouraging potential in terms of size and scope.
With all three engines operating at different stages, we are front-loading investments in capabilities, manpower, and inventory to stay ahead of the expected growth. While this has led to some sequential moderation in EBITDA margin, we remain confident in that operating leverage will begin to take effect in the second half of the year. On the working capital front, net working capital days improved from 163 days in June 2024 to 142 days in June 2025. Inventory levels are elevated for supporting upcoming production and growth. We remain focused on further improving efficiency and bringing net working capital down to 120- 130-day range. Revenue share from our U.S. manufacturing plant now accounts for 20% of our revenue in Q1 FY 2026.
Meanwhile, manufacturing at our India plants, which serve both our domestic and global customers, represent 80% of our business in Q1 FY 2026, remains highly profitable with an EBITDA margin of 13.2% and a PAT margin of 8.8%. As tariff-related discussions between U.S. and India continue, we are closely monitoring developments. In such an environment, it is important to remain agile and take a measured approach before making any strategic adjustments. Avalon's dual presence in U.S., India offers a unique advantage. Our U.S. facility enables customers to localize production and manage tariff exposure, while our India operations provide a cost-effective and scalable manufacturing base. This geographic flexibility places Avalon in a strong position to support customer needs across both regions and respond effectively to evolving trade dynamics. Tariff-related considerations continue to be managed through our usual commercial process, as has been the case in the past.
We are making steady progress on several new programs that are advancing from design and prototyping stages into production. These include products for global auto components, home electrification systems, and a range of solutions across verticals such as rail, industrial, and clean energy. Some of the projects currently in development include backup power systems, power transmission systems, aerospace cabin subsystems, locomotive engine subsystems, energy storage systems, and power electronics. Many of these are expected to ramp up during the current financial year and contribute meaningfully to our growth. We are also progressing on the railway Kavach systems, which is currently under prototyping and final stages of approval. This is expected to enter commercial production next year. These developments support our continued efforts to deepen customer engagement and expand our presence across critical and high potential end markets.
To support the series of new product introductions and anticipated growth, we are scaling our operations ahead of the project ramp. On the infrastructure front, our export-focused plant in Chennai has commenced production and now ramping up. To meet rising domestic demand, we are planning to complete phase 2 of our brownfield expansion in Chennai by the end of Q3 FY 2026. To summarize, Avalon has started FY 2026 on a strong note with a broad-based revenue growth, healthy order book expansion, and improved operational metrics. Our dual manufacturing presence both in India and U.S. continue to offer strategic flexibility, helping us to serve a diverse customer base and navigate evolving global trade dynamics. We are steadily ramping up new project wins across multiple industry segments, supported by proactive capacity investments and deepening of our customer engagement.
Our entry into the semiconductor equipment space marks a significant step forward in expanding into high potential, high advanced segments. With an improved growth outlook and a robust execution framework, we believe Avalon is well-positioned to sustain its momentum and remain committed to building a business focused on long-term profitable growth rather than short-term gain. With this, I will now hand over to our CFO, Suresh Veerappan, for a detailed overview of our financial profile.
Good afternoon, everyone, thank you for joining the call. Q1 FY 2026 marks a steady start to the year, reflecting our disciplined execution and continued customer confidence. We are expanding strategic partnerships, strengthening capabilities, and investing in talent, capacity, and inventory to support upcoming growth. These steps position us well for a stronger second half and reinforce the foundation for long-term growth. Coming to our Q1 FY 2026 performance, we reported revenue of INR 323 crore, a year-over-year growth of 62.1% compared to INR 199 crore in Q1 FY 2025. Our geographical revenue split for the quarter was 40:60 , with India contributing INR 130 crore and the U.S. contributing INR 193 crore. Gross margin for the quarter stood at INR 115 crore, a 73.3% increase from INR 66 crore in Q1 FY 2025, reflecting a gross margin of 35.5%.
We continue to deliver industry-leading margins driven by our product mix and execution efficiency. EBITDA stood at INR 30 crore, up from INR 4 crore in Q1 FY 2025, with margin expanding to 9.2%, a 705 basis points improvement.
Profit after tax stood at INR 14 crore, compared to a loss of INR 2 crore in Q1 FY 2025, resulting in a PAT margin of 4.4%. As volumes ramp up in the second half, we expect the benefits of operating leverage to become more evident towards the end of FY 2026, with this momentum likely to carry into FY 2027. On the balance sheet front, net working capital days improved to 142 days in June 2025 from 163 days in June 2024, an improvement of 21 days. Inventory days reduced to 104 from 130, while trade receivable days increased slightly to 87 from 78. Trade payable days improved to 49 from 45. On a sequential basis, net working capital days increased from 124 in March 2025 to 142 in June 2025, primarily due to inventory rising from 86 to 104 days.
