Ladies and gentlemen, good day and welcome to the Netweb Technologies Q2 FY 2026 earnings conference call hosted by IIFL Capital Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note this conference is being recorded. I now hand the conference over to Ms. Renuved Pugalia. Thank you, and over to you, ma'am.
Thank you, Mark. A very good afternoon, everyone. On behalf of IIFL Capital, I thank the management of Netweb for giving us the opportunity to host their Q2 FY 2026 earnings call. From the management team today, we have with us Mr. Sanjay Lodha, Chairman and Managing Director; Mr. Navin Lodha, Whole Time Director; Mr. Ankit Kumar Singhal, Chief Financial Officer; Mr. Hriday Vikram, Chief Sales and Marketing Officer; and Mr. Sanjeev Sancheti, Virtus Advisors LLP, IR Advisors to Netweb Technologies. I now hand the call to Mr. Sanjay Lodha for his opening comments. Thereafter, we can start the session for Q&A. Thank you, and over to you, sir.
Thank you, Renu. And Renu, good afternoon, and warm welcome to all of you to Netweb Technologies Q2 Financial Year 2026 earnings call. We are pleased to share the quarter has been exceptional for the company. We secured two large strategic orders worth approximately INR 21,840 million to be executed by Financial Year 2027, reaffirming our position as India's largest OEM in high-end computing solutions space. Operating income grew by over 50% year-on-year in H1 2026, while operating EBITDA increased by over 60%, delivering a healthy margin of 14.9%. PAT for the period stood at INR 619.1 million, up by 49.5% year-on-year with a 10.2% margin, reflecting strong demand, disciplined execution, and scalability of our business model. We have once again outperformed our stated growth guidance of 35%-40% CAGR, reaffirming our commitment to constantly deliver our promises.
The strategic orders won are of national significance, aimed at strengthening India's AI compute infrastructure and advancing the vision of a sovereign AI journey of the nation. By delivering world-class AI infrastructure designed, engineered, and manufactured in India, we are helping build nation-sovereign compute capabilities, accelerating its emergence as a global AI powerhouse, enabling citizen-centric services, and moving closer to the vision of making India the AI factory of the world. Beyond these strategic orders, our growth in the AI segment has continued to be very strong. The segment's revenue contribution rose from 14.7% in the first half of Financial Year 2025 to 25.4% in the first half of Financial Year 2026, reflecting an impressive growth of 160%.
The performance underscores our steadfast commitment to in-house design and manufacturing of next-generation systems, fully compliant with the Make in India vision and contribution to India's emergence as a global hub for high-end manufacturing. Netweb's continued focus on its three growth pillars—that is, high-performance computing, private cloud, and AI system—is enabling us to capitalize on strong momentum across these segments. Supported by robust industry tailwinds, these core business positions us as a technology leader in the SCS space. This strength is reflected in our robust organic order book of INR 4,939 million as of September 30th, 2025. Together with recently secured large strategic orders of over INR 21,000 million and a strong business pipeline, we are very well positioned for strong, sustained growth over the next few years. I now request Ankit to take you through the financials.
Thank you, Mr. Lodha. Good afternoon to all the participants. I would like to draw your attention to the safe harbor statement in the earnings call presentation. I request each one of you to go through the presentation before the Q&A starts so that you are aware of the same. Ladies and gentlemen, thank you for joining our earnings call. Before we open the floor for Q&A, I will provide a brief overview of the financial performance for the quarter and the year gone by. I trust that by now, you have had the opportunity to review our earnings presentation and press release. While our CMD has already discussed the macro outlook, I will elaborate on the financial performance, providing a more detailed analysis. Our operating income for Q2 FY 2026 increased by 21% YOY, reaching INR 3,037 million.
Our operating EBITDA for Q2 FY 2026 increased by 25% YOY, reaching INR 454.6 million, while the operating EBITDA margin for Q2 FY 2026 was 15%. Profit after tax (PAT) for Q2 FY 2026 grew by 20.1% YOY, reaching INR 314 million, while the PAT margin stood at 10.3%. Our operating income for H1 FY2026 increased by 51.1% YOY, reaching INR 6,049 million. Our operating EBITDA for H1 FY 2026 increased by 60.6% YOY, reaching INR 903.2 million, while the operating EBITDA margin for H1 FY 2026 was 14.9%, improving from 14.1% in H1 FY 2025. Profit after tax (PAT) for H1 FY 2026 grew by 49.5% YOY, reaching INR 619 million, while PAT margin stood at 10.2%. Return on equity for H1 FY 2026 was 22.4%, while return on capital employed for the same period was 30.2%.
Our cash conversion cycle as of September 2025 stood at 120 days, reflecting an increase of 9 days compared to the previous quarter. The primary reason for this increase was the reduction in the payable days from 84 days in June 2025 to 70 days in September 2025. Receivable days improved from 124 days in June 2025 to 117 days in September 2025. It is important to note that advances received from the customers for large strategic orders have not been adjusted with the debtors while calculating the receivable days. Inventory days remained unchanged at 72 days across both quarters. Our balance sheet strength is reflected by us being a zero-net debt company. The company had net free cash of INR 2,379.8 million as of September 2025. For the large strategic order, no additional capital expenditure will be required.
Short-term working capital needs, primarily LC-based, have been already secured to ensure smooth execution. These orders are LC-backed, guaranteeing timely payments and eliminating credit risk. We remain firmly aligned with our strategic roadmap and growth priorities. With strong momentum through the year, a robust order book, and a healthy pipeline, we are well positioned to deliver consistent revenue and profitability in the current fiscal. With this, I now hand over the call to Renu Ben.
