Ladies and gentlemen, good day and welcome to Netweb Technologies Q1 FY 2027 earnings conference call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Seema Nayak from ICICI Securities Limited. Thank you, and over to you, ma'am.
Thank you. Good afternoon, everyone. On behalf of ICICI Securities, I welcome everyone to Netweb Technologies' Q1 FY 2027 earnings call. We have the pleasure of having with us the senior management team of Netweb Technologies—
Steve, there's a signal for the operator.
Led by CMD Mr. Sanjay Lodha, Whole-Time Director Mr. Navin Lodha, CFO Mr. Ankit Kumar Singhal, Chief Sales and Strategy Officer Mr. Hirdey Vikram, and Head of Uirtus Advisors, the IR advisor to Netweb Technologies, Mr. Sanjeev Sancheti. Without further delay, I'd like to hand over the floor to Mr. Sanjeev. Over to you, sir.
Thank you, Seema. 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 presentation. I request each one of you to go through the disclaimer in 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, Seema and Sanjeev. Good afternoon and a very warm welcome to all of you to Netweb Technologies' Q1 financial year 2027 earnings call. I am pleased to share that Netweb Technologies delivered a record quarter, achieving its highest-ever quarterly revenue from operations and profits. Our revenue from operations for the quarter stood at INR 8,197 million, reflecting a strong year-on-year growth of 172.1%. Profit after tax stood at INR 853 million, representing a 179.9% year-on-year growth with a PAT margin of 10.3%. The performance reflects sustained demand momentum coupled with disciplined execution across our business. Our AI segment continues to be a key growth driver, contributing INR 5,105.70 million, being 62% of revenue from operations, and growing at a huge rate of 484% year-on-year.
Our other two core segments, HPC and Private Cloud, maintain robust traction at INR 1,252.94 million and INR 1,353.46 million, respectively, reinforcing the breadth and resilience of our three growth pillars. Our order book stood at INR 25,069.35 million as of 30th June 2026, with an L1 position of INR 8,480.47 million and a pipeline of INR 10,401 million, together providing strong business visibility in the medium term. Sorry, INR 104,100 million together provides strong business visibility in the medium term. The world, and India in particular, is witnessing an unprecedented AI infrastructure build-out anchored by the IndiaAI Mission GPU Compute Initiative, indigenous sovereign foundation models, and world-class demand from NeoCloud providers and CSPs. Sovereign AI compute is no longer aspirational. It has become a strategic national imperative, creating a deep multi-year demand pipeline for high-end computing system design and manufacture within the country.
As NSM 2.0 transitions into build and design in India , approaches and HPC adoption broaden across enterprises; indigenous design and domestic manufacturing are emerging as decisive qualification criteria. As one of the leading Indian-origin OEMs in high-end computing solutions with fully integrated design, manufacturing, and deployment capabilities, we are well positioned to address this opportunity. Our leadership across the HCS portfolio, reinforced by an early mover advantage in AI infrastructure, continues to strengthen both our growth trajectory and our opportunity pipeline. Looking ahead, our strategy is anchored in deepening our three core verticals in HPC. We are investing in low-footprint architecture, advanced interconnects, and direct cooling technologies for pre-exascale and exascale systems. In private cloud and HCI, we are delivering native solutions to co-location providers, cloud providers, and enterprises.
Through Tyrion Skylus, our indigenous private cloud platform, we are enabling enterprises to accelerate their hybrid cloud strategies while addressing the growing need for data localization and data sovereignty. In AI systems we continue to innovate across every layer of the stack. From dense AI compute to advanced liquid cooling to GPU orchestration. AI Workspaces, our cloud software stack, we are also developing pre-curated sovereign AI appliances to ready-to-deploy reference architecture for enterprise as well as central and state sovereign AI programs. Beyond our core, we are investing into two emerging opportunities. In physical AI, which is emerging as the next frontier for AI adoption, we are investing in R&D across physical AI and positioning our AI systems, digital twins, in-house software, and training simulation backbone for India's physical AI developers with a focus on defense, national security, and strategic manufacturing.
In quantum computing, we have commenced R&D for quantum simulators and emulators and have started engaging with institutions, academic hubs, and startups in the ecosystem as technology partners. With sustained investment in innovation and chip-agnostic design philosophy, alignment with the Make in India vision, and a strong order book and pipeline, we remain confident in our ability to deliver long-term sustainable growth and create enduring value for all our stakeholders. I will now request Ankit to take you through the financials in more detail. Thank you.
Thank you, Mr. Lodha. Good afternoon, ladies and gentlemen, and thank you for joining our earnings call. Before we open the floor for Q&A, I will provide a brief overview of the financial performance for the quarter. I trust that by now you have had the opportunity to review our earning presentation and press release. While our CMD has already discussed the macro outlook, I will elaborate on the financial performance in more detail. Our revenue from operations for Q1 FY 2027 stood at INR 8,197 million, a growth of 172.1% on a year-over-year basis. Operating EBITDA for Q1 FY 2027 stood at INR 1,205 million, a growth of 169% year-over-year with an operating EBITDA margin of 14.7%. Profit after tax for Q1 FY 2027 stood at INR 853 million, a growth of 179.9% year-over-year with a PAT margin of 10.3%.
Now, I would like to throw some light on key balance sheet ratios. Return on capital employed was 48.2%, while return on equity stood at a healthy 44.6%. The gross fixed asset turnover ratio stood at 43.9x as of June 30, 2026. Our cash conversion cycle as of June 30 stood at 96 days. Receivable days improved from 86 days in March 2026 to 78 days in June 2026, reflecting stronger collection. Inventory days increased from 86 days in March to 110 days in June, primarily on account of a buildup of raw material stock to secure adequate inventory of key inputs in light of surging global demand for AI compute infrastructure. Net debt as of June 30, 2026, stood at INR 1,999 million. Our growth priorities remain on track, supported by high demand for high-end computing solutions, a healthy order book, and a solid pipeline.
We are well-positioned to deliver consistent revenue and profitability growth going forward. With this, I now hand over the call back to Seema.
Operator, we can open the floor for Q&A.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Renu Baid from IIFL Capital. Please go ahead.
Yeah. Hi. Good afternoon, team. My first question is, have we seen a very robust buildup of order book, INR 35 billion, including L1 orders? If you can share some insights in terms of what has been the mix of orders coming in from the AI customer clients and how have we seen the ticket size of AI orders for us moving up, average ticket size orders, if you can indicate, and what type of customer client applications have we seen these orders? That's the first question.
Thank you for your question. You might have seen it has been a very robust quarter for us. If you see the order book, it will give you an indication. Around INR 2,500 crores we have on the order book already, and we have the L1. L1, that is almost all the orders which have been won and not yet received. That is, we call it a quasi-order book. That was also around INR 800 odd crores. If you add both of them, it is somewhere around maybe INR 3,400 crore approximately. That is a very healthy order book. As you know, our ordering cycle, our execution cycle, is pretty fast. That will give you some indication of what kind of numbers we can expect in this financial year.
That is one. As far as the order book mix is concerned, it is as guided by us. Our mix is remaining the same in AI supercomputing as well as primarily on the private cloud side. It will remain that way. You can say the order book may be around 40%-45% should be around on the AI side of it, and the balance would be between the other two segments. All the three pillars are very robust and growing very fast for us, and they are very much intact. That is exactly how I would like to answer you.
Sir, to support this kind of growth, do we think incrementally we might have to invest in assembly facilities or SMT facilities to ramp up capacities? Or is the current capacity sufficient enough to drive 50%-60% CAGR growth?
Renu, you know we are a capability-driven kind of organization; primarily we are driven by capacity. Currently also, you know, we don't do any kind of contract manufacturing or anything. The facilities that we have built up, as we have told you earlier also, were already built up for sustaining a huge turnover of INR +3,000 crores. Definitely that is there. I think at this level, we don't think we need to do any major CapEx. Some light CapEx will go on, and routine CapEx goes on continuously. That will still go on. I have not guided on any new CapEx as such recently.
Sure. Sir, secondly, if you look on the working capital side, there's a pretty smart improvement, which has been seen, and it's clearly reflected from the numbers also that cash has been deployed to source materials and draw down inventory. In this context, if you look at the growth expectation, how do we see the growth funding requirement for the company to drive this INR 4,000 crore of revenue and also—
No, Renu, thanks for this. I'll take that. This is Sanjeev. I think, as you can see, in the last quarter, the growth has been very high, and I think for the first time in many quarters, we've had a positive debt closing figure. Reflecting on the growth, and obviously, as Sanjay had guided already—not guided really, but L1 and the order book are significantly large for us to drive very strong growth in the current financial year. Obviously, the company will have to invest in the working capital for growth. We do not want a situation where a very large growth, looking at the pipeline, is available for us to grab, and we don't grab it because of the lack of capital. Obviously, we will take calls as to in what form and when we will introduce capital, debt, equity, or any combination.
As of now, we've not firmed out what trajectory we'll go.
Sure. Thank you, sir. I have one more question, if I may ask. On the competitive landscape, given that the AI deployment is growing multifold in the domestic Indian market, how have you seen the competitive environment? Has it intensified domestic and foreign players, or does Netweb continue to have a dominant share in this space? If you have any input on the market share, that would be helpful. Thank you.
In the competition, numbers actually speak, really speaking. You can see how numbers are speaking. 62% of revenue came from the AI sphere actually. At this point in time, I am very proud to say we are shipping the highest number of the large GPU deals we are trying to do. Primarily, as you know, we don't target the volume kind of thing. We don't do any box selling. We primarily try to focus on more and more solutions. The focus will remain intact. Because of our strategic relationship with our technology providers, we are very well placed so as to handle any competition. We were placed earlier, and now also we are placed.
In this situation, we definitely have an end-to-end design. Since we do the complete hardware, software design, and manufacturing, that kind of offering definitely helps us to keep our competitive advantage, actually.
Thank you.
Thank you. The next question is from the line of Divyesh Mehta from Invesco India Mutual Fund. Please go ahead.
Thanks for taking my question. There has been a new order disclosure that you have shared, which includes the strategic order. Just for comparability purposes, can you share what this number, the pipeline, L1, and the order book were in the last quarter, including the strategic orders? Perhaps ex of strategic orders, what are these numbers in Q1 that will help investors in terms of comparability? That'll be the first question.
Okay. We'll wait for your second question and answer together.
Okay. If I'm not wrong, this quarter also has some strategic order execution, yet our margins have increased. I want to understand what has led to this. Is it the case that because of inventory buildup, you were able to price slightly higher because we had memory chips already bought at a lower price? What drove this?
I will take the first one first. If you look at the order pipeline, which we have released this year, it is upwards of INR 10,000 crore. As you know, we had been guiding that we are not guiding for the strategic order; we will take it as it comes. That was because if you go back a year and a half, this whole AI mission and the large AI orders were evolving. As we reflect and as we have gone through this cycle for the last year, we believe that this is something that now is a part of a normal business. We do not want to segregate both of them. This includes all kinds of pipelines that we have, whether they're AI, HPC, etc. This is how we're going to report as we go forward.
It gives better clarity to the market as to what is the overall business that we are chasing. That's the reason we have now started to reflect the entire pipeline into our pipeline pool. That's how it answers the first question.
Yes, the second question is basically from the margin front. I will try to answer it, and then Ankit can add to that.
If you really see, the margins are very well within our guidance range, actually. We have always been guiding. It has been very stable actually. We have always been saying that our margins will remain between 13% and 14%, and they will basically be some basis points up and down, which is always possible because they cannot be controlled to that level actually. Still , basically, it's a very delightful fact that , even when the turnover and company are growing at 90%, we are still keeping our margins intact. It's very much within the guiding range. There is no question of some memory pricing or something, because basically we have the pricing power. As I have always been mentioning, we price our products very well for our customers, and we want to price our products appropriately so that we show value for money to our customers.
It's not that today, if memory serves or sometimes scarcity is there, we increase the price or something of that nature. That's not the tendency of the company. The company has a very clear mandate to basically show the value of money to the customers because we see the repeat customer revenue for us is phenomenal. All customers have been associated with us for many years altogether. The kind of trust and relationship that we build with our customers is really very high. We have maintained that. In that line, I will still keep on guiding, as I have been guiding. If you see our reports for the last three, four years, you'll find the margin in the similar range, and it will remain in the similar range.
Okay, fair. Just I think in the first question I also mentioned if you can share the comparable number of what was the pipeline and L1 and the order book were, including strategic orders in the last quarter. At least we can compare, has the pipeline grown on a like-to-like basis? Has the L1 grown on a like-to-like basis? That's it.
Of course, it has grown; I don't think we have that number handy at this point in time, because we will have to then go back and churn it out. [crosstalk] Last quarter we have not given the pipeline. What he's asking about, he's saying that our pipeline of INR 4,400 crore is without the strategic; now it is merged. Obviously it's grown, but we don't have the exact number of the last quarter sitting with us.
Yeah. Thank you. Okay. Thank you.
Thank you. The next question is from the line of Jatin Kalra from Bank of America. Please go ahead.
Hi. Thank you for taking my question. Congratulations to the Netweb team. Sanjeev, my first question is around your incremental addition to your pipeline. It would be great to understand the breakup of the incremental addition to the pipeline that you've reported between government versus private enterprises versus some of these neo-cloud companies that are your customers. Which of the engines would you think is firing the most? Is this mainly coming from your existing customers, or do you expect to onboard any new large customers through your pipeline? The second part to that question is, in the past, you've generally indicated that you expect to convert about 55%-60% of your pipeline in a span of about 18-24 months. Does the current pipeline also fit in that plan? I have another one, but I'll first
Yes. Basically, I'd like to tell you one thing. Because a pipeline is something very confidential to the company, because these are prospective orders, okay? Basically, for competitive advantage reasons, we would not like to disclose too much, actually. That's very clear. You should basically respect the confidentiality of the company because it serves our business interest. Basically, I would not like to disclose too many details about the pipeline because the pipeline is still a pipeline. As regards your second question, I would like to give you very good comfort. Basically, the factor that I have always been guiding, that 60% conversion ratio, I will still keep on guiding. Once you see the pipeline growing so much, still, I'd like to guide you that basically 60% of this pipeline is expected to get converted.
The dynamics of our own basically having a case into the pipeline remain the same, actually. I think that answers your question.
Understood. Great. That very well answers it. My second question, Sanjay, is some of your existing market customers on the private cloud side, like, let's say, for an example, HCL, who have recently announced that they will also be setting up AI data centers with CapEx planned on their own books? We've obviously heard some more examples coming from these larger conglomerates. The ecosystem, in that manner, appears to be expanding. Would love to hear your views on what's your go-to market strategy for some of this work. Do you think they will prefer the OEM route more , or do they also have the option to go to box sellers with their own design? Where do you think they will tilt more is essentially what would really help us gauge that demand bit. Thank you so much.
Basically, on specific deals, I would not like to talk about them, but primarily I'd like to tell you all this is very interesting times, actually, really speaking. That is being reflected from the last two quarters of growth, which my AI segment is showing actually. At this point in time, the completely in-house design and basically our software stack and everything are adding a lot of advantages. Definitely, we have a competitive advantage while we are placing in front of a customer, and customers are recognizing that, and customers are really adopting our solutions more than what they were doing earlier even. Markets are basically, you know, the worldwide demand for AI compute is phenomenal , actually, at this point in time.
As it looks like that, basically for at least the next one and a half to two years, it will remain the same. Basically, the most important thing that we should not ignore and that we should look into is the Indian demand for AI. What is happening? The whole world is looking for data centers in India today. All the large cloud providers, everybody wants to come and set up data centers in India, actually, for doing their AI workloads and different kinds of workloads. All that works very positively for the country. If you really see more than the compute, the data center equipment is actually under a shortage. Data center equipment , meaning the racks, the chillers, and all those things, the mechanical things, is getting into a shortage. That itself is a great indicator of how this industry is growing.
Basically, I think we have a very robust pipeline, and all these are really good opportunities, which you mentioned. Definitely, we will have our share in them.
Understood. That's really helpful. Thank you so much, and congratulations once again.
Thank 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 congratulations to the whole team. Sir, the first question you answered was that in terms of conversion of pipeline, even with the strategic order included, it would be closer to 60%. Whether the timeline to convert gets further extended because strategic orders could be bulky deals and the decision-making could be slightly slower versus normal deals.
Thank you, Sandeep. Basically, your question is very relevant. The tenure, basically, normally we used to say 18 months, but basically it will remain 18 to 24 months, but not beyond that.
Sir, even in this year with a robust increase in the order book, you believe H1 would still contribute 35%-40% of the whole year's revenue, or you believe the ratio could be more or less similar in H1 and H2?
I think, yeah, you answer it.
Sandeep, it's slightly difficult to say because we are exiting some of the large orders, you know that the difference between something falling in one quarter and the next quarter is a day. If you're trying to ask me to project on a day's decision , it's very difficult. You've seen the pipeline, and you've seen the L1 and order book; I think you can decipher the full year, and I think that should be more important.
Sir, looking at the raw material prices and the memory prices, the GPU and CPU prices, and the supply chain management issue because of geopolitical issues, do you believe that till these things normalize, we may need to have 100-110 days of inventory on a going-forward basis?
Inventory.
Sandeep , on the inventory days, the inventory-led approach has actually been acting as a hedge, not a risk, first of all. Maintaining the inventory days is actually helpful to cater to the strong order book that we have. As far as the memory prices are concerned, we do not see them softening in the next couple of quarters, or maybe year or so.
Sandeep, just to answer the question, obviously it has kept us in good stead that we have been able to stock up and that there's a very strong pipeline, and obviously we would like to maintain the inventory levels.
Plus, basically, please, as I have always been mentioning, our business is very predictable. Please understand that. We are not into the box business. Basically, I know what's going to come. We are not reactive to our orders. Okay. We are able to advance-plan very well, actually. That really helps us to keep our margins intact. Basically, with these price disturbances, definitely I would not like to say that this doesn't impact us, but we are able to handle them much better.
