Ladies and gentlemen, good day and welcome to the Netweb Technologies 3Q FY25 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 call, please signal an operator by pressing star, then zero on a touch-tone phone. I now hand the conference over to Mr. Hardik Rawat from IIFL Capital Services. Thank you, and over to you, sir.
Thanks. Good afternoon, everyone. On behalf of IIFL Capital, I welcome everyone to Netweb Technologies 3Q FY25 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. Hirdey Vikram, and head of Veritas Reputation PR, the IR advising firm to Netweb Technologies, Mr. Sanjeev Sancheti. Without further delay, I'd like to hand over the floor now to Mr. Sanjay Lodha. Over to you, sir.
Thank you, Hardik. Good afternoon and warm welcome to all of you to Netweb Technologies Q3 FY25 Earnings Call webinar. I will take you through the business and operational highlights of the quarter gone by while our CFO Mr. Ankit will share the financial matters. We are delighted to report our highest-ever quarterly income and PAT at INR 3,340 million and INR 303 million, respectively. Our operating income rose by 60.3% year-on-year for nine months FY25, reaching at INR 7,344 million. You are aware that India's flourishing AI research ecosystem, supported by government initiative and industry partnership, presents immense potential. Netweb is uniquely positioned to capitalize on these opportunities through our strategic focus on our three core pillars, that is HPC, private cloud, and AI.
Notably, AI has emerged as the key growth driver, contributing to around 14.7% of the company's operating revenue in the nine-month period FY25, reflecting a year-on-year growth of 136.3%. Moreover, furthermore, our OEM partnership with NVIDIA, we have established a roadmap to design and develop AI GPU systems based on the world's most advanced NVIDIA Blackwell GB200 platforms. In line with our growth strategy, export contributed around 7.9% for the nine-month period FY25 revenue, reflecting our efforts to expand international market presence and capitalize on global opportunities. It also gives us immense pride to share that in the recently concluded NVIDIA AI Summit 2024, Jensen Huang, the CEO of NVIDIA, personally endorsed our AI GPU systems based on our architecture.
This endorsement not only strengthens Netweb's leadership in design and solutioning of AI systems in India, but also positions India to emerge as AI factory of the world with indigenous design and manufacturing capabilities. Our strong business pipeline and order book, coupled with ongoing capability enhancements and product expansion, would position us favorably for sustained growth while maintaining our technological leadership. I would like to hand over the call to Ankit to provide the update on financial numbers. Thank you.
Thank you, Sanjay sir. Good afternoon, ladies and gentlemen, and thank you for joining our earnings webinar. Before we open the floor for Q&A, I'll provide a brief overview of the financial performance for the quarter. I trust that by now, you have had the opportunity to review our earnings presentation and press feeds. While our CMD has already discussed the macro outlook, I will delve deeper into financial performance, providing a more detailed analysis of quarter gone by. Our operating income increased by 16.3% in nine months, financial year 25, reaching INR 7,344 million. Our operating EBITDA for nine months, financial year 25, increased by 61.4%, YOY reaching INR 1,002 million. The operating EBITDA margin for nine months, financial year 25, stood at 13.7%. Profit after tax PAT for nine months, financial year 25, increased by 54.6%, reaching INR 715 million. PAT margin stood at 9.6% in nine months, financial year 25.
Return on equity for December 2024 was 20.9%, while return on capital employed for the same period was 28.2%. Net debt for December 2024 was negative INR 737 million as compared to negative INR 664 million in September 2024. Kindly note that this net debt calculation excludes unutilized proceeds from IPO. The cash conversion cycle for December 2024 improved to 88 days as compared to 100 days in September 2024. We remain committed to our growth pillars with a clear focus on achieving sustainable growth and long-term profitability. With strong quarterly and year-to-date performance supported by a healthy order book and a robust business pipeline, we are confident in delivering significant revenue and profit growth for 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 questions 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Aman Soni from Nvest Analytics Advisory. Please go ahead.
Hi. Am I audible?
Yes.
Good afternoon, sir. Congrats for a good set of numbers. I'm having a first question on the HFT side. So what percentage of our revenue particularly came from trading firms, particularly from the HFT side, sir?
From which side?
HFT. High-frequency trading, sir.
Yeah. Actually, we don't segregate our revenue in terms of basically as regards to HFT vertical separately because basically there are customers. We have some large customers there and basically like Graviton, NK Securities and all. But basically we don't segregate our numbers separately for the HFT domain particularly. But basically they are our customers for our two segments. One is the high-performance computing, that is the HPC, and second is the private cloud and HCI. For both the two segments, they definitely go into the HFT segment.
Understood, sir. So sir, recently with change in the expiry, so do you see any kind of slowdown happening in this particular category?
I don't think so. Basically as regards their algos and all those, they are trying to work actually, but basically HFT, the customers are robust and they are already. They have been investing. We have been getting orders from them and they have been investing actually into this. So primarily we are not into the transaction side of it. Please understand that. We are primarily. Basically we help them so as to basically develop their algos in a better way so that they get better performance, better results once they basically use the algos. So that development side of it wherein they use even a supercomputer so as to basically improve their algos and all. So in that segment, we are pretty fine and there is a regular demand which we are seeing, and plus these people are also not only restricted to India.
Our customers are restricted to international also. We have customers like basically Tower Research. We have customers like Société Générale. And basically so it's a very, very matured and a large range of customers which we have.
Understood, sir. And sir lastly, on the order flow side, do you see any substantial order flow coming or any color on it? If you see as compared to last quarter also, our order book is quite a bit constant. So how do you see it?