In absolute terms, receivables and payables are broadly in line with March levels, while inventory increased by INR 43 crore. This inventory build is intentional and aligned with our growth plan, ensuring readiness to meet customer demand in the coming quarters. As of June 30th, our total outstanding debts stood at INR 134 crore, with cash equivalents and investments at INR 100 crore, resulting in a net debt of INR 34 crore. CapEx for Q1 FY 2026 was INR 9.6 crore. With our asset-light approach, we continue to maintain strong asset terms of 8x . To conclude, as we progress through the year, our focus remains on disciplined execution. Thank you. Over to you, Bhoomika.
Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask the question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star two. Participants are requested to use headset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Deepak Krishnan from Kotak Institutional Equities. Please go ahead.
Hi, sir. Am I audible?
Yes.
Yes, please go ahead.
Yeah. Sir, just wanted to check. We have moved U.S. manufacturing to 20% versus 13% last year, and as a result, we have seen a somewhat jump in employee expense as well. What is our overall strategy for the year? How much percentage of production do we think happens in U.S.? Or at least if not for the year, near term, does this shift kind of continue, and would that have some bit of minor impact in terms of margins while you have guided to some leverage coming through? Just your perspective in terms of U.S. versus India manufacturing as things stand today.
Yeah, thank you, Deepak. Just to put in perspective, last quarter was lower in the U.S. We have always said we are targeting an 80/20 mix, with 80% made in India and 20%. So this 20%, what you are seeing happening is that more customers and existing customers increasing their revenue in the U.S. And the way we think about it is if the tariff situation changes, the new customers may want to start production in the U.S. till it settles down, then move to India as it goes. So we are the only one who have both the options. Keep going. But our focus is always make in India, and we are also focusing on other geographies apart from the U.S. going forward. And one thing to note is that around three years back, we were only 20% India production.
Sorry, 20% India customers, and today we are getting close to being 50% India, and more business is coming from our India segment. Does that answer your question?
Yeah, I think sort of got a sense, at least sort of a sense of this rate is the understanding I have. Maybe just wanted to sort of also understand this semiconductor opportunity that you mentioned in the press release. You said that it is going to be a big driver, maybe a year out or two years out. How big is this in terms of percentage of revenue two years out? Do you think this could be something like a 15%-20% revenue contribution, or this is more like a 5%-7% revenue contribution? Are you anchoring on adding additional customers once you have sort of this customer base?
Yes, this is one of the leading semiconductor equipment manufacturers, and we have been working with them for a year now, so we have just not talked about it. Now in the next quarter, we will probably start the pilot production and ramp up. It is substantial. I do not want to put a number to it yet, but we believe this is the start of our journey in the semiconductor equipment. As you know, multiple companies are there. Once we have one of the biggest companies working with us, it is easier for them to follow.
Sure. Maybe just one final question. So far, at least in 1 Q and 2 Q, there have not been any major trade disruptions or that have been manageable. Is the understanding correct? Second, this Inflation Reduction Act has not impacted our clean energy revenue in any meaningful way on our order book. Are those two understandings correct? Just want to sort of finish that off.
Yeah, you can see our like we said, we had interestingly 62% growth in India and in the U.S. So most of our products are long-term in nature. It is not something you can change quickly over time. Their lifetimes are 5- 15 years. As we know it, last quarter, a lot of it was passed through. There was no issue. We didn't see anything based on them. But it's changing every day. So we anticipate not to see issues, but these things change every day because we are waiting for things to settle down. As of now, we don't see any ramifications.
Sure. And same as the Inflation Reduction Act on clean energy, the impact is minimal. Is that understanding correct?
Yeah. What we need to understand is that we are into energy storage systems, no rooftop solar and all that. It's mostly storage, which is growing 70% year-over-year. Well, 60%-70%, I would say, in the U.S., and we are playing in that segment.
Sure, sir. Thanks for your questions, and I'll get back on to you.
Thank you.
Thank you. Next question is from the line of Bhoomika Nair from DAM Capital. Please go ahead.
Yeah. Good afternoon, sir. Congratulations on a good set of numbers. Sir, my first question is related to the employee cost that we saw during the quarter, which kind of jumped up. Should we see that as a normalized run rate now per se as we move forward, given that we are seeing decent traction in terms of revenues?
Suresh will answer that.
Yeah. Bhoomika, Suresh here. Like what we had mentioned in earlier calls, many of the projects which we won over the last four quarters, it is getting into a ramp-up stage, some of it in Q2, some of it in Q3.
But like we already said, before the project ramps up, we have to build the team upfront, which is what is happening right now. But it will kind of give you a guided range for the whole year. There may be a slight increase from here, but it can give a ballpark range around this.
And there is an inflationary increase also year-over-year.
Okay. I mean, what I am trying to get at is, it is not got anything to do with the increased manufacturing quarter-over-quarter that we have seen in U.S., and it is more normalization of costs with the increased revenues per se. Is that understanding correct?
Okay. The later part is right. For example, with the new financial year, there will be appraisals, and that also has a number impact. That is number one. Number two,
Sure
even in the last quarter, what we had highlighted is, between U.S. manufacturing and India manufacturing, the revenues were to be 20% and 80%. That is what has come over here. The ramp-ups are happening predominantly in India manufacturing facility.
That is the key reason I would say, and not the increase in U.S. manufacturing.
Got it. Sir, the other thing was in terms of the, if I look at the revenue breakup between different segments, clearly industrials and mobility has grown at a very sharp pace in this current quarter, which has contributed to the overall growth. If you can give some color in terms of how is clean energy performing relatively. It has seen a little muted growth. Is that got to do with the fact that there is this tariff-related situation and the ongoing issues around renewable energy in U.S., which has kind of slowed down relatively the growth rate, or should one read at it like a little differently per se?
Not to mention that when we are talking about 25% growth for the full year, roughly 23%-25% as you highlighted, which means that the balance 9 months, we are looking at about a 15% odd kind of a growth. Whereas, I thought second half we have seen some larger scale up. How should we look into this, if you can just talk about that?
Thanks for the question, Bhoomika. You always ask the difficult questions. We are seeing a broad-based growth. If you look at year-over-year growth, just don't take the short and we don't take that because quarter to quarter things may change. Year-over-year, clean energy grew 26%. Communication grew 102%. Rail and aerospace grew more than 100%.
Mobility, if you put all the 3 sectors together, grew 92%. Industrial at 86%. We are seeing this across the board.
Yeah.
Growth coming in. It's not just specific. And clean energy, for us, if you look at last year was 20, this quarter is 18, but next quarter or following quarter, it will come back to where it stands. We are seeing good order momentum in that also.
Okay.
Did that answer your question?
Yes, sir. I'll come back in the question queue, but this helps for now. Yeah. Thanks.
You're welcome.
Thank you. Next question is from the line of Soumil from Lucky Investments. Please go ahead.
Hi, sir. Am I audible?
Hello, Soumil.
Hello? Am I audible?
Yes. Please go ahead.
Okay. Great set of numbers, sir. Congratulations on that. My first question is on the revenue growth and the upward revision in the guidance. Last quarter, you guided for about 20% odd growth for the full year of FY 2026, with some back-ended, which is indicated to be back-ended with some power products sort of taking off in the second half. This quarter we have seen about 100% year-on-year growth in industrials. Has that already started to take shape or are we yet to see those products that we were talking about take off in the second half of this year?
Yes. We have got multiple product kick-ins through the year. Some of them have kicked in, and we are starting to see revenues, both in Q1 and in Q2. There is some more projects which will kick in Q3, Q4. It is just not industrial, it is across the board, to be honest. We are very confident that this growth is there, and we are confident that multiple projects are there. As you well know, we are conservative with the world situation, the macro situation.
Yeah. Okay. Secondly, on the margins. First, gross margin level, there is about 230 basis points of expansion. Can you talk about that? Has that got to be the mix changing towards industrials, or is it something else? Can you just elaborate on that?
It is interesting. Though there were tariffs last quarter, we have been able to increase our margins. There is a good pass-through going. The margin wage, it will fluctuate. We committed 33%- 35%. Certain quarters you may see it is higher. The last few quarters you have been seeing it higher. That will continue. We internally target the 30%- 35%, and if 36% happens, we are all happy.
Okay. You also mentioned that there was an impact of front-loading of investment towards future growth. There was an impact on EBITDA margin relating to that. Would it be possible to quantify that?
A lot of it is, because our products are fairly complex, it is not step and repeat like consumer types. We need to start training people if a production is starting, let us say, this quarter. We need to start training people at least a quarter or two months earlier. Some of that happened because some substantial increases are in the pipeline. We started doing that last quarter. Of course, planning on infrastructure and putting it together for this planned increase.
Okay. Any quantifications are possible? What would be the impact?
No, we commit to what we committed for the year.
All right. Okay.
There's no question on that.
Finally, on the semiconductor equipment new partnership, is that with the Japanese OEM?
No, it's a global OEM. With the semiconductor guys supply all over. I don't want to name the customer.
Okay.
But it is top four or five companies in the world.
All right, sir. Thank you so much. I will follow back with you. Thank you, and all the best.
Thank you.
Thank you. Next question is from the line of Praveen Sahay from Prabhudas Lilladher. Please go ahead.
Yeah, thank you for the opportunity, and congratulations on good set of numbers. My first question is related to the growth which you had upward revised 25% for this year. You had already given a 60% growth. You have already a strong order book of INR 1,790 crore. What is restricting you to give the higher growth guidance looking at the order book and the performance in the first quarter? Nine months if I calculate on your numbers, it is around 17% only, what you are guiding for. Would you please clarify on this?
It is interesting situation we are in because the last time we gave growth guidance, it was the day after Operation Sindoor. We were confused how the world is going to play out. Now we have got these tariff uncertainties, which we do not see an issue. But let us put it this way, we are a conservative company, and we just want to maintain what we said. If the improvement is there, we are very happy about it. But we want to be very conservative in what we say.
Okay. Next question-
We have always committed to double by FY 2027, and we maintain that. There may be certain slow quarters, certain high quarters, but we maintain to double by FY 2027 in three years.
All right, sir. Next question related to order book. Is it possible to give any bifurcation of how much is from the box build or some other segment in this order book? INR 1,790 crore.
We've been consistently because we've got the highest box build percentage, and we have always been maintaining 50 to-
56%.
56%. We are 56% now. Our whole goal is to keep increasing this box build mix, and that is what is playing out now. We'll continue to do that. As of today, it's around 56%. We believe as years go by, that can improve too.
The order book mix will be slightly resembling the revenue mix to an extent.
Okay. Last question on the CapEx which you had guided INR 45 crore for this year. Is there any increase in that for the guidance?
It's pretty close to that, and we would say INR 45 crore- INR 55 crore just to be on the safer side. We continue our goals of having asset turns unit 10x , and we believe that is achievable. We have a low CapEx model to achieve a lot.
Thank you, sir, and all the best.
Thank you, Praveen.
Thank you. Next question is from the line of Jalaj Manocha from Svan Investments. Please go ahead.
Hello. Hope I am audible.
Yes, please proceed.
Sir, congrats on a good decent set of numbers. Sir, first question was regarding the U.S. facility. Could you help me understand the unit economics of fixed cost there and the gross margins? Because even though our revenue has increased from the facility year-over-year, but then the EBITDA numbers do not show up any profitability increasing. In the absolute terms, could you help me understand those numbers once?
U.S. manufacturing today is around 20% of our overall revenues, and like what KD mentioned in the opening remarks, the EBITDA there is around -6.9% and a PAT of -INR 9 crore in this quarter.
Thanks for that. I wanted to understand what sort of fixed costs are we seeing in the U.S. facility? And what sort of numbers of top line would it eventually make it a break-even sort?
Jalaj, like what we had mentioned in the earlier calls, I think one year before our U.S. manufacturing had losses of close to -INR 14 crore. Now it is at -INR 9 crore and one of the key customers over there has started to pick up. Just started later part of the Q1. I think over the next few quarters, we do not want to put a number yet. But over the next few quarters, we believe with a ramp-up of that particular key customer, we believe it will be getting closer to decent numbers on the profitable side. On the break-even or profitable side. Yeah.
Understood. Got it. And sir, second question was around the CapEx. We did allude to a CapEx number of INR 40 crore-INR 50 crore for this year. But I just wanted a quick one, since the utilization in the U.S. facility would be on the lower side, still we are doing asset turns of 8x. So there is a possibility on a full capacity run of this number to the asset turn numbers to go even higher or what?
Our internal goal is 10. We say 8-10. Absolutely what you say is right. There's enough capacity both in India and in the U.S., in U.S. a little bit more than India. We are very measured on what we take in there. What you say is absolutely right.
Okay. One last question was, could you talk a little about, sir, you have partially alluded to the impact of tariffs, but what sorts of discussions are we having with clients? Because the clients would start to look at a second-best option which would be cheaper to them. I'm sure a client would be working with more than one vendor, and would not be only 100% dependent. What sort of discussions are we having with the clients right now who takes in the tariff in case this comes in or kicks in? Or how would we supply chain demand?
