Ladies and gentlemen, good day and welcome to the Avalon Technologies Q1 FY 2025 results conference call hosted by JM Financial. As a reminder, all participants' line will be in listen-only mode. 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Agarwal. Thank you and over to you, sir.
Ladies and gentlemen, a warm welcome to everyone for the Q1 FY 2025 earnings call of Avalon Technologies Limited, hosted by JM Financial. We extend our sincere appreciation for your presence, and we are truly honored to have you join us on this occasion. To take us through the results of this quarter and answer your questions, we have today with us Mr. Kunhamed Bicha , Chairman and Managing Director, Mr. Bhaskar Srinivasan, President, Mr. R M Subramanian, Chief Financial Officer, Mr. Sriram Vijayaraghavan, Group COO, Mr. Venky Venkatesh, Group Chief Sales Officer, Mr. Michael Robinson, Chief Operating Officer for the U.S. operations, and Mr. Suresh Veerappan, Head of Corporate Planning and Investor Relations. Mr. Kunhamed Bicha will give a brief overview about the business performance for Q1 FY 2025, and it will be followed up by CFO Mr. R M Subramanian's remarks on the financial performance.
After which we will open the floor for Q&A. As we move forward, it is important to bear in mind that any forward-looking statements made during the call are subject to potential risk and uncertainty, both known and unknown. Without any further delay, I turn over the call to Mr. Kunhamed Bicha , the CMD. Over to you, sir.
Thank you, Deepak. Ladies and gentlemen, on behalf of Avalon Technologies, I extend a warm welcome to our Q1 FY 2025 earnings call. Before we dive into the business performance for this quarter, we would like to highlight Avalon Technologies' key differentiators, especially for those who are joining us for the first time. Avalon Technologies establishes itself as a key player in electronic manufacturing services with a global reach. We take pride in our leadership in high-mix, flexible volume manufacturing, serving a diverse range of industry verticals, especially in mission-critical integrated solutions that require significant engineering expertise. We currently operate across 13 manufacturing facilities in India and the United States. We are also adding one new manufacturing unit in India. Our key differentiators are: one, vertical integration.
We are a one-stop shop offering a true offshore solution that involves PCB design, new product development, cable assembly, sheet metal, plastics, magnetics, testing, and logistics. We do end-to-end development from PCB design to manufacturing of final product. Number two, global presence, both in terms of manufacturing presence as well as customer base. Number three, optimal mix of established industries like rail, aerospace, industrial, medical, and communication, and emerging markets like clean energy. Now moving on to our business performance and outlook. Around this time last year, when we anticipated the restocking by our established U.S. customers, we communicated this upfront and we have kept you updated on our progress. In our earlier earnings call, we mentioned that the first half of FY 2025 will be muted and noted the signs of recovery were emerging as our existing U.S. customers began restocking at varying levels.
We also shared that our focused efforts in the Indian market would soon start showing results. This combined progress is expected to lead to significant momentum in the second half by FY 2024. I would like to reiterate that we are following the path laid out during our last call and are seeing our anticipated growth materialize sooner rather than later. Our belief in the momentum and growth potential for this year has only strengthened. We believe this year marks a pivotal point in our journey, setting the stage for decisive growth ahead. Accordingly, we would like to revise our FY 2025 guidance up from the earlier 14%-18%, to 16%-20%. During Q1 FY 2025, our revenues decreased by 15.2% year-over-year. Gross margins fell by 0.8% year-over-year from 34%- 33.2%, and by 3.1% compared to FY 2024.
The product mix this quarter was a key factor in the drop in gross margins. We believe this is a temporary phenomenon. On a full-year basis, our gross margins can be between 33% and 35%, considering the anticipated revenue growth in the second half. The decline in gross margins consequently resulted in a muted EBITDA at 2.2% and a PAT of -1.1% for Q1 FY 2025. On a positive note, our focused efforts towards managing working capital have resulted in a reduction in net working capital, [several days by five days] compared to March 2024. This has led to a positive cash flow from operations amounting to INR 36 crores in this quarter. We remain on track to reduce our net working capital days by at least 10- 15 days by March 2025. Additionally, our order book grew 32% year-over-year to INR 1,461 crores.
Execution expected over an average period of 14 months. Long-term contracts extend beyond 14-month period and span an average execution period of two to three years, grew by 65% year-over-year to INR 985 crores. Our Indian manufacturing, which serves both our Indian and global customers and represents 88% of our business in Q1 FY 2025, remains highly profitable, with EBITDA margins of 9.6% and PAT margins of 6.6% during Q1 FY 2024. However, our U.S. manufacturing business reported a net loss of INR 13.2 crores. In our earlier communication, we had highlighted two measures to address the short-term challenges in our U.S. manufacturing business. One, optimizing product allocation from our U.S. plant to our India plant. We have transferred around 45%- 50% of our U.S. production to our Indian plants.
Secondly, the proportion of our revenues from our U.S. manufacturing plant is at 12% in Q1 FY 2025 as against 27% in Q1 FY 2024. We expect U.S. manufacturing production to be around 15% in FY 2025. Number two, rationalizing costs with our U.S. operations. We have made meaningful progress on this front, and we believe the results of these initiatives will be more visible in the coming quarters. We had earlier highlighted our three engines of growth. One, existing U.S. customers. Two, new U.S. customers. Three, growing Indian customers. Our existing U.S. customer base is shifting from destocking to restocking mode and are recovering at various rates. This shift underscores the strength of our long-standing customer relationships. Recently, our recent wins in industrial, clean energy, and auto sectors with leading U.S. companies are progressing from design or prototype stages to commercial and ramp-up production this year.
In the fast-growing Indian market, our intensified focus over the last one to two years has led to key wins in rail, industrial, aero, and communication sectors, which we believe will advance to commercial production over the course of this year. I am happy to note that we are seeing traction across all three engines and expect the coming quarters to go ahead of our expectations. Transitioning to our new content. In the U.S., we are onboarding two auto component companies that are leaders in battery management and motion control systems. Additionally, we have secured significant contracts with two major industrial companies. These are well-established companies operating for decades and are market leaders in their domain. Additionally, our presence in the aero industry over the last eight to ten years is now yielding significant new business wins.
As we progress through the prototype stage in FY 2025, we will share more updates on these developments in the coming quarters. Regarding one of our customers in clean energy sector, which focuses on home electrifying systems with storage and grid interface, the compliance certification is approved and the anticipated production ramp-up in H2 FY 2025 is progressing as planned. We would like to highlight that they follow a storage-first approach as opposed to a traditional solar installation approach and are likely beneficiaries of present U.S. regulations, including the Inflation Reduction Act. In the Indian market, we are expanding our business with two of our existing industrial customers and one communication customer. We are also achieving significant new wins in our rail, aero, and industrial verticals with contracts secured from large multinational companies. As we transition from prototype to production in the upcoming quarters, we will provide more details.
Looking ahead to FY 2026 and beyond, we are building a strong momentum in communication server verticals too. Additionally, we are actively working with our customers on anti-pollution cover systems, which we believe hold significant business potential. In summary, the momentum and progress we are seeing in our new wins and addressable opportunities are giving us confidence in achieving decadal growth and comfort in our goal of doubling our revenues by FY 2027. On the infrastructure front, we are pleased to report that we have completed our new plant in Chennai dedicated to export operations and are in the process of starting production. Additionally, regarding our brownfield expansion in Chennai to meet growing domestic demand, phase one is complete, and phase two is expected to commence in the second half of FY 2025.
With the revenue growth we anticipate in the coming years, combined with our team and infrastructure in place, operating leverage will play a significant role in our favor. We expect to see the benefits of this operating leverage to some extent in Q2 FY 2025 and significantly from H2 FY 2025. Our profit growth is expected to outpace revenue growth. This is underpinned by the following reasons. We maintain industry-leading gross margins and have not pursued low-margin businesses. The majority of our costs below the material costs are fixed in nature, allowing operating leverage to flow through as revenue ramps in H2.
Our dedicated focus on improving working capital will help us release some cash, further supporting our growth and profitability. In summary, we believe we have reached the bottom and are now seeing strong signs of recovery in the second half of this year, supported by a substantial execu table order book.
FY 2025 will be a milestone year for us, and we are excited to share this journey with you. It is crucial not to lose sight of the long-term vision and opportunities while dealing with short-term macro challenges. We are preparing our organization for sustained growth in the years ahead. Avalon stands strong, committed to building a business focused on long-term profitable growth rather than short-term growth at any cost. I will now hand over this call to our CFO for a detailed look into our financial performance. Thank you.
Thank you, KB. Good afternoon, everybody. Thanks for joining the call today. Coming to our performance during the first quarter of FY 2025, our financial performance is muted in line with the commentary we had shared during the last earnings call. Our revenue from operations is INR 199.5 crores, a decrease of 15.2% year-on-year from INR 235.1 crores. Gross profit is INR 66.2 crores, down by 17.2% year-on-year. Our gross margin is lower by 82 basis points from 34%- 33.2% year-on-year. EBITDA is at INR 4.4 crores, down 73% year-on-year. EBITDA margin stood at 2.2%, a decrease of 469 basis points on a yearly basis. PAT stood at INR -2.3 crores, down by 132.6% year-on-year, and PAT margin is at -1.1%, a decrease of 407 basis points year-on-year.
Revenue from our India manufacturing business, which serves both our Indian and global customers, is at INR 175.3 crores, which is at 88% of the total revenue. The profit after tax pertaining to our India manufacturing business is at 6.6%. The PAT percentage for our U.S. manufacturing business stands at INR -58.1 crore with an absolute loss in cash of INR 14.3 crores. Moving on to our balance sheet side. Our networking capital days are at 156 days as on June 24, comprising of 125 days of inventory, 75 days of receivables, and 43 days of payables. While we have noticed an improvement in both days of receivable and payable, our inventory days have increased due to the impact of decreased revenue. Our networking capital days reduced by five days from 161 days as on 31st March 2024 to 156 days as on June 2024.
We are positive that we are on track to reduce our networking capital by 10-1 5 days by the end of this financial year, as mentioned in our previous call. We are also well-positioned in terms of cash flow with positive operating cash flow of INR 36 crores. During the quarter, even though we made cash losses, we have been able to improve cash flow by better working capital management. This is reflected in our net cash position, which improved from INR 34.5 crores as of 31st March 2024 to INR 58.4 crore as of end of the current quarter. That said, we have become even more confident in the year's momentum and growth potential. We believe this year represents a crucial turning point, laying the foundation for our long-term growth in the coming decades.
Consequently, we are raising our FY 2025 guidance from the previously predicted 14%-18%, to 16%-20%. In conclusion, we are quite optimistic on our performance for FY 2025 on the back of large demand, growing order book, strong cash flow, and comfortable liquidity position. As our profit is strongly tied to our scale of production and revenues, we accordingly expect FY 2025 to be much more profitable for us than FY 2024. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Deepak Krishnan from Kotak Institutional Equities. Please go ahead.
Hi, sir. Am I audible?
Sir, I would request you to—
Yes.
—use your handset.
Yeah. Am I audible now?
Yes, sir. Please go ahead.
Yes. I just wanted to understand. Obviously, we have revised our guidance up to 16%-20%. Especially, say, within segments, what kind of growth are you broadly targeting across the different segments? Or say within geographies between domestic and export. Can you give broad guidelines as to where growth will kind of stand up?
Thank you, Deepak, for that question. We are seeing a very broad-based growth, and a lot of our issues were with the destocking situation in the U.S. in the last 12 months. What we are seeing are existing customers who have been our customers for 8-10 years coming back to a restocking level. Some of our customers, a couple of them to name, coming at different varying levels. Some of them have exceeded their usual run rates, so that is a positive sign. Some of them are 30%, 40% of their run rate. The majority of what we are missing has come back, and some of them are in the process of coming back. The base is coming back. Number two, what we are seeing is the second engine, what we mentioned is the new customers.
We have had significant wins in the last three to six months, where we have been doing prototype and getting ready for production. We are starting to see that flow in the late part of Q2, and I would say in Q3 and Q4. The other part, the third engine for us is the India piece, which we were late entrants. We have been looking in the India market for the last, I would say, two years. Previously, we were 70% export and 30% India. That effort is paying off. We are seeing a lot of activity in our rail business. Our existing customers, as well as new customers and new products we are making for new customers are coming through. As you know, rail is a big part of what we do in India.
Apart from that, we signed a couple new projects from our existing customers in the industrial side, which will bear fruit in the coming future. Did I answer your question, Deepak? It is very broad-based.
So you—
Export is coming back.
Yeah.
Export is coming back, which is the key, and our India business is growing.
Export will be about 60% of our revenue for a year? Is that sort of our understanding, or would it be 50/50?
Our long-term goal is to make it 50/50. We did have a short time when U.S. was down last year, a couple of quarters where it was 50/50. But looking at this year with the exports coming back, we would say this year would be 60 export, 40 India. But our long-term goal is to make it 50/50.
Got you.
If I can add to this.
If I just look at the intellectual order inflows that we've had, obviously that intake, most of that is, would we assume, is from the U.S. opportunities. I understand, correct? So within $5.6 billion order book we have today.
It is broad-based. It is both. We see India actually growing a bit faster. For us, it is especially rail growing a bit faster. If you look at the order book year-to-year. Last year around this time, we had INR 1,100 crores, which we could do 12- 14 months. We had INR 600 crores in long-term contracts, which is around INR 1,705 crores in orders between short-term and long-term. Now, we see a 33% increase year-to-year, where our 12- 14 month orders are INR 1,465 crores and between 12 months to three years is INR 985 crores, which totals to around INR 2,450 crores. With a strong order book, we are confident on achieving where we need to go.
Maybe just one follow-up. Different topic. Is our product RDSO approved, or we are still in the process of getting RDSO approval? Similarly, for the C-DAC server contracts, is there some minimum amount of servers or minimum contract value that you would give us over the next couple of 18 months? Is there some sort of number for that?
As you know, we are working with one of our largest customers, who is one of the two internationals who have been approved by the Indian Railways. They are first level approved. The field testing is going on, and we believe that is going to be a significant play, not in the near term, but in the next after two quarters, I would say, till the final approval comes through. We are working with one of the two, which has already been approved by the railways.
