Ladies and gentlemen, good day and welcome to Netweb Technologies Q4 FY 2025 Earnings Conference call hosted by IIFL Capital Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star, then Zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Hardik Rawat. Thank you, and over to you, sir.
Good afternoon, everyone. This is Hardik Rawat on behalf of IIFL Capital. I welcome everyone to Netweb Technologies Q4 and full year FY 2025 earnings call. We have the pleasure of having with us the senior management team of Netweb Technologies, led by CMD Mr. Sanjay Lodha, CFO Mr. Ankit Kumar Singhal, whole-time director Mr. Navin Lodha, Chief Sales and Marketing Officer Mr. Hirday Vikram, and Head of Future Advisors, the IR advisor to Netweb Technologies, Mr. Sanjeev Sancheti. Without further delay, I'd like to hand over the floor now to Mr. Sanjeev Sancheti. Over to you, sir.
Thank you, Hardik. Good afternoon to all the participants. Before I hand over the call to Mr. Sanjay Lodha for the opening remarks, I would request and draw all attention to the safe harbor statement in the earnings call presentation. I request each one of you to go through the same before the Q&A starts so that you are aware of the same. Thank you, and over to you, Mr. Lodha.
Thank you, Hardik and Sanjeev. Good afternoon, and a warm welcome to all of you to Netweb Technologies Q4 and full year fiscal year 25 earnings call. I will take you through the business and the operational highlights of the quarter gone by, while our CFO, Mr. Ankit, will share the financial metrics. We are delighted to report our highest ever income and PAT for the quarter Q4 financial year 25, as well as for the fiscal year 2025. Our operating income rose by 55.9% year on year for Q4 financial year 25 and by 58.7% year on year for full fiscal year 25, reaching INR 4,147 million in Q4 financial year 25 and INR 11,490 million in fiscal year 25. We continue to maintain our strong growth momentum, scaling rapidly on an expanding base.
We are pleased to announce that the board of directors have recommended a final dividend of INR 2.50 per equity share, representing a 125% dividend on the face value of INR 2 per share. This translates to a dividend payout ratio of 12.4%. This is, however, subject to the shareholder approval. We are extremely happy to share that we have received our first claim under PLI scheme 2.0 for IT hardware, amounting to INR 59.4 million for a period from July 1, 2023, to March 31, 2024.
This achievement underscores the success of PLI scheme in boosting domestic production and creating employment opportunities. We remain committed to in-house designing and producing world-class latest generation systems and supporting the Make in India initiative and contributing to India's growth as a global manufacturing hub. India's vibrant AI research landscape and adoption across verticals, fueled by government initiatives to develop indigenous LLMs, offers significant innovation opportunities.
Netweb is strategically positioned to capitalize on this momentum, anchored by our focus on three pillars: HPC, private cloud, and AI systems. In financial year 25, AI continued to be the major growth engine, contributing 14.8% to revenue and 112% year-on-year growth. In line with our focus efforts in the AI space, we launched Skylus.ai in financial year 25, a unified solution to set up GPU-based AI infrastructure on the go that optimizes GPU resource management, simplifies deployment. The launch of Skylus.ai marks a significant step in strengthening our leadership in design and solutioning of AI systems in India, contributing to the nation's vision of becoming the AI factory of the world. We are building AI-native infrastructure designed not just for today's workload, but for the intelligence-driven enterprises of tomorrow, where compute, storage, and orchestration are optimized end-to-end for large-scale AI data center and model operations.
One of the key objectives behind IPO was to attract new talent and retain our existing teams. I am pleased to share that we have further strengthened our talent pool over the year, adding a total of 79 new team members, taking the total to 441, including 46 technical professionals, taking the total to 238 technical professionals. This reflects our continuous focus on deepening domain expertise and enhancing business and operational capabilities. Innovation has been a key driver for growth of the company over the last decade. In this line, the company applied for three patents in financial year 2025. Additionally, we were awarded one design patent in March 2025. With this now, we have nine registered design patents.
With a strong order book and a robust business pipeline, further reinforced by ongoing capability enhancement and strategic expansion of our product portfolio, we are well positioned for sustained growth and continued technological leadership. Backed by this momentum, we are confident in achieving a 35%-40% CAGR in top-line growth over the next couple of years. For the upcoming fiscal year, we are guiding for an operating EBITDA margin of 13%-14% and a PAT margin of around 10%, reflecting our confidence on business momentum and our focus on profitable and scalable growth. I would like to hand over the call to Ankit to provide updates on financial numbers. Thank you.
Thank you, Sanjeev sir. Good afternoon, ladies and gentlemen, and thank you for joining our earnings call. Before we open the floor for Q&A, I will provide a brief overview of the financial performance for the quarter and the year gone by. I trust that by now you have had the opportunity to review our earnings presentation and press release. While our CMD has already discussed the macro outlook, I will delve deeper into financial performance, providing a more detailed analysis of the quarter gone by. Our operating income increased by 55.9% YOY on a quarterly basis, reaching INR 4,146.5 million in Q4 FY 2025, and increased by 58.7%, reaching INR 11,490.2 million in fiscal FY 2025. Our operating EBITDA for Q4 FY 2025 increased by 47.9% YOY, reaching INR 597.7 million, while for fiscal FY 2025, it increased by 56.1% YOY, reaching INR 1,600.1 million.
The operating EBITDA margin for Q4 FY 2025 was 14.4%, and for fiscal FY 2025, it stood at 13.9%. Profit after tax PAT for Q4 FY 2025 grew by 45% YOY, reaching ₹429.9 million, while for fiscal FY 2025, PAT increased by 50.8%, reaching INR 1,144.8 million. PAT margin stood at 10.3% in Q4 FY 2025 and 9.9% for fiscal FY 2025. Return on equity for the FY 2025 was 24%, while return on capital employed for the same period was 32.6%. The balance sheet strength is reflected by us being a zero net debt company. The company had net free cash of INR 1,621.3 million as of 31st March 2025, as compared to INR 737.2 million as of 31st December 2024. Cash conversion cycle for Q4 FY 2025 improved to 73 days as compared to 88 days in Q3 FY 2025.
Cash flow from operations for Q4 FY 2025 was INR 655.04 million, reflecting our discipline and focus efforts to enhance cash generation through improved operational efficiency and working capital management. The company successfully deployed SAP S/4HANA to enhance control and oversight of all operational and financial processes. This upgrade enables real-time insight, streamlined workflows, and stronger governance, supporting scalable and efficient growth. We remain firmly aligned with our strategic objectives and growth pillars, maintaining a clear focus on sustainable growth and long-term profitability. Backed by our strong quarterly and year-to-date performance, our healthy order book, and a robust business pipeline, we are well positioned to deliver meaningful revenue and profit growth in the current financial year. With this, I now hand over the call to Hardik Rawat.
Thank you. We can now proceed to the Q&A session.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on the touch-tone 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 CA Garvit Goyal from Nvest Analytics Advisory LLP. Please go ahead.
Hi, hello. Hello .
Yes. Yes.
Good evening, sir. Congrats for a good set of numbers. My first question is on the AI segment. You are mentioning we are growing very fast, and the numbers are saying the same thing. I want to understand the key drivers for this particular segment, and where do you see this segment three to five years ahead as an overall contributor to our total revenues? So that is my first question.
Yeah, hi. Thanks for the question. One thing is very clear that we have been telling right from the IPO days that AI is going to become the third important vertical for us, and it is going to. We see a lot of headroom in the AI product vertical, and that is what we have proven right as well. As you have seen, that in all the quarters in the past, we have shown significant progress in the AI product line. That way, we see a lot of headroom, and largely, the requirement which is coming is from both the enterprise and the government sector both.
So from a customer point of view, I think adoption of AI is happening at a very larger scale, and this is definitely driven by the fact that the way the requirement of LLMs has grown multifold, and it is being filled by all enterprises and government organizations that they need to have private LLMs or the local LLMs, or they need to have some sort of LLM services. That is something which is driving the AI adoption in a very different way. So we see that this is going to continue in subsequent years as well. And your question was that how do we see it after three to five years? We definitely see that AI is going to become one of the most fundamental bases for any nation, not just limited to government organizations, but even for the enterprise organizations as well.
So definitely, we see a lot of headroom in the coming years as well.
What percentage are we targeting as a mix to our total revenues in the next three-to-four years?
So basically, as you know, the company has been growing at a rate of around a CAGR of around 35%-40%. So all our segments are growing very fast. So basically, though AI is growing at a faster rate, as I told you, it's already grew at 112% approximately. So currently, it is around 15%, around 14.8%-15% currently. We feel by end of year, this will be somewhere around 20%, little 19%-20% of my all existing share it will have.
Is there any margin differential in this category where we are able to get higher margins as compared to other segments?
Margin is almost all pretty same in all because we price our products in a different way. You know that our competition normally is all on the single-digit margin, wherein basically we are around 14%. So basically, we are already at a comfortable position and plus, basically, since there is a huge market to be captured, we want to price our products optimally and not just try to basically charge margins initially or something of that nature and you are seeing since we have been growing and we have almost all been able to maintain our margins very well so I feel AI has got some little bits of extra margin, but I don't think basically you should take it as a similar margin profile.
Understood. And sir, secondly, on the patent side, you mentioned we applied for three more patents and got one more patent in the month of March. So can you spend a few minutes on explaining what kind of patents are these? Are we able to enter into new areas via these patents, or what is our exact thought process behind acquiring these patents?
So basically, you know that innovation has been very, very key in the journey, actually, over the period of 25 years. We have always been trying to innovate. We are a completely integrated company wherein we design our products. We manufacture our products. We have our own software stack. It's completely end-to-end. So basically, in our processes, we are able to develop some. We have a huge R&D team. They are able to develop some unique features for ourselves. So we primarily try to patent them so that we remain secured on that. But actually, we are not in a position to divulge the details of what the patents are and all that because they are all under approval.
Understood. So can you just tell us the patents are belonging to the existing areas where we are generating the revenues, or we are looking for new areas to enter into?
No, the patents are for existing areas only. They are primarily on the existing segments which we are working upon. So basically, what we are trying to—we are innovating so as to enrich the product lines. Basically, we got Skylus.ai recently, as you might have heard about it, that has received very good traction. So we always work towards basically making our products much more friendly and much more adapted to the current requirements of the customers. So in that process, we do a lot of R&D, and our patents are in those lines, actually.
Understood, sir. Thank you very much for all the responses. Thank you.
Thank you.
Thank you. The next question is from the line of Darshil Jhaveri from Crown Capital. Please go ahead.
Hello. Good afternoon, team. Congratulations on a great set of results. Hope I'm audible? Hello.
Yes, we can hear.
You're audible. Yeah, yeah. Hi, hi. Thank you, thank you. So just wanted to know, we've had such a great amount of growth, and AI is also firing quite well. So over the next few years, what kind of revenue growth can we see? We've done, I think, over this year's growth has also been over 40% of last year's growth. Just wanted to know what kind of growth that are we targeting for next year.
So basically, as we mentioned, Netweb from the very beginning has been very clearly focused into the enterprise area only. While most of our customers are large government enterprises or large enterprises primarily, government and private. 50% of business is from government, 50% of business is from enterprises. So it's very well balanced, actually. So basically, as the AI segment is growing, and basically, we have been saying that very clearly from the very beginning that if you see my report for the last three years, you will see that basically we have been growing around 35%-40%. I have been guiding that the same. So basically, we still would like to say that we see at least for the next few years, the same growth momentum will be maintained. So that is exactly how we would like to say.
Basically, I already indicated currently, since we are growing at phenomenal, AI segment is one of the fastest growth movers for us. Still, basically, by the end of the year or by early next year, sometime it can go up to 20%. Basically, since our private cloud and our HPC market is also growing, so this is the kind of mix we feel it will be.
Okay, okay. Fair enough, sir, and sir, just wanted also to pick your brain a bit about our order books. I think in the presentation, it's maintained like we have a huge pipeline. So could you just maybe elaborate a bit like what are these orders for pipeline? I think it's around nearly INR 4,000 crores. So these are long-term contracts, short-term, how are they just working?
Yeah. So basically, as I have been telling on each of my calls for the last eight quarters, that basically our company cannot be really judged in terms of order book because basically order execution cycle for us is somewhere around 8 weeks to 12 weeks. If you see my December quarter, once I presented the results, I mentioned that basically my order book is around INR 350 crores, whereas basically my total revenue was INR 440 crores. So basically, order book normally is almost all over in the next quarter. So basically, we are a company which is dependent upon our funnel, actually, the order pipeline. So order pipeline, because we are a proactive company, we have to understand that we work on designing solutions for our customers. Okay, we don't go once the RFP is out. We go before the RFP is being published.
So basically, that's the way we work, and basically it takes us around six months to eight months to work on a particular project and so that after that RFP is out and the execution is done. So basically, we have a huge pipeline of around 4,000 crores, and conversion ratio which we have seen is around 60%. And our pipeline closure is between six months to even 18 months. So that gives us the confidence how we will be growing at 35%-40%, and we will be maintaining that growth.
So just for execution, you said it's 6-18 months, right?
Execution is 8 weeks to 12 weeks.
Yeah, execution is 8- 12 weeks, but he was talking about since you were asking about the pipeline, he was saying.
Yeah, yeah. Yeah, sorry.
You got it. Thanks. No, I was just asking for, I think I understood, okay, we get the order book. We start working before the order book only. So in general, for the pipeline, if you could just walk us through a bit, if we are having a conversation with a customer, it starts in month one, and by the time we deliver it, it would be a little bit 12 months or a bit more than that. That's what I wanted to ask, sir.
So basically, it can happen in 30 days. It can happen in six months. It can take one year, I'll tell you. Basically, if somebody is planning a supercomputer, okay, then basically they start talking to us in the very beginning. Once we feel that they need a supercomputer, we start talking to them. They run their codes. We optimize their codes. We basically make them feel where they are coding. Their codes will scale up better. The kind of solution will work for them. Then they design the RFP. So that's the reason basically once it's been designed and we do all the POC, everything for them. That's the reason our conversion rate, if you see, is around 60%. Okay, so all this takes around six months also. So basically, this is a very variable time. It can happen in 45 days.
But normally, we have seen that average closure is at least it takes around six months approximately for a pipeline to conversion into an order book.
Okay, sir. Just one last question from my end. I think international market is also a very good area for us. So any kind of conversation that we are having or what kind of a growth strategy you want to do for an export market, sir?
So basically, as you know, our domestic demand has been phenomenal. And basically, this is the eighth quarter result I'm presenting after listing. And you will see that for all the eight quarters, consistently, we have grown at 35%-40%. I think that itself basically shows the robustness in the company and the commitment we show to the market. So that is there. So domestic demand has been phenomenal. But if you see our books very clearly, export has started this year. It is somewhere around 5%-7% of our current turnover. And we feel that we will maintain this kind of percentage in future also because, as I have been mentioning, we are not a kind of a consumer company or some kind of a box-selling company which will start selling products.
Basically, our products are primarily moreover our production grade, where basically for enterprise customers, they use for their production machines. So we need to have an adequate support infrastructure so as to support them. And that takes time. So we want to go gradually into that. So again, my commitment to the market will be 5%-7% of export of our total turnover.
Okay, sir. Fair enough, sir. Yeah, that's it from my side. So all the best, sir.
Thank you.
Thank you. The next question is from the line of Anand B. from Kesma Welt Private Limited. Please go ahead.
Hi, good afternoon, sir. Can you hear me?
Good afternoon. We can hear you.
Yeah, I believe one of the questions that previously has been answered regarding AI segments. But I want to drive your attention to the high-performance computing segment. Currently, the segment revenue contribution from that is around 35%, as you mentioned in the presentation. And where can we see that and the private cloud segment to grow in the next three, four years?
So basically, if you really see, both the high-performance computing and private cloud, it's not something which we have started doing yesterday. We have been doing it basically for a long time. Supercomputing, we are doing for 20 + years. Private cloud and HCI, we have been doing for 10 + years. Okay. And you know today how the data center market is booming. So basically, that is definitely everything today doesn't work on bare metal. Everything tries to work on private cloud. So there is a lot of traction for private cloud. So we feel the private cloud market, always if you see the past quarterly results, there has been basically sometimes private cloud becomes 40%, sometimes 35%. So basically, they remain a very, very good mix, actually, between them.
We feel that will go on because private cloud, we are not seeing the data center market cooling off very soon. More and more compute requirement is growing. As regards HPC is concerned, supercomputing is concerned, basically HPC has moved from research to basically various kinds of uses like oil and gas, consumer, a lot of places. Actually, the uses of HPC have increased because in automotive, in manufacturing, various areas. Basically, that is also fueling its growth. More and more user applications are complex applications coming up. They basically take help from HPC. Our HPC expertise, our software and hardware stack, customization, and all really helps to scale that up. We feel for some couple of years, both these segments will be around 35%-40% of our complete portfolio.
Okay, this is for the next three, four years, we'll maintain around 35%-40%.
Sure.
Hello?
Yes.
Okay, that is answered. What will be the industry vertical right now as for the current financial year FY 2025?
I think that is mentioned in our presentation. Basically, I think you can answer that maybe.
The current sectors are IT, ITES. We have been doing with the BFSI. We have been doing with the space and defense and a lot of government and public sector undertakings. Higher education research institutes, they have been our prime segments in terms of customer application industries.
50% of business approximately comes from the government segment. 50% of business comes from enterprise segment. So that will give you a very good understanding.
Okay, but industry-wise, can you give me a percentage breakup from these industry point of view?
It's there in the slide. What's already there in the data, I will request you to go through the presentation which was circulated well in advance so that we can give time for more questions which are not covered in the presentation.
Okay, okay. Sure. Yeah, that's no problem. Thank you.
Thank you. The next question is from the line of Hardik Rawat from IIFL Capital. Please go ahead.
Thank you. And congratulations to team on another strong quarter. I'd like to begin with the revised revenue prediction of 35%-40% CAGR that we're giving out. And if I got it correctly, we expect the AI enterprise workstations vertical to form nearly 20% of overall revenue for FY 2026. That's correct, right?
Well, I would rather say that it will grow up to 20%. Now, I'm not putting a date on that immediately, but I think it will move towards 20%.
That's true. So the understanding should be that it should move towards 20% in the next one to two years. That's correct?
Yes.
I think that's better.
That's a better statement.
And got it. And so just wanted to understand that this would mean roughly five percentage points increase from the current mix. This should come at the cost of other segments being our dominant segments, HPC and private cloud, or this should come they should probably sustain the 35% odd mix for both these segments and just should be on top of that? 70%.
I think if you look at mathematics of it, 15 becoming 20 will not significantly change the other segments, maybe 1%-2%. Obviously, the total cannot be more than 100%. So it will take it from somewhere, right? Now, sitting and trying to envision in the next two years, whose 8%-10% compared to your guys is very difficult.
8%. And the base is also increasing, right?
Yes, it's also increasing. So overall, numbers will increase, but whether that 5% increase in share by these two segments or some other segments, it's a small percentage. I think it's to get into that kind of precision on segment-wise.
No, I get that. I'm not asking for a precise number, but I'm trying to understand. Let me put it another way. So we are basically projecting 35%-40% blended revenue growth, right? So for HPC and private cloud, we expect these two segments to grow in line with the blended revenue growth and AI enterprise workstations to slightly grow ahead of it. That's right?
Actually, overall growth which we are committing 35%-40%, Hardik, that will be maintained, actually. So this year also, if you really see, what happened is that though we were able to maintain the 35% for both these segments, and the AI was somewhere around less than 10% or 11% last year, it went to around 15%. Okay. So basically, you can understand that we are consistently growing at 40% CAGR almost. It is visible to you. So basically, in that process, definitely AI will contribute, but I will not like to commit to the market anything beyond 35%-40% of CAGR growth at this point of time.
Got it. Got it, sir.
Sir, another key standout in our overall revenue performance has been the HCI-focused software and service vertical, which has grown quite sharply to about 45-46 odd crores in FY 2025. This was a jump from roughly 18 crores which it did in FY 2024. Any specific reason of this jump? Is it in relation to the execution we've done in HPC and private cloud?
So basically, actually, this is not that we are not a software or services company, okay, very clearly. But basically, what happens is that since our base is growing, we definitely get some better support contracts and services contracts also from large. We primarily pick and choose those. Wherein we have some kind of a good expertise like oil and gas. There are some large, basically oil and gas companies who look for some specified kind of HPC services and all those kind of things which we provide. So definitely, this will remain in this range only. I personally don't see that basically it will be growing. Our major focus is primarily the three top segments, actually. And that will remain that way.
Got it, sir.
Another question was with regards to our revenue prediction. So we are projecting a 35%-40% CAGR. Based on this, if I assume the upper end of the guidance, we hit about INR 2,250 crores of revenue in FY 2027. Now, in our last conversation, the CapEx that we've done was good for about 2,000-odd crores of turnover. So do we envision any another leg of CapEx somewhere towards the end of FY 2027 or FY28?
I wouldn't say that we will start hitting the money, but maybe towards the end of 2026, 2027, we may have to start planning for something for the future growth. But that, again, you should know that the asset turn is 20 times. So we shouldn't worry about the Capex because it's going to be nothing significant in any case.
We have one of the best asset turnovers in the industry. We really see that.
Nice, sir.
My other question was with regards to cash conversion. So we were expecting about a 30%-35% OCF to EBITDA conversion for FY 2025. However, as opposed to that, because of higher working capital intensity, it seems like our OCF for the year has been negative. Are there any one-offs in this? How do you expect this to evolve in the future? Or is it just additional inventory stocking considering that you expect a very strong growth?
This is a good question because it comes in every call. See, this is a problem of growth. If I'm going to grow at 50%, 60%, we've grown at close to 60%. Now, our DSOs are standard DSOs on 90 days. In fact, we have done very well to be keeping it below 90. Okay. And inventory we have to carry because we are into such business where there are certain items which are very critical. So we don't expect our cash conversion cycle to improve anywhere significant from where we are. We believe it will be in the range of 70 to 90 days. And hence, if we continue to grow at, let's say, 50%, 60%, then obviously a chunk of the revenue will get invested into working capital. But as the growth smoothens to 35%, 40%, then you will start the cash coming back.
So this is typically a problem of growth. The good part about this is that, and this is something which I must clarify, that the quality of the cash conversion cycle is extremely good. We have almost negligible, let's say, bad debt, and the aging is also very cautious. So these will all get converted because we are growing so fast, because our last quarters tend to become so heavy that a lot of it is to be received. And I think that's but we believe that at a 35%-40%, we will be cash positive, definitely. But if you grow at higher than that, and which I'm not at all guiding, then obviously a part of that growth will get invested in the working capital cycle.
So right now, going forward, at least in the next two to three years perspective, in terms of our priority, does cash conversion come into that list of priorities or will prioritize growth first and possibly at the risk of our operating cash flow conversion?
No, I don't think risk of it's a mathematical number. I don't believe to call it as a risk because our quality of cash conversion cycle is extremely good, and I'm sticking our neck out to say that, but you tell me, if you were me, would you sacrifice growth for the kind of business that we are to get a better cash flow cycle? I mean, the jury is out on this. You can understand.
The amount of cash we have actually is not a limiting factor for us at all, and primarily, we want to grow and we want to maintain our because basically, you understand, we are a Make in India company. Okay. We are doing a lot of innovative work basically in the country itself, which basically we are only competing with the MNCs. So that is basically giving a very good lever to the company on the high-performance domain. So basically, that is generating those kind of expertise in the country. So basically, I think growth is very important for us. Our margins are good. Our growth has been consistent. So I think basically, I don't think cash is anyway limiting, or we'd never like to limit our growth for cash. I don't think cash is any limiting factor.
And also, while from an accounting perspective, you are seeing a cash conversion cycle where it is, but we are sitting on INR 170 crores cash today.
Yeah, that's only.
Just to highlight.
170 crores cash.
The cash flow from operations has been close to INR 65 crores.
Which we've already highlighted.
Yes, yes.
Which we have already highlighted.
Cash flow from. All right. I think I'll get back in the queue for more questions. Thank you.
Thank you. The next question is from the line of Akshay from AK Investment. Please go ahead.
Hello. Hi sir. Congratulations for the excellent set of numbers for Q4 and FY 2025. My first question is for the EBITDA margin that we are guiding for 13%-14% EBITDA margin. But logically, we understand that our customers are high-end enterprise customers, and we have to give them some value of our products and cost-effective solution. But if we think logically, then we are going at 40%. And if our cost, all other cost remains same, so naturally, our EBITDA margin should improve. So why are we being conservative on that front?
I'd like to tell you that, as we have been telling, that we are consistently charging our customer in a very wise manner. Okay, so the operating EBITDA that we have been guiding is 13%-14%. There is a room of operating leverage which can improve the margin by 30%-40% basis points in next year, which we can expect. Plus, basically, I would like to make a note here. If you see my competition, actually, which is primarily MNCs, they are all on single-digit margin. Whereas basically, we are at 14% or this kind of margin, which is much better than my competition. So we are very comfortable in that. Plus, basically, I don't want to because all my customers are enterprise customers, and I have a lot of repeat business with my customers. So I give them value for money. Okay.
And basically, I think the margins which we are charging is really adequate and really good, and that is helping us so as to maintain our growth. And basically, customers come to us for repeat business for different segments also. So basically, I think that's a strategy we have been working upon for year on year, and we'll still continue doing that. Because please, please, please, you have to check what kind of basically the margins of our competition has. Competition is already on single digits. So we feel we are already in a very, very comfortable set of margin.
Okay. Okay, sir. Very well explained, and sir, my second question is on the funnel. Currently, we have the order funnel of around 4,000 crores. So does it include the opportunities from IndiaAI Mission and also the regional large language model that our IT minister is talking? So does this include all these opportunities?
Basically, I can only answer partially to this. AI mission is not included in my funnel yet.
Okay. Okay, sir. And this order book, does it include all the segments or only it includes the high-performance computing?
All the segments. All the segments.
Okay. Okay, sir. Understood. Thank you so much for answering my questions.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah. Thanks for the opportunity and congratulations on a great show. Just on the Skylus.ai, the product, the solution which we have launched for the GPU-based architecture, can you throw some light in terms of this is a first-of-its-kind of product or there are competitors who have already launched these kinds of products?
Thank you, Sandeep, for your question. Skyless.ai is something which was a product on which we were working for very long. Now this has come up and it's a proud moment for us because this is something which is competing with some of the MNCs, actually. Overall, if you see as such a single product available in the market which can compete with Skylus.ai, we don't find any such option available. Yes, with a combination of two, three different products, there can be a combination which can come near to Skylus.ai. The best part is that Skylus.ai overall brings a lot of ease of usage on table for customers. Definitely, it's a perpetual license-based product. This gives another factor for users to opt for. It brings competitive advantage also on the table for customers to opt for.
So that way, both the advantages are there. One is from technical aspect, it's a way superior product. Second is that it competes with multi-license-oriented offerings available in the market. So that way, it's quite well placed in the market. And that is the reason the adoption of Skylus.ai is increasingly going up and up in the market. And that's the reason we are so buoyant about that our AI systems and the AI solutions will get the adoption of our AI systems will go up and up with Skylus.ai coming into the picture.
Okay. And just to follow up with the compute innovation on the rise through DeepSeek announcement as well as some other announcement from the U.S., is it the decision-making from the client in terms of spending on the hardware, OpEx, CapEx to implement the AI architecture is getting delayed because they are maybe also confused in terms of the cost of the operation, whether to put it now or may defer it by three-to-six months or one year? So basically, I will answer it partially and maybe then Hirday can add on. Sandeep Ji, so basically, you know that as I have been mentioning again and again, and it is visible basically from the market dynamics today, that DeepSeek has rather opened a lot of opportunities for us. Okay. What is happening is that previously, basically, what I am seeing is that I'm seeing the reverse trend.
After DeepSeek, definitely, if you see the India LLM story has started. India government started basically to build the models for India itself. So basically, people who were thinking that they cannot build fundamental models, they also started thinking of building their fundamental models. So all that definitely increases the demand for AI compute exponentially, actually. And basically, same way for the application developers. Previously, there was one large compute in the data center which everybody was trying to use. But basically, since you are able to use GPU resources optimally, I think every department wants to have their own separate compute. So basically, rather than a situation wherein this will really make customers confused, I think customers are overbuoyant about it, and they are trying to basically get more and more adoption of AI is going to happen. So I personally feel this is a very positive factor.
Hirday can add on if he has something.
Yeah, definitely. I think as sir has said that this is very clear. With the advent of DeepSeek, definitely adoption is going up and up, and there is a reason for it. That earlier, those users who were trying to use, trying to take out maximum performance out of limited hardware, they were not able to do so. But now, with DeepSeek kind of LLMs or the other models there in the market, now users are able to take out maximum performance out of existing hardware, and they are even now thinking of scaling their existing hardware to the next level as well. So that way, the adoption is going up, and that is the best part about it. And just to share with you, Sandeep , that Skylus.ai is something which is ultimately helping such users only.
Because you see the way we have made the way traction is building around Skylus.ai, this is especially for users like those customers who were earlier on DeepSeek or other LLMs, and they want to focus on the AI-related activities instead of learning the hardware, etc., so all that problem is getting resolved or solved by Skylus.ai, so that way, adoption is going up, and we are also building our solutions which can ultimately increase the adoption.
Okay. Okay. Fair enough. Just a follow-up question to what Sandeep sir has said. The pipeline does not include this sovereign AI opportunity from India. Any reason for that? Why? Because this has already been officially launched more than one year. So basically, the reason is that what is happening is actually, as you know, that we are always very reasonable in basically showing a pipeline and because it's much more matured business. So basically, once the RFP is just about to be released or something of that nature, it will get reflected into the pipeline. But basically, just when the RFP is still a few months away, we don't like to basically include it into the pipeline. Okay. And since it's a large opportunity, so we don't want to basically make our complete projections skewed. Okay.
So sir, in that scenario, once the RFP launches, Sandeep sir, the growth potential could be even higher than 35%-40%? We all wish for that. You are a well-wisher, so you will also wish for that. I know that. Okay. So we will keep the same 35%-40% only. Okay. And Ankit, in your remarks to the previous question, I said if growth continues at 35%-40%, or even higher, 30%-40% basis points of operating leverage is possible on a YoY basis.
Yeah. Yeah. Correct. Correct. Okay. And if I can squeeze the last question, in terms of export opportunities, the 5%-7% of top line which export forms, this is for the full year of 2025, and we expect this to remain at current level in the coming years. That means export business may keep growing at a company average growth rate. Okay.
As we have been guiding, Sandeep Ji, that we will gradually work on exports, and it will likely remain consistent and might go 1% higher, let's say, to. Basically, the domestic demand is very high, actually. Sandeep Ji, you know that very, very well. Okay. It is very high. Basically, really speaking, as we committed to the market, we will do exports. We started doing it. It's around 5%, 5%-6% currently. It will remain that, and maybe it can go marginally a little bit higher. But I will not like to guide anything beyond that for exports. Sir, I will just like to add here, Sandeep. The problem is growth again. See, even if we are at 5%-6%, we are still growing at 40%, right?
So I mean, it's not easy to increase market share when the company is growing at these rates or the share because everything is growing at that rate. So 5%, 6% here and there. Yeah. Okay. And just the last thing, Ankit, I think there has been a significant improvement in FCF generation in the second half over first half. So do you believe this can sustain periodically in terms of FY 2026, FY 2027, or do you believe the skewness may continue to remain where H2 is better than H1? Can you repeat your question again? Yeah. On the FCF generation, the second half FY 2025 FCF generation has been really materially better versus first half. So whether this trend of OCF to EBITDA and FCF to PAT in the second half, what we have reported, may continue in a small range going forward.
What are the changes we have implemented to improve the FCF? I mean, the endeavor, Sandeep, was always to get as much cash back into the business. You see, our standard terms of credit with the customers is 90 days because they are very large customers. We've somehow been able to push and get early payment because when it is 90 days, it's never 90 days. It can become 95 days, 100 days. We have been able to push and get. It may be possible sometimes. It may not be possible sometimes. I mean, that's why I'm giving a range of 80-100 days of cash credit cycle. When it is 80 days, then you will have very large cash conversion. Some portal, if it is 100 days, then the cash conversion may be very less.
But as long as my cash conversion, my credit days are quality credit days, I shouldn't be worried about that. Okay. Okay. Endeavor is to make money as fast as we can because inventory system .
Okay. Okay. And last thing, because we are growing fast, our base is increasing. We are already approaching 115 million annualized revenue in FY 2025. So in the pipeline, you believe now the focus would be more on mega deals, larger deals because that will help us to keep growing at a higher rate. And in pursuit of going behind larger deals, mega deals, there will be some margin competitiveness which we have to follow because of the higher competition?
Actually, really speaking, we focus on customers, not the deal size, actually, because if you see our customers are very important customers, so the names are more important for us. If it's a large customer and if it's a prominent customer, a smaller deal will run for that. So it will always remain basically in that way. But that's the reason we are guiding around 13%-14% of margin, actually, going forward. So I think that will be easily able to maintain. Yes. And that's keeping in mind all kinds of businesses which will come during the year. Okay. Thank you. All the best. Thank you.
Thank you. Thanks.
Thanks.
The next question is from the line of Nikhil Agrawal from Perpetual Capital. Please go ahead.
Yeah. Hi. Thank you. And congratulations on a strong set of numbers. I'm fairly new to the company. Most of my questions have already been answered, but I just wanted to know one bit about. You mentioned several times your margins are far higher than your peers, which are mostly MNCs. Can you mention about the driver of these higher margins? What's driving the higher margins?
Good question, actually, so basically, to understand Netweb better. Basically, we are a completely integrated. We do full stack, actually. We design our products. We manufacture our products. Our hardware is completely designed and manufactured by us. And then we have our own software stack. We have our R&D, like basically our supercomputing. Basically, we have our own hardware. We have our own software stack for cloud. We have our own hardware, own software, plus the services stack. So it's all very well integrated. Whereas in the competition, the situation is either they are hardware companies or software companies. They do bundling together. Whereas in our case, it's completely end-to-end, and the complete solution comes up. So that really helps us so as to basically command better margins in the market. That's the most precise answer I can give you at this point of time.
Understood. And just adding to that, do you all also does this business include some element of managed cloud service?
Negligible. No, almost all.
Okay. And will it be right to assume that the software side of the business, which again is built in-house, commands a far higher margin than the hardware side? I mean, of course, both of them go together as a product, but.
Yeah. So basically, yeah, you're right. It goes together as a product. We don't sell our software separately, whatever it is. We always sell it as a solution. Basically, we sell a supercomputer. That's hardware plus software together. And the software revenue doesn't get basically mentioned in our books in our invoice, actually. That goes as a product. Same way, basically, for our private cloud also. Same way for our AI also.
Got it. Got it. Got it. Sure. Thank you so much.
Thank you.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Debashish Mazumdar from Swan PMS. Please go ahead.
Good evening to the management team. Thank you so much for taking my question. Sandeep Ji, having the consistent performance, congrats for that. So I have two questions, which is basically a follow-up to what Sandeep was asking. So the first question is around Skylus.ai. Just wanted to understand who is the ultimate user of this product? It will be the data center companies or the hardware providers or the ultimate enterprises. Who will be the ultimate user of this product or platform?
Actually, Skylus.ai is a product which cuts across all the verticals, irrespective of whether you are a standalone system user or you are a large DC CSP, or you are an enterprise who are trying to put in-house AI private cloud. So this is something which is helping all the organizations. The reason for that is that Skylus.ai as a product is basically serving all three stages of AI process. One is development, second is training, and third is inference. And on top of it, it basically serves you with a single unified stack, which basically gets you the resources managed in a way better way, much better way. So that way, it's a product which is designed for all the users who intend to use AI infrastructure. Okay.
So if I understand correctly, you are also competing with, let's say, companies like E2E Networks who are also a similar kind of business, or it's a very different proposition altogether?
No, no, no. Basically, we are not a CSP. We are not basically a cloud service provider. Instead, we are the complete solution provider. So CSPs can become a customer to us, and they may basically be using our solution. There is a possibility, but it's not the possibility that we may be competing with those because they are just the service providers, whereas we are the solution providers. And they can be our customers. Enterprises can be our customers. Standalone users can be our customers. That way, we don't compete with them. Okay. Understood. So in that case, we are competing with the global MNCs. Is it like that? Yeah. We are competing with local MNCs only.
That too, in their case, I mean, our offering stands out in a very different way. The reason being, as I explained initially, that we have got a single unified license, which basically serves the purpose, whereas competition has got they have to have two or three different types of licenses in order to meet the functionality and come near to our offering. So that way, we are very well placed.
Okay. Understood. The second question is, again, around the order pipeline. So if you see the pipeline, YoY growth is around 15%. Now, I understand that there are a few things, obviously, around AI or something, which you have not included in the order pipeline.
So just trying to get some sense, is it when we are guiding for 35%-40% kind of growth, is it like we are seeing our conversion from order book to revenue has improved significantly YoY? That's why we are confident of this kind of growth, or otherwise, the deal structures would be very, very different going forward, which is giving us, despite 15% order pipeline growth YoY, the revenue growth expected to be 35%-40%.
Historically, Deveshish, historically, our conversion has been 60%. Okay. And being appreciated, this pipeline, generally, if you look at the pipeline, this largely will be government orders because largely government orders because most of the private segment orders get converted very immediately. They are not like a similar structure as a government business would be.
Now, on INR 3,971 crores, if it is a 61% conversion, and this is excluding the L1 and order book, you will be able to figure out that this is reasonably enough for my next one, one and a half years of business. And this keeps on growing. And just to clarify one more thing, order book is 100% conversion. Order book means basically something is in the order book, and that gets complete. Even order book or L1 is 100% conversion.
Yes, Sandeep Ji. So that's why I was asking about the pipeline. But I got the answer. Just once a follow-up. Private segment orders, it will come without the pipeline process. It will just straight away come, right? Because the. So is it fair to assume that our private segment pipeline, which is obviously not trackable because of the immediate conversion, there the traction is significantly high?
You can say that. Actually, you can say that. But basically, some part of the private segment also gets reflected into this. The delivery basically the gestation because if I try to understand, basically, we are designing solutions. These are high-end compute. This is not box product, actually, really speaking. So basically, if you try, if somebody wants to design a private cloud, he will take some time to decide on that. Basically, if you are able to design it for him, then only the RFP will be completely in your favor. And basically, you'll be able to deliver value for money to the customer. So that will take some time. So basically, that's the reason. But still, I personally feel the gestation period for private orders is not that high, but for government orders, definitely, it is higher.
So some part of it is still there.
Okay. One last follow-up. If I see the government revenue as a percentage of our overall business, it's hovering around 50%-52%. So do you think going forward, as you were rightly saying that private pipeline is improving, do you think that number will shift towards private because then my working capital requirement will change dramatically if my business shifts more towards private?
I will tell you, working capital requirement doesn't get changed either government or private. Let me tell you very clearly because my government payments sometimes come very fast. You'll be astonished to hear. Government payments sometimes come faster than the private also because basically, all my sales is to large enterprise, and they work on 90-day credit term. Okay. So basically, government sometimes even pays before that, and my government is not the general government.
It's all government, R&D, and high-end enterprises. The first part of the question is that. The second is that if you see my all quarterly results, the government business has been hovering between 42%-50%. So basically, some quarters, you may see it will be 45% or something of that nature also. So what I personally feel, it may be 40%-50%. I don't see it basically improving better than that because I'm seeing a lot of, and this is not only one year or two-year experience. This experience I'm sharing with you for at least three to five years. Basically, we have seen that basically we are able to maintain momentum and 40%-50%. Sometimes, basically, the private becomes 60%, sometimes 40%, sometimes 50%. So it depends on that, actually. So it will remain in that range.
Understood. Understood.
Thank you so much for taking my questions. Thank you. Thank you.
Thank you.
Thank you. The next question is from the line of Saurabh Pratap Singh.
Can we have this as the last question because we are already out of time?
Okay. Okay. Yes, sir. I'll make note of that. The last question is from the line of Saurabh Pratap Singh from an individual investor. Please go ahead.
Sir, congratulations and thanks for this opportunity. And sir, am I audible?
Yes, you are.
Sir, my question is related with NVIDIA. How deep is our strategic tie-up with NVIDIA post-Blackwell launch? Are there any exclusive margin sharing or co-development arrangements, sir?
I think the margin deals can't be discussed on this call. These are all confidential business information, which we can't discuss on the call. And our relationship with NVIDIA is an OEM relationship. We are among the very few partners in the world who design and develop products for NVIDIA. So basically, that's an OEM relationship which we have. Okay. Thanks a lot. I think the call is closed. People are happy. Can you please move on to the closing remarks because we are well ahead of time now? If anybody is interested in asking any question, they can reach out to us, you just, or the CFO subsequently.
As this was the last question, I would now like to hand the conference over to the management for closing comments.
Thank you so much. Thanks for the call. As basically mentioned by Sandeep, in case anybody has questions, they can reach to our IR team. They will be glad to answer it, and basically, even our CFO also. Thank you for your confidence in Netweb. Thank you for attending this call.
Thanks a lot for attending. Thanks, IIFL, and Equirus for arranging this call. Thanks a lot. Have a great day.
Thank you, everyone. Thank you.
Thank you. On behalf of IIFL Capital Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.