Like I said earlier, the clients also, things are changing so fast, so they don't know how to strategically maneuver. That's one piece. The second piece for us is if you look at the other alternatives, they are close to what we have or were. Right? Whether you take the other geographies which can do this manufacturing. It's choosing one, and most of them have U.S. plus one. Because China is completely out as you know, because the tariff rates are much higher. It's between everybody else. India still is okay comparatively. I'm not saying the 25% tariff is right or wrong. But what I'm trying to say, compared to the other geographies, we are pretty close. With our, none of the other apart from Vietnam would have lower costs of labor than India.
Most of our customers are here for the long-term nature, whether to enter the Indian market or. Because most of our Indian customers you see are all multinationals from across, whether it's Japan, whether it is Europe. They're coming for the India market. It's just not the cost alone, it's the entry into a market like India. Also if you look at the comparison between different countries, we may be a little bit higher when compared to U.K. or something which they cannot manufacture there or EU. It's a challenge also. These are only two countries which are lower from the other countries. Did I answer that?
Understood. That explains. And sir, one last question.
Sorry to interrupt, Mr. Manocha. May we please request you to rejoin the queue? Several participants are
Sure.
waiting for their turns. Thank you, sir. Thank you so much. Next question is from the line of Vineet from Investec. Please go ahead.
Hi. Good afternoon, sir. Thank you for the opportunity. Just a couple of questions from my end. First is, wanted to understand, given we have had a robust growth in terms of U.S. customers in Q1, was there any element of pre-buying ahead of anticipated higher tariffs, which were getting applicable? Was there any sort of element, if at all? The continuation to that is, how has been the customer response, at least in the first initial week? Are you getting any sense from the customer around potential sourcing strategies for them in case 25% tariffs are to sustain for some time? Any broad colors there would help. Lastly, the third question is on margins. Last year we had a very tough Q1 as far as the profitability was concerned. This time we are positioned way better.
While I acknowledge the investments which are required for the business has taken margins lower, would it be still okay to assume that we will better the margins which we had delivered for the whole of last year, purely given Q1 last year was extremely weak and we have done pretty okay Q1 this time?
Okay. I will try to answer. I do not know. You have too many questions. If I miss something, just remind me. What you can look at. You are looking at just one quarter, right? If you start from Q2 of last year, Q2, Q3, Q4, Q1 of this year, we have consistently shown growth in margin improvement. We intend to maintain that, and we intend to grow. On the tariff question, what we need to understand is getting close to 50% of our business is in India now. Around three years back, that was 20%. Today, we are very happy to have diversified this. Then 20% of our business is U.S. What we are talking here is around 30%-35% of production going into export. That, too, a lot of that is FOB India, where the customer is directly responsible on doing it.
The last point is even customers do not know which product has got duty and which product has got tariffs and which does not have tariffs at different varying levels. Things will settle down. If you take a longer-term picture, I think it will all equate out because it is not that somebody else can make it cheaper. I know I have missed one question out of your three. Maybe the first one.
On pre-buying. Yeah, pre-buying. Any element of pre-buying.
Any element of?
Pre-buying.
No. That is a lot of our planning starts six months, eight months ahead. It is not easy to even pre-buy. We do not see any element of pre-buying. That is why I said, if you look at the last three or four quarters, we are constantly showing growth. This quarter, because it was last year, this quarter a little bit muted, so a little bit higher. But we are confident that there is no element of pre-buying. And actually, customers wanted more in the sense of it is new customer patterns which have taken place.
Mm-hmm. Okay. In-
Sorry to interrupt, Mr. Vineet. May we please request you to rejoin the queue, sir. Thank you, sir.
Sure. Okay.
Next question is from the line of Neel Mehta from Equirus Securities. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity, and congratulations for the good set of numbers. Sir, my question was particularly related to the communication segment that has led to sharp jump, almost more than 100% growth on year-over-year basis. So it is driven by certain products, or it is driven by any particular customers. Would you please highlight that? Because since last two quarters, we are showing it as that segment is pretty good. So can you just help me, how would shaping up?
On a broader sense, most of the customers and the entries we have done in India are in power, infrastructure, and communications. Okay. On the communications segment, our focus is on 5G and 5G radios, making it for some of our larger clients in India, who in the next few years of growth is there. We have entered that around three quarters back, and we will see some uptick on that in the coming quarters also. I hope I answered your question.