Okay. Fair enough. Just a last question. Globally, enterprises are also evaluating the Chinese open-source models to optimize their token cost. I do agree it is too early to predict this for the Indian enterprises, but could that lead to a delay in decision-making for enterprises to order AI-led servers? Because they may be evaluating which kind of Blackwell chips to be ordering and optimizing the token cost. Any color on a medium- to longer term in terms of any delay in decision-making?
Sandeep , to answer the question. Basically, I tell you that the emergence of Chinese foundational players, or let's say the other U.S. players, the emergence is only widening the horizon of the Indian foundational model landscape in the country. That is ultimately or eventually driving the growth in the country in terms of AI systems or AI adoption. I would say that this whole exercise, which is going on across the world, is helping sovereign models to, first of all, build as part of the regulatory actions by the country, which is ultimately leading towards the adoption of more AI systems. I think this is only emerging as an opportunity for us. It is nowhere acting as a threat to us. I think we are welcoming whatever is happening worldwide.
We are welcoming all this, I think this is going to have a very good reflection on the Indian market as well.
Okay. The last question, if I can, please. In terms of the AI sovereign demand tailwind, you were earlier mentioning it has two legs. First, the demand is coming from cloud service providers, through which we have started witnessing some traction through order wins. The second leg is coming from the government as a customer. Whether that second leg also started forming part of the deal pipeline and the order book?
I think as of now, we can only say that the pipeline that we have is a very strong pipeline. Definitely the thing you have mentioned, the on-prem procurement activities by the government. That has already been taken care of by us in our pipeline. The answer to your question is yes, and I think we are very well placed for both streams of business. Whether it is coming through CSPs or for the on-prem part. I think we have taken care of it very well. We are fully prepared for it.
Okay. Thanks and all the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Vinay from Monarch Capital. Please go ahead.
Hi, sir. Hi, thank you for the opportunity and congratulations on a great set of numbers. Just a couple of things. One was, in terms of L1 plus order book, the number is about INR 3,400-odd crores. Typically, you have always mentioned you execute this over eight-12 weeks. Is that the correct understanding even for now?
Basically, eight-12 weeks was earlier. We are mentioning basically 16-20 weeks. That's the kind of guidance we would like to give, but it can stretch a little bit or can be early, actually.
Okay. That is very helpful, sir. This R&D you are mentioning on physical AI and quantum computing—obviously these are much larger opportunities. What kind of expenditure could go here in terms of percentage of revenue? What kind of quantum are we looking at from this perspective?
We are not guiding on revenue at all; these are the new opportunities that we are talking about. Vikram will answer that as well.
Basically, your primary question was only this: When do we see the revenue, or what percentage do we just see coming from these two verticals? We are very clear that we are right now not liking to basically guide the conversation about it. I think we have entered into these two verticals with a clear thought process because the products are quite relatable, and we have got some offerings that are going to make us fit into this segment. That way we are gearing up and we are prepared for venturing into these two verticals. That much we can disclose at this moment.
Okay. My question was more about what kind of cost we are putting to R&D and if there is any quantum or anything that you can mention, anything, guidance on what kind of money is going into it; I think that would be helpful.
Basically, we are not quantifying it actually, Vinay. The thing is that, basically, primarily we have a huge R&D team now. Basically, around 125 people are there into the R&D team, very seriously focused. Basically, again, these are logical extensions of the work we are trying to do actually. Physical AI is also basically very relevant to what we are doing. It's a logical extension. Slowly you will see the results also. Investments, we cannot quantify at this point of time.
Okay. One last thing is, are we working with any Indian companies on the L1 side? Because with Chinese models coming up, do we kind of anticipate Indian models maybe in the next three, six months? Are we working with any of them on those kind of projects?
The good part is that some of the largest players in the country happen to use our systems at the backend. That much we can disclose, and we take pride in that we are able to build the AI backbone of the country, using which these kind of players on which India is also driving their AI journey. They are ultimately using our infra at the backend. That much we can share with you, and I think that's how we are serving them. In the future also, we have plans to serve them in many ways.
Okay. Thank you so much, sir. Thank you for your input. All the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Rohit from CLSA. Please go ahead.
Hi. Thank you, sir. I actually had a couple of questions. The first component inflation that we are seeing is in memory and other components that are going on in AI. How has that played a role in revenue acceleration for this quarter, and how has that affected both margins and working capital?
Basically, as regards this, I cannot say that this doesn't impact us, but telling you very clearly, as I have been mentioning very clearly from day one, that we are not reactive players. It's a very predictable kind of company, what business we do. We take our time basically to close our orders, and all those kind of things are there. We know what is going to happen. Accordingly, we are able to plan better. Plus, the direct technology relationships that we have with our technology providers also help us to enter into long-term contracts and to basically secure our pricing and all. In case there is any new order that is being talked about, the Passover for the pricing definitely happens. Basically, there is very minimal impact that the company tries to take from these price increases and all those kind of things. As that is there.
