Ladies and gentlemen, good morning and welcome to the Syrma SGS Q3 FY25 earnings conference call hosted by ICICI Securities. As a reminder, all participant lines will remain 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 the operator by pressing star, then zero on your touch-tone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah, thanks, Ryan. On behalf of ICICI Securities, we welcome you all to Q3 FY25 results conference call of Syrma SGS Technology. We have with us today senior management, and now I hand over the call to Mr. Nikhil Gupta, Head of Investor Relations, to introduce the management and take the call forward. Thanks, and over to you, Nikhil.
Thank you, Aniruddha. Hi, a very good morning to all. Welcome to Syrma SGS Q3 and nine-month fiscal year 2025 earnings call. We have with us today Mr. Jasbir Singh Gujral , Managing Director; Mr. [Uncertain] , Director; Mr. Satendra Singh, Chief Executive Officer; and Mr. Bijay Agrawal, Chief Financial Officer of Syrma SGS, to discuss the performance of the company during the third quarter and nine months 2025, followed by a detailed question-and-answer session. Kindly note, during this call, certain statements that will be made are forward-looking, which involves certain risks, uncertainties, presumptions, and other factors that can cause results to differ materially from those in such forward-looking statements. All forward-looking statements made herein are based on the information presently available to the management, and the company does not undertake to update any forward-looking statements that may be made during this call.
In this regard, please do review the disclaimer statement in the earnings release and all other factors that can cause a difference. With this, I will now hand over the call to Mr. Jasbir Singh Gujral, Managing Director of Syrma SGS. Thank you. Over to you.
All right. Good morning. A warm welcome to everyone to the Q3 FY24-25 earnings call of Syrma SGS Technology Limited. The quarter gone by has been a satisfying quarter, and the nine months have also been satisfying, which is reflected in the performance of the company. Revenues for the quarter were at about INR 892 crores, which represented a 24% year-on-year growth, and for nine months, they were at INR 2,900 crores, a growth of about 40%. What is more satisfying, apart from the revenue growth, is that the steps taken by the management to bring back the margin profile of the company have started yielding results. For the nine months FY25, operating EBITDA margin stands at 7.2% against a guidance of 7% given at the start of the year. For the quarter, notably, this stands at 9.1%.
This gives us the confidence that 7% achievement would be possible, and if any movement, it will be only north of 7% in the coming quarters. PBT also has shown a healthy growth of 37% for nine months and 144% for three months. Exports stand at about 20%. Exports have had a subdued sort of muted scenario because our geographies which we are servicing are essentially America and Europe. And in Europe, it's primarily Germany. And Germany is today the sick baby of EU. It has the highest delinquencies per month. So we have had a muted growth, but the turnaround is visible from the orders and the indications which we have received for the next year, that is FY 2025-26. I think it will rebound back, though it will be a painful and a long journey.
It is not going to be a one-quarter sort of recalibration to the original levels. MedTech business also has been a bit slow because of push-out by some customers and delay in the development of the products, which we are very confident that in Q1 of next year, it will bounce back to whatever we had and we charged when we had taken over the MedTech business of Johari Digital, which is now known as Syrma Johari MedTech Devices Limited. On an overall basis, we are confident that we would continue to grow at the industry-plus average with the margins which we have guided, that is a minimum EBITDA margin of 7%. We hold that guidance for this year, and when we come out with the final result for FY25, we'll come out with the guidance for the next year.
As of today, we are on track to achieve the guided EBITDA in percentage and absolute numbers, what we had said of 305-310, something of that range for the current year. Next year, we expect a growth of about 30%-35% with corresponding increase in the EBITDA margins. We have onboarded some good automotive and industrial clients in the current quarter. Going forward, which will be 26, 27, we expect significant business from these clients. In 25, 26, these clients will be yielding sub-200 crores of revenues. With this, I hand over to Bijay Agrawal to take you through the detailed figures. Thank you.
Thank you, Mr. Gujral. Good morning, everyone. I'll now take you through our brief of financial performance for the quarter and nine-month ending December 2022. On a consolidated basis, our total revenue from operations for the nine months is about INR 208,062 crores. That grew by almost 41% on year-on-year basis. For the quarter, it is INR 869 crores, which is with a growth of 23% year-on-year basis. During the nine months, the robust growth is broadly based on, I think, across multiple industry levels, largely contributed by industrial segment, consumer segments, and primarily in the IT segment here. Similarly, for the quarter, we had a strong overall growth in the auto industrial sector again. Our export revenue for the quarter is INR 210 crore, which is approximately 25% of our total operating revenue for the quarter. For the nine months, it is about INR 583 crores.
Our OEM revenue for the quarter is about 13%, and for the nine months, it is approximately 11.5%. This quarter, we had a strong rebound in the margins led by expansion in gross margins on the back of changing businesses. Consumer sector business is slightly lