Ladies and gentlemen, good day, and welcome to the Netweb Technologies India Limited Q1 FY 2025 earnings conference call, hosted by IIFL Securities Limited. As a reminder, all participants' 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Hardik Rawat from IIFL Securities Limited. Thank you, and over to you, sir.
Good afternoon, everyone. On behalf of IIFL Securities, I welcome everyone to Netweb Technologies 1Q 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 and Chief Human Resource Officer, Mr. Prabal Jain; Whole Time Director, Mr. Navin Lodha; Chief Sales and Marketing Officer, Mr. Hirdey Vikram; and Head of Uirtus Advisors, the IR advisory firm 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 like to draw your attention to the safe harbor statement in the earnings update presentation. Request each one of you to go through that presentation 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 very warm welcome to all of you to the Netweb Technologies Q1 FY 2025 earnings webinar. I will take you through the business and operational highlights of the quarter and the year gone by, while our CFO, Mr. Prabal Jain, will share the financial metrics. We are pleased to state that India's flagship state-of-the-art, end-to-end, high-end computing server, storage, and switch manufacturing facility in Faridabad was inaugurated by Honorable Secretary, Ministry of Information Technology, Government of India, on May 10, 2024, marking a significant milestone in Make in India initiative. The new facility represents a substantial leap in Netweb's manufacturing capabilities for cutting-edge computing systems, encompassing the entire production process, including PCBA, PCB design, manufacturing, and SMT for high-end servers, storage, and switches, demonstrating advanced manufacturing skills.
This facility will allow Netweb to manufacture Make in India high-end computing systems using latest generation chips from our technology partners such as NVIDIA, Intel, and AMD. It will also enable Netweb to market its products and solutions to the new industry verticals, which demands critical high-performance computing architecture. It demonstrates Netweb's steadfast commitment in progressing the innovation and bolstering self-reliance in India's technology sector. Furthermore, the new facility is also very well equipped in meeting demands for ever-evolving requirements of private cloud, AI, AI cloud, compute data centers, and more specifically, AI workloads. On the financial side, our operating revenue grew by around 150% year-over-year to INR 1,493 million in Q1, financial year 2025.
Operating EBITDA for Q1, financial year 2025, increased by 131.8% year-on-year to INR 200 million, with an operating EBITDA margin of 13.4%. Profit after tax increased by 203.4% year-on-year to INR 154 million in Q1, financial year 2025. EBITDA margins improved from 8.5% in Q1, financial year 2024, to 10.1% in Q1, FY 2025. India is rapidly emerging as a leader in AI adoption, with businesses and organizations increasingly leveraging AI to drive innovation and operational efficiency. The government's approval of over INR 10,300 crores for the India AI mission will enhance the AI ecosystem over five years, focusing on compute capacity, innovation, data sets, application development, skills, startup financing, and safe and trusted AI.
Key to this initiative is deploying over 1,000 GPUs through public-private partnerships. These industry tailwinds create a fertile ground for innovation and expansion, and Netweb is uniquely positioned to harness these opportunities. AI systems have clearly emerged as a pivotal growth pillar, contributing significantly to our operating revenue, with share increasing to 14.6% in the quarter gone by, making a robust growth of 146% year-on-year. Our strategic focus on the three pillars, HPC, Private Cloud, and AI, ensures that we are at the forefront of technological evolution. These pillars are cornerstones of our growth strategy, enabling us to deliver cutting-edge solutions that meet the dynamic needs of global businesses.
The development of servers based on NVIDIA Grace Superchip under the NGX architecture is in progress, and we expect to roll out these servers soon under a Tyrone range of AI servers. In addition, we launched Intel Sapphire Rapids and AMD Genoa-based high-end computing servers in the last quarter. We already have a very diverse portfolio of products, including some utilizing the latest NVIDIA GPUs, to meet the demands for AI training and inferencing market. Turning to the robust India data center demand, the landscape is evolving at a very fast pace, offering significant opportunities. Necessity of having a unified on-prem platform in form of a private cloud is revolutionizing the new age modern data centers, replacing traditional virtualization platforms, thereby giving us enough headroom to position our private cloud and HCI solutions.
Our path-breaking offerings, such as Skylus and Kubyts, have become a major alternate and creates a significant differentiator for our data center offerings. With a robust business pipeline and order book totaling of INR 4,197 million as of 30th June 2024, coupled with continuous improvement in our capabilities and expansion of both operations and product portfolio, we are positioned strongly for sustained growth and maintaining our leadership in the technology. I would like to now to hand over the call to Prabal to provide you updates on financial numbers. Thank you.
Thank you, Mr. Lodha. Good afternoon, ladies and gentlemen. Thank you for joining the earnings webinar. I will give a brief overview of the financial numbers for the quarter before we open for Q&A. I hope everyone would have got a chance to look at the earnings presentation and the press release by now. While our CMD has already covered the macro outlook, I will try to explain in a more granular manner the financial performance of the quarter for the year gone by. Our operating income increased by 149.7% Y on Y on a quarterly basis, reaching INR 149.2 million in Q1, financial year 2025.