Yeah, we can now start the session for Q&A, please.
Thank you very much. We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press Star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press Star and 2. Participants are requested to use the 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 Akshay from AK Investments. Please go ahead.
Hello, sir. Am I audible?
Yes, you're audible.
Yeah, thank you so much, sir. My first question is, sir, apart from the INR 2,100 crore orders that we got, whatever effect that might have on our financials for up to FY 2026 and FY 2027. Apart from that, we are maintaining our organic growth guidance to 35%-40% for the next couple of years. Is that understanding correct, sir?
That is very right.
Okay, sir. And, sir, this is the significant order inflow that we saw in the last one month. Can we expect the same type of strategic orders in coming years due to the India AI mission in coming quarters or coming months?
Definitely, we are optimistic that we will keep on reporting as and when we get the orders.
Okay, sir. Okay. If you talk about the general trend and demand scenario for the NVIDIA GPUs and our products in India, that would be helpful if you want to add some highlight over there, sir.
Yeah. So basically, I already mentioned in my talk that how basically AI segment has grown by 160% if you see year on year, actually. Currently, you are seeing the strategic order wins also. Definitely, AI growth is completely going very, very strong all over the world, actually. We are very well positioned since we design and manufacture our products on the latest architecture of NVIDIA, actually, and other basically on the complete GPU infrastructure, GPU-based systems. We have the latest product, and that's the reason we are getting traction. Definitely, we see as more and more workloads are completely diverting and making use of AI. I think we have better potential there also that it will also keep on fueling the demand. The other area which I feel is that the government spending is really going up and up because government understands that India can become the AI factory.
They want to replicate the same thing which basically happened with the India became the software powerhouse of the world. They want to make India become the AI factory of the world. Personally, I feel for coming few years, definitely AI is the segment which will be growing. Having said that, the other two segments which basically our business is not completely dependent on AI, please keep that in mind. The other two segments are very strong. Still, more than 70% business still comes out of the other two segments, that is HPC and the private cloud. Both the segments are growing. If you have been observing our results for past few years, past few quarters and years, actually, you will see that it has been constantly growing.
Though we are a company growing at a 35% CAGR, still basically both these segments are constantly around 35% each, actually making it to be 70% of the total revenue. We personally feel that the other two other segments will be growing and AI will grow in a better way.
Okay, sir. Okay. A small follow-up on that would be that today Indian government, Narendra Modi ji has inaugurated IBI fund, INR 1 lakh crore of IBI fund for research and innovation. In that, they are focusing mainly on AI electronic semiconductor. This will also affect positively to our companies as well as general AI trend or compute capacity in India as well, right?
A lot of all the government is really instrumental on that because basically AI is the biggest employment generator. If the government fees are so, and definitely they want to basically create more employment. AI is definitely government is focusing on AI.
Okay, sir. Thank you so much and all the best for the future quarters.
Thank you.
Thank you. The next question is from the line of CA Garvit Goyal from Nvest Analytics Advisor LLP. Please go ahead.
Hi. Am I audible?
Yes.
Good afternoon, sir, and congrats for a good quarter. Sir, my question is on the order book side. Apart from this strategic order, our organic order book has grown significantly as compared to the previous quarter. Can you put some color on that? Is it any specific deal that we signed in this organic order book as well? Because there is a big jump as compared to the previous quarter.
Basically, as you know that, as far as I remember, you have been a constant attendee of my conference calls, and I really want to thank you for that. You will definitely remember it that basically I always say that my order book does not give you a clear, my organic order book does not give you a clear indication how my business is performing because my order cycle basically lasts from normal order cycle is 12-16 weeks. This basically is the execution cycle. It can keep on growing. It can basically reduce or something of that nature. What you should focus on is on the pipeline. I have a pipeline of around INR 4,000 crore, which does not include any strategic orders in the strategic pipeline. INR 4,000 crore is the most important number which you should remember.
Basically, our gestation period for orders is around 6 months to 18 months. We personally feel that keeps on fueling our revenue and the order book. You have seen that constantly we are growing at what we have told you, 30%-35%. This number gives me the confidence that my organic business will keep on growing at the same rate.
Got it. Got it. Sir, secondly, on these specific deals, you mentioned we will be reporting to the exchange as, when we get these deals. Can you put some color on that? Currently, are we into negotiation with anybody related to these kind of specific deals that are currently on?
Basically, because as I mentioned to you, strategic orders are large orders. There is an immense potential. You are fully aware how government is spending and basically what kind of funds are being generated and all those things are there. You see today all the major GSIs, all the major global system integrators like TCS, Infosys, everybody is changing their complete strategy to AI services. Everybody is trying to develop more and more, use more and more AI. Business is coming from all sides, actually. We personally feel that basically strategic orders will be coming in, but we do not want to really announce in advance. As soon as the deals are there, they become visible, we will keep on announcing them.
What kind of margin do we have in these kind of specific orders, sir?
Let Ankit answer that.
Garbhit, look, these are very large orders, which are obviously different from our regular business orders. However, we are keeping and maintaining very healthy and sustainable margins. They can be like 150-200 basis points lower at PBT level.
Got it.
At the max, yeah.
Yeah.
Which is again very healthy.
Got it, sir. Thank you very much, sir, and all the best for the future.
Thank you.
Thank you. Ladies and gentlemen, to ensure the management can address questions from all the participants, please limit your inquiries to two per person. If you have a follow-up, kindly rejoin the queue. The next question is from the line of Anand B from KSMA Well Private Limited. Please go ahead.