Sure. On the C-DAC servers, any number or any—
I think there were two allotments which are done, and there is a change in the model. We are hoping in the next six months, we should get an allocation because we are one of the three.
Sure. Those were all my questions. I will get back on.
Thank you, Deepak.
Thank you. Next question is from the line of Bhoomika Nair from DAM Capital. Please go ahead.
Yeah, good afternoon, sir. Sir, just want to start with just trying to understand. We saw a fairly sharp drop in the U.S. revenues. I thought that had kind of settled down, but are you starting to now kind of start seeing some uptick in terms of from the existing client base? Are you starting to see offtake, et cetera, inventory restocking that's starting to happen?
Thank you, Bhoomika , for that question. Absolutely. If you take our largest industrial customer, [Pro Pac], this year, because it takes around four months to get the material in, start the flow again. So we'll start seeing the flow, I think, starting this quarter. We are seeing 130% sorry, 30% more than normal. Our medical customer, which was down 80%, is back to 100%. And these are all customers who've been with us for years. And some of other customers are back at 50/50. These two are some of the leading indicators for us. The smaller customers, whether they come in at 30%, 40%, we're not worried too much. But the big pieces which we do in the U.S. are surely coming back, and we are seeing all signs of it.
It's not very much related with the economy, it is more of the destocking, restocking because we had that four years of stocking and stocking. Last three quarters, there's a lot of destocking happening and now we are seeing coming back to the normal levels. So it's a very positive sign for us, apart from the new customer base.
Sure. And, sir, in terms of the larger clients where we were looking at, say, Ohmium or Lunar, et cetera, how is that kind of panning out in terms of their offtake at this point? What is the status on their product approvals?
Bhoomika, I will address that in a couple of pieces. One is, the name you mentioned, we stopped mentioning names in the calls, but it has been approved. Now the field testing is going on. From all what we can see, they should launch in the late part of this year, which is in Q3, and then go into production in Q4. As we stand now, all the approvals are done and we keep our fingers crossed. A lot of that is not in our numbers, what we talk about going forward. We believe that is going to be an upset. On the other hydrogen customer, they have built large factories, it has been all over the press, and we hope it will be a little bit later. As you might feel it is more of a 2026 story.
But we still are the key manufacturer for most of their products, and we are continuously prototyping and perfecting what we do for them. Did I answer your question, Bhoomika?
Yes, sir. Sir, if I look at it, we have seen a decent progress of the revenue mix or manufacturing mix actually shifting to India is what we were looking to do, with almost 88% being now manufactured out of India. Now, we were looking at cost savings in terms of U.S., in terms of scaling down of the cost structure there. Because we are seeing that loss of about INR 14 odd crore in the current quarter. How is that kind of panning out in terms of cost reduction, or is it just purely now there is no more room to kind of cut costs in U.S. and it will all be driven by uptick in terms of revenue, which will erase these losses? How should we understand this? Because the objective was to move to India, and I think a lot of it has already happened, right?
Bhoomika, for us, I will just give you how we went about doing this. It took us five to six months to convince the customer we needed to move to India, which we did for 50% to 55% of our customer base have agreed to move. Then it takes two, three months for us to make the moves, for them to audit, for them to approve. A lot of that is complete, but in the interim, we cannot shut down production. It is not an on-off switch, so it is more of a transitory phase. We had to keep some of the activities going in both places in transition. For example, a customer will say, "Okay, you do 50% for a quarter in India, other 50% do it in the U.S. And then after two quarters, move the whole thing to India." We are in that process.
You will start seeing some of the benefits of what we did on that, in the following quarters. There's going to be, of course, good effect of that. But on the other side, what you'll see is since we are moving all this out of our U.S. operations, temporarily there's going to be losses there. It's coming into India.
Okay. What I'm trying to understand is, next couple of quarters, we see the restocking coming through, we see new customers coming through, which take up our revenues from the U.S. market. But they'll be all manufactured out of India. Will the U.S. losses kind of continue or will they kind of go away? That's where I was actually just trying to understand, from a cost perspective, or is that, once the revenues come back, the U.S. losses also go away?
There's a combination of two things. One is, of course, the operating costs in the U.S. is going down as we speak.
Okay.
That we're going to see the benefits of that as the full transition is complete, where we're doing 100% here. Right now, we are running two plants on the same product. The second part of the equation is we are keeping some of our debts open there for some large IRA deals. We're not letting the whole operation, but we are keeping our debt because some of the production can only be done in the U.S. because of the IRA benefits. We're keeping our options open and there's the right combination of the two. Whatever we can move is moving and some more will move, and then we will right-size the organization as the products with the IRA benefits come in, which is in process.
Thank you. Next question is from the line of Meet Jain from Motilal Oswal Financial Services. Please go ahead.
Yeah. Hi sir, am I audible?
Yes, you are.
Yeah. So sir, my question is regarding the India business. As you can see, we have seen some dip in this quarter in terms of our India revenue. Just want to understand at which stage are we in terms of ramp-up. As you said, the activity from the railways has been really picking up very strong. So I just want to understand the momentum going ahead, how we can see the India operations.
Hi, thank you for that question. What you said actually explains the answer. With the election and with a lot of these activities, the rail business for us slowed down the first quarter, and we are seeing the uptake now starting this quarter back. Some of the election and some of the activities did slow down the rail business. That is a key piece which we do play there. But between to the next three quarters, we are seeing a substantial growth in that piece for the last year on a yearly basis.
Okay. For these newer customers, can you set out some timelines for what kind of product and which? Like, have you struck a deal already for manufacturing production in India or what will be happening in the U.S. operations itself?
See, the other thing, Meet , is that today we are able to get production directly into India more than what we could do a few years back, where we did it initially in the U.S. and then brought it to India. Our success rate of directly bringing to India is increasing. Most of what we are talking about is either in prototype R&D production, getting into production. So these are already customers who have agreed on which factory, and majority for us now is coming into India directly, whether it is from India itself or from outside India.
Okay. Last from clarification is like, if I heard correctly, you mentioned that the U.S. operations will continue to see some losses in the next few quarters because you are moving the production here. That is correct?
The majority of the move has happened, but we need to make sure that some of the operations is there to meet because these customers are used to U.S. services. The costs are going to go down. I would say that we will have, once the new IRA customers come in the U.S., we should be fairly comfortable to breakeven or make a nice profit there too.
Thank you. The next question is from the line of Uttam Kumar from Avendus Spark . Please go ahead.
Sir, am I audible?
Yes, sir.
Yeah. Thank you. Thank you for taking the question. Firstly, one of the participants has already raised this question in terms of the revenue growth. We have seen that there has been an impact on the domestic front, and you also highlighted that this was led because of the elections. On a sequential basis, we are seeing almost a 50% decline in terms of revenue. But in terms of gross margins, last couple of quarters we have been seeing the gross margins have been at almost 37%, 38% levels. This quarter we are seeing a significant decline despite export mix being on the higher side. Could you kindly explain why there has been a significant decline? Is it the mix of orders or at a lower margin, or it be executed from one-off orders? Your thought process would be great on this.
Yeah.
Mr. Subramanian, I will take the question. If you look at the long-term gross margins of what you have done in terms of the past, it is about 35%+. Typically what, in our business, we can aim to achieve is about a 34%-35% gross margin. Vis-à-vis that, there has been a slight dip in terms of what we achieved this time. This can be broadly explained by two factors, I will call it. One is the product mix. This time some of the product mix has some lower margin. Specific factor to this quarter I will say is also based on the price, which is more related to the Red Sea, which hopefully will go down as we move along. But having done in the past, we are confident of achieving what normally we do, which is about 34%-35% gross margin in the long run.
Okay. Sir, the low margin order which you have stated, was it included in a particular division which you are talking about? Is it the mobility or is it industrial?
So we—
Or is it almost across the board?
Uttam, we usually aspire to have these margins, and some of the products have a much higher margin than 34%. Some of them have lower. We want to have a right mix where we get to 34%, 35%. Okay? So it is not like every product is running at 34%, 35%. There are some which are much higher than 34%, 35%, some which are lower, and the blend is what gets you the 34V, 35V.
Okay.
That is what we aspire for. Interestingly, there is business out there that we can sign lower margin businesses. We have stayed out of doing that. I am not saying it is right or wrong. That is the approach we have taken. We are trying to create this business over a longer time, sustaining margins and having the leverage effect take effect as our top line grows.
Thank you. The next question is from the line of [Vaibhav Srivastava] from InCred Capital. Please go ahead.
Hi, sir. I am audible, right?
Yes, sir.
Okay. Just questions from the U.S. solar industry. I want to understand, what would be your exposure for U.S. solar industry for this guidance which you have given?
I would say less than 10%, 11% at the max. Let me tell you one more thing about why this question is coming. U.S. solar industry with the housing down is looking down. It is negative growth as we speak, because some states have eased the but the fastest growing segment in solar is storage, where you generate power and store. That is growing in the U.S. at 50%- 60%. I do not know the number now, sort of. That is where we are playing, majority of what we are doing in the future. We are very positive about that, and that is where the added benefits would play in for us. Did I answer your question?
Yeah. Just following it up. So 10% you are saying, right? Less than 10%, right? For exposure.
Yeah, between multiple customers.
The number was not clear, actually. The order was at 10%. Was the number 10%?
With multiple customers. Just not one.
Okay. You are saying you will be entering into actually energy source, right? So you will use actual solar power.