While operating EBITDA for Q1, financial year 2025 increased by 131.8% Y on Y on quarterly basis, reaching INR 200 million, the operating EBITDA margin was 13.4% for the quarter. The profit after tax, PAT, increased by 203.4% Y on Y on quarterly basis, reaching INR 154.4 million in Q1, financial year 2025. PAT margin improved from 8.5% in Q1, financial year 2024, to 10.1% in Q1, financial year 2025. Return on equity for the finance, for the quarter, Q1 financial year 2025, was 14.3%, while return on capital employed during the same period was 19.5%.
Net debt for the quarter was at INR -330 million in Q1, financial year 2025, as compared to INR -109.5 million in Q1, financial year 2024. Kindly note that this net debt calculation excludes unutilized pro-proceeds from IPO. The cash conversion cycle for Q1, financial year 2025, stood at 129 days, as compared to 159 days in Q1, financial year 2024. We remain focused on our strategic priorities and growth pillars, laying emphasis on our long-term goal of sustainable growth and profitability. Following a strong quarter and supported by a robust order book and business pipeline, we are confident in achieving significant revenue and profit growth this financial year. With this, I now hand over the call to Hardik to take it forward. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. All participants are requested to use handset 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 Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, can you hear me?
Yes. Yes, Hi, Sandeep. How are you?
Fine, fine. Congrats again on a strong execution. So the first question is, regarding the tie-up with the NVIDIA on the Grace Hopper. Any discussions with the client, whether that tie-up is creating a bigger pipeline and, the deal wins and the order pipeline can further grow at a material rate? Because you also said in your initial remarks that the general adoption in India is increasing. So any color on that would be helpful.
So, Sandeep, we have been guiding very well that 30%-35% CAGR growth, we will still like to maintain our guidance on that. And, you know, this basically, this growth, which is not, we are trying to achieve only one quarter. This is on quarter-on-quarter basis. We have been doing it for more than approximately three years. We plan to maintain that. Definitely, AI, as you have seen in my last quarter, my remarks also, it was around basically 7%. It has come to around 14 point some%. So basically, there has been a huge growth in the AI momentum, which is basically helping us in the revenue. So that will go on. You-- And you fully understand, basically, definitely, Grace Hopper... the systems will also come up, but definitely they will also keep on adding.
But basically, specifically on product-specific range, if you understand, we are a solution company. We want to basically, we are not a box pusher kind of a company. We want to basically. So for the solution will evolve, various kind of basically training and inferencing workloads, and different kind of architectures will be used for that. So this will only make our complete product portfolio more strong and help us to achieve our growth rate.
Okay. Sir, when do you expect this new architecture to be launched in terms of the tie-up with NVIDIA on Grace Hopper?
So basically, the products are already getting ready, and I think in the coming quarter, basically, the product should be ready to market. But we are already marketing them, and we are already, the product is almost already.
Okay. So is it fair to assume, second half could be a period of building the pipeline and FY 2026 could be a year of first year of benefit in terms of getting the growth filter through this NVIDIA tie-up?
Yes, you can, you can say that.
Okay. And the second question is in terms of the government announcement about the AI cloud, out of which INR 10,000 crore, there was a media article just few days back, 50% of that they want to spend, in the immediate term. So how are we placed to get, in terms of, to garner this opportunity? And how this private-public partnership will work? Any color will help.
So basically, okay.
I can, yeah, I can answer the question for you, Sandeep. So first of all, you know, the opportunity itself is something which is, you know, based on the essence of the requirement is, that it has to be a sovereign AI cloud, and which has to go, you know, cover the hardware part of it, the cloud stack. And, you know, after all, you know, we have to maintain, I mean, the government has to maintain. So all these three elements put together become the complete solution. And the best part is that Netweb is uniquely placed in this case, because we have got our hardware system, which are designed, manufactured in here. We have got our cloud stack, and we even provide the, you know, cloud deployment services also.
So from that standpoint, we are very well placed to, you know, address the opportunity, and we are looking at it from, from that perspective only, that how well placed we are, that should be, you know, looked at. And we are very confident that we are, strongly placed with a strong product line and, with a strong experience what we have, you know, which we have garnered. And some of the example deployments what you have seen already, like the way we had designed AIRAWAT, which has actually become a miniature, you know, for the India AI cloud mission. So that itself gives a lot of confidence, not just to us, even for the, you know, user, fraternity as well, that Netweb is basically having the complete stack to meet the requirement.
Yeah, thanks, Vikram. Just a follow-up, Vikram, here, can you believe that-
Sorry to interrupt you, sir. I request you to come back for a follow-up question.
Yeah, thanks.
Thank you. The next question is from the line of Mayur Patel from 360 ONE AMC. Please go ahead.
Congratulations for the excellent set of operating numbers. On the same point, INR 10,372 crore budgeted by the government for this India AI mission, and it is covering 10,000 or more GPUs. So Lodha can you share that, is this an entire addressable opportunity for us or some part of this would be, you know, our opportunity? If you can just share your insight on this.