Second part of the question?
Along with this, there is also a shortage of shocks that is going through the industry. For that, we definitely need to have the inventory in hand because this actually helps to do the delivery execution at the right timing. That is why the inventory days have been deliberately taken as a decision. It's not a drift of increasing inventory days.
Right. Quick clarification with respect to how memory prices have increased over the last few months. When you all would have taken a particular contract, has it kind of been a price-through, or would you all already have that as a back-to-back arrangement before you all sign on a contract in order to deliver any of the three offerings that you all have?
Yeah, Rohit, I think we've answered this a couple of times. I don't know when you joined this call. We've clearly said that this is a predictable business; the planning of what order we achieve happened long back. For the existing orders, we already have orders in place. There is no question of a significant change in the costing on what we've got ordered on and what we are billing. For the future, obviously, when we bid, we bid on the basis of the current prices. I think this is a very well-established situation, and we answered this in one of the previous questions. I hope this clarifies.
Plus, basically, you might have seen our margins are not impacted, actually. Had our margins gotten impacted, then the question of whether the memory prices have impacted us. You have the testimony in front of you, actually, really speaking.
That's actually very commendable because it actually shows it's not actually a simple pass-through, right? If you're actually getting a margin, it's either kind of constant or actually increasing despite the price increases. That's commendable, which is what I kind of got the question as to how you are able to make that happen.
Basically, I would like to again clarify that we are not overcharging our customers. We are pricing our products very appropriately. We are not taking advantage of the situation and trying to overcharge a customer. If anybody has that intuition, kindly clarify that. There is nothing of that nature.
Every order, every quarter's margin cannot be exactly the same. It is not a consumer product, right? There'll be a differential in margins, but what is more important is that we build our cost, we predict our business, and, accordingly, we plan our supply chain. That's very important.
Right. Maybe another question in terms of just the availability of some of the components, especially on the AI leg. Do you all see any risk on the execution, if at all? Have you all seen any of that in maybe not in the last quarter because you all have grown so well, but is that something that is a risk for the forthcoming quarters?
Actually, people have got used to this scarcity, actually, really speaking. The scarcity is not a new thing now.
Right.
We have been seeing it for a couple of years now. Recently, since the last few quarters, the scarcity has been increasing; it's definitely better. That has made us much more, basically, I think, much more mature so as to plan better. If you're planning better, I think, since we have direct relationships with our technology providers and basically we do manufacturing ourselves, we are in a better supply situation than others. Hence, we are able to sustain this and sail through well.
Got it. Thanks a lot. That's all that I had. Wish you guys all the best.
Thank you. Thanks, sir.
Thank you. The next question is from the line of Akshay from EK Investments. Please go ahead.
Hi, sir. First of all, congratulations on the great set of numbers. Sir, my first question is, recently we had the exchange filing of INR 1,200 crore QIP. What is the rationale for INR 1,200 crore QIP?
No, I don't know where you got this news of a QIP. I haven't seen anything like that. There was an enabling resolution which we took to raise capital if need be. It has a validity of 12 months. Having said that, for the growth, if at some stage we think we'll need to raise capital, we'll look at it.
Okay, understood. Fair enough. Sir, my second question is about the future growth areas as per the presentation. What are we developing in the physical AI and quantum computing, and when can we see some meaningful development on that front going forward?
See, thanks for the question first. As we have clearly mentioned that these are the two areas of the product lines we are venturing into. At this point of time, we are at liberty to disclose this much only. Yes, as you have seen in the case of the other product lines also, we have always been very serious and consistent about our efforts with respect to each product line. Same goes with this case also for quantum and physical AI. We have started putting in our efforts, our R&D efforts and all. I think in incoming quarters, you'll start seeing the results coming. For now, this much information can be shared with you.
Okay, fair enough, and all the best.
Thank you.
Thank you. The next question is from the line of Mansimar Singh Sethi from Sethi Capital. Please go ahead. Mansimar Singh Sethi , please go ahead.
Hello.
Yeah. Hi, Mansimar. Yeah, Mansimar .
Hello, sir. Sir, in the May call there was INR 1,600 crore of strategic orders, as mentioned in the PPT. Can you please tell me how much of that INR 1,600 crore strategic order was consumed in Q1 this year?
Out of that INR 1,600 crore strategic order, close to INR 430 crore was executed in this June quarter.
Okay. My second question is with regard to our funding. We are fundraising INR 1,200 crore, right? Will there be more funding going on?
No. First of all, we haven't raised, so there's no question of furthermore. We've taken an enabling resolution. We have a very strong growth pipeline. If and when we need to raise capital, we'll raise capital. It's just an enabling resolution, which is valid for 12 months. I think beyond this, I don't have anything to say at this point in time.
Okay. Thank you, sir. That's all from my end.
Thank you. The next question is from the line of Omkar from Shree Investments. Please go ahead.
Just one clarification. First question: You said that you don't have anything to say on the enabling resolution which you have taken, but at least you can tell us, in the first place, why did you take that call and what is it for exactly?
Yeah. I gave that answer. You've seen the pipeline and the order book that we have. It is possible that in order to pursue that growth, we may at some stage need capital. Which form of capital, whether it'll be debt or equity, we've not decided. At that point in time, we cannot suddenly raise the resolution and take the capital. We have taken an enabling resolution for this—
Yes. Please go ahead, sir.
Yeah, that's it.
Yeah, is it for additional capacity expansions? Because you have already said that it is not certainly something which you are currently doing. There must be some purpose for taking the enabling resolution.
Yeah
Maybe—
It is for the growth. Yeah. This is for growth capital. We will need working capital for growth. If any capital we raise will be for that only, for working capital.
This is for working capital, right? If you raise anything.
If we raise anything, it'll be for working capital, you're right.
Not for any M&A or something like that.
No. Not at all. Absolutely not.
This is only for working capital if and only if you decide to do it, right?
Yeah. It will be largely for working capital. No M&A, absolutely.
Okay. For the next, it's too early to ask about this, but whenever these strategic orders, they start to fade away, how do you see realistically your growth numbers? Do you think it's too early to ask or they are coming?
I don't think we have guided any strategic orders separately. I think you must look at the current.
There is no strategic order now. All orders are normal orders, actually. The strategic is the new normal.
For how much period do you think that will be a normal thing?
We don't know.
We don't know that.
That's a very difficult question. We can tell you that this order pipeline and the order book is going to serve us for two years, as we said. It's very difficult beyond that sitting today to address. Obviously, we would continue to grow.
We are very confident.
We're very confident—
Keep on growing.
Yes. Absolutely.
The business discourse is also taking its own shape now. Based on that only, we have started disclosing this way.
These strategic orders you are saying they are the new normal ones.
Whatever we had to say, we have already said that.
No. I'm asking just that.
You're asking what we already answered.
These are the new orders, right?
You're asking what we already answered.
Okay. Given the governments also focus on this, how do you see this sector in the coming years? I know the huge potential, but if you can contribute something to this, it will be helpful.
That's why we specifically put up the industry slide, and you can see the kind of growth that some of these sectors are looking at. At a very conservative level, I would say that they're talking of a 38% CAGR at the national level. Which is huge, which for the next three years, four years. There's a huge amount of headroom. The market is for people to capture. Now we'll have to strategize to capture it as much as we can.
This 38% CAGR for the next four years, you are saying, is for the entire category, you are saying?
It's for the AI.
For the product line.
For the product line.
Only for the AI. Okay. For the product line of AI.
Yeah.
Okay.
Just for the product lines, also, there is a huge headroom available for growth.
Yeah.
We have clearly showed the figures for that as well.
Just finally, if you can answer, currently everything is looking so rosy.
Sorry to interrupt, Mr. Omkar.
Just a small question.
Mr. Omkar, sorry to interrupt. May we request that you return to the question queue for follow-up questions? The next question is from the line of Jatin Kalra from Bank of America. Please go ahead.
Hi. Thanks for the follow-up. This one is more on the bookkeeping lines for Ankit. Ankit, it does seem like the R&D effort that you've been putting in is generally expensed in our P&L. Just wanted to understand what's the typical consideration that goes behind expensing it versus capitalizing it. Do understand that software for us is definitely our moat. Why not capitalize it versus expensing it? Just your thoughts on the consideration. Thank you.
Yeah. Jatin, as you know, we have always maintained this policy of not capitalizing it because we do not want the balance sheet to have any kind of fictitious assets. Because the R&D has been expensed off since day one. Of the company. There are a lot of factors that go into R&D. We cannot quantify it properly. Yes, there is a team of 125 people in R&D. They continuously work on that area. Along with that, there are testing labs; there is a lot of equipment which goes into the R&D. All these, considering that fact, we do not capitalize because the R&D evolution is very fast, and that is what we have been maintaining.
I would just like to add here, Jatin, you understand that there is a huge amount of technology upgrade, which happens every time, and we continuously invest in R&D. If we start capitalizing it, the balance sheet will become bloated, and at some stage, some of these R&D will convert into monetizable business, some will not. I think it's a great thing that we are not capitalizing it. Believe me, the investors love it. Everybody loves it, and we want to be conservative, as we are on our guidance as well.
Perfect. That is really clear. Thank you so much.
Thank you. The next question is from the line of Jaya Lakshmi Gupta from The Wealth Company. Please go ahead.
Hi, sir. Thank you for taking my question, and congratulations on a good set of numbers. I noticed that certain balance sheet numbers for your prior period have been restated. Could you explain the nature of these changes, whether they are due to accounting change policy, especially if you see debt? Secondly, also, could you help me understand the expected conversion timeline of the INR 104 billion pipeline? Specifically, what portion of that do you expect to be converted in FY 2027 and FY 2028?
On the first question—
Yeah. Regarding the balance sheet, there was a reinstatement on account of the inventory policy. We shifted our inventory valuation from FIFO to the moving weighted average method. That is to actually get in line with the proper policy of maintaining the inventory going forward. That is there. Sir, second part?
The second part, I will answer. The second part is basically, I already answered that question. Whatever funnel you are seeing total, that the conversion ratio, conversion cycle for that will be around 18 to 24 months. Basically, we have already given you the order book, which will get converted as indicated. We cannot guide what portion of the funnel will get converted this year and all that. The guidance which we would like to give is the funnel will basically, conversion rate will be around 60%, and the conversion time will be around 18 to 24 months.
Sir, lastly, can you give a broad breakup of your funnel across AI system, HPC, and cloud business? I basically wanted to understand that AI system share of pipeline has increased materially over the past few quarters, or has it?
Definitely. What you're saying is right, basically, since all our customers are very well integrated, all our solutions are very well integrated, it's very difficult at this point of time to give a segment size funnel.
Thank you. Thank you so much.
Thank you.
Thank you. The next question is from the line of Anuj Kashyap from A3 Capital. Please go ahead.
Good afternoon, sir. Thank you for the opportunity. Sir, my question is with a caveat. It's little bit of forward-looking in nature. Sir, what we are reading these days is that companies, first of all, it was state who was worried about their data sovereignty. Now, the individual companies are also worried about their data and the legacy data which they are carrying on their systems. Like, sir, now the market is talking about small language models or maybe something of that type. Don't you think, sir, our order book is going to go through the roof? I'm not putting much feeling into it, but the future is all about loads and loads of data. Data will also increase.
Don't you think, sir? Because I wanted to know from you because you are in the position, you are in the market, so that is why.
What you are saying is music to our ears, no doubt about that. More than that, I would not like to comment anything more.
Sir, last time, sir, you told that exports are 4%-5% of your contribution these days. Sir, what is the future, sir? Are we looking for it or are our hands quite full now?
The domestic demand is phenomenal, actually. First, the idea is to service the Indian customer. We have that. We'll definitely do that first. We will look at exports. You are seeing our growth, you are seeing basically whatever we are guiding, we are over-performing from that. Basically, you can see the market is growing and the worldwide. India needs the AI systems. Indian service providers, Indian LLM providers, Indian SLM providers, all of them needs that at this point of time. I think exports are, we are not focusing on exports actually.
Thank you, sir. Sir, best of luck for future endeavors. Thank you.
Thank you. The next question is from the line of Saurabh Sadhwani from Sahasrar Capital. Please go ahead. Mr. Saurabh Sadhwani, please go ahead.
Hello. I'm sorry, I was speaking on mute. Good afternoon, everyone. I was looking at the Ethernet switch portfolio of the company, and there are two switches right now based on the Broadcom platform that have a maximum port bandwidth of 100 gigabits. The first question I wanted to understand was, how is the demand for the switches in India? Basically for maybe higher bandwidth and maybe the NVIDIA Spectrum ASIC. Secondly, what is our product development pipeline for these switches now?
Basically, as you know, the company's objective is not to sell boxes. Basically, we have stopped our focus on selling switches independently. Switches, definitely we are in line with the market actually, with the current high bandwidth switches, but we are trying to use it in our own solution. Hence, we are not disclosing it as a separate product SKU where our product details are available. Definitely, you are right, the switching is an important component and basically we clearly know that. All the solutions which we are selling, like DB 300, DB 300 and all are based on the latest architecture. Primarily the switching is very important, and we are already selling those switches in our solutions.
Okay, sir. Thank you so much.
Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to Mr. Sanjeev Sancheti for closing comments. Please go ahead.
Thanks a lot, everybody, for taking out time for this call. Really appreciate and wish you all the best.
Thank you to ICICI also, for ICICI Securities for organizing this call so well. Thank you, Seema. Thank you.
On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.