Good afternoon, sir. Can you hear me?
Yes.
Yes, sir. I'm going to share a good set of numbers. The first question is, since the two orders have come, previously we've given a revenue guidance of 35%-40% year on year, and with a margin of 14%, and PAT margin guidance of 10%-10.5%. After these orders have come, do you have any revised guidance for the FY2026?
There is no revision in the guidance. We are maintaining 35%-40% growth for the regular business, and strategic orders are being informed separately. For the EBITDA, the guidance remains the same, 13%-14%, as we will be transitioning to large scalable orders.
Okay, but the realization of these orders will come by FY 2027?
Yeah, they will be executed by FY 2027. Correct.
Okay.
Some portion, around one-third of these orders, we expect to be executed in FY 2026 because the total order is somewhere around INR 2,100 crore approximately. Our expectation is, out of INR 2,100 crore, one-third should get executed this financial year, and the balance should get executed in the next financial year. Please keep in mind that, basically, since these are all based on the latest technology, delivery and other supply challenges can make things move from a month or two up and down.
Okay, okay. Thank you, sir. The last question I have is, in your presentation, you now mentioned the breakup in terms of industry vertical, that is higher education, IT, IPS, space, and different. Can you provide for that for this quarter?
Yeah, that has been remaining almost all same, but basically quarter-on-quarter basis, you cannot really judge it because basically we do not monitor it quarter-on-quarter basis. Basically, that is primarily on year-on-year basis, if you see. It will remain almost all in the similar lines.
Okay. Okay. Because in the previous quarter presentation, you have mentioned the breakup. I just want to know if there is.
I will take that. I'll tell you the reason why we were giving this particular sheet earlier is because of the requirement of the ICDR regulation. This is not something which is very critical for tracking. It's more important to track segment-wise revenue, which we are giving. Hence, we are not going to report this quarter-on-quarter because this is not something which we really feel is relevant, and we do not want unnecessary and irrelevant data. On an annual basis, we are happy to discuss this.
Okay, okay. Thank you.
Thank you.
Thank you. The next question is from the line of Prateek Singh from DAM Capital. Please go ahead.
Hi everyone. Thanks for the opportunity, Nagarjee. Just wanted to get a sense about this $2.1 billion, $2.1 or INR 100 crore order. So just to get it right, we would be providing servers and not cloud, right? Or would it be cloud also to government PSUs and departments who can then take it up at $3 per hour, $2.5 per hour, something like that?
It's a complete end-to-end solution which we provide.
Okay. So we would be providing cloud services as well on top of?
No, no. We do not give annuity services. We sell the product and the solution, and we get paid for it. It's a CapEx purchase for the buyer, and we do not do any annuity business.
Thanks for clarifying.
Understood.
Understood. Sir, in terms of NVIDIA, what we keep hearing is that there is a very, maybe not now, but there used to be a long queue in terms of getting the latest chips. How has this changed over the past two, three quarters, and how are we confident of getting those chips? Have we placed orders for those chips, and some of them are already en route to us?
Basically, as you know that we have a very strategic relationship with NVIDIA. We have an OEM partnership with NVIDIA, which is basically there with very limited people in the world. Actually, less than 10 people have that. We have a very, very strategic OEM partnership with them, wherein basically we design and develop products based on the latest chipsets. We have sufficient allocations, and we get basically in this part of the region of not only India. In all of this region, actually, we are the only company having that kind of a relationship with them. We are investing heavily into R&D and all that. We get due priorities from NVIDIA, and our supplies are quite basically much more streamlined.
Even the days when GPUs were under acute shortage, even those days also, our supply lines were very much intact, which basically, if you see past results, you will see that. We are very confident that we'll be securing and we'll be getting the chips and everything, not only from NVIDIA, from others also on time. Definitely, you are aware that how basically the compute demand is growing all over the world. Basically, everybody is trying to build compute capacity because basically the AI demand is soaring and is definitely requiring more and more compute. Definitely, we see a good opportunity there, and we are forecasting accordingly.
Thanks. Thanks for this, sir. I'll join that. Thank you.
Thank you.
Thank you. The next question is from the line of Vinay Menon from Monarch Capital. Please go ahead.
Hi, sir. Thank you. My name is Vinay Menon . Yes, a few questions. Congratulations also on the AI mission deal, sir. Any execution timelines? You mentioned that H2, I think execution starts. Just to get an idea, is it going to take one and a half years for these two orders to complete, one year, anything like that, sir?
Thank you for your question. Actually, at this point of time, as I mentioned, basically one-third of the orders we are targeting to ship in financial year 2026 and balance will spill over to financial year 2027.
Okay. Okay. That helps, sir. You mentioned in your presentation something about exploring foreign markets and pro markets you mentioned. Any plan there, and if you can explain what the roadmap would be there?
Yeah. So basically, if you really see at this point of time, our exports is somewhere around 5% of our total turnover. I have not tracked it particularly for this quarter, but still, my team would have definitely tracked it. Basically, we still would like to guide somewhere around. This quarter it was pretty low, but overall, we are guiding annually around 5%-6% of our revenue from exports, which was almost zero two years back. We are slowly building upon it because you see the compute demand locally is so heavy and so high. We want to first basically cater to that and accordingly move ahead with that. We are slowly and steadily building our international exposure as well.
Okay.
May I just clarify on this point, sir, this is Sanjeev here. Just that the expectation is clear. See, this 5%-6% is on our organic business. Now, this large order which we have got is obviously a domestic order. Hence, for these next two financial years, at least the overall percentage, if you look at the total top line of the company, this may be lower than 5%. I hope I've been able to explain what I wanted to say.