So basically, you should understand this. Actually, the Prime Minister's mission is to make India the AI factory of the world. Okay, so basically, it's not that ten thousand crores will immediately be spent into the GPU itself. Okay, so basically, this is a startup ecosystem. Today, what happens is that all the startups, once they... If they want to basically, you know, there are thousands of startups which are coming up, and if they want to buy compute infrastructure, it is very, very costly. And that is basically not helping them grow or to basically develop themselves. In that situation, government wants to basically provide them the entire GPU facility so that basically they can evolve. So the part of it, the entire INR 10,000 crore has been allocated, so as to basically enablement of that.
So as Hirdey mentioned on the previous answer, very clearly, since we are part of the-- basically, the hardware is designed by us, we have our own hardware, our software, cloud deployment services. So we are, we are through and through the entire process, actually. So significant portion, basically, so we are able to target the entire game, but we in fact, you-- but it should not be considered that the entire INR 10,000 crore will be spent only on buying the GPUs.
Got it. Just one more thing. We are on a path of very high growth, and clearly your order book, Lodha , is giving a lot of comfort. Just, is there any scope of improvement in overall cash conversion, conversion cycle as we move forward?
Can I take that? This is Sanjeev here.
Yes.
You see that typically we are growing at a very, very fast rate, right? And specifically, if you look at where the revenue is growing, because of the pace of growth of revenue by debtors, a large chunk of debtors is getting created every quarter, which is larger than the previous quarter because of the growth. And that is the reason you are seeing this conversion. As we stabilize our growth to what we are saying as 30%-35%, you'll start seeing the cash conversion cycle significantly improving, and we believe that we will be above 60% of our EBITDA, the net operating cash. So I think that's just a transitory phase because of the fast pace of growth; it's typically a problem of growth, so that will definitely improve. Yes.
Got it. Thanks a lot. All the best.
Thank you.
Thank you. The next question is from the line of Vivek Gautam from GS Investments. Please go ahead.
Yeah. Congratulations, sir, on the excellent set of numbers. I just wanted to know about the NVIDIA AI server opportunity size for our company, and since when we can expect the production from the same from our facilities in India. And second thing was about the competition intensity we are facing. Is there any competition intensity over here, or we are in a unique position to highlighting the mode of USP of our company, sir? Thank you.
So basically, to answer your question, thing is that we are already manufacturing our servers, which are basically using GPUs, and the other servers are designed and been manufactured by us. So the product range keep on gets enhanced basically as we move forward. Because you know that we work with all the major chipset providers. We have direct OEM relationships with NVIDIA, Intel, and AMD. So whenever the new chipsets are coming, we are trying to basically integrate and have more products. So currently, basically on our Sapphire Rapids as well as Genoa platforms, both are extensively using GPUs, and we have been able to deliver some really good solutions and good products to our customers.
So that is there, and that has only led to you-- If you see our growth of the AI business, which we are doing, it has grown from 7% to 14% quarter-on-quarter basis or basically year-on-year basis. So basically, that is there. As regards the new product, basically, which we are working upon on the, in, on, on the new architecture, Arm-based architecture, so that product is almost all, as I mentioned on the earlier question, is almost all ready and basically we, very soon we will be launching a product on that also. So basically, we have some more products on the roadmap based on the, on the NVIDIA roadmap, which are going to be introduced. So it's a completely, we have, basically in-depth insight on the roadmap, 12 months to 18 months in advance.
So we have that, and so definitely we will be trying to market along with the world market, and we will try to do it. Answering the second question on the competition side, basically, the thing is that we are not box pushers, as I have been telling again and again. We try to deliver the complete solution. We have the hardware, we have the software, and we have our services. So all the three things integrated definitely gives us a much more better position, so as to basically provide our and fight our competition in a much better manner. So I think that definitely that USP which we have will definitely be there, and the demand is also there, so I think that we are well-placed.
What is the roadmap for the next five years, and any geopolitical risk due to China from Taiwan tensions keep on coming in the press?
Actually, really speaking, over the period of, I can tell you, we will at least for next two to three years, we plan to grow at the same momentum, which we have been telling around 30% CAGR, which I can tell you. Okay, and basically, as regards geopolitical tensions are concerned, I think things are basically today. I don't think anytime soon we will have more China, because basically you really see US and all that, everybody, the Chinese products, have most, most, more and more manufacturing is moving away from China.
So I don't think we have any kind of a problem with the geopolitical tensions which are happening. Plus, you know, currently our market, I think 90%, this quarter onwards, you'll see a different picture, but currently our most 99% or 98% of our market is domestic. So we are not dependent upon international exports as yet. In future we may be, but, basically, I personally feel geopolitical tensions are not a point of worry for us as such.
Okay, thank you.
Thank you. The next question is from the line of Garvit Goyal from Nvest Analytics Advisory LLP. Please go ahead.
Hello. Am I audible, sir?
Yes. Yes.
Good evening, sir. Congrats for a good set of numbers. My first question is on the data center opportunity. So, can you please put some color on the opportunity? Where exactly do we fit in the value chain?
So see, I couldn't get your name.
Hello?
Can you repeat your name?
Yeah, repeat your name, please.
CA Garvit Goyal.