Yeah, we have multiple customers. That is what is the potential for the future and the growth. But the existing pieces, so we are not banking on 50% coming from solar. It is a very small amount today.
Right. Just want to understand, in your presentation, you have given 25% coming from, roughly 25% coming from clean energy, right? So how much of that would be ex solar? I mean, apart from solar, what do you do in clean energy segments?
We are also in the process of doing hydrogen, parts for hydrogen, which again, I mentioned that is going to be more of a 2026 play. We have been working with these companies for two, three years. When the ramp comes, we are there to take the benefits out of it. We do some parts in the EV world. Clean energy, we look at three segments. One is solar, hydrogen, and the EV sector.
Right. For the items which you have given, they are the mixed segments the same way, every 25% comes from clean energy, right?
It is 25%. I have to check the number exactly. It is between 20%-25%, but only a part of that is solar.
Okay. Last question, sir. These elections which is coming up in U.S., I mean, obviously we all know Trump's policy is not very clean energy-friendly. Let us say he wins. What sort of risk it pose to your projections? Any risk there if that happens?
I mean, of course, elections come and go, but I don't foresee a risk there. Clean energy is a thing of the future. If there's some added benefits going away, we are more than happy to move that production to India instead. The only thing is it'll instead of being made in the U.S., it will be made in India instead.
Okay.
Yeah.
Thank you, sir. Thanks a lot.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Nitin Sharma from MCPro Research. Please go ahead.
Hi. Thank you for taking my question. Two questions. Firstly, what is the composition of the current order book and some understanding what would be the average gross margin of this order book?
So, like we mentioned before, we have around INR 1,465 crores executable in 12-14 months, and we have got INR 985 crores executable in 14 months to three years. Okay? That is a total of INR 2,450 crores visible to us, as we are not counting some orders are multi-year, which is five years or even 15 years in the aerospace industry. We are not counting those orders. In that sense, we feel fairly comfortable, since we have had a 43% growth year-over-year on the order book, which we have been working on for years, and more is coming. We are fairly confident on the order book.
Yeah. I meant the industry-wise breakup.
We are seeing it across industries, okay? There is a reason why we are diversified. Most of our industries would vary from 20%-25%. Aero might slow down or slow down. We expect something else to pick up. A lot of our growth is actually broad-based, except for industrial is getting a little bit chunkier now with around 30%, as we look into the future.
Got it. What would be the average gross margin of the order book? A range would be helpful.
Across industry verticals, products, and commodities, we intend to have margins between 33%, 34%, 35%. We have been doing that for the last four or five years. We intend to continue that. We want to have a blend mix of 30%- 34%, 35%. Some of them may be at 25%, some of them may be at 55%. But we need the right blend to keep us there.
Got it. My second question is, how should we see the employee cost as a percentage of revenue coming down as you reduce your manufacturing in U.S. over, say, 12 months- 24 months?
I will take that. Our employee cost as a percentage has been slightly higher, but that is more to do with the leverage impact in terms of what we are doing. If you look at our capacity utilization, we are operating about at 60%. And within two shifts. As our revenue picks up, about 50% of employee cost is fixed, and that will play into the operating leverage impact and also flow into the bottom line.
Okay.
Based on our revenue guidance, we believe that growth in profit percentage will be much more than the growth in sales percentage.
Yeah. That part I got it. Trying to understand how do we see the steady state data. You are doing INR 35.65 crore in every quarter. For next 12 months or 24 months, this is where it would be the expectation come down materially? Probably help us.
As a percentage of sales will come down because the sales will go up and a percentage of the cost is fixed. That is excellent.
If you are asking for the U.S. cost, it will come down.
Okay.
Absolutely, it will come down over the next three quarters.
Okay. Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Debashis from Svan Investments. Please go ahead.
Hi. Good evening to the management team. I have just one small question. If I see our current run rate of revenue quarterly, it has obviously come down significantly in the range of INR 200 crore approx. The kind of guidance that you are providing, it seems to be that in Q3 and Q4 or in H2, our quarterly run rate would be in the range of INR 290 crore-INR 300 crore. Is my understanding correct?
Yeah, you can do the math. You could say so. You see, if you want to look at overall growth, Q2 also will be good. Let's say look at Q3 and Q4. Q2 is going to be solid, but you start seeing the growth in Q2.
Okay. Understood. Even Q3 there would be a good growth number that we will see in Q2 onwards, right?
We couldn't hear you, Debashis. Could you please repeat your question?
Yeah. Sir, can you hear me now?
Yeah, we can hear you now.
Yeah. The question that I was asking is, even if I compare Q2 as a better case, there would be a sequential good growth that we will see in Q2 onwards. Correct?
Yeah, you can make that assumption.
Yeah. And one more question is, maybe I missed that number. What is the total CapEx you have planned for this year?
Total CapEx anywhere between INR 38 crore- INR 45 crore are what we are expecting for this year.
Okay. This includes the shift that is happening from U.S. to India? I mean.
Yeah, it is at a consolidated level. Yeah. The total CapEx.
Okay. Thank you so much.
Thank you.
Thank you.
The next question is from the line of Rahil Shah from Crown Capital. Please go ahead.
Hello. Hi, good evening. Do you have any EBITDA margins guidance for the year, in general outlook? That was very low. What can we expect on that?
Yeah. We have given guidance in terms of the top-line revenue and what we are looking at. If you look at our past performance, we also managed to maintain our gross margins. Then you can work out the numbers in terms of what will flow. The operating leverage will flow into the EBITDA impact, and that is what we are expecting.
Mr. Rahil, does that answer your question?
Yes. Okay.
Thank you. The next question is from the line of Uttam Kumar from Avendus Spark . Please go ahead.
Sir, thank you for giving me an opportunity again. Sir, normally I revise the revenue upwards. So just want to understand with regard to your manufacturing thought process. Eventually, will you be again diverting back to U.S. manufacturing? Will again 50% of production will be done there? And if the correct scenario pans out, during what time frame are we looking down there? And how will the EBITDA margins also pan out at that point in time? Just a thought process.
If you look at our company historically, we started in the U.S. with a notion to make in India in 1997, 1998. As things got difficult to get businesses moved to India, we said if we have an operation in the U.S., it will be easier to move to India. So our focus through our journey as we have along is always to make in India. To make sure that we get the business to India, we had the U.S. manufacturing facility where it would start there and then move to India. Then as life would have it, a lot of customers want to make in the U.S. for U.S., so we started doing that. Historically, during COVID and these supply chain challenges, a lot of customers wanted to get things back to the U.S.
Today, they are looking and again looking at, they do not really care if it is U.S. or India, as long as you have the same service level, same engineering levels, and of course, a better cost. We do not intend to have a completely full-fledged, but we will always support customers who have an IRA benefit to make in the U.S. All large boxes. Some of the large boxes does not make sense to move from India to there. So where in that case, we do subcomponents in India, do the final assembly. There is no intention of having a 15% in the U.S. It is going to always be between today it is at 12%. If you go back a year, it was at 27%. This year we think it will be 85% India and 15% U.S. Did I answer the question, Uttam?
Yes, sir. Yes, sir. Got it. Thanks for the talk from my side.
Thank you. Next question is from the line of Pankaj from Affluent Assets. Please go ahead.
Thanks for taking my question. As I understand, as a principle, we are avoiding low margin, high volume electronic goods industry. Are we intending to enter into very high-end electronics, the likes of [Cosat] and all that, where the volume is quite high and there are other sunshine industry for industry in India, and also good margins.
Yeah.
In case we are, what are we doing for that?
Pankaj, our focus has always been on margins, and we have always said it's not growth alone, it's profitable growth we're looking at. There's a lot of businesses we can sign today for the top line. But we have stayed our course and wanted to maintain our margins which are 34%-35% through the years. It's not just today. In the near future, there's nothing wrong with the low margin, high volume business. But in the short term, we are not looking at that. It's a different mindset and different set of facilities we need to get that going. We intend in the short term to look at high margin businesses.
We're already doing the high end of electronics, and the more we do of that, the better off we are. And that also has a long-term sustainability with customers. If you look historically, our customers, 80% of our customer base have been with us for 10 years. That speaks for itself.
Where do we see ourselves in, say, two years, three years down the line as a part of the whole EMS industry, which is still a sunshine industry in India?
We always have and always will, on the technology side, be the leading indicator for the electronics manufacturing. If you look at it, we always have the aspirations to be that in the different commodities we do, whether it's PCB, assembly, metal, cable. We aspire to that. That's why we are in planes. We do custom trays and trays. It's not easy to do that, not only vendors who say they're part of an Airbus or Boeing to the tier one vendors. So we always aspire to do what is more challenging rather than do repeatable stuff.
Thank you. Next question is from the line of Ashutosh from Mirabilis Investment Trust. Please go ahead. Mr. Ashutosh, may I request you to unmute your line and speak, please.
Yeah. Hi. Am I audible?
Yes, sir.
Yes, Ashutosh, you are.
Yeah. Thank you for the opportunity, sir. Sir, I wanted to understand on the profitability, how does the profitability among these segments vary? This I am asking from clean energy's point of view. If you look at the margins, this segment, how would they be different from, let's say, mobility or industrial?
For us, it's a blend, like I mentioned. The clean energy is usually a little bit better if you are looking at that. It's very much like an industrial product, which is the majority of what we do. Depending on type of product you are doing, it's not just an industry specific thing. We could say vehicular has a little bit more margins. But if you look at these products, they are very industrial in nature. The margins are going to be very similar across segments.
Sir, the reason I ask this is because the clean energy mix in terms of execution has gone up like about 10%. Last year it was about 15% of the revenues. Now it is about 25%. On the country level, gross margins have kind of dipped quarter-on-quarter. Just trying to tie up this.
No. Actually, don't look quarter to quarter. If you look at last year or two years, clean energy mix is always in the 24%, 25% range. It is going to be there. Clean energy by far is not low margin by any chance. Because most of our clean energy solar is all distributed.
Sir, which segment led to the decline in gross margin? Again, quarter-on-quarter basis if you look at.
I will take this question. Gross margin, I think more across the spectrum, and it is more specific to this quarter. I think we should not draw conclusions on that based on either this quarter performance or on the sector specific. As KB has already said, there are sectors where we have a higher or customers who have a higher gross margin, some of them are lower. What we are seeing is ultimately a blended one, and that is what we aim to keep it at. We don't go specific to sector or customer.
Sure thing. Then sir, on the order book, the current order book about INR 1,400 crores-INR 1,500 crores. So order book, which is less than 14 months. Broadly, if you can give us some around the segments, how would these segments be, the mix basically?
I would say around 47%, 48% is India-based, 52% is U.S.-based. If you are looking at investment, it is as per our mix. Even if it is lower in the mix, it is coming. We are hoping that the new ship pieces that are coming will consolidate that. On the order side, we are seeing a 47%-53% already with India and U.S.
Thank you. Next question is from the line of Pratap Maliwal from Mount Intra Finance Private Limited. Please go ahead.
Hi, am I audible?
Yes, sir.
Yeah. Hi, and thanks for taking my question. Just one question from my side. I believe you pointed out that the EBITDA from our India operation was about 9.5%, but I believe last quarter it was around 12.5%. What was the reason for the decrease of 300 basis points for the India manufacturing?
Yeah. I will take this question. In terms of India manufacturing business, what we want to say is overall the fundamental business remains strong, and we have been delivering the margins of what we have been doing. Specifically, on looking at the margins, it is the operating leverage impact of the lower gross margins flowing through and the cost being fixed. But as we move along in terms of the higher sales growth, that should automatically come back to where it is.
Okay. I missed this out. Please go ahead, sir. Yeah.
Sorry, we didn't hear you.
Yeah, I think, sir, you were just saying something. Any other reason you were pointing something out?
The end story on Q1 is the product mix, and there's some small amount of rate increase which is there, let's say. It's a product mix dynamic. As the mix comes back, and we see it all coming back, it's not gone anywhere. It will come back to that level. Then of course, there's a negative leverage on operating leverage.
Okay. I believe the previous participant was also referring to this. When we are saying it's about the product mix, can you help us understand how the blended rate I wonder what is affecting the blended rate when you say that you look at it as a blended rate, what part of the product mix is affecting it?
No, we don't want to get into the details. It is basically some of the high margin didn't ship out, keep it that way. Our quantum of sales number also came down. That's why the negative leverage played out. If you look at some of the products we ship month-on-month, that reduced for a quarter, but it's not gone away. It's started back again now. Going forward, we are very confident on the gross margins.
They should come back to that range of about 12% or I think going forward. Is that it?
No, on the gross margins, I don't want to commit on this yet. You will see it as it goes there. Gross margins we are confident.
All right. Okay, sir. Thanks for taking my questions and best of luck for the time coming ahead.
Thank you, Pratap.
Thank you. The next follow-up question is from the line of Debashis from Svan Investments. Please go ahead.
Yeah. Am I audible?
Yes.
Yes, Debashis.
I just wanted to understand one thing. What would be the impact on realizations, margins, and working capital? There will be movement from U.S.A. plant to India. Could you talk a little about what does it impact?
Yeah. When we move the production from U.S. to India, as anybody would expect, the margins will drop. It is also we need to have a dialogue with the customer in terms of how the whole thing plays out. It sort of happens in a transition. Whatever savings are there, some amount maybe need to share with the customer ourselves. That is our business model in terms of trying to onboard the customer in U.S. and over a period of time move to India. That is what our hybrid business model is all about.
Okay. Specifically anything on the working capital?
On working capital, we have given the numbers and in this quarter itself there has been a saving about five days and as we move along, we are confident about achieving the guidance of 10-15 days working capital.
Understood.
Also on the operating cash flow, we have been very careful about choosing the right busi ness in terms of profitable business, which automatically leads to operating cash flow, positive cash flow, and added to the net cash as well.
Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to the management for closing comments.
Thank you. We are encouraged by the robust support from our investors and committed to reinforcing the trust that our investors have in our company. We truly appreciate our shareholders' support and confidence in Avalon Technologies. Together we are set for a remarkable journey of profitable growth and success. Thank you to everyone on this call. Thank you.
On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.