Yeah. Actually, you have to understand my order book. Actually, it looks to you it's constant, but it is not constant. I'll give you an example. Basically what happened is the first thing you have to understand that my order book is not basically which takes around six months to one year to complete. The life of my order book is somewhere around 12 months to 16 months. And maybe sometimes it is even eight weeks, eight weeks to eight to 12 weeks to 16 weeks actually. So please let me complete. So what happens is that basically I had an order book of around I think INR 370 crores last quarter. So basically out of that, already INR 250 crores already got converted and got built. So that's the reason you are seeing a turn. The numbers are approximate. It may be INR 225 also. So basically that got built.
So basically if you really see out of the 334 crores, that basically around 225 odd crores would have got built on the order book itself. So the current order book is 360 crores. So what happens is that my order book has just doubled actually in real terms because 225 went out of it and basically more got added. So still it is at 360 crores. So basically if you really see every quarter, the churning of the order book is happening. The order book is new order book for me. It is not the old order book. I think only 20% or 30% of the old orders are there in the order book. All the rest of the orders are new. So basically you have to understand that.
It's not like basically we are not the kind of a company which is just trying to have an order book which gets on build up and we keep on billing something of that nature. It doesn't happen that way. So basically it gets converted into our revenue as well. So we are very pretty happy with the growth of order book because basically around INR 250 crores got built. But still basically I'm standing and my order book is still standing at INR 360 crores. That itself says that my order book is very, very robust and the pipeline is helping me grow.
Thank you. The next question is from Hardik Rawat from IIFL Securities. Please go ahead.
Thank you. Congratulations on a good set of numbers. Sir, I wanted to ask firstly the state of our current order book. And I think you just alluded to that. So the execution cycle of the current 360 crore-odd order book would be roughly 8-12 weeks. Would that be correct to understand?
It can be average. You can take around 12 weeks. It is between 8 to 16 weeks. Some orders get executed within 8 weeks. Some orders get executed in 12 weeks. Some in 16 weeks. So you can take average. You can keep it around 12, 14 weeks approximately.
Got it. And sir, another thing that I wanted to ask was that our EBITDA margins have dropped on a sequential basis. I understand that Tokyo was an exceptional quarter in terms of margins, but even on a YOY basis, there's like a 30-40 basis points contraction in margins. What has led to this contraction in margins for the current quarter?
Yeah. So basically I will handle the first part and then maybe let Ankit handle the technical part of it. So what happens is that basically you have to, if you see year on year, actually really speaking, the margins last year and this year, I think margins have really gone up a little bit rather than going down. So you should take a note of it, Hardik, that basically last year, if you compare it to December last year to December this year, the margins have really gone a little bit up only, but very, very marginally. So margins are constant. My first point is that. But the second question is why basically this quarter the margins did not expand much is that we were executing some large orders. And sometimes what happens is that because our kind of business, you cannot judge from quarter on quarter basis.
So basically you have to see it on a basically year-on-year basis. I have been telling it again and again. And basically once you are executing some large orders, it can be some basis points up and down. That can always happen. But still basically I'm very confident of maintaining a 14% EBITDA, which I have always guided. 13%-14% I've been guiding, but basically I'm very confident of maintaining that 14% kind of EBITDA on complete year numbers.
Hardik, I want to.
Hardik, just to add if I'm audible, my operating EBITDA margin has gone up from 13.6% to 13.7% on a YOY basis. I think you may be looking at an EBITDA margin which includes other income. The right way to look at it is that you have to look at the operating EBITDA margin. The other income will go down because we are utilizing our IPO funds and obviously that will go down. The other income will go down.
No, I was referring to.
Ankit, you want to add something?
EBITDA margin. Yes, Ankit.
I wanted to add on similar lines that on operating EBITDA front, our margins have improved, and even if we see on absolute terms, we have grown by 61%.
Got it. That's helpful. Another thing that I wanted to understand is that are there any large project orders currently in the pipeline that we are expecting to convert to our order book anytime soon?
I think, Hardik, the numbers which we have shown, basically I think what is the L1 number which we have shown? So basically INR 360 crore is the confirmed order book which we have. And we are basically L1 for around INR 340 crores. So basically this itself gives you a very robust outlook. At least I don't know how you are feeling, but at least I am feeling that basically this is a very, very robust outlook which you have because 360 plus 340 makes a huge number actually really speaking. So L1 is basically the orders which we have won. It may take some time for them to come, but basically we expect some of them to be coming in this quarter also.
I think, and as regards to question on large orders, we don't basically. We are working on several orders, and basically orders are normally. I don't think we are making specific announcements on any orders as such.
Got it. Next, I wanted to dwell upon the exports business. It's good to see that exports. You had mentioned that we'll see some exports and we already 9% of the top line is being made by exports. Any focus or vision in terms of what this exports as a composition of revenue could we land at in FY26? And are there any export orders in our current order book or L1?
Yes. First thing is that to answer your question, the last question first, that there are some export orders in the current order book, but basically as regards what we also personally what I have been guiding from day one only that we are trying to build up capabilities so that we can start exports, so basically you should be happy to note that we have already started that, and basically because as I told you that our products are very well made and we have a complete solutioning, so we have huge demand, but we have to clearly start basically so as to find ways so as to service them internationally, and since my products are being sold to large enterprises only and mature enterprises only, then basically it makes sense that I make a good foothold outside before I start selling it.