Yeah, that helps, sir. So basically, these are pure exports, and you have mentioned that you're trying to set up something also so that you can do the servicing and other things. Are these pure exports from our factory in Faridabad, or are we setting up some offices there to kind of get local demand abroad also?
Basically, as regards at this point of time, we have just yet not decided on setting up offices outside, but definitely, we are setting up our service network first because that is more important because manufacturing primarily happens in India only. As and when we need salespeople and all that also, we maybe think about setting up our offices. As you know, our customers are large enterprises. We are not into SMB because you see around 50% of our business comes from government, around 50% of business comes from enterprise. This particular quarter, around 60% of business came from enterprise and 40% business came from government. This keeps on shifting. If you see over on year on year, it will remain around 50-50%. Basically, large enterprises are there.
We may need to set up some kind of service network that is more important for us, but slowly and steadily as well for more business development as we need more people, we can think about it.
Okay. And just one last thing, sir. You see the number of news about Google and OpenAI coming and setting up data centers here. Are we planning to kind of tie up with any of these because these are all partners to NVIDIA? I'm sure NVIDIA could kind of help us get an entry with these kind of large enterprises also. Any plans on that, sir?
Yeah, actually, still these things are far off. Actually, still these are greenfield projects at this point of time. That very well augments the fact that how basically the compute demand is growing in the country today, that hyperscalers are also coming to India and trying to set up. Definitely, that is happening. As and when the time comes, we will offer them the right opportunity.
Okay. Thank you, sir. Thank you. Thank you for the opportunity. I've joined with you.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks for the opportunity. And congrats once again on great execution and large strategic orders. Sir, the first question is, if I look at the government AI mission, as of now, the approval is for INR 10,000 crore. And we got two deals worth INR 1,000 crore. So addressable market in INR 10,000 crore was closer to around 40%-50%. So that means INR 4,500-5,000 crore. So is it fair to assume we already won a wallet share of 45%-50%, and more strategic deal may come outside government AI rather than now?
This is the answer to the question. First of all, I just want to clarify that the INR 10,000 crore which you're talking about, that is basically the fund allocation which is happening at the government's end. Whereas the orders, what we are talking about, is basically for setting up the complete infra. Okay. What happens in this case? The amount which government is going to allocate, that is going to be paid against the GPU resources. Fine? The amount cannot be related in this fashion, but I can certainly tell you that we are targeting more strategic orders also, as and when the opportunity comes. As we answered initially also, we are definitely working on that front. As and when this opportunity comes, we will keep notifying, keep informing the market. This is in process, and we are extensively working on that front.
Okay. Okay. So, Nigel, sir, if you can clarify, what you said in the second statement, INR 10,000 crore is the government-related budget. I didn't understand clearly.
I'll explain you that again. Basically, as you know, India Mission has got seven pillars, which we have shared with you earlier also. One of the pillars is for building up the in-house infra. The second pillar is for creating GPU resources and rendering GPU services to the end customer. Largely, the requirement which we are going to address is going to be related to these two pillars. The rest of the pillars are like financing the startups and building the other type of ecosystem which can mushroom the AI ecosystem in the country. The first two pillars are the main pillars. When you talk about INR 10,000 crore, INR 10,000 crore is going to take care of the first two pillars as such.
That's the reason I said that when you talk about the order which we have taken, which is of INR 2,100 crore, will that basically fill the complete wallet share of ours? The answer is no. We have got many more opportunities which are going to be related to India Mission. As and when the opportunity will be built by us, we'll try to build more strategic orders as well. I hope this answers your question.
Yeah, yeah. Thanks. Thanks. Just wanted to understand. We have already mentioned that this strategic order execution may not require incremental CapEx. Do you believe it may require some incremental employee strength or does it not require because business runs on operating leverage rather than direct correlation with the employee and other expenses?
Sandeep ji, you'll have to understand one thing. Because why are we getting these strategic orders? We are getting strategic orders because of our R&D strength. Okay. R&D strength is very important because basically we are working on the latest chipsets. Basically, we are providing the state of art, the best kind of the solutions which are available around the globe. We are not basically lagging behind with anybody. We are trying to give one of the best optimized solutions, actually working on the latest chipset. R&D strength is helping us so as to build that. As regards to the second question on the CapEx side, definitely we will not be needing CapEx because basically we have already mentioned that. Because we are, as you know, not primarily a capacity-driven organization. We are a capability-driven organization.
As soon as we started working on Blackwell chipset, we immediately upgraded our lines and all that so that basically we can do that. Our lines are fully sufficient so as to do it. As regards to employment is concerned, again, basically ours is not that kind of a very low-end kind of work. Primarily, most of the work is being done by engineers and all. Our strength, when we went IPO, was around 240 people. Today, we are nearing around 600 people. Basically, it's an ongoing effort which is going on, and people are being added. We are almost double the size in almost two and a half years approximately. People addition is definitely happening. More and more technical people are joining us. All that basically makes us confident that we can do this without having many much many more changes.
Other thing which I would like to point out, as regards to manufacturing capabilities also, we have developed a new plant, as I mentioned to you. The new areas and new integration units are being added almost all basically every time. Basically, we have those kind of abilities. Hence, we don't need any kind of CapEx.
Yeah, yeah. Thanks. This is helpful. And just last thing, in this quarter, if we look at private cloud and HCI, it has been almost flattish both on Q1Q and BioY. I do agree one can't see in just one quarter. But how do you see the demand for the private cloud both from the private enterprise and the government enterprise?