Pretty much, sir. Sir, just last question that since you are foraying into the semiconductor equipment side, just wanted to understand that our partner which we have done the partnership with, is also into the equipment side, or they are into the fabless side or in the foundry side? Just wanted to understand which value chain of the semiconductor we are into. Just wanted to understand that.
We are absolutely in the equipment side. It's the highest end of box build you can do. We've been working to get to that level of complexity and technology, and we've achieved that. That's why we are confident. It's been a journey of three or four quarters to get here. It's completely on the equipment side. Because we do so much of box build, it kind of takes us to the next level of box build.
Okay, sir. Thank you so much. Thanks a lot, sir.
You're welcome.
Thank you. Next question is from the line of Indrajit Agrawal from CLSA. Please go ahead.
Hi, sir. Thank you for the opportunity. I have a couple of questions. First, on the tariff and on the cost structure, how do we actually identify what we sell for that? What is actually under tariff and what is exempt? How long does the exemption exist? Wherever we have a tariff or we have to pay a tariff, which other countries are more economical after that particular tariff?
The customer doesn't know, we don't know, I don't know if anybody knows which product has got what tariffs now, because it's all flowing. The way we look at it is the tariff as of today is a complete pass-through to the customer. I'm not saying that it'll not change, but as of today, it's a complete pass-through. Your second part of the question where you said which country and what, right? There are countries between 25%- 15%. Most of the countries are there. China is an outlier that, how you call it, 40% or 50% in certain areas. It's not just a specific country this thing can move to or so. It's a long-term vision customers have made. Most of our customers are not completely cost-based because they have invested a lot of time, effort, money to get us going.
They're looking at the longer term of 5- 15 years. There's no kind of immediate pressure because wherever they change to, they're going to have some sort of tariff. Because there's no country not with a tariff, unless it's in U.K. or one of these small islands, wherever they have a 10%. But with India's strength in labor cost as well as technology, I think it's a long-term journey for India. I'm just not talking about Avalon. Since we do complex products, it's not easy to shift.
Sure. That's helpful. Secondly, on your semicon equipment, can you just throw some more light as to what kind of CapEx we can end up incurring and what kind of margin this category has, in the sense that how scalable this business is for us?
It is very scalable in this number of products, and it's part of systems what we are building. Not a complete system, but part of systems we are building. Space is more of a constraint and not a capacity, which we have catered to now.
We will get government incentives on this?
This is after we get moving on this and get into production, we are going to look at government incentives on this.
Sure. Thank you. That's all from me.
You're welcome.
Thank you. Next question is from the line of Chirag from Keynote Capitals. Please go ahead.
Yes. Thank you for the opportunity. Sir, just wanted to understand one thing. The pace of order book growth seems to have flattened up. Just wanted to have your look. Are we facing any challenges because of this tariff fee due to which order book growth is not at the same pace as earlier?
So as you know, we do complex products, and we look for profitable growth rather than growth at all costs. The order book is INR 1,790 for the next 12-14 months, plus INR 1,157 crore apart from that. We don't count the orders which will have more than three years. Okay? There's another element of that. So this itself will get you around INR 2,900 crore, give or take a certain number. If you look at it that way, on a three-year period, you have the orders. We just break it down to show you the immediate what we can execute. A lot of the 12-14 months will start flowing into the Sorry, a lot of the 14-36 months will start flowing into the 12-14 months.
Fair. Yeah, I do get that. Still trying to understand on an annual basis or a monthly basis, what is the run rate now? If our current run rate last year was it and this year it's X plus Y, just wanted to understand from that perspective. Are we expecting on a monthly basis our order book to increase at a faster pace going forward?
A couple of points there. First, our order book has grown by 23% right now, Q1 to Q1, year on year. Okay? Second is like what we had mentioned earlier, many of the new projects are either in proto stage or one step before the commercial production commences. The larger orders for each of those projects which we won over the last few quarters is expected to come through over the next one, two quarters. That is also one of the reason why we are comfortable in
communicating that we will try and double our revenues from FY 2024 to FY 2027.
Right. That's fair. Secondly, I just wanted to understand, as you have mentioned, the EBITDA margins and PAT margins for India plant business specifically, which is 13% and 8.8%. Will it be possible for you to give us the gross margins in India plant?
We generally do not provide that kind of a breakup, but what I would like to highlight is, for us, we have been able to steadily maintain our gross margins over the last four or five years now.
Okay.
30%-35% is the guided range. We've been happy to maintain at the top or upper end of the range over the last few quarters now.
