Ladies and gentlemen, good day and welcome to Avalon Technologies Limited Q4 FY 2024 earnings conference call hosted by DAM Capital Advisors Limited. As a reminder, all participating lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this 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 Ms. Bhoomika Nair from DAM Capital Advisors. Thank you, and over to you, Ms. Nair.
Thanks, Neil. Good afternoon, everyone, and a warm welcome on behalf of DAM Capital for the Q4 and FY 2024 earnings call of Avalon Technologies. We have with us today from the management, Mr. Kunhamed Bicha, the Chairman and Managing Director, Mr. Bhaskar Srinivasan, President, Mr. RM Subramanian, CFO, Mr. Shriram Vijayaraghavan, Group Chief Operating Officer, Mr. Venky Venkatesh, Group Chief Sales Officer, Mr. Michael Robinson, Chief Operating Officer for U.S., and Mr. Suresh Veerappan, Head of Corporate Planning and Investor Relations. Mr. Kunhamed Bicha will give a brief overview of the business performance, and this will be followed up by the CFO, Mr. RM Subramanian's remark 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.
Without further delay, I now hand over the floor to Mr. Bicha for his initial remarks, post which we will open up the floor for Q&A. Over to you, sir.
Thank you, Bhoomika. Ladies and gentlemen, on behalf of Avalon Technologies, I extend a warm welcome to our Q4 and FY 2024 earnings call. As we conclude our first financial year as a listed company, I sincerely thank you for your ongoing support. Before we dive into financials, we would like to highlight key differentiators of Avalon Technologies, especially for those who are joining us for the first time. Avalon Technologies established 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, servicing a diverse range of industry verticals in complex integrated solutions that require significant engineering expertise. We currently operate across 12 manufacturing facilities in India and United States. We are also adding two new manufacturing units in India. Our three key differentiators are: One, vertical integration.
We are a one-stop shop offering a true box build from PCB design to manufacturing. That involves PCB design, new product development, cable assembly, sheet metal, plastics, magnetics, testing, and logistics. Two, global presence, both in terms of manufacturing facilities and customer base. Three, optimal mix of established industries like industrial, rail, aerospace, medical, communication, and emerging industries like clean energy. There are many positive updates I would like to share about FY 2025, but first, let me begin by reflecting on FY 2024. FY 2024 presented a mix of challenges with significant shifts in the U.S. macro environment. Despite our initial optimism, we had to adjust our estimates in late Q1 FY 2024 as our customers across various industry verticals reduced their inventories. Consequently, we took a more cautious approach in the latter half of the year and projected an 8%-10% year-on-year revenue decline.
Ultimately, we ended up with an 8% decline, primarily due to a 16% year-over-year decrease in our U.S. revenue. Our high fixed cost negatively impacted our operating leverage, further reducing profits. However, our Indian manufacturing, which serves both our Indian and global customers, representing 77% of our business, remains highly profitable, with operating margins of 12.7% and profit margins of 8.5% during the year FY 2024. Now transitioning to FY 2025, our earlier expectations of a recovery in H1 and significant momentum in H2 seems to be materializing as anticipated. We are seeing positive signs we believe FY 2025 will be a pivotal year for us. Here are a few highlights to underscore our optimism. Our order book witnessed a year-over-year growth 11%, INR 1,366 crore, with an execution period over an average period of 12-14 months.
Long-term contracts in addition to the order book and executable over the two to three years grew year on year by 58% to INR 949 crore. Through our concentrated efforts on inventory management, absolute inventory levels decreased by 10% from December 2023 to March 2024. We remain on track to reduce our net working capital days by at least 10-15 days in the next 9-12 months. Importantly, we've categorized our business focus areas as three growth engines, all of which are retaining momentum in FY 2025 after encountering challenges in the previous year. Now let's delve into each of our growth engines First growth engine, new customers in the U.S. Starting with our major clean energy customer that we previously discussed, we are pleased to share that long-standing product compliance certification for their home electric system has finally been approved.
This is a significant milestone and in line with our earlier communication. Commercial launch is expected in late Q2 FY 2025 with production ramp-up anticipated in H2 FY 2025. The scale-up of this business is expected to be significant in 2026. We are also happy to report several major new wins with industry-leading companies in the industrial and automotive segments.
For some, we have secured box build contracts, while for others, we will begin with PCB and cable assemblies. We have received prototype orders now with commercial production expected in H2 of FY 2025. These are existing products with established companies, and we believe they can significantly scale up in FY 2026 and has the potential to become some of our top 10 customers. For example, one of them is a market leader in motion control systems in the mobility segment. Another is a major backup power generation products for residential and industrial markets.
We will provide more updates on the same in the coming quarters. With the Inflation Reduction Act bolstering clean energy manufacturing in the U.S. and India emerging as a significant beneficiary of the China Plus One strategy, we are confident that our presence in both regions position us for winning new sizable opportunities. Second engine of growth, existing customers in the U.S. These are industry-leading, well-established companies across various industry verticals with whom we have partnered for many years. Last year, this growth area faced a significant challenge due to factors such as inventory destocking and macro uncertainties. We now believe that the inventory destocking cycle has bottomed out. The restocking cycle has begun for our U.S. customers at albeit varying rates. Our efforts last year to gain wallet share with certain customers are also proving beneficial.