So I think basically it is in the same direction we've started doing it wherein basically if you see private cloud and HCI, which is again a very, very good segment for us and we have started to push it and the exports have started. But if you ask me to guide approximately what I will say, it would be around 10-11% of my revenue only because we are growing at upward, understand? We are growing at a rate of 35, 30, 35% CAGR. So my domestic sales is also ever growing. So in that situation, I think export I don't think will be around 10 more than 10 to 11% of my complete sales for next one year or so, something around that.
The margins, like you had mentioned in the previous call, will be very similar to domestic at least starting out?
Yeah. Actually, please understand that basically I have to price my products because it's not that I'm not trying to. It's not a kind of a competitive bidding or something of that nature. I have to price my products very tight so that there is an interest in the market and people feel value in basically my products actually. So I can definitely command more margin. I can maybe one quarter if I want to expand my margin, I can do that. But that will make the customer not feel good about it. And basically what happens is that I see it as a long-term strategy wherein customer needs a new solution, he comes to me because he knows that I charge my product at a very, very appropriate margin. So that's the reason that is happening. So that my pricing strategy for domestic and export will remain the same.
It can go a few basis points up actually because as I've been mentioning it to you, as the AI business will be growing, that will push the margins a little bit on the upper side. But basically overall, if you see the margin profile, it will remain the same.
Understood. That's helpful. One last question will be with regards to revenue. So we are now at the end of the third quarter. And if on a year-to-date basis, if I look at our growth has been 60% for revenue and roughly 5% PAT. Any guidance you'd like to give or maybe update in terms of the full year FY25 numbers on revenue if you want to delve into that?
Ankit, actually, sorry, Hardik, actually the thing is that.
I don't think we are near,
yeah. Go ahead.
Go ahead, Sanjeev. Yeah.
Sorry, I don't think we are very keen to give near-term guidance. It is too much of trying to speculate. I think our long medium-term guidance remains to be 30%-35% on the growth side. We will not like to guide on absolute near-term.
Thank you.
Surely, surely. Thank you so much. I'll get back in a bit.
Thank you. The next question is from Akshay Kaila from C D Integrated Services. Please go ahead.
Hello, sir. Am I audible?
Yes.
Yeah, yeah. Okay. Sir, I have a couple of questions. So, sir, my first question is regarding the recently there was a news of restrictions from the U.S. regarding the export of the GPUs. And our country is in the list of the 50,000 GPUs per year. So in the future, can we have some supply chain crunch or something like that? And due to that, we do have our restrictions in the growth.
So yeah, thanks for the question. Just to clarify, we don't see any problem coming our way because anyway, such restrictions are largely for those countries which are expected to use such GPUs or such components for different kinds of user scenarios. And the U.S. is also trying to regulate this only for that purpose. But anyways, when there is an engagement at the government level or even at the large enterprise level, there is no such problem expected to come our way. So that's very clear. So we don't foresee any challenge for our business in coming quarters.
To be explicit, actually, really speaking, like U.S. government doesn't want it to be one of the GPUs to be sold to the negative countries which they don't want to sell them actually. I will not like to name them very clearly. The list is already available.
So basically, that's the reason they want to restrict it so that things don't get diverted to those areas. They are always basically more than welcome to use for the AI, for the government use, for the enterprise use and all that. There is no restriction particularly on that. And basically, there is a lot of compliant technologies which are available. So I don't think there should be any challenge on that.
Thank you. Next question is from Deepesh Kashyap from Invesco Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. So just wanted your thoughts on the India AI mission, which has got an allocation of around INR 10,000 crores. Since you do not directly bid for the tenders, right? So I just want to understand what is your addressable market or your role in this entire mission? And when should it start flowing through your pipeline order book and the revenue, please?
Yeah. So basically, actually, India AI Mission is a large project from the government. And actually, we are very closely working on it. And basically, there are two parts of it. One is government wants to set up its own complete 10,000 GPU cloud actually, which can be made available to the AI people, AI developers and startups and all that. And basically, we had already built AIRAWAT, which was a POC for that purpose. And today, basically, AIRAWAT is basically full with a queue for more than six months. People have been waiting. So there is a huge demand. So government's wanting to set that up. And basically, we are very much instrumental in setting that up.
So basically, all the 10,000 GPUs are not going to come in one day, but basically that will definitely be spread between maybe the time period cannot be defined, maybe one or two years approximately. So we are part of it. Government is seeking advice from us on the design, and we are trying to give them the advice on that. And the complete RFP should be expected sometime in this year in 2025, mid approximately. And then the tenders will roll out, and we'll definitely bid for those tenders and will basically help government to set those kind of basically GPU clusters. So as we have not included it in the pipeline, we have not included it yet in our pipeline because it's a large project. We don't want to overshadow our projects, our pipeline and all that.
So it will basically be added as soon as the RFPs are there. As soon as we start bidding, it will get added. I hope that's the most transparent answer I can give you.
Yeah, sure, sir. The other thing, so right now, 19 companies have, according to press article, 19 companies have bid for this AI mission. So if my understanding is correct, you'll be working with partnering with one of the companies who are there, right? So any color on how many companies are you partnering with? How much of this 10,000 GPUs you can actually address in the next two, three years?
Actually, this tender is not for 10,000 GPUs. Please understand that. Since the government cluster is not ready, that's the reason they have come out with basically a tender wherein they for the it's a stopgap type of.
Interim arrangement, yeah.
It's an interim arrangement, actually. This is not the RFP. This is just the RFE, which is basically for the empanelment of cloud service providers who can, in the current scenario to address the needs, they can at least provide some GPUs available over the cloud. That was the purpose of RFE. So the current tender which you are seeing, and where you mentioned that there are 19 participants, out of which 13 have got qualified, that is only for that purpose. This is not the RFP we are talking about.