Yeah. So just to answer your question, first of all, you know, the way data center opportunity is coming our way, it is basically evolving in the capacity of where the demand of, the unified platform or the private cloud solution is something which is emerging out of this opportunity. And, you know, we being ahead of our time, I would say, because, you know, if you see our private cloud solutions and, which are largely meant for large data centers or modern data centers, we had started providing even, 2016 onwards. So from that perspective, we are pretty much ready, and we are, you know, ready to serve the, this upcoming opportunity in a big way.
The way data centers are, you know, getting designed, they require the unified platform, and that is what we are ready to serve them with. So in that capacity, we are pretty much well-placed on one hand. The second thing is that, having a large deployment base already, that gives us a lot of, you know, benefit, because we can provide a lot of, you know, reference points to our customers also, which helps us to grab more business.
Understood. Sir, secondly, on the margin side, like you mentioned, we are always ahead of time in terms of technology. We are spending on the technologies, bringing the new products as per the requirement of our customers, right? So, how do you see the margins shaping up for us for next two to three years? So margin, I think I can let [Sanjay] cover it for you.
So, if you will see our operating EBITDA margins are in the range of around 14%. Going forward, we see, from the next year onwards, an improvement of around 100-150 basis points in this. To a maximum point [crosstalk] So that will be, that will be in the range between 14%-15% from next year onwards.
Understood, sir. Understood, sir. That is from my side, sir. All the best for the future. Thank you.
Thank you. The next question is from the line of Hardik Rawat, from IIFL Securities Limited. Please go ahead.
Thanks for the opportunity. Sir, congratulations on a good set of numbers. Firstly, I wanted to ask you that you've seen some pretty robust growth in this quarter vis-à-vis the previous year. So how should we be seeing this growth? Can it be said that we had a weak base, because of which the growth has been so significant? Could you please share something on the same?
So I think, you see, the first quarter is always the weakest quarter, so we are only doing a Q-on-Q comparison. Now, it is possible, last quarter was, slightly lower than normal expected. You can see, that, we are, doing very well and healthy growth, and we have a good order book position, so I don't see it as a one-off, but you cannot judge this, YOY growth to be the growth for the full year.
Yeah, Hardik, Hardik, I would like to add here. Actually, basically, as I've been telling again and again, our kind of business cannot be evaluated on a quarter-on-quarter basis, actually, really speaking. Because basically, one quarter, is really will not give you very true picture. If you see my past track record also, we have been growing at a rate of 30%-35% CAGR. I still maintain, and we are very confident of maintaining that.
My order book and my funnel, everything really reflects that. So definitely, we are very confident of maintaining that kind of growth. So basically, one quarter you will see some higher growth, but that doesn't mean that, basically the growth rate. I will not like to basically guide on a very, very high rate, growth rate. We will like to guide you around 30%-35% growth, and which we are very confident of, we have been doing it in past few years, and we are very confident of continuing it with for the past, for the next few years as well.
Got it, sir. So actually, the reason that I was asking that was that historically, like sir mentioned, was that our Q1 is the weakest, and the revenue growth, the revenue number, at least the absolute revenue, increases sequentially as the fiscal comes to an end. So Q2 is stronger than Q1, Q3 is stronger than Q2, and Q4 is strongest of all. So just wanted to see that since you've seen such a high growth in this quarter, will that trend, can that trend break? Maybe we are seeing more uniformity in the seasonality, so to speak, if you can share something.
Yeah, Hardik, actually, still, I would like to maintain one-third of my revenue will come from H1, and 2/3 of my revenue will come from basically H2. So we are very sure about that kind of thing. As regards, that is there, but basically, overall, the picture will remain the same. I, I will not like to-- Because if you really see the March quarter, this Q4 for last year, was a record quarter for us. The quarter before that was a record quarter for us. So basically, it has been the growth trend, trajectory has been like that, and we want to maintain it, but overall guidance will be 30%-35% growth only from my side.
Got it, sir. And, before I get back into the Q1, last question was with regards to your supercomputing business had received a large order from Vikram Sarabhai Space Centre in Q3 or Q4, worth about 150 billion, 150 crore rupees, about 150 crore rupees. So, will we be seeing that in this, in the next two quarters?
Yes, you are right. You will be seeing it in the next two quarters.
Okay, sir. I'll get back in the queue. Thank you.
Thank you.
Thank you. The next question is from the line of Vimal Gohil, from Alchemy Capital Management Private Limited. Please go ahead.
Yes, sir. Thank you for the opportunity and, congratulations on a very strong quarter. Sir, my question is again on this national AI mission. And, as you highlighted previously in the call, I think, INR 5,000-odd crore has been given out for purchasing the compute hardware. So if you could just quantify our opportunity size for us, what is the addressable market over there for us? Or is it that the entire INR 5,000-odd crore is what we can capture potentially, theoretically? And, when do we see the execution coming along? And will this execution happen at decent margin and working capital levels? Thank you.
As regards, margin profile will remain the same as it has been. Actually, first thing is that I'm answering your last question first. And the second, as regards basically on the value terms, we would like to comment. Basically, primarily, it's an opportunity size of 10,000 GPUs to 25,000 GPUs. So the discussions, the government is still basically into the RFP state, and it's not going to be one-time purchase. This money has to be spent within three years, and basically, that's how they want to work on that. So the opportunity size is big for us.