In a sense, we believe the shift from destocking to restocking has begun and will become more prominent in H2 FY 2025. With respect to aerospace customers, we have entered the cable harness and lighting products, and we have also signed a 15-year master term agreement with one of the global aerospace majors. We also expect recent order wins in aerospace segment to commence execution in Q4 of FY 2025 and ramp significantly FY 2026. Third growth engine, India customers. Looking back at our business five years ago, we were predominantly an export-focused company with nearly 75% of our revenues generated outside India. However, over the last 18 months, we have actively started focusing on the India market. We have made significant inroads in the industrial, rail, defense, and EV verticals. Today, revenue generated from our India customers contributes 46% of our overall revenue.
Speaking of major wins in India market, let us start with rail. One of our major Japanese customers from the railway vertical has recently been approved by Indian Railways for an advanced version of a signaling and interlocking system they currently supply. This represents a better value proposition for Indian Railways, and we expect to learn more about this development in the coming quarters. Additionally, this customer is also approved for the Kavach system in Indian Railways, and we are actively collaborating with them on this initiative, which further strengthens our relationship with them and augments our business growth potential with the railway segment. We are also delighted to announce major wins with some industry-leading customers in the industrial and energy segments. We have secured prototype orders with them and expect ramp production in FY 2025.
These partnerships have the potential of becoming significant revenue contributors in late part of 2025 and 2026. While we have made progress in the defense sector and communication markets, we anticipate more meaningful order bookings to occur in H2 FY 2025, with execution expected in 2026. Transitioning from a detailed overview, we see all three of our growth engines are gaining momentum at different stages, fueling our confidence in significantly scaling our revenue over the next three years. While we believe we can comfortably double our revenues in this period, we want to remain cautiously optimistic for FY 2025, projecting a 15%-18% revenue growth. In continuation of our earlier discussion on preparing our organization for years of growth, we are pleased to announce the appointment of our new Chief Sales Officer, Mr. Venky Venkatesh.
Venky brings over 30 years of experience leading high-performing global sales teams and closing large deals in our target verticals. On the infrastructure front, we are in the final stages of completing our new factory in Chennai, which will be operational this quarter. This plant will cater to our export demand. Additionally, to meet our anticipated domestic demand, phase one of our brownfield plant expansion in Chennai is expected to go live in Q1, with phase two following in H2.
With the revenue growth we anticipate in the coming years, combining our team and infrastructure in place, we expect the operational leverage will play a significant role in our framework. Profit growth is expected to outpace revenue growth. This is underpinned by the following reasons. One, we maintain industry-leading gross margins and have not pursued low-margin businesses. We expect to sustain our gross margins depending on product mix and ramp-up.
Two, majority of our costs below the material costs are fixed in nature, allowing operating leverage to flow through as revenue ramps up in H2. Three, our dedicated focus on improving working capital will help us release some cash, further supporting our growth and profitability. In summary, it is evident that we have navigated a challenging year, and we anticipate a recovery in H1 followed by momentum in H2. The coming years we are promising with FY 2025 being pivotal for our growth trajectory. I would like to stay consistent with our message that it is essential for us not to lose sight of the long-term vision and opportunities while dealing with short-term macro challenges. Notably, the U.S. market is transitioning from destocking to restocking, which will positively impact our growth. We are preparing our organization for years of growth ahead.
Avalon stands strong, building a business that is focused on long-term profitable growth rather than growth at any cost in the short term. Thank you.
Shall we open the floor for questions?
No. We have our CFO, RM Subramanian will talk on the financials.
Thank you. Good evening, everybody. Thanks for joining the call today. As we come close to FY 2024, I would like to thank the entire Avalon team and all our stakeholders for the confidence they have placed in us. I believe we are uniquely positioned with our hybrid business model, vertical integration, and diverse sector mix to benefit from one of the greatest industry moments that India has seen in recent years. FY 2024 was a tough year for us, with several macro challenges, primarily around the demand scenario for our U.S. customers, largely driven by muted macro and discretionary headwinds. Despite this, we continued to grow our order book by growing our existing customers and winning new customers and making deep inroads into our business segments.
While we believe we have passed the lows and are beginning to see the green shoots of recovery, we continue to reiterate that the products we make and the industry we serve are present in are fairly complex, and our ramp-up period is generally of six to nine months. Given this, the wins we had in FY 2024 will take time to ramp up, and we see the momentum picking up in H2 FY 2025. For the full FY 2025, we do expect to see revenue growth of around 14%-18% year-on-year, primarily driven by H2. Since our profit is strongly tied to our scale of production and revenues, we accordingly expect H2 to be much more profitable for us than H1 and FY 2025 as a whole to be significantly better than FY 2024. Now, moving on to performance in FY 2024 in detail, financials.