Fair enough. What kind of cash flows-
Sorry to interrupt, Mr. Chirag. May we please request you to rejoin the queue, sir?
Sure.
Thank you, sir. Next question is from the line of Bala Subramanian from Arihant Capital Markets. Please go ahead.
Good evening, sir. Thank you for the opportunity. Sir, I just want to understand this core partnership for
Sorry to interrupt, Mr. Bala Subramanian . Your voice is breaking, sir.
Right now. Sorry, sir.
Yes, please proceed. In between it is breaking.
Sir, that Zepco partnership, especially focused on EV drone components. I just want to understand in terms of synergy, so we can able to create partnership and what-
Sir, you are not audible. Sir, you are not audible. Are you using microphone or something? Please use your handset, sir.
Sir, right now?
Yes, please go ahead.
Yeah. Sir, Zepco partnership, especially focused on EV drone components, what kind of synergy we can able to create through this partnership, and what percentage of future revenue could come from design-led manufacturing versus traditional EMS. Secondly, this local PCB procurement is increasing due to PLI. What percentage of inputs are still imported, and what kind of dependencies in terms of sourcing? Is there a multiple sources we have or still we are dependent on Chinese components?
Okay. Just to answer your first part of question. The two partnership. One is the components for drones. I can specifically say it is for the power electronics and drone motors. Which is today, 95% of the motors come from outside the country. We believe that we are driving that change which can happen in India with Zepco. Apart from that, the design led most of our customers in the power domain, which is a good piece of our business, both in industrial and clean energy, are slowly starting to use Zepco to design and we do manufacturing. Did I answer that, Bala Subramanian ?
Mr. Subramanian, does that answer your question? No response from the current questioner, sir. We'll move on to the next question from the line of Naman Jain from Kotak Institutional Equities. Please go ahead.
Hello, am I audible?
Yes, please go ahead.
Yes, you are audible.
Okay. Yeah. If you can just expand a bit on power electronics. Are you also entering into BESS given a lot of regulations are coming in to increase indigenization of BESS in India?
Can you just expand BESS for me?
Battery energy storage system, which
Okay. Got it. As of now, the focus is outside India.
Okay.
Today we have the capabilities and the knowledge to do that. Let's get stability going where the margins are, then we'll come back and address that if required.
Okay. All right. Second question, I know you have answered a lot on tariff already, but just another question. What's your view, let's say, if the situation doesn't improve from here on, do you believe you will start facing some pressure from your customers to share a bit of the tariff load? I know you said FOB for some of them, but what's your estimate if the situation continues to remain as is?
The two elements we look at, whatever we did by luck or by choice, diversification into India. Because we were 80% exports if you look at it three years back, right?
Yes.
We are getting close to 50%, and most of our growth will also come from India. The U.S. side of it, my firm belief is that, as of now, we have no answers and no solution on both sides. These are technically not something people can change overnight. There may be a give or take, and like I said, 45%-50% is India, 20% is U.S., and 30% is what we're talking about, where the tariff kind of comes. Most of that is FOB, and a few of that is only DDP. As of now, there's talk, but there's no. The effect is going to be not like the whole business or so. It's going to be less than 15%-20% max of the business which is affected.
And if you look at what is going to be tariffed and what is not going to be tariffed, when that clarity comes, life will be a lot easier.
Right. Okay. Thank you.
Thank you. Next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Hi, sir. We have entered into semiconductor equipment. Can you elaborate more about that? What kind of product we are going to manufacture?
A lot of it is the power-related boxes. I would not like to go much more deeper into this. As we expand and continue to grow this segment, we will give you a lot more clarity on where we are heading. These are complex systems which we are planning.
Testing tool type, sir?
No, it is not on the testing tool.
Okay.
It is part of the equipment.
Okay. Can you talk about the EBITDA margin guidance for FY 2026?
Suresh?
We generally do not provide a guidance per se on the EBITDA or the PAT level from a fully basis. Having said that, at a gross margin level, 33%-35% is the guided range. Second, like indicated earlier, we expect the revenue ramp-up in the second half of the year. Expect the operating leverage to be more evident in the second half.
Okay. Can you in fact talk that way what are the historical EBITDA margin we have, can we reach in the coming year or this year?
So-
Rather than putting out a number over there, the way how I would like to highlight this, right now in the first half we are up-fronting our cost and investments, whether it is the build plant or on the capabilities, inventory perspective also. But the results of all of these efforts which is happening in the first half, I think start becoming more evident as we get to the later part of this fiscal year. It will continue to flow into FY 2027. We have always been focused on not growth at all cost, but profitable growth. That is something that we will be very cognizant of in all of these growth.
Thank you.
Thank you, Sumant.
Thank you. Next question is from the line of Bharat Gulati from Dalal & Broacha. Please go ahead.
Yeah. Thank you for the question. I wanted to understand if you can throw some light on when will revenue start coming in for the semiconductor business.
Yeah. It's going to be a gradual step-up. You will probably start seeing some of it next quarter, then gradually growing over the next three to five.
Okay. Just wanted to understand that if the tariff situation persists, can we see U.S. manufacturing contribute more as a percentage of revenue?
We are very selective in what we do there. See, because the whole business is certain growing. Though we say 20%, the absolute number may be higher. But we are ready. If customers are willing to pay the higher amount, we are ready to do that. Just again, a lot of new customers wanted to be stopped for a short time before they come to India. If they come there, this is something like a beachhead, like what we call it. They start there, then move to India. The intention is to move to India.
Right. Okay. That's it. Thank you, sir.
Thank you. Next question is from the line of Vipraw Srivastava from PhillipCapital. Please go ahead.
Hi, sir. Thanks for allowing me to ask a question. Sir, just a bit on the math. In the Q4 presentation, it was highlighted that the Indian business has an EBITDA margin of 14.2%. In the Q1 presentation, it is highlighted that Indian business has an EBITDA margin of 13.2%. That is 100 basis points decline, but overall margin has declined by more than that. Is it fair to assume that U.S. business EBITDA margin has declined significantly more?
No. Overall consolidated level, our EBITDA margins in Q1 is 9.2%, vis-à-vis 2.2% in Q1 FY 2025, and 12.1% in Q4 FY 2025. The main reason being it is the ramp-up on all the new businesses coming to in Q2, Q3. Second half is going to be there. We are up-fronting some of our costs over there. That is why at a consolidated level itself, there has been a EBITDA margins are at 9.2. The effect of that is what we are reflecting in both the Indian manufacturing as well as in U.S. manufacturing. U.S. manufacturing, the PAT is around -INR 9 crore for Q1. As again, -INR 14 crore, same time last year.
Right, sir. Last question from my end. Obviously, tariffs have been there and there is no clarity on what will happen in the coming months. But has the company got any assurance from its U.S. clients that they can manufacture in India? Or if the client asks you to shift to U.S., do you have any pricing power over the client? Can you tell them that we will only manufacture in India? What is the dynamic there?
At the end of the day, a couple of points there. Manufacturing in the U.S., even with tariffs, is not going to work because the costs are significantly higher. Unless the customer needs to build it there, it is still going to be U.S. because with China not there, it is a lot easier for India now. The other geographies, again, is the tariffs are within 5 points of what India is. The concern is there, but we are fairly confident because just U.S. is used to tariffs, because the China tariffs are 30% or 35%. It changes often, has been there for three, four years. The U.S. companies are used to paying tariffs with China. Now it is everyone. That is the issue. It is still significantly lower than what China tariffs are. They are very used to tariffs.
It is new to us, but customers are used to tariffs out of China.
Right, sir. Last question that I am allowed to ask. Quickly on the one Inflation Reduction Act, battery energy IRA incentives will be revoked from 2027. Post that, how do you see your clean energy segment progressing?
We are very happy if that happens because a lot of the production will move to India.
Right.
But the demand is there, whether it is made in India or made in the U.S. That is the segment. That is why we are excited about it. Okay.
So that is a structural positive for you, right? If I am understanding it right, because then you make more profit.
Absolutely. Yeah.
Got it. Thank you.
You are welcome.
Thank you. Ladies and gentlemen, we will take this as the last question for the day. I would now like to hand the conference over to Ms. Bhoomika Nair for the closing comments.
Yes, sir. Thank you to all the participants for being on the call and asking the questions. Thank you very much to the management for giving us an opportunity to host the call. Thank you very much, sir, and wish you all the very best. Any closing remarks from your end?
Yes. Thank you, Bhoomika. FY 2026 has started strong for Avalon with robust revenue growth, solid execution, and continued customer traction across key markets. The upward revision in our revenue growth guidance reflects our confidence in our business outlook. We remain focused on scaling new programs, enhancing capabilities, and investing ahead of the growth. Our entry into semiconductor equipment space marks a key step as we expand into more advanced high potential 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.
Thank you, sir. On behalf of DAM Capital Advisors, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.