Basically, the entire. As I told you, we are on it all, as Hirdey mentioned in his answer, that we are on all three parts. We are there in the hardware, we have our own software stack, we have the services stack. So basically, we provide a very good kind of a mixed kind of a solution, so I think we will get a good pie out of it. But basically, as regards that is there still it's a government project, so and it will be spread across, we think should be between two to three years in totality.
Sir, when will this start? When does the execution actually start?
Should start this year, actually.
Yeah, I mean, there is a likelihood, and ultimately, you know, the structuring of the entire opportunity, there is something which is going on right now. So as it happens, I mean, this is, this will largely depend on when the final documents will come out. Yeah.
Within few months, we are expecting the things to be rolling out.
Yeah.
But basically because you know that the Government of India itself has got a major, Prime Minister has got himself a lot of attention on development of AI, and this can be a really a good step. So I think, I think it should start very soon because the Cabinet approval is already there.
Right. Our current order book number does not include anything from this, at least as of now?
Nothing from this. Nothing from this.
And lastly, would you just comment on the working capital for this? It should be in line with what we're doing right now, how will it be? Or better, maybe.
Come again, I missed your question.
Working capital for this particular project, will it be better or...? Because since the quantum of this project is very large, is there any chance that the working capital also could be a bit stretched because the volume of work is very, very high here?
I don't think so. Let the RFQs and all other things come out, then we will be in a better position to answer this question.
All right, sir. Thank you so much, and all the very best.
Thank you. The next question is from the line of Rucheeta Kadge from iWealth Management. Please go ahead.
Hello, sir. Good evening. So, sir, my question was mainly on the order book side. So current order book, what is the execution cycle for it? And about the L1 orders, by what is the tenure for them to convert into your real order book?
So basically, first thing is that the order book which we have mentioned, that, that is basically the number INR 419 crore or something. So that exactly is the number which the orders have been received already. As you know, our order cycle is not that long. We execute orders between 20-24 weeks, normally. So this cycle gets executed during that time. And as regards L1, which we are there, so basically these are the numbers, these are the orders where we are already, we have won the orders, but the purchase orders have not come. They are still not part of the order book, but we have won the orders. So basically, within, we have normally seen within two to three months, they get converted into order book.
Okay, sir. And what about the pipeline, sir? Usually how much is converted into order?
Around, basically, a pipeline is basically, like, lasts us around 18 months, approximately. Which is a rolling pipeline, which keeps on adding. But 60% is a, 50%-60% is the conversion rate which we have, which is pretty high.
Understood. Understood. Thank you so much.
Thank you. The next question is from the line of Ankur Jain, individual investor. Please go ahead.
Am I audible, sir?
Yeah. Yes, please.
Yeah. Sir, I want to know that, whether the HPC and quantum computing are the same or it's not same? Are we doing something into quantum computing?
Yeah, actually, we will not like to basically, as regards HPC, we are definitely doing very strong. You know, still around 30%-35% of our business comes from supercomputing, actually. And that is definitely our regular business, which we have been doing for 20+ years. You know, we have a full stack of products there. That market is also growing for us. But as regards quantum computing, I will not like to comment at this stage. Basically, as it evolves, we will be ready. We have some plans on hand, but I think this is not the right time for me to disclose them.
Okay, sir. And second question is that, are we claiming PLI in both the things, IT, hardware and telecom, or in, one thing only?
We are eligible for both, and we will be claiming in both.
Okay. Sir, one more question. This other income of INR 3.89 crores, can you throw some light, what are the constituents of this other income?
Majority of this is interest from bank deposits, which are there in the form of IPO funds.
Okay, sir. Thank you very much.
Thank you. The next question is from the line of Priyaj, an individual investor. Please go ahead.
Am I audible?
Yes.
Good evening, sir. So congratulations on your remarkable growth. Sir, as you mentioned in your last con call, that the order book is INR 400 crore, and you will be able to convert that into the income in 14-20 weeks. So sir, why we are not able to see the revenue of around INR 250 crore or INR 300 crore? Why, why it is less? And the second question is, sir, I missed on the free cash flow. What is our free, free cash flow, and how much it has been added in this quarter?
So first, to answer your question on order book, I have always been, as far as I remember, I had mentioned 20-24 weeks of basically execution. So that is, we still stand by that only. So basically, it can be some two weeks, three weeks up and down. So I think we are completely in line with whatever we have projected. Okay, and as regards the cash flow question is concerned, I will let Prabal answer it.
Yeah, if you will see this, Q1 is our softest quarter of all the quarters, which are there. So in this quarter, our cash flows, net cash, free cash flows from operations are always negative, though they are still better from what we had in the last Q1, financial year 2024. But going forward, you will see we are targeting around at least 30% of our free cash, EBITDA to free cash flows to EBITDA.
Let me explain you. In the first quarter, as Prabal explained, it's the first quarter; most of our expenditure are CapEx expenditure. So the first 1.5 months, there is hardly any invoicing. So most of the billing happens towards the later part of the quarter, and hence they are sitting on the data, which will be realized subsequently. So it is a good thing to look at a full year of FCF, rather than looking at this quarter.