Our revenue from operations was INR 867 crore, a decrease of 8.2% year-on-year. This is in alignment with the revised guidance we had given in Q3 FY 2024, and we expect to see improvement here on out. Gross profit was INR 315 crore, down by 9.8% year-on-year. Our gross margin stands at 36.3%, and we were able to maintain it around near FY 2023 levels. We continue to maintain industry-leading gross margins as a factor of our unique hybrid business model and premium quality of products. We are also selective in terms of pursuing profitable growth rather than growth at all costs. Coming to EBITDA. EBITDA was at INR 62 crore, down 44.5% year-on-year. EBITDA margin stood at 7.2%, a decrease of 472 basis points on a yearly basis.
As mentioned earlier, we continue to have a cash out of fixed expenses, and the muted revenues will accordingly result in lower operating profit. PAT stood at INR 28 crore, down by 46.7% year-on-year, and PAT margin was at 3.2%, a decrease of 730 basis points year-on-year. Revenue from our India manufacturing site that serves both our Indian and global customers is around 77% of the total revenue. The EBITDA and PAT percentage margin with India manufacturing are 12.7% and 8.52%, respectively. We continue to be among the forerunners in terms of margins in this business. The U.S. manufacturing reported a post-tax loss of INR 30 crore for the FY 2024. We expect this to improve in H2 FY 2025. In line with the cost optimization exercises, there is progress at our U.S. entity, and the employee cost has been consistently improving.
Regarding the transfer of production from our U.S. plant to our India plant, we have received approval to ship production for nearly 50% of our existing U.S. manufacturing customers during FY 2025. We have already begun the production transfer for approximately 30%-35% of these customers. Moving on to the balance sheet side. Our net working capital days were at 161 days as on March 2024, comprising of 118 days of inventory, 79 days of receivables, and 36 days of payables. We have managed to bring down our inventory levels by around 10% on absolute level owing to our customer demand recovering in the U.S. and our rationalization efforts there. Our supply chain has normalized, and we will derive benefits from this stability going forward.
While we had earlier anticipated a sharper improvement in working capital, we expect it to take a longer timeframe due to our larger customer base and signing up of new larger deals. We continue to improve our payable base and are aspiring to reduce our net working capital cycle by 10-15 days over the next 9- 12 months. Because of all the efforts we have taken, it may be noted that for FY 2024, cash flow from operations, post-working capital changes was positive at INR 17 crore. As at the end of FY 2024, we have liquid cash in terms of investments and FDs of approximately INR 118 crore, out of which INR 50 crore is earmarked for debt repayment in our U.S. subsidiary, and the surplus will serve as reserve and growth capital.
Additionally, we prefer to keep the existing working capital lines in India available amounting to INR 185 crore. The open working capital lines have markedly improved our ability to bid for larger orders, which will reflect in the upcoming quarters. In summary, our FY 2024 performance was characterized by lower top line, largely due to inventory rebalancing, a challenging macro environment in the U.S., and a focus on optimizing our cost structure. However, we believe we have reached the bottom and have begun witnessing green shoots of revival. We have successfully moved some of the products to India for manufacturing and optimized our fixed cost in U.S. in alignment with our strategic plan. Additionally, we have strengthened our senior leadership team through lateral hires at the CXO level.
We have utilized this difficult period to focus on building up of the organization. We expect to see the results of these efforts with a ramp-up beginning in H1 FY 2025 and continuing strongly into H2 FY 2025. Throughout this process, we will continue to focus on winning quality customers and maintaining our brand equity while upholding industry-leading margins. In conclusion, I believe that we have reached the end of the tunnel and are now poised to scale up our business in FY 2025 and beyond. Thank you. Bhoomika, over to 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 for the question queue assemblies. Participants, you may press star and one to ask a question. The first question is from the line of Arafat Saiyed from InCred Research. Please go ahead.
Yeah. Hi, sir. Thanks for taking your question. Sir, my first question is on new client acquisition and new sectors. Let's say, we at clean energy not doing well especially in U.S. How is the situation there? If you can guide me something on that, what's the, let's say, outlook on clean energy first? That's my first question.
Thank you, Arafat. To answer your question, clean energy is a temporary slowdown. We anticipate the same rate of growth as we go into the future because some of the key wins we've had have come from clean energy. If you take an example of our home electrification system, the project had been delayed. Now we are certified. The customer is certified for all the compliances. We have started the prototypes. We see a major ramp of that from Q2 of this year and full production in H2. So we are not seeing a decrease in that. Over a three-year period, that should grow much faster than the rest of our industries. The destocking of our existing customers has also affected that.
Yeah. Sir, my second question is.
Go ahead, Arafat.
Yeah. Sir, my next question is on your, let's say, aerospace and defense you recently added, and you are saying you got a big client name also you added. Can you just throw some light on that? Let's say, what kind of growth you are looking in this space over the next three to five years?