It is growing, actually. If you really see, basically, we have grown. If you really see, overall, the growth has been there. Basically, again, on a quarter-on-quarter basis, you cannot really judge our kind of business, okay? Because basically, we are not into retail and something of that nature or SMB and all. If you see H1, H2 kind of thing, you can see the growth. Growth is there, but AI has been growing much more, actually. I personally feel the way that you may be having also the information how the data center market in the country is growing at this point of time. There is a phenomenal scope and basically for that to grow. Hence, basically, once we say that we'll be growing our organic order book at around 35% or not order book, the organic business will be growing at a rate of 35% CAGR.
That is being fueled by these two segments. Still, around more than 70% of business comes out these two segments. They have been constantly fueling our growth for many years. For future also, we are very sure that these two will still remain our main pillars.
Okay. Thank you. I will come in the follow-up if I have more. Thanks. All the best.
Thank you. Thank you.
Thank you. The next question is from the line of Vibhor Singhal from Nuvama. Please go ahead.
Yeah. Hello, sir. Thanks for taking my question. Just two questions from my side. One is these strategic orders of around INR 2,000 crore that we have won, as you mentioned, that we might not require any incremental CapEx on these. Given that these are government orders which typically would have a three- to four-month minimum receivable days cycle, do you think we would need some additional funding on our balance sheet to basically support the working capital that might be required for this? If yes, are we looking at basically some ways of arranging for that?
First of all, there is a correction. The orders which we have taken are not directly from the government. Basically, we are serving the India Mission, but we are serving it through some of the panel organizations. That is also our receivable or our payment. The structure is very well structured in this case. In fact, we wanted to highlight that part as well during the question. Good that you asked this question. I think Ankit can emphasize more on that part. He can throw some light on that part. Yes, I am answering your first question. It is not that we are directly giving it to the government.
Got it. But in terms of working capital requirement, will this need any additional funding?
Yeah. Ankit can answer that.
Sure. So look, the large strategic orders are commercially very well defined. First of all, I'll let you know that we are receiving sufficient advance to have the cash accrual for these particular executions. These are also LC-backed transactions. We have secured the LC-backed limits to do the smooth execution of these projects.
Credit risk is almost all zero, actually. The entire deal is completely secured. We have advances from the customer. In the balance, we have LCs. The credit risk is almost all zero, actually, and very well planned to be executed. We may need some short-term LC kind of limits from the banks, which has already been secured. We do not feel there are any financial challenges as such.
Right. But in the interim, as this project starts execution, we might see a bit of, let's say, increase in our credit, that is, line of credit that we take from the banks. But that, of course, as you mentioned, will get basically cleared off once the payments start from those projects.
Yeah, yeah. It will be transitionary. It will be transitionary.
Yeah, got it. Absolutely. Sir, perfect.
Very short-term.
Very short-term. Very short-term. Gotcha. That's great to hear. Just on my second question, just to try to understand the business, this year, if I look at the overall top-line growth, it was around 20% on a Y&Y basis. If I look at the segmental numbers also on a Y&Y basis, these were, let's say, in the AI enterprise business was around 20%. Our business, does it have kind of a seasonality in which Q3, Q4 tend to be quite strong, as would happen because I think most enterprises and, let's say, institutions rush to basically complete their billing in the month of March? Is that the case in our business that Q1, Q2, we tend to be H1 tends to be a bit lower, and H2 tends to be much higher?
If you see historical data, it will prove that basically our H1 is almost H2 is always much better than our H1. Having said that, I'd like to tell you, even we had a very strong H1 this year. We grew by around 50%. Because basically, the problem is that you'll have to understand that you cannot do a comparison of our business basically on a quarter-on-quarter basis. We are not into retail and something of that, FMCG or something of that nature.
H1 compared to the Y&Y basis?
We are independent on some large, basically a lot of large and high-end compute we sell. The customers are all enterprise customers or high-end government customers. Definitely, if you see H1, H2 data for the last few years, you'll definitely see that our H2 is always much more stronger than H1. Even though the H1 was very strong this time.
Right. So you mean to say that despite the fact that we have 51%, 50% growth this year?
Yeah. I will like to. Let me explain this. You will appreciate that a quarter of application is bifurcated by one thin line of the last day of the month, right? June 30, if you are billing something, it comes into the Q1. And if that billing spills over to July 1, then we come to Q2. This Q1, Q2 for our kind of business is very, very difficult for you to track. Q1, we grew at 100%. Now, if somebody is expecting that they want to go Q2, Q3, Q4 at 100%, we are not even guiding that. You need to look at it at a YTD basis. Otherwise, and you've answered this question until times. We will answer the same thing that we look at it at a YTD basis.
We look at our guidance where we have always guided 35%-40% on an annual basis, and we have performed better than that. This movement from Q1 to Q2, it could be different the next time. It's just that one day it matters. Our orders are so large that we cannot not build something which requires to be built on the last day of the month and move it to the next day to smoothen this. Quarter-on-quarter. We can't do that.
No, obviously, sir. I think nobody would want you to do that in any which way. I think the business looks in good shape without that as well. Perfect, sir. Got that idea very well. Just one last kind of a bookkeeping, but just last bookkeeping question from my side. I mean, a very trivial one. This entire strategic order that we have got, we would be booking the revenue whenever it starts accruing in the AI enterprise segment, or would we be carrying out a separate segment for the orders?
This will be basically most of it will get booked into the AI segment, actually.
AI segment only.
Yeah.
Got it. Got it, sir. Great, sir. Thank you so much for taking my questions.
It will always be reported separately. Our basically organic and strategic will be reported separately.
Separately. Got it. Got it. Great, sir. Thank you so much for taking my questions and wish you all the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Mr. Sri Devasuke from TIA. Please go ahead.
Hi, sir. Thanks for the opportunity. My first question is about there is a huge competition across compute vendors across the world like NVIDIA, AMD, and Intel. And there is a high chance that GPU prices will be falling down. What is your pricing playbook to handle this? Do you pass through most of this pricing decline or retain the same spread to protect your 14%-15% EBITDA margins?
Basically, we are not box pushers, actually. If you see our trajectory very clearly, you'll see that we build our systems. We have our own software stack. Basically, it's not primarily a system sale or a box sale. We are not impacted by such kind of things. We are already, if you see our technology providers as NVIDIA, Intel, and AMD, all three are there. Whatever technology comes from whichever vendor and whichever gains traction, we are equally equipped to handle it. As regards to your question on the margin side of it, the margin is for the kind of efficient systems which we built. We try to create a differentiator for us, the kind of unique situation which we want to do, and plus the software stack we have, the services stack which we have. That definitely helps us to retain our margin constantly.
If you see around 10% PAT, we have been maintaining continuously. The competition normally is all on lower single-digit kind of margin. That differentiates us from them. Coming back still, my temptation to answer you will be there that still NVIDIA has been the market leader by several times, actually. As regards to GPUs are concerned, over with NVIDIA, over with AMD and Intel. Though definitely both the other companies are also promising and they are also trying their level best, at this point of time, the market situation for at least some more time, it feels like that GPU will be dominated by NVIDIA. Hello?
Yes, sir. The next question is from the line of Mr. Anuj Kashyap from A3 Capital. Please go ahead.
Hello. Am I audible? Yes.
Yes, sir. You're audible.
First of all, congratulations Mr. Lodha for the support set of numbers. Just as a leader said, I just want to know from your side, can you paint a three to five-year picture for us as a company, as a stakeholder in your company?
Thank you. Thanks for your question, actually. Basically, if you really see the funnel, if you really see how the business is growing, that can be seen from the funnel. The funnel is somewhere around we are sitting at a funnel of around INR 4,000 crore plus funnel, actually. As I've been mentioning, the conversion ratio is around 60%. That basically keeps on adding every day. The normal time for conversion is between 6 months- 18 months for us. That gives me the confidence that I will keep my growth at at least 30%-35% for at least three years to come.
That exactly would be my guidance, actually, as regards the organic situation is concerned. Definitely, on the strategic side, I would not like to guide because that's something as it comes, we report.
Sir, I don't do this, sir. Sir, as you mentioned that the funnel right now is INR 4,000 crore plus. Sir, how sustainable that funnel itself is growing, like 6%-8%? What is your assumption in regards to this?
Yeah. Basically, again, the funnel doesn't include any of the strategic, actually. The strategic funnel is not included in the funnel. It is our organic funnel which is there. It keeps on because since the order sizes and the technology refresh and all those things keep on coming, at times it grows by 15%, at times it grows by 6%. Constantly, I'm very sure that that will keep me.
At times, I have seen it growing even by 30% because there is a large order in the pipeline immediately keeps on growing. That gives me the confidence that it will keep my growth momentum on.
Like, sir, just I may be wrong, sir. Like you said, the funnel itself is we cannot you are absolutely right, sir. We cannot estimate how the funnel will grow. Data is the new line. It's like Netweb is supplying refinery parts for the oil refinery. Am I right, sir? If we have to build a case basis for that.
I didn't get you. Please come again, sir. Sir,
I guess I was making a hypothesis like in the oil boom when oil was growing, data is the new oil. Data is growing by leaps and bounds the same way from 1970s to if you compare.
We also will be in the same position only right now.
Yeah. I'll tell you, you have to see the business in a different way, actually. There are three segments which generates 90% of my business. You see the supercomputing we are doing for 20 plus years. If you see, none of the business, we have started just yesterday. Supercomputing, we are doing for 20 plus years, and it has been constantly growing for us. You see how the supercomputing adoption has increased. Basically, various domains, various areas, all kinds of automobiles, research and development, even consumer companies for R&D, they are also using it. Supercomputing is growing. Data center boom, I do not need to even explain on this call how India is currently experiencing the data center boom. Private cloud and SCI will keep on growing for that.
You can very well understand gone are the days of bare metal kind of things. Basically, everything will be done on the, basically, on the, everything as the data center grows, the private cloud market will grow. AI, again, is a growth momentum. All the three areas which we are there, they are all growing, actually. We do not want to basically primarily kind of overcommit or something of that nature. Still, I personally feel that the growth momentum, giving the tailwinds and all that, it definitely gives me very confident that I will keep on growing at 30%-35%.
Sir, last one, sir, if I may question. Sir, as a board.
Do we have discussed or do we even have this on table as a company if we want to enter into data centers or some other lever we want to attach to our company? That is just as a discussion.
No, sir. Basically, we have discussed it normally, but personally, our business model is different. We do not want to get into setting up data centers or providing cloud services directly because basically all our customers try to do it. Our forte is primarily R&D. We try to do R&D completely on our hardware, designing our hardware completely in India and manufacturing it completely. Then, basically, the software ecosystem, software stack. Basically, we have almost all zero or very negligible dependency on third party. Most of products are designed and manufactured by us. The focus is more on that.
At this point of time, we do not have any plans to set up data centers or getting into cloud services.
Okay, sir. Thank you, sir. Sir, just one question, sir. As a company leader in the Indian market, to whom you see yourself as an, which company do you see your competition with?
Just as a, that is a very difficult question for us. At points, basically, we have a very unique solution, actually, and unique product. I personally, in the Indian market, I think, I wanted to get out of your house's mouth is like you are the one in the industry, right? I will not like to say that. Basically, some few companies getting together because primarily ABBA is a hardware-software kind of combination. Hardware and software companies can come together and try to basically build and give a solution.
I do not say that I have a monopolistic situation or something of that nature. However, we definitely have an advantage. The way we have designed and we have kept our focus, please understand that we never got into volume manufacturing. We never got into box selling. That has actually kept the uniqueness in the company very much intact.
Yes, sir. I remember last time also you mentioned that we deal customer to customer, like whatever SOPs you get from them, you deal accordingly with them. Like university is a different study case. It is a different study case. Thank you. Thank you.
Thank you. Ladies and gentlemen, request you to please limit your questions to two per participant. The next question is from the line of Bharat Gulati from Dalal and Broacha. Please go ahead.
Hi, sir. Sir, I wanted to understand a little deeper on your private cloud segment. That’s almost contributed 34% this quarter. Our margins are still at around 15%. Now, what I understand is that private cloud is a high-margin business. What kind of offerings do we exactly provide in our private cloud business?
First of all, what you might be comparing us with is that we provide the complete private cloud stack, but we do not render cloud services. That is one. Second is that the stack you want to understand, what does it comprise of? First of all, it is comprising of the complete hardware, the middleware, and the cloud stack, which we integrate with the end customer utilities. That is how we build the complete private cloud. We have got two solutions available. One is called Skylus, and the second is Skylus.ai, which is also related to AI, but we are also using it as part of our private cloud solutions as well. That is how we offer our solution. How we complete is that the traditional way of doing private cloud design, we basically do not need any commercial virtualization software in order to deliver this solution.
That is how we basically provide a unified stack compared to the other options which are available in the market, wherein you have to have the hardware separately purchased, network separately purchased, have to have the virtualization commercial software available. That all is not needed in our case.
Sir, it would be right to understand that we don't provide any software as such when we talk about private cloud. It's more the infrastructure that we are setting up on-prem for our customers. Would that be the right understanding?
No, no. First of all, as I explained, I explained you three layers: hardware, middleware, and the cloud stack. Cloud stack and middleware are basically the software only.
If you're providing them the cloud stack, then wouldn't that work out to higher margins in our case?
We are not selling the cloud. Please understand that we are not selling the cloud stack separately because normally, basically, if I sell only the cloud stack, then the cloud stack can have higher margins. We are selling the complete solution. We see selling the complete solution, hardware and software all together, definitely the kind of margins we are commanding are very comfortable margins. Particularly, all this is being sold basically to the enterprise customers. The kind of margins which we are commanding, like basically if you take my competition, they will take a hardware, like they will take a Dell machine, and they will take a hypervisor separately from a software company and try to bundle it and then try to sell it. Whereas in my case, it is completely end-to-end. I hope that makes you understand very clearly.
Right. Okay, sir. Sir, would it be possible to give what verticals are our customers in for our private cloud system? I mean, not specific customer names, but what verticals and what segments do the operators?
Presentation covers all that.
The presentation, if you really see that, that has got the details. If you see that in detail, it is mentioned there because basically our customers are ITES companies, enterprise companies, different. Wide variety of customers use our solutions, actually.
Right. Okay. Got it, sir. Thank you. That's it from that.
Thank you.
Thank you. Thank you. The next question is from the line of Miloni Mehta from Monarch Capital. Please go ahead.
Thank you for the opportunity. Sir, I just wanted to understand what is the margin profile on these AI mission orders and how do we compare it with your existing HPC and enterprise business segments?
Sir, can you answer?
Yeah.
Okay. Can you just maybe give a margin range for AI mission orders?
As a policy, we do not disclose order-wise margin analysis. From the margin perspective, these large orders will be different from regular. That is what we have told. Still, the margins will be on the lower side, like 150-200 basis points at PBT level. That is what we can guide. Margins, you can say, are slightly lower, but basically we are guiding at this point of time on the, as Ankit mentioned, it will be 150-200 basis points lower. Otherwise, basically, they have strong margins.
Okay.
Other than margin, I think there are other factors which have to be looked at. These are all risk-free transactions and all the way we have made a very robust payment structure. All those factors are also required to be looked at. Keeping the size and the scale of these engagements, we feel that these are the top-notch quality margins that we have maintained.
Okay, got it. Secondly, specifically on Skylus.ai, can you share some insights on what kind of market traction or adoption trends that we are seeing?
Skylus.ai is definitely helping us to create a lot of traction in the market. The reason being the way we have designed this solution, this has basically completely revolutionized the AI space because we are providing the complete hardware along with the layer of AI stack, which helps customers to get the user onboarding done, GPU abstraction done. There are many such features which customers were looking for for many years. We were working on that front for the last four or five years, and that has resulted into Skylus.ai. From that perspective, I think the kind of growth you are seeing in our case in the AI domain is basically definitely contributed by the latest architecture of our systems as well as the software stack like Skylus.ai.
Okay. Got it. So that's it from my end. Rest of my questions are already answered.
Thank you.
Thank you. The next question is from the line of Sumeet Jain from CLSA. Please go ahead.
Yeah, hi. Thanks for the opportunity. Firstly, wanted to check around your R&D cost. I mean, do you disclose your R&D cost as a percentage of sales? In terms of number of patents being filed this year compared to last year, given you have mentioned that a lot of your solutions are pure tech-led with a lot of software and hardware design. Just a glimpse of R&D cost and patent filing.
Basically, as regards R&D cost, we have been mentioning it time and again that we spend around 3% of our turnover primarily into the R&D. That is a practice because basically a lot of R&D happens in our company. That is one. The second is, as regards patents, we have been regularly filing patents, and we have been getting approvals also. Though we started late, we started filing patents around three, four years back. Basically, we have some, I think, some number of patents. I do not remember the number, actually. That might be mentioned on our website. Basically, we are very, very prompt in getting, registering our patents and designs and all that. All that is constantly being done.
Also, I would like to add that we do not capitalize any R&D costs. Primarily, it's being the people cost, software required for the R&D, a lot of testing equipment goes. All these are expensed off in our P&L. We do not capitalize it.
Got it. That's helpful. Secondly, wanted to check around your market share in the three, four segments you highlight in your investor deck. You have also given the overall market sizing in each one of them. It seems like your market share is in single digits in each of those categories. Since we do not get any overall market share data or anything in any of these categories, can you briefly flag, I mean, are you gaining market share, losing market share, or is it stable?
Basically, because you have to understand that we are basically not a box seller, okay? We are primarily, you are not into SMB and those kind of areas. Just coming specifically to supercomputing. HPC, the total market would be around what we feel is somewhere around INR 4,000 crore. Currently, the market which we are addressing is somewhere around INR 1,000 crore. Out of that, we are doing around INR 400-500 crore approximately. Basically, addressable market for us is around INR 1,000 crore because the other market is primarily ISV-driven. Basically, that market is not targetable for us. It will take me a long time to explain you those details over this call. Out of that, I personally feel around 30-35% of the market share is being governed by us, okay. Coming to the second segment, that is private cloud.
Private cloud, you know that we are primarily focusing only into large enterprises. We are not selling into the small and SOHO and medium enterprises. You know how the data center business is growing. It's very difficult to clearly capture the kind of market size, actually, because the data center market is growing like anything. Basically, data center market is growing into different areas. SMB would be some portion of it, but basically, as regards the large enterprises are concerned, we have gained traction with a lot of users and large enterprises. There we have a good market share and plus 35% kind of growth, which we are seeing constantly. Definitely, in the segment we are working upon, we are doing quite well. Again, coming to AI.
Now, AI, basically, the total market size determination has been an issue, actually, really speaking, because by the time we start determining the market size, the market share becomes double or triple, actually. If you really see the kind of strategic deals which we are trying to get in, and we are trying to get into the enterprise segment of it, definitely, we are very, very comfortably placed. Basically, our order book, our strategic wins, our R&D expense can all justify all that. That's exactly, in short, I would like to answer you.
No, that's very helpful. Maybe my next question is around your order book. I mean, it seems it's pretty lumpy. Obviously, now you have got the Indian government order, so it's even more lumpy. Can you just flag, going forward, let's say over a three to five-year period, do you expect your order book to remain lumpy, or do you expect a very high level of repeat order book?
I contradict you. My order book, basically, my business is not lumpy at all, actually. You need to really see and observe my business for at least three to four years, and you will find that it is not lumpy at all. I have always been telling you that my order book is not the real, basically, will not give you the visibility of my business. Last quarter, the order book was quite low, but still, the business happened. What is happening is that, and why that is happening, actually, because basically, the order cycle is somewhere around 8-16 weeks for me. Okay. The order cycle, the order execution cycle is very fast. You have to see the funnel, actually, the INR 4,000 crore worth of funnel, which I have, the organic funnel, which we have. That gives me constant revenue and basically around 60% kind of conversion rate.
That gives me robust revenue, and that gives me the confidence of my growth of 30-35%. If you see, constantly, we have been growing at these rates, actually. Order books, basically, I have never been saying that you can gauge my business based on my order book, actually, really speaking. I personally feel my business is not lumpy at all. I contradict that.
In fact, I would like to also add here, very pertinent, that if my business was lumpy, then I wouldn't have a 75% plus repeat customer. I think probably a few quarters, once you start tracking them, you will get to understand it is not lumpy. We do not chase annuity revenue. We do not chase repeat. We target refresh cycles. Hence, when the refresh happens, the present order will always be much larger than the previous order.
What is typically this refresh cycle timeline? It is two to four years. How long is it?
I think I'll leave it to you. Yeah, I will answer that. Basically, if you see, we work with all the major technology providers like Intel, AMD, NVIDIA, and all. Their refresh cycle is somewhere around 12-18 months. What we have seen with our customers is basically approximately between three to five years. If you see, I think 70% is three years, and some of it is five years.
Got it. Got it. Lastly, I want to check the operating leverage in your business. I mean, we have seen EBITDA margins being largely in that 14% band for now, three to four years, despite the revenue growth being very strong. Any comments around operating leverage in your business?
Overall, what we can guide is the operating margin, which will obviously, inclusive of the leverage. If it's going to come. The margins are expected to be between the range of 13-14%, including all the operational leverage that will be affected.
Okay. Okay. Fine. Thanks a lot for patiently answering all my questions and all the best to your team.
Thank you. Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to the management for the closing comments.
Thank you for your patience and basically putting your questions. Definitely. Thank you so much.
Thanks a lot. Thanks a lot.
On behalf of IIFL Capital Services Limited, thank you for joining us. You may now disconnect your lines.