Okay, sir. Got it, sir. And sir, lastly, sir, can you give a guidance of after five years, as you mentioned in last conference call, that you have a guidance of five years, or that we can expect a growth of 30%-35% CAGR. But after five years, can we at least expect 20% or around some? Can you comment on that?
It's very difficult to envision a post-five-year situation, because this is not a FMCG company. This is a high-tech IT company, where things are evolving very fast. Let us wait and have some patience.
Yeah, I've always been very, very... I want to guide the market on a very correct terms. That has been my perspective from the day we got listed. So basically, like to maintain that, I will not like to do it, to comment anything hypothetical or too much imaginary. I hope you'll appreciate my point.
Okay, sir. Got it, sir. Thank you, sir. Thanks for support the opportunity.
Thank you. The next question is from the line of Pratap Maliwal, from Mount Intra Finance. Please go ahead.
Hello? Hello, can you hear me, please?
Yes.
Yeah, hi, and thanks for taking my question. I just wanted to ask, so could you give some more clarity on the comment that you made, that you have a roadmap of about 12-18 months from NVIDIA? So could you throw some more light on this particular point? Like, what is the roadmap that roadmap that they've given you, and how does it plan to kind of, you know, ramp up?
So basically, once we work with major chipset providers, okay? Like Intel, AMD, or the other OEMs, we have an agreement with them, wherein we know the future chips which are going to come. Okay, so that basically before the products are being launched in the market, we are able to basically design our products accordingly. So that exactly I meant, and basically, though I'm not, I cannot be expected to divulge the details of the roadmap, because those are all under NDA.
Okay, understood. And secondly, an earlier participant had pointed out that we got an order for supercomputing about INR 150 crore. So can you just help me understand, are we providing the space centers, for example, to compute in regards to supercomputing, we are providing them servers, or what is the product exactly that we are providing?
It's a complete supercomputer, which in basically it has, it has got our complete installation. Everything is there, actually. It's end-to-end, it's turnkey basis.
Okay, understood, sir. Okay, thank you. Thanks for taking my questions, and, congrats on a good set of numbers.
Thank you.
Thank you. The next question is from the line of Kunal Mishra, from Orcanju. Please go ahead. Mr. Kunal, your line has been unmuted. Please go ahead with your question. Due to no response from the current participants, we are going for the next question, which is from Omkar Gangurde, from Shree Investments. Please go ahead.
The first question is, how do you plan to utilize the IPO proceeds, and CapEx for the current year, what it will be?
So, I think we've already put it very clearly in our earnings presentation. But out of the total fund of INR 1,940 crores, we've already spent INR 96 crores, million, crores, no?
Millions.
Yeah, INR 96 crore. Right. there is the balance of it will be utilized.
Regarding the balance IPO proceeds of around INR 97 crores, INR 75 crores is for working capital, and balance is for CapEx, which is yet to be incurred. Around 14-15 crores already CapEx we have incurred on the SMT line. Our building is under construction and is being constructed at full force. We expect that all the INR 97 crores left over will be utilized in the coming quarters.
Okay, so, earlier you had mentioned that you would be looking for strategic acquisitions. So for that you will have to raise proceeds from the market, as you will be utilizing this?
No, no, we have enough cash flow generation to be able to do that as and when the opportunity comes.
So as the signal opportunities come out, we will see, because you will see, our cash flows in the coming quarters will be on the healthier side, so we will be able to meet those acquisition chances from our own funds. Right now, we are under evaluation stage. Right now, there is nothing on plate to guide you on that.
So right now, how much free cash flow you are converting out of the total net profit in percentage terms?
So for this quarter, as previously answered, our free cash flows are on the negative side. But, as this is the slowest quarter and all the billing happens during this quarter in the later part of the quarter. So going forward, we expect that our cash flows will significantly improve, and we are targeting around 30% of EBITDA to be our free cash flows during the year.
Okay, all right. Thank you very much.
Thank you. The next question is from the line of Pravin Desai, an individual investor. Please go ahead. Mr. Pravin, your line has been unmuted. Please go ahead with your question. Due to no response, we are going forward with a new question, which is from the line of Hardik Rawat from IIFL Securities Limited. Please go ahead.
Thanks for the opportunity again. Sir, I wanted to ask a couple of questions with regards to our export business. So we were planning on expanding our operations in the Middle East and Europe. So, what are the updates on that?
It's progressing very well, Hardik. Very good question, actually. So basically, things are moving on a very positive direction, and basically, Middle East, I think we are, we have already started our sales effort in Middle East, actually. And primarily, I think we very soon we will be, I think we will be maybe one or two quarters, we will see good revenue coming out from exports also from us. So we'll be on track on that.
So, especially in the ME and European markets, are we seeing any specific... Which division is gaining the most attraction, like, our execution is going to be the highest in which of the segments? HPC, HCI, or AI systems?
So basically, primarily, moreover, it will be mix of all the three, actually. Okay? So, primarily private cloud and HCI, we are seeing a lot of traction. In AI also, we are seeing traction. We are also seeing some traction in HPC. But you asked me to list it in the kind of opportunity-wise. First will be private cloud, and the second will be AI, third will be HPC. At this point of time, this, this matrix can be up and down any point of time.
Got it, sir. Second is the question on the new SMT facility that we have inaugurated. So just wanted to understand, since we just inaugurated it, I don't think it will be running at the scale that our other facility is running on. So what are your expectations with regards to this facility, you know, achieving economies of scale, which would further could probably help with the margins? And also, did the higher fixed costs from the new facility have a bearing on the margins this quarter?
I will let, on the margin question, I'll let Prabal answer it, but the first part of the question I'd like to answer. As I mentioned to you, our, all our CapEx investments are primarily more related to capability. Okay, since basically, and our, our facility is almost all ready and already in production. Already in production, basically, it was, so we had, we had to fast-pace this up, because at the time of IPO, we had mentioned that basically we will be making it ready by 25. But since basically, we were trying to work on some kind of tech, various kind of new technological opportunities which we have, which have been available to us, so we had to fast-pace it. So our, facility is almost all up and running, already in production, so definitely that is there.
So, primarily within next three months, it will be more, more or less, I think in the next three to four months, it will be further more optimized, and it will come into complete production. But still the unit is under production, and that will help us so as to get into the newer product segments, newer areas which we are getting into, all those things that will be ramping up there. I will let Prabal answer the next one.
On the margin front, yes, the cost of that facility is there in our P&L, for the benefit of which will come to us in the next quarters, might be two quarters down the line. So margins will more or less little bit improve then, but for the next two quarters, we don't see any improvement in the margin, which are there as of currently in our financials.
Got it, sir. Sir, then, now to, on, network switches and 5G RAN, just wanted to understand where are we in the stage of development on both those products?
Network switch is already developed, and it is already giving us sales already. It has already started. We started selling it softly by the end of last quarter. This quarter, we were trying to already... I think you can see some revenues coming in, so definitely that will ramp up. So network switch is already there. The 5G RAN is still under development. That will take some more time. And, at this point of time, the indication I can give you is somewhere around Q4 kind of thing, but we are trying to see if it can be done earlier.
Got it. Sir, lastly, on the M&A opportunities that you hinted at, although there might be, you not be able to disclose anything, everything with regards to the same, but then, an indication as to what area are you looking to, you know, possible, looking for possible M&A opportunities?
Yeah, actually, thing is that, Hardik, you know that we are a completely R&D kind of a company. We, at the time of IPO, we had 54, 55 people, primarily in the R&D. Today, the R&D strength has gone up to 80+, actually, but still we cannot do everything by, by ourselves. So basically, it's whatever in, M&A we are trying to do, we are doing in relatively active, related activity only, which can help us grow actually. Okay, basically, we are looking at various kind of areas, which is completely related to our product range, the technology we work upon. So instead of doing everything, we seek to do kind of, basically M&A, that may help us to basically keep our growth pace or maybe increase our growth pace. So that is the idea we have on the M&A.
Got it, sir. I'll get back in the queue.
Thank you.
Thank you. The next question is from the line of Pravin Desai, an individual investor. Please go ahead.... Mr. Pravin, your line has been unmuted. Please go ahead with your question.
Yeah. Good evening, sir. As you told, we are in the data center from, on the, very beginning. So what will be the revenue from data center for this year and the coming two years? Can you guide us?
So basically, our private cloud and HCI business is primarily more mostly considered as a data center business only. So that has been around 35% of our revenue. So we personally feel that it will remain; still it will remain around 35%-40% of our revenue.
In terms of rupees, what will be the revenue, sir?
You can calculate that. Basically, I am guiding you at a growth of 30%-35%. Currently, basically, last year my revenue was INR 724 crore, so accordingly, you can do the guidance.
You can do the extra. Okay, okay. And then will remain for, same for the next two years?
For this two to three years, we will grow at 30%-35%. We don't give hard guidance, we give a range of growth. You will have to do the rest of the calculation.
Okay, thank you, sir, and best of luck.
Thank you.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks. Thanks for the follow-up. Sir, just wanted to understand, we were also looking to venture into oil and gas as a sector within the high-performance computing, supercomputing. Any update on the same?
So we are already working with, working on that segment. Basically, primarily speaking, actually, at this point of time, some oil, we are, we are actively engaged with some government PSUs, okay? Like, basically, ONGC and all, which previously, earlier they, they was, they were tied up with some international ISVs, and they were creating barriers. So basically, because of the Make in India policy of the government, and plus the kind of solution we are providing, we are, we are heavily engaging them. But you understand, this industry takes time. So I think still, generating significant revenue out of that particular scheme will take us some time, but we are making good progress.
Okay.
We are starting models already, Sandeep[crosstalk]
Oh, yeah[crosstalk]
Yeah .
Okay.
We are progressing well in that direction, so I think we are in line with what we had planned for.
Okay. So supercomputer will continue to remain one of the high growth pillars along private cloud and AI workstations, because in our, we are doing extremely good versus others, and there is lack of competition as well.
I mean, we, we don't look at the competition as such. It is more about that how we are solving the, you know, problem statement of our customers. So yes, I mean, if you talk about, HPC, AI, and, you know, private cloud, we are, we are focusing on all three, you know, equally. And I think all are going to become the major pillars, as we have been, always saying so. So yeah, whether it is about oil and gas or the other verticals, our, you know, idea is to take all our solutions to our customers. And the best part is that customers are, you know, with open arms, welcoming our solutions. And, that is the best about, best part about the, you know, approach what we have.
Okay. And just last clarification, Prabal, you said 100-150 basis points margin improvement from the current level of 13.4%, right?
From? Pardon, from?
From the current level of 13.4 EBITDA margin, right?
Yes, around 1%, I told you, will come, but immediately, not this year. Going forward in a year, two years' time, it will be, margin will improve.
Our standard margin is around 14-
Our standard margin is 14%. First quarter margins will always be lower because we have a lower top line, hence a lower operating leverage, right? Okay, our average margin will be around 14%. When we talk of further operating leverage, what we are trying to say, from next year, probably 50 basis points of expansion can happen because of volume growth and a higher operating leverage. So that's why I am hinting out that, from current 13.4, it might go to 14.5, 14.4, something %, next year.
Okay.
Operating leverage, that's it.
Okay, thank you.
Yeah. Thank you.
Thank you. The next question is from the line of Yash from Stallion Asset. Please go ahead.
Hi. Thank you for the opportunity, sir. Just, a quick question. Could you please tell me your gross margin on your AI systems and workstations?
So, our gross margins are pretty same across all over our products. There is a little bit more margins on our services, which is offset by little lesser margins on servers and storage systems. So we don't track as usually our margins separately, but moreover, as I told you, that is even across all our product segments.
Right. So the customers that you are selling the AI workstations are the same for your HPC? I mean, are you trying to cross-sell more and more towards the existing customers, or do they have all three of the major segments, or they are unique customers for each segment?
To answer it, actually, it is, it is the same customers as well as unique customers.
So there are opportunities for us where we are, you know, creating or you know generating new opportunities or new avenues, where we are even approaching those customers who can be the first-time customers and looking for AI systems. But there is an opportunity with existing customers also, where we are trying to cross-sell our systems. And that is the best part about that, because that is giving us, you know, opportunities to grow both ways. whether to approach the new customers or to approach the existing customers, I think we have the opportunities in both the situations.
Okay, got it. Thank you.
Thank you. The next follow-up question is from CA Garvit Goyal from Nvest Analytics Advisory LLP. Please go ahead.
Hello? Hello.
Yes, I can hear you, Garvit.
Yes, sir. So just a clarification on the guidance that you put in. 30%-35% growth for next three years, right? Is it accounting for NVIDIA chips tie-up and the other opportunities in the areas like data centers and the quantum computing?
Everything[crosstalk]
Quantum Computing, we haven't[crosstalk]
We haven't guided anything[crosstalk]
Guided anything.
We have not even showed any roadmap or anything of that sort [crosstalk]
We are working on it.
Yeah.
It's too early. But yes, everything else-
We have tie-up and the other opportunities that areas all accounted for in this guidance?
Current area we are working upon, we are giving you that guidance of around that is the 30%-35% guidance we would like to guide.
Yes.
Understood, sir. Thank you very much and all the best.
Thank you. The next question is from Gana Naresh Khemani, an individual investor. Please go ahead.
Thanks for the opportunity. Just two questions: What is the incremental revenue from Faridabad in top line and, margin-wise, profit-wise?
Sir, Faridabad, everything is in Faridabad.
The new factory, sorry, the new factory, the new...
Okay. New facility is just started[crosstalk]
Just started[crosstalk]
Just started, yes.
Just started.
Yeah, yeah. Going forward, what is the incremental revenue you expect from that factory, and what will be the addition in profit?
It is, it is going to be as guided, the 30%-35% incremental revenue includes everything.
Please understand, we are not box pushers, actually. Just adding a factory will not increase numbers for us. It is more over capabilities, actually, and basically so. And the growth path, which we are growing 30%-35%, that's basically a very good growth guidance which we're already indicating. But it is not that, that if I add one factory, immediately my revenue will come double. Something of that nature doesn't happen in this industry. It's a solution-oriented approach. And if you see basically the kind of box margins and my margins are much different. So I think we should look at the, this industry in a different way.
Understood, sir. Thanks. And one more question, what is the total market size of three verticals, three products which we are working with? And what is the going for?
So I think what you can do is you can share your email address with us, and my email address is there in the presentation. We will share with you the presentation which we had uploaded last time, the strategy presentation, where each of the segment has its market size. It will be very difficult to tell on this small call all the details of the market size. We can deal with it separately.
Okay. Thank you.
Thank you. Ladies and gentlemen, we'll take this as the last question, and I'll hand the conference over to the management for closing comments.
Yeah. So thank you for really nice asking all your questions. Finally, in case if you have any further questions, you can always come back to our invest-IR, investor advisor, basically relations team, as well as our direct teams as well. So thank you so much, and thank you, IIFL, for hosting this call in such a nice manner. Thank you.
Thank you.
Thanks a lot.
Thank you all for joining in.
Have a great day. Thank you.
Thank you all. Thank you.
Thank you.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.