Aerospace has been a focus area for Avalon, and as you are well aware, it takes a lot of time to get in, and then once you are in, you are there for a long period of time. Historically, we would have five-year agreements, FTAs. Now with the global major, we have signed a 15-year FTA, which means the forecast for next 15 years. Multiple segments, we are there in lighting now. We were never in cables. That launch is happening this quarter. Previously we have talked about wiper blades. The first two, three prototypes have already shipped, and 153 type of wiper blades we are getting to production in the next 12- 18 months. This is a substantial piece growing into the next 10- 15 years.
Sir, there is a last question now. Let's say you are looking to shift your years to manufacturing to India. What are the figures on that and where we are reaching that journey?
Last year we decided, we talked to customers during this kind of a good time to talk to them when the numbers were coming down with the destocking. Around 55%-60% of our customers agreed to move to India. They are at various stages. Some of it is already in production, but the big pieces are getting transferred back here. I think this will be complete in the next one to two quarters. Around 60% of our existing business will move to India. Anything which is of clean energy and which has the IRA benefit, Inflation Reduction Act benefit, a lot of customers do still want to keep that in the U.S. in the near term.
We are of a firm belief that in the longer term, the cost factors will play, and there's a good possibility that part of that could be moved to India.
Okay, sir. That's it from my side. Thank you.
Thank you, Arafat.
Thank you. Participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. Next question is from the line of Homeyar from HL Goodfund. Please go ahead.
Yeah. Can you hear me? Hello?
Yes, we can hear you well, Homeyar.
Yeah. My question is, you've been keeping on saying that there's been a slowdown in the U.S., but yours is not the only stock I've invested in. I've invested in several companies. They have never said that. I have relatives in the U.S. say that there's been no economic slowdown. On what basis have you been saying that there's been a slowdown in the U.S.?
I'm not an economist, but I can try to answer your question. What I would say on the consumer side, you're not seeing a slowdown, but of late there's some slowdown. Consumer spending is strong. The U.S. economy looks strong from the outside. Most people are confused when it's low inflation is why. What we are seeing, Homia, that. See, we went through COVID and supply chain challenges for four years. Last year is when we, customers, apart from different industries. Not consumer. We are industrial, we are in aero, we are in medical, we are in auto. We saw across the board, because before June, April timeframe, the lead times for product were for 40- 50 weeks. We kept inventory, customer kept inventory. There was a 50-week lead time. When things slowed down, availability of components came back.
They wanted to go back to pre-COVID levels of 16- 20 weeks, which is the normal lead time we all deal with before this. Today, component lead times have come to that. There's no supply chain challenges as you say. That's why we said customers destocked for five to six months, and now we are seeing the restocking happening and them coming back at variable rates into the normal run rate they had. These are customers who've been with us for seven, eight years, nine years in some cases. It's not like it's a new customer. These are Fortune 500 companies, a lot of them, working with us over a number of years. It is more of a destocking, restocking. In India, we're seeing a phenomenal growth. The whole country is seeing growth.
But in the U.S., there is a slowdown, but that's possibly the largest market also. We have to be wary of that, Homeyar .
Okay. With regards to the aerospace, you make all those sheet metal parts. You also have a competitor, I think, in Sansera Engineering. They also have started making sheet metal parts for aerospace. How do you fare against that? Has the slowdown in aerospace something to do with the issue with Boeing?
See, of course, the slowdown in aerospace, we do around 400- 500 different parts for planes. Of course, there's an issue with slowdown of certain models. We do see that. For us, aero, the bigger pieces are forward-looking, where we are tooling up and doing. Sansera does a lot of machining, and they've been doing that for years. For certain customers, we are the only vendor of choice for fabrication. That's a completely two different model. Sansera is into high-end machining, and they've been there for years.
Okay.
They've just invested in a larger project. That's what you probably are referring to.
Okay. Thank you, sir. Thank you. Thank you very much.
Thank you, Homeyar .
Thank you. Request to all the participants, kindly use handsets while asking a question. Next question is from the line of Sid from Niveshaay Investment Advisory. Please go ahead.
Yeah. Hi, sir. Good afternoon. My first question is, what are the major reasons for the decrease in EBITDA margin? Is it due to decline in revenues because our gross margins are intact?
Yeah. I think I will answer Subramanian here. So in terms of decrease in EBITDA margin, if you look at quarter-on-quarter, it is at a similar level. But if you look at comparing a previous year, it has come down and mainly due to the sales coming down. Below the gross margins are about majority, 50% of costs are fixed in nature. So that has a negative operating leverage effect, which has led to the slowdown. But in quarters where we have a good sales, which is like Q4 last year, you will see that flowing down into EBITDA and we are at a mid to high teens in terms of EBITDA margins. So that is how is the nature of our business and we are confident of reaching this as we move forward.
Okay, sir. That answers my question. The second question I have is, what are the reasons for decrease in revenue from clean energy, and are there customers delaying order due to some reason?
In a lot of cases, the orders are there to say that some of it has been with the destocking situation with the existing customers. Our larger customer projected is starting to ramp only now, which is delayed by at least 12 months. That is one of the two reasons, and we anticipate in the three-year period, this is going to be our fastest-growing segment for sure.
Okay, sir. I have another question. What is the percentage range cost of PCB in different sectors? Go up to 70%-80% in sectors like aerospace and defense.
We are a little bit different if you look at the different sectors. For example, you mentioned aerospace. We do not do PCB in aerospace. We do cables, we do metals, we do plastics in aerospace. We are not a completely PCB-oriented company. Saying that, a larger portion of our revenue comes from PCB and box build.
Okay. What is the percentage for cost and general, cost and general of PCB?
Different industries, to be honest, have different margins you can command. If you look at the consumer space, it will be lower margins. If you look at the industrial space, it will be mid-level margins. If you look at some of the clean energy space, it will be a bit higher than the industrial. It truly depends on the complexity of the work and how much engineering is involved rather than the automation piece. If you look at the consumer piece, a lot of it is automated. If you look at, let's say, we are taking an interlocking system, it is a INR 1 crore- INR 2 crore system. There is a lot of labor and a lot of verticals going into it, not only PCB, cable, plastics, and metal. It is very difficult to say. By industry, you can say the material margins differ.
Okay. Sir, I have one last question. What is your outlook for the revenue and margin and also for the U.S. operations?
Yeah. In terms of our strategy, which we talked about our U.S. operations, in terms of the existing customer, we did talk about trying to move them and then we have had good success in terms of trying to move out there. Okay. That is in terms of the existing customers. As our MD talked about it, for some of our clean energy customers who gets our IRA benefits, it will continue to be manufactured in U.S. Moving forward, our focus will continue to remain on the market. U.S. market is one of the largest and the most profitable market. We will continue to focus on that and onboard the customers. As we move along, our efforts will be to try and move to India. That is our strategy, and that is staying out and we will continue to work on it.
Margins will vary depending on the type of the product and the complexity of the product and where we manufacture. Of course, if we try to manufacture in U.S., the margin has to be higher to justify the higher labor cost.
Okay. Can you give a ballpark number for revenue and margins?
In terms of the revenue with respect to. Yeah, we talked about, in the long run, we want to keep the mixes 50/50 in terms of U.S. to India. That is what we work on. It is just varying between a quarter to quarter.
Okay, sir. Hope that answers my question. Thank you.
Thank you. Next question is from the line of Darshil Jhaveri from Crown Capital Partners. Please go ahead.
Hello. Good evening, sir. Thank you so much for taking my question. Hope I'm audible.
Hello, Darshil.
Hi. Sir, I just wanted to ask regarding our growth and order book. Can you just help me out? We are saying that we have an order book of INR 1,300 crore. That's executed over 13 months. Then there's another long-term contract. Is the long-term contract included in the order book? How much percentage? Could you just help us out in that, sir?
We break our order book into two pieces, the long-term contracts and immediate shippable orders. When we say INR 1,366 crore, that is what is executable in the next 12- 14 months. When we say long-term contracts, which has actually grown by 58% to INR 949 crore, if you look at it from last year, is what can happen between 12- 14 months to three years. Where we have contracts, we count that separately. Did that explains that to you?
Yeah. That's-
They're not the same.
Yeah. They're completely different. Yeah. Okay.
Absolutely.
On that rate, sir, our growth should be much higher than what we are guiding for, right? Because if we are going to execute around, we should be able to execute this in 12 months, right? And we are currently-
You are losing your audio, bro.
Hello, sir. Can you hear me? Hello.
I can hear you. We can hear you.
Yeah. Just I wanted to ask, so this 1,300 crore we want to execute over a period of 12 months, is it possible that our revenue guidance is a bit conservative?
Like I mentioned, Darshil, when we gave this guidance, once bitten, twice shy. Last year, we were off our guidance a little bit. Like I mentioned, we remain on track, but for a three-year period, it is a very conservative guidance from what we can see. Things can change positively, and we will confirm that in the ongoing quarters.
Cool. Okay. And sir, just wanted to ask regarding margins. Currently, we are impacted by negative operating leverage, but as you had mentioned that in Q4 FY 2023, we could even touch 15% margin with our revenue growing to 270. Now going forward as we recover, our margin trajectory, if we are above INR 250 crore, INR 260 crore we should have a consistent double margin. Would that be a fair assumption, sir?
Yeah. Absolutely. What we believe is, see, we are set up for a huge growth, and there's an unfortunate slowdown in 2024. You're going to see us go back to where we were or even better in the future, for sure. It's operating leverage. RM, do you want to add something to that?
Yeah. Just to add to what MD said, in terms of we are from a capacity perspective we are designed for a much larger thing. As our sales pattern comes, gross margins, we have been able to maintain the industry best standards. With the current fixed cost, the margins should flow automatically in tandem with that. We have done that in the past, and we are confident of doing that in the future as well.
Okay. So a 12% margin is possible for FY 2025 as a lot of our manufacturing also shifted to India, which is already doing a 12% margin.
Yeah. I don't want to be getting into specific in terms of numbers, in terms of what we didn't achieve. I think from a guidance perspective, on sales we are done, and we have talked about the mechanism of how it works. I'm sure you can work the numbers also yourself.
Okay. We just wanted to ask regarding our shift of manufacturing of a lot of customers to India, will that be margin accretive? If yes, by how much, sir?
Yeah, I'll take that, RM. Darshil, we believe moving to India will be more profitable for the company. Because there's a cost which we are trying to reduce in the U.S. A combination of this will have a very positive effect. Does that answer your question?
Thank you very much. Darshil, I'll request you to come back for a follow-up question. Next question is from the line of Rahul Gajare from Haitong Securities . Please go ahead.
Yeah, hi. Thanks for the opportunity. I wanted to understand in terms of direction which we are going as far as the U.S. operations are concerned. In this particular year, you did indicate that you did well on the India side, but at the bottom line, there was a loss. What is your roadmap on turning the U.S. business completely and sustaining profits over there? Is that going to take a three-year journey or how much time? That's the first part. That will have a huge impact on the overall financials.
You're absolutely right, Rahul, and that's what we've been struggling through last year. In the first time, we've had this kind of slowdown in the U.S. But saying that, U.S. is the largest market, and we also need that as a beachhead because we deal with some of our clients who have public systems. They like to see some operation in the U.S. Also saying that we would have a smaller operation once a lot of these products move to India, and that journey has started four, five months back. Some of it is moved, some of them in motion. But any of the clean energy products, if we need to play in the U.S., we need to be there because of the IRA benefits the customer gets. So that is the question we are trying to answer.
Anything which does not have an IRA benefit, we are moving or convincing customers to move. We have been very successful in doing that. It is taking a little bit longer than we expected, but the choice is the IRA benefit is going to be there for some time, and we are hoping once it gets started, some of the subcomponents can move to India.
Assuming that we look at a 50/50 share between U.S. and India, even if clean energy were to be about 25%-30% of the total revenue, which is profitable. The U.S. business is more profitable. Let me just put it a different way. Do you think the profits of the U.S., the margin of the U.S. can supplement the Indian operations?
No, I do not think as we see it now, of course, we raise prices, we can get the U.S. to be higher. But as we see now, our core business, our most profitable business is a U.S. customer making in India. That is our core target. For clean energy, we are giving a pathway to the customer to start in the U.S. and then bring some systems into India, so they get the IRA benefit.
RM Subramanian here.
Yeah, go ahead. Go ahead, Raghav.
Yeah. I wanted to also ask you about from a U.S., you just gave me the thought of having enough capacity. Do you see your company needing more CapEx in order to support future growth?
We've always maintained a different model, as we have spoken in the past. We usually strive for a 10x CAP on. Over the next three years, we believe our investment in the facilities or the larger factories are done, and we'll have INR 35 crore-INR 45 crore every year to maintain growth. We're also looking at labor arbitrage because of the U.S. customers. To answer your question, INR 40 crore-INR 45 crore every year for the next three years.
Okay. Sir, I'm not too sure if I missed this. You talked about a revenue growth of about 16%-18%. I understand you're conservative in all the numbers over here. Did you talk about a specific EPS number? I don't know if I missed that or you did not give that guidance.
On guidance, we have stuck to the top line and we have not gone into specifics in terms of profit margins.
Okay, cool. Thank you very much. All the very best.
Thank you.
Thank you very much. Next question is from the line of Neel Nadkarni from Dalal & Broacha Stock Broking . Please go ahead.
Yeah. Sir, thank you for your clarity. Sir, I just had a couple of questions. The first one is regarding the new plant that you are getting online in India. Maybe what capabilities are you adding over there, and are you targeting some other geographies apart from U.S. over there also?
Yes. These facilities will be mixed plants. I think the new one coming up is where we are seeing the fastest growth areas. PCBA Cabled Plastics, it will be a mix. It is 150,000 sq ft facility, 3.5 acres. We have got room to build more. In India, we do have the Bangalore factory. The larger box build will be done in the new plant. We believe the first part will come late this quarter, early next quarter, and the larger plant will start construction once this is done. It will be a mixed bag. It is just not a certain category of parts. We try to utilize our space in the best way possible. We believe the longest lead time to get production going is not the machines, it is the factories and facilities.
Yeah. On the geography side, are you targeting some other geographies also?
Yes. Of course, Europe we have been trying to get there. We have a few customers, but none of the larger business. A lot of our European customers, when they come to India, they use us quite a bit. It is not going back to Europe. It is like what we say in 24% of our business, if I am right, I do not know this quarter, comes from Japanese customers.
Sir, also last quarter you had mentioned that you are planning to repay around 50% of your debt in Sienna. Is that still on track for FY 2025? Also, what were your CapEx targets? If I am not wrong, it was around INR 40 crore- INR 45 crore for the next three years, right?
Yeah.
Yeah.
Every year for 43.
Yeah. RM Subramanian here. I will try and answer that question. In terms of Sienna, we have not completed the transaction. We are hoping that we will be completing in next quarter in terms of repaying the debt there. We have a working capital of about $9 million- $10 million there to do that.
Perfect.
In terms of CapEx, as MD said, we will be on an average doing about INR 35 crore- INR 45 crore annually.
Yeah. Last question, sir. On a long-term perspective, let's say over the next two to three years, are we still targeting 30%-35% industry growth on the top-line side?
Because of our customer mix and because of our U.S., India mix, what we are saying is in the next three years, we are comfortable to say we are going to double our revenues from today. It may come in spurts. But if you look at us over a three-year period, we look at our business over a three-year period, we are very comfortable to double our revenues.
Gotcha. Thank you.
Thank you very much. Next question is from the line of Uttam Kumar from Avendus Spark . Please go ahead.
Sir, thank you for the opportunity. Just two questions from my end. The first one is more clarity with regard to the initial statement which you have made on the growth, where we have stated that the new customers in U.S. regarding the clean energy space. Will you give more clarity on what exactly we have received? Because I couldn't clearly get it. Also there was an excellent commentary where that customer will also contribute a significant revenue from FY 2026 onwards. So what could be the revenue contribution which this particular customer can account for over the next three to five years down the line?
Thank you, Uttam. The first part of your question I missed.
Growth engine.
No, because it was
The first growth engines you had mentioned that there has been a new customer addition in clean energy space, and we had the system approvals, et cetera. I happen to mention commentary we can-
Okay. I got it. It is a new customer. It has been a customer for a year in the sense we were stopped from making product because the compliances for the customer and engineering design issues, and that is being completed so that we are ready to go. We are into prototype now, and we are ready to go into full production in the second half of this year, and some revenue in Q2. It is going to be a substantial piece. I will let it play out, because huge numbers have been promised to us. We just want to be more comfortable in giving guidance on the size of it. But it is fairly large.
Got it. The second one is on the domestic, where the penetration of the company's function work, both, and we would want to maintain a 50/50 mix between both India and international revenue. Which segments are we looking to grow? Because right now we see that certain players are performing well, be it in the basic category or the middle category, whereas we are still struggling to grow the business. What are we focusing on? What are our focus areas? Is the company planning to get into some newer categories or get into some tail opportunity, I mean, more clarity around that would be helpful.
Yeah, absolutely. I will just rephrase. India to us three, four years back was around 20%, 25% of our business. It has become a focus for us in the last 18 months as the whole growth engine has started, and we want to be a fair part of it. A lot of our focus historically has been in rail, which is growing for us and will grow into the future. Industrial infrastructure, again, some global majors for the supply into India have signed up with us. We also have 2 fairly large China transfer projects moving from China to us, both Fortune 100 companies at various stages for the India market coming in. But these companies, it is not an overnight story. It takes good time.
We believe the railways, infrastructure, and our entry into EV with one of the large two-wheeler players, or going to be large two-wheeler players, will happen in the later part of the year, where we have signed significant orders.
Got it. Thank you so much. That is it.
You are welcome.
Thank you. Next question is from Ashutosh Bhaskar from Mirabilis Investment Trust. Please go ahead.
Yeah. Hi, sir. Vipin Goel this side. Thank you for the opportunity.
Vipin, sorry to interrupt you. Can you please speak through the handset?
Yeah. Thank you for the opportunity. Sir, I had this question on the growth part of the business. You anticipated some 15% growth in the next year. Could you talk about the kind of products which would be the first ones to drive this growth for the next year? If I had to break it down between the new customers versus the existing customers or the new customers versus existing products, how would this basically kind of pan out in the next one or two years?
If you look at most of our customers, even in last year, around 80% of our revenue came from existing customers. They will grow at 10%-15%. What we are seeing is the revenue coming from new customers, which is where our larger part of the growth will be at a much higher rate.
Sure. Okay. Then, sir, if I look at the order intake for the quarter, there is an improvement in the ordering. Anything you would like to highlight there on what kind of segments has led to this growth? Or again, on the product side if you break it down into products, is there any particular product that led to this improvement?
A lot of it is broad-based, and a lot of it is a good mix, I would say, between our U.S. customers and India customers. Okay. What we're seeing a comeback with the U.S. is growing a little bit faster into the future. That's why we are very positive, and that's been our core business. India businesses are in the stage where we are doing a lot of prototyping for these industrial giants, and we are seeing that play out in the next two quarters. These are substantial revenues, which are supposed to come in.
Got it. Okay, sir. Coming back to this, the domestic customers. Earlier we were doing some surveillance system for one of the industrial customers, then there is this domestic EV two-wheeler customer which we were pending orders from this year. How is the development there? Any developments on that?
We do have the orders for the next 12- 18 months. Okay. We expect launch late quarter Q2. That's the substantial piece.
Okay. Coming back to that existing product part of the 10%-15% in existing product portfolio. A large part of this could still be mobility and then some bit of industrial. Is that the right understanding?
No, no, because a lot of that could be a lot of our clean energy de-stocking to restocking happening also.
Okay.
Because there was a slowdown there. It is fairly broad-based. Then the aero side also had a tremendous slowdown, which we are seeing coming back to actually four-year back levels as 2020, where we were at the peak at that point of time. We are seeing it broad-based. Of course, industrial is a large piece of our portfolio. We see that our largest industrial customers coming back to where they were before the de-stock, which is around eight months back.
Sure.
Did I answer your question, Vipin?
Yeah. I got some clarity on it. This debt side, last quarter we had alluded some that we will be paying some part of the high-cost debt that was sitting on the balance sheet. Could you talk about what has happened there? Then last one on the U.S. headcount, if you could give the number, how that has moved.
I will take it on the debt side. Today, most of the India debt free. We took some debt in the end of March in terms of about INR 30 crore, come down much more working capital and contractual. But otherwise, today the key debt is in U.S., which is about $15 million, and that is what we are looking to rationalize. We hope to complete the transaction in Q1 and Q2, okay, in terms of bringing the debt down there. Okay. Moving some of the surplus cash from India to U.S. and then paying it down. Yeah.
Hello, Vipin. We have reduced headcount.
On the headcount in U.S.
We have reduced headcount. I don't want to give the exact numbers out, but there's a substantial reduction in headcount.
Thank you. We will now request to come back for a follow-up question. Next question is from line of Raghav Gupta from Nomura. Please go ahead.
Hello sir, am I audible?
Yes, go ahead.
Yeah. Hi, Raghav.
Hi. Just one question on the kind of data. I think you just let me know the split of PCB, box build, ODM, and other electronic components. I mean, just let me know about PCB, ODM, and other electronic components.
Sorry, the audio was not very good.
Raghav, your voice is coming through muffled. May I request you to speak through the handset?
Am I audible now, sir?
Now it is perfect. Thank you.
I was just asking about the revenue split for PCBA, ODM, and other electronic components. Box build, I guess it is 50% this year. What about other segments?
I would put it this way in a simplistic manner. Around 65% is box build and PCB together. That means box build has PCB there and has the other pieces also, and if you are doing direct parts or something else.
Others remain more or less the same, I guess, other than ODM and other electronic components.
Yeah, you can say that.
Got it. Thank you so much.
You are welcome.
Thank you. Next question is from the line of Harshil Sethia from Renaissance Investment Managers. Please go ahead.
There is a new Chennai facility. What kind of capacity will we have in hand? How much have we spent on the Chennai facility, if you can just share that? I just missed Bicha's comments on that.
Subramanian, you want to answer that?
Yeah. On the Chennai facility, that is about 1.5 lakh sq ft of space and about three acres of land. That is within the SEZ. It has the existing building, and we are doing the refurbishing. I think all put together, it will be about INR 30 crore in terms of including the cost of the building and the refurbishment. Okay. This is all in cost I am talking about.
A lot of that has been accomplished already.
Yeah. As we earlier said in our speech, we should be commissioning the building in this quarter.
The INR 35 crore-INR 40 crore that we are planning to spend each and every year for CapEx, will it be for Chennai and Bangalore both?
This is as a company, as a group, as a whole we are talking about, which will have both buildings and the machinery. All of these projects are spread over years. It doesn't get executed in one year.
Okay. Sir, three years out, we might be having a gross block of around INR 270 crore-INR 280 crore. Sorry, around INR 280 crore. Do we expect to maintain the same level of asset turns that we are doing as of today?
In terms of our model, as we earlier said, it is an asset-light model. We continue to do that, and there may be a few blips here and there in terms of the quarter-on-quarter. But in the long run, our business model continues to aim for achieving that asset light.
I am just asking from a longer-term perspective.
Absolutely. Absolutely, we will be able to maintain that.
Which is around seven times, which is more or less what you have been generally doing.
It may be much more higher as well.
We target at 10 times current, usually.
Okay, understood. You said that the facility will be up and running in a phased manner. You said that in Q1 there will be a bit of commission and then the phase two might start from H2, is that correct?
No. There are two facilities. One is in the export zone, which will be fully commissioned late this quarter and beginning of next quarter, which most of the work is done. That is for export. The second facility, as our India business is growing, we have a brownfield project which will be live. Part of it will be live end of this quarter, and new construction, which we already have the land, will start, I would say, in the second half of this year to cater to the Indian market in the future.
Thank you very much. Please, gentlemen, we will take that as the last question. I will now hand the conference over to Ms. Bhoomika Nair for closing comments.
Yeah. I would like to thank all the participants for being on the call and the management for patiently answering all the queries. Very much appreciated, and thank you very much for giving us an opportunity to host your call. Wishing you all the very best, sir. Any closing remarks from your side, sir?
Yeah, just a couple of lines, if that's okay. We are encouraged by the robust support from our investors despite challenging market conditions. We are committed to reinforcing the trust that investors have in our company. I sincerely appreciate your steadfast support and confidence in Avalon Technologies. Together, we are set for a remarkable journey of profitable growth and success. Thanks to everyone for attending the call. Thank you, Bhoomika.
Thank you very much. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.