Okay. So you will be participating directly in RFP whenever it comes?
Yeah. I mean, depending on how do we strategize, we can decide. But yes, I mean, our complete solution will qualify for that. That is something which is clear. So whether we participate directly or through SI partners, that we can decide.
Understood. And secondly, I just wanted to understand. I think your cash position has improved this quarter. And accordingly, your debt has also increased, right? And I think your interest costs have also increased. So just on your thoughts, why have you taken the borrowing when you're such a cash-rich company?
Okay. Look, yes, definitely our cash position has improved. As far as borrowings are concerned, look, we are working with one of the major banks in the country now, and we have got the kind of CC limits with them. This quarter collections are good out of relation. We have to maintain some kind of borrowings.
10 crores.
Yeah. So we have just borrowed 10 crores, which is basically obviously to get refunded in the next week and this quarter itself. So there is not as such we are in need of borrowing compared to the December closing.
Got it. And now that you're done with the SMT line, there's no extra CapEx that is required for the foreseeable future, right?
Yeah. SMT line CapEx is as per the IPO proceeds that we have planned, and it's going to happen in line with the objects that we have maintained.
So basically, CapEx is almost all done. Maybe around INR 10 crores of CapEx is already pending, and that would be the active most will be coming up.
Got it. Got it. Thank you, sir. Thank you and all the best.
Thank you. The nExt question is from Aditya Moona from YES SECURITIES. Please go ahead.
Good afternoon, sir. Congratulations on a meaty set of numbers. My first question was regarding the order book. Could we get a bifurcation as in the current order book, what is the bifurcation for the SPC segment, for the private cloud? Could we get some bifurcation on that part?
Yeah. Go ahead. Since we have already mentioned that we do not do the bifurcation in that manner, so for the order book, there is no such bifurcation which is done at our end, so probably you can basically understand that the pillars we have been talking about, so they correspondingly contribute in that proportion only, so that kind of guidance we can give. Yeah.
Okay. The same, I think we can understand then for the pipeline and the L1 notice, correct?
Yes.
Okay. My second question was regarding so basically we've seen that the AI segment is growing at a substantial rate. My question was regarding the HPC and the AI systems. So do we see any further improvement happening in this segment in terms of growth, in terms of the revenue growth?
In case of HPC, are you referring to?
In case of HPC systems and private cloud. In these two segments, which AI systems is growing at a substantial rate. And we see that it's now.
Available actually. In case of HPC systems as well as for private cloud and HCI. And I think we have always spoken about how our pipeline is growing in case of each of these product lines. So answering your question, yes, there is an absolute headroom available for both the product categories for us.
Basically, if you see the presentation very clearly, it will show you that basically both the categories are still contributing around 30%-35%, 35%-36% segment with each of them. Around 70% of revenue is still coming out of them. The company is already growing at 35% CAGR. Definitely the segments are also growing at almost all at a similar rate. We see a huge potential. You know how the data centers are booming. It becomes AIRAWAT supercomputer we recently just basically executed. Basically that again was there. There is a huge, so both these segments are also growing. But AI definitely we see a more momentous growth actually.
Okay. Correct. My last question, which you've already answered, but I just wanted to follow up on that, was regarding the restriction from the United States on the GPU segment. We don't see any risk arising from NVIDIA as in the short term or a long term period, correct?
No, no, no risk at all. No risk at all. I have already answered it. I have already answered it very clearly.
Correct. Okay. Thank you, sir. Thank you so much.
Thank you. The next question is from Sandeep Shah from Equirus. Please go ahead.
Yeah. Thanks. Thanks for the opportunity. Congrats on a healthy execution again in this quarter. Sir, I want to dwell more in terms of the export. That is very pleasant to see that 9% of the revenue has come through export. So can you throw some light which country has contributed bulk of the export revenues and how are you looking to strategize in terms of scaling? You have already answered that in the next one year, it would be 10%-11% of the top line. But just wanted to understand which country and which segments the demand is coming in terms of the export, either private cloud, AI, or in terms of the super computer.
So basically, as I mentioned, Sandeep, thank you for your greetings and compliments. So basically, the business is coming primarily. Most of the export is still coming from, as the company has been targeting, from the private cloud and HCI actually, really speaking. And the areas also just as per our focus, we have been speaking about it that we want to go we want to come with the exports to the Middle East, to U.S., and to Europe because basically our products are very mature and we can try to basically sell to the developed nations. So major contribution from our export currently is from Middle East and some part is U.S. actually to answer you.
Okay. And the verticals where you have sold, especially in the U.S., would be what? Technology or some other sectors?
Technology. IT, yes.
Okay. And the second question is we have already launched our architecture on the Grace Hopper GPU. So just wanted to understand the client response in terms of that and is there any competitive pressure? And when do you expect the architecture on Blackwell GB200 to get ready and how people are pursuing because NVIDIA is at a frequent and fast rate they are actually launching new innovative platforms. So in that scenario, is the demand getting cannibalized because of the new platform where we have already worked on our whole architecture?
Yeah. So basically, NVIDIA works on a very, very dynamic mode, Sandeep Ji, as you may know already. So basically, GB200 is the latest platform which they have just started talking about it sometime in November on the new architecture and we started working along with them at that point of time. So I cannot tell you basically precise dates. I think we have a very strict NDA again. So I can only tell you it will be time to market. It will be along with the worldwide launch of the architecture. Accordingly, we'll be doing it. So we are very much in time to market. And I can give you some idea that within the next four months, you should have the GB200 platforms rolling out basically from our side. We are seeing a huge traction and demand on it, and definitely we are ready to address that.
And the question is in terms of Grace Hopper GPU, how is the response, especially in domestic market, once we have launched it?
Yeah. So Grace Hopper, we have already launched. Grace Hopper, we are getting good responses. We are working on basically large requirements because you can understand that these kinds of architectures are being used primarily for large requirements actually. So working on a couple of large requirements, and we are seeing a good demand around that. And those will get added to our order book.
Okay. Okay. And another last question is generally in the fourth quarter, we see further improvement in working capital with some collection comes slightly better in the fourth quarter versus the earlier nine months. So whether that trend will continue in the fourth quarter as well? And is it fair to assume the PLI accounting and the claim will happen in the fourth quarter? That would also be an additional tailwind in the fourth quarter.
So, Sandeep Ji, I would like to mention here that yes, we will maintain the collection trend that we have done in last year as well. As you understand that we have maintained the share of the government customers this year as well. So the collections usually happen in the last quarter as compared to the government clients. So we will definitely be in a better shape in cash position. And for PLI thing, look, it's in the process. We'll obviously be tracking that thing. But overall, yes, collections, cash conversion cycle will improve.
Sandeep Ji, actually, you have to understand that we are a growing organization. Okay? I have to focus on growth. And my history of bad debts is very, very poor. So I'm really not worried. Basically, if you see last quarter, my cash conversion cycle improved. Okay? And basically, I drive my business by growth. You should give us the compliment that we are growing at such a huge rate. Once I grow at the huge rate, actually, my first focus is growth actually. And I have no dearth of cash. I don't have any debt. So basically, I don't have much of a pressure there. Though I'm not a finance guy to commit on this. But telling you very clearly, this quarter also, I'll be clearly focusing on growth as I've been doing in the past.
I'm very sure definitely cash conversion cycle should also improve.
Yeah. Thanks. Fair enough. I will come back in the queue.
Thank you. Next question is from Onkar Ghag from Shree Investments. Please go ahead.
Yes. Congrats on a good set of numbers once again. My question was regarding you have already been maintaining this 30%-35% revenue guidance. So just wanted to know not quantitatively, but qualitatively, the profitability will be on the similar lines or is there any scope to expand in a two-year time frame?
Yeah. Actually, as I answered it, we priced our product very, very rightly actually, as I have been telling that again and again. So basically, the profitability may go up by a few basis points, but would be on the similar lines actually, maybe around 14% EBITDA basically which we are promising. Well, around that, it will be there.
So basically, revenue and profitability will be growing on similar lines. Maybe profitability.
Revenue guidance will continue to be 30%-35% in the medium term. Okay? And that's where the guidance is. The EBITDA margin will be around 14%. So we are not expecting significant expansion because when you are growing so fast, you will have to maintain pricing which is comfortable to everybody.
Correct.
Thank you, Sandeep, for clarifying that clearly.
Okay. Thank you, sir.
Thank you. Next question is from Ankur Jain, who's an individual investor. Please go ahead.
Hello. Am I audible, sir?
Yes.
Yeah, sir. Actually, like whenever I have heard the last con calls, you have always maintained that the second half of the year will definitely be better than the first half, and around two-thirds of the business should come from the second half. Am I right, sir?
Yes. We used to say that. Yeah. But basically, every time it doesn't remain the same. But basically, you are seeing the results already. The Q1 was very good for us this year. But the Q2 also seems, Q3 also seemed to be good. We did a good substantial growth in that. But basically, that I don't think we'll be able to maintain that one-third or two-thirds or not. I'm not sure about that.
Okay, sir. That's what I wanted to ask because for the fourth quarter, it would bring a lot of pressure on the expectations for the revenue as well as profit because if we see it in that term, first two-thirds and one-third around. So it would not be the same this year, right?
No, it will not be. In fact, if you look back to the last quarter's conference call, the question was asked, and we did say that it will get tempered because in the first half, especially the first quarter, the growth was very high. Obviously, finally, whether revenue is sitting in this quarter or next quarter is just one cut-off date, right? If a billion happens on 30th of September, it goes into the first half. If it happens on 1st of October, it goes into the second half. So while generally, it has been one-third, two-third, but there may be years when it could be different, right? And finally, that's why we always say look at YOY, YTD, YOY rather than quarter-by-quarter YOY.
Okay, sir. My second question is that, sir, around the INR 47 crore is remaining unutilized out of IPO proceeds for the construction work and around INR 145 crores for the equipment. So can we expect some another SMT line or something like that in some coming three, four months?
So I would like to correct here. It's not 145 crore. It's 145 million. So all put together, we have 21 crores of unutilized. That's what we have.
No, no, so we are going to stick to our objective, so there is nothing new which is coming. It is just whatever was envisaged in the offer document. We are going to complete that. Most of it is complete. Some of the payments have to be made. All that once happens, it will all get capitalized. Most of the capitalization will happen in the current financial year.
Okay. Okay. Thank you, sir.
Thank you. The next question is from Deekshant B . from DB Wealth. Please go ahead.
Yes. Congratulations, sir. The great growth by our company has really been commendable. I have two questions. Firstly, regarding our remuneration package for our Chief Sales Officer, which is Mr. Hirdey Vikram. I understand that the growth is being driven by the great sales work done by the team. I want to also understand what part of his compensation package has ESOP structure linked to it.
Basically, I think this was already discussed in DRHP, and if we prefer to disclose, public information has already been done.
Sir, could you please help us out understand this? Because it is the largest remuneration at 14.63 crores. And we want to know that what is the future outlook on the equity component given to our salespeople and the research people, which would be Mr. Mukesh Gowda?
Actually, the thing is that no fresh equity has been given as such. Whatever was given, basically whatever was given from the ESOP pool was given before the IPO actually.
Okay. I completely understand, sir. It's just from the perspective of retention as well as expansion. That's the whole logic for asking the question. Nothing else there. Sir, the second question is on our growth. As you mentioned that we are growing enormously, and we are now focusing towards our export markets as well. The guidance has been in the 30%-35% range. And forgive me if this sounds too ambitious, but what is stopping us from growing at 50% of the market as having such a good tailwind? If we are able to do that, is that out of the line to think like that, sir?
But if you really see, this is the eighth quarter result which I have presented. The seventh or eighth quarter result which we have presented after our listing actually. You are seeing the continuous growth. Basically, quarter by quarter, you have seen it. Actually, so basically, we are dealing with enterprise customers. We are dealing with large government customers. Our business is primarily with more matured people actually and enterprises. What happens is that the business outlook has also to be in a matured fashion. It cannot be just not like kind of a contract manufacturing or something wherein we can just increase it. Basically, I think the healthy growth rate which we are clearly trying to maintain, it's the long-term perspective which we are trying to maintain. I'll still stick to that 30%-35%.
Though we are striving to grow even faster, internally all efforts are there, but the guidance should be around 30%-35%.
Agreed, sir. 100% agreed. So just one last question here on the government. RBI basically has announced that they will be now focusing more on creating cloud infrastructure for giving banks some cloud infrastructure on their end. Are you seeing any sort of interest from RBI on this particular front related with Netweb? I ask this also because we have worked so well with the government sector, and we have such good ties with the government sector. That's the whole thought process here. Are we seeing any growth there?
Yeah. Banks are already getting on the cloud. Our private cloud solution is very, very appropriately designed for that. As basically some of the large GSIs, whatever basically their core banking software, they are trying to use our completely private cloud and HCI solution. And basically, we see a lot of traction around that side also. But we actually like to club it into the private cloud and HCI segment. And basically, that will really be part of it. And as you rightly said, definitely, we are seeing some kind of a basically good traction coming in from that segment.
Got it, sir. Got it, sir. I'll be back in the queue, sir. Thank you so much for such great communication.
Thank you.
Thank you. Next question is from Akshay Kaila from C D Integrated Services Limited. Please go ahead.
Sir, my question is, what might be our capacity utilization in the quarter three? And since we have finished the line in May 2024, so do we have any capacity question for the near term?
Yeah. Actually, as I have been telling you from the time of IPO only, we are not a capacity-based company. We are a capability-based company. So basically, capacity always we have actually, but basically, we have to get new capabilities. Because we are not worried about capacity. Had we been worried about capacity, we would have become a contract manufacturer or something. So capacity is not a barometer at all for us. Whatever basically we need for production, we have that capacity. Primarily, we try to invest on capabilities. So basically, in case we want to do something later wherein we require new machinery so as to develop that capability in India, we are a Make in India company. Then we try to invest more in capabilities than capacity.
Okay, sir. Okay.
And sir, my second question is regarding the growth guidance that you have already answered that and maintained the growth guidance from 30%-35%. But I was referring to some news, and they were saying that India is going at a very exponential growth rate. And for the next two years, data center and AI capacity is going to increase by around 55%-60%. And for the longer term, till 2030, it will grow at 29%-30%. So are we being conservative on the growth guidance over there, or can you put some more color on that?
Actually, whatever I'm guiding, I'm guiding in terms of long term. First thing is that, and plus, basically, we are not only into AI. AI is trying to build up, and slowly, AI is showing more growth, but we have other segments also like supercomputing and private cloud and HCI, which we have been doing for years together. They are also growing, so I think I am very, very optimistic about what exactly the guidance I'm giving on growth. I like to maintain that.
Yes, yes, yes. Thank you so much.
Thank you. The next question is from Aman Soni from Nvest Analytics Advisory. Please go ahead.
Hi, sir. Thanks for the follow-up. Just one question on the order inflows. I missed that you communicated on the project that we are going to get. So what new project are we going to get in the next couple of quarters, sir?
I do not understand your question. Can you repeat?
We didn't post a large order together.
We have responded to that, so as we have mentioned, that our funnel and overall pipeline and order book, that is basically quite in a sustained manner, so we have not disclosed anything about any specific large order as yet. But as you can see, the order book, the L1 pipeline, everything is basically intact, so that gives enough confidence that the way we are progressing.
Understood, sir. Thank you very much.
Yeah. Thank you.
Thank you. The next question is from Navneet Singh, who's an individual investor. Please go ahead.
Thank you for the opportunity. So actually, I'm interested in knowing about the capability expansion that we have in the near future.
So, capability expansion. I think we have already mentioned that the new setup with the new plant which we have set up, that is capable enough to take us to the journey of 2,000 crores and all. So that gives enough confidence that we are capable enough to sustain up to that kind of growth level. And beyond that, yes, we are working on the strategy to basically go beyond that as well. So that is in progress.
Is there any guideline that means we will be utilizing that INR 2,000 crore at this annual sales, right?
Yeah. So basically, we are already utilizing those capabilities. The new NVIDIA Grace Super chips, which we are making, the new Blackwell, which we are working, they're all working on that only. We are working on all the latest chipsets and technologies. So what Hirdey mentioned is that basically whatever investments which we have made, that will sustain us till the revenue of INR 2,000 crores. And when will we reach INR 2,000 crores? That you'll have to do your mathematics yourself.
Understood. Got it, so any guidance that when we will be reaching the annual sales of 2,000 crore, are we seeing that our financial year 27?
I would like you to work on this mathematics yourself. I have already told you 30%-35% growth.
Understood. Thank you. That is all from my end.
Thank you.
Thank you. Next question is from Shubham Karnani from CA Financial Services. Please go ahead.
Hello. Am I audible?
Yes.
First of all, congratulations on a wonderful set of numbers. I just had a couple of questions. As you can see, we have improved our cash conversion cycle. So what can we target as the cycle for the next one or two years?
So Shubham, obviously, it's pretty difficult to estimate cash conversion cycle because it's a moving trend of the customers coming in and vendors we are paying. But what we can guide is that it will definitely improve because March quarter happens to be a good collection quarter. And we are also growing in terms of revenue. So you understand there is always a need of working capital. Okay. So it's a mix of a lot of moving variables. So difficult to estimate cash conversion cycle, but it will improve.
Okay, sir. And my second question is, apart from the GPU restrictions, as you said, you won't be facing any problem regarding those. But apart from that, do we see any other geopolitical risks with Donald Trump coming in or anything else?
Yes. I think I personally tell you very frankly, I don't see any kind of basically on the kind of business which we are doing or any kind of business impact primarily from Donald Trump coming in. He was there earlier also. He will be back there again. He has been supported by a lot of business houses. So business will definitely grow. And I'm very sure that will basically I think my personal view, if you ask me, would be that the world will become a stronger place. Actually, more economic activity will happen that will help everybody to grow.
Thank you. Next question is from Anuj from A3 Capital. Please go ahead.
Welcome, sir. I'm doing due diligence for the investment for the whole of the Netweb team, so my question is on the network switching side, the switching side of the business, so sir, the business, already the order book has started building up, and whether that business is margin accretive?
Yeah. So basically, the switching side has already started, but we never wanted to make the switching completely as a box product actually. And we have been targeting only on the high-end part of it. Okay. So basically, that's the reason the switching growth you are seeing is a bit slower actually. But over a period of time, as the high-end solutions basically get more and more productized and more and more adoption happens, this will grow. But basically, we just don't, as you know, the philosophy of the company is not to sell boxes. So that's the reason basically you don't see that kind of growth. But it is again a good capability which we have on the networking side of it. Everybody wants to keep the networking switches local and secure. We see a good future potential, particularly on the Make in India switches actually.
So I personally feel this segment will keep on growing, but this will grow at a slower rate, not basically at the same rate as the other segments.
Okay, sir. Thank you, sir. Thank you for the clarity, and sir, one more question I want to ask is: Sir, the nature of our business is like a project based. We get a project, we complete it, and that's done. So I want to know what is the service part of it? What is the revenue potential of these services, or what is the binding contract like for three years or four years? You have to serve that.
Are you talking about the last segment of the business? You're talking about overall basically?
Overall business, like the HPC business or the.
Whenever we make a sale, basically we make a sale of around with three-year or five-year warranty and services included actually. Okay. Because basically all this is enterprise actually, and that's how we kill our competition, VMware and Nutanix and all that. So basically what we do is that we sell everything with a complete three-year or a five-year kind of year. So we have our own SLAs which we agree to, and the entire services and everything has been bundled together for three years and five years. But basically we charge our customer in the very beginning once the product is going out of our factory. So basically there is no recurring or something of that nature. Everything gets built at the very first level only. But the product is supported for three years. Some people go for three years, some people go for five years.
So accordingly, basically it is being done. I hope I'm able to answer your question.
We'll move to the next question. The next question is from Vatsal, who's a retail investor. Please go ahead.
Yes, sir. Am I audible?
Yes.
Yeah. Yes, sir. Yes, sir. My first question is, sir, Netweb is one of the pioneers in technology in India. So sir, why doesn't the company have a chief technology officer?
We have basically because the entire organization is full of engineers only. Just basically having a chief technology officer may split us. Our definition is different. A chief technology officer would have been suitable for a company which IT is also a part of it. But basically this company runs on technology actually. So R&D is most important again for us. The operations is very important for us. The sales is also technical. So everything is technical actually. That's the reason we don't have a CTO specifically. But we have a CEO, we have got R&D, we have got the sales is also completely technical. So I think that's the reason we don't want to basically have a CTO separately.
Sir, secondly, sir, does transitioning towards exports reflect some sort of saturation in the Indian market?
No way at all. No way at all. Because I think basically you asked me that what will the part of my export sales. So I told you it would be around 10% only. Okay. So basically because we want to just explore the export markets and also grow our market there. That's the reason there. Basically for last so many years, our focus has been primarily India, and we wanted to maintain that. But we also don't want to lose on the overseas opportunity. Hence, we also want to do exports.
And sir, with the interim CFO getting appointed, so sir, I just wanted to understand that would a new CFO appointment be there, or would we be continuing with the interim CFO?
We are still evaluating that, and that decision, we will come to know maybe one or two quarters.
Okay. Thanks a lot, sir. Thanks.
Thank you. Next question is from Amit Agicha from H.G. Hawa & Co. Please go ahead.
Thank you for the opportunity and congratulations for fantastic numbers, sir. My question was, what is the percentage of your revenue which is allocated to research and development? And the second question was, with AI contributing 14.7% of revenue in nine months FY25, what growth rate do you foresee in the segment over the next fiscal year? Thank you.
Basically, as I have been mentioning, almost around 3-4% of our revenue has clearly been spent into the R&D, which we have been following for years together, and we still continue doing that. Okay, and the second is that basically as your question on AI, AI, as I mentioned to you, it was 7% last year. It grew by around 133%, and it came to around, I think, around 14.7%. I personally feel by other segments also growing. So by end of the year, it will remain around 15%. Next year, it may basically grow by 2-3% further more in the total revenue mix.
Thank you, sir. And all the best for the future.
Thank you.
Thank you. Next question is from Dikshan P from DB Wealth. Please go ahead.
Yes, sir. Sir, could you just expand a little bit on our R&D for 5G O-RAN services?
Yeah. Actually, 5G O-RAN, we are still working on it. Basically, still the R&D team is still working on it, and we are basically making the product ready. It's still under development. Still, I think it will take us at least one or two quarters more to completely have a product ready actually there.
Great. Sir, what is the target market that you are looking at for the 5G O-RAN services, and how would it help them grow their business?
Yeah. So basically, target markets are very clearly the private 5G kind of thing. We are not targeting any kind of telcos and all that. We are targeting basically maybe all the private 5G users, like maybe you can say hospitals or maybe different kinds of factories and all those manufacturing and all those kinds of people. There are some regulatory issues also at this point of time with the government, and they are also trying to clarify that so the licensing can become much more simpler and can be much more democratic, and so that basically, since you understand that, that 5G is again an area where licensing plays an important role, and so that spectrum ability and all those things should be there, so basically, I think that is there, so I hope I answered your question.
Got it. Sir, one question for Mr. Hirdey. Sir, what is the sort of growth that we are witnessing on the government orders versus the private orders? Because we had a 40/60 split. Do we think that this split will be remaining the same, or where is the more interest coming from?
So see, the kind of response we are getting, as we have always been mentioning, that we provide enterprise solutions. So the kind of response we get from government and enterprises, that is alike. And that is the reason that also reflects in our business split as well, divided among the enterprise and government side. So answering your question specifically, response is coming excellent from both the sections of the market, be it enterprise or the government. And we see that the proportion is going to remain the same in the coming quarters also. There can always be a slight change. It can be like 55-45, or 60-40, or 50-50. That kind of split is quite expected. But otherwise, we are seeing large opportunities coming our way from both the markets.
Got it. Another question here is, a lot of changes are still happening in the compute part of the business, even from NVIDIA's end. They are making for retail, they are making the compute much more cheaper. Is that the same thing that we are witnessing for the compute on the B2B segment also? Are they changing their B2B business compute cost? Are they making their hardwares a bit more cheaper?
See, basically what you may be referring to is something which is for the edge side of the overall chain of products. And since we are not on the edge side, so the product you may be referring to is a different category altogether. But if you come to the enterprise side of the products, then these products are rather becoming more, I would say, costlier with each generation passing. So from that perspective, it is not that on one hand, democratizing of technology is happening, but that is helping us to build solutions for almost every vertical of the market. That is how democratization is happening. But from the technology cost perspective, that is increasing.
Got it. Got it. Thank you so much. Thank you so much, Management. Thank you.
Thank you. Next question is from Sandeep Shah from Equirus. Please go ahead.
Yeah. Thanks for the opportunity. Just on the government AI mission, I think you already said that it could be of two types. One where we will directly participate with the government, and second, we may do a system integration deal with the other cloud service providers. So in that scenario, you are saying pipeline may create starting from the mid of this calendar year. So what would be the bigger opportunity? Is it directly going with the government or partnering with another system integration or a cloud service provider?
I think that's very clear that the one which has been. I'm sure what you are referring to is something that the one which is already there in the market, as we have already mentioned, that that is just an interim arrangement, and where the CSPs are being asked to get integrated themselves to provide the interim set of services, and anyways, just to share with you, we are even supporting a couple of CSPs for their solutions also at the backend, so for this piece also, but apart from that, the actual one, the on-prem facility which government is intending to build, that is something which is going to get released sometime soon, and I think that is where we are going to focus more, and that will be definitely a bigger one compared to this one.
So Hirdey sir, is it fair to assume commercialization for us in this segment may start from the later part of FY26 or FY27?
See, commercialization as such, you can say, as we have already mentioned, that what we are expecting that RFP should come out sometime next year, I mean, fiscal year 2025, 2026. And as we have always been suggesting that as of now, we have not taken this into our funnel at all. So anyways, also we are maintaining our growth path, so that's not a problem. But with this coming, we can see that by.
Some part of it.
Yeah, some part of it will definitely start coming into our funnels or will take place, I think, by 2025, 2026 itself. And it can be maybe third quarter or second quarter, that I'm not sure of. But yes, that is how we are seeing the conversion of this opportunity into business.
Yeah. Fair enough. And the last thing, any diversification within HPC and supercomputer where we were largely focused on government, where we were looking to diversify into oil and gas and the other segments, any progress on that side to increase our addressable market in the supercomputer?
Yes, as we have been mentioning from the very beginning that we have been expanding our reach in terms of taking parallel computation or supercomputing technology to different verticals. So oil and gas is definitely one of those target verticals where we have been putting in our efforts for last so many quarters. And same goes with not just limited to oil and gas. We will also be expanding ourselves in terms of taking our HPC solutions to the other verticals. And HFT is another good example. So we are anyways on the growth path in terms of adding new verticals.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you for your time. Thank you.
Thanks a lot, everybody. Have a great day and a great weekend ahead.
Thank you very much. On behalf of IIFL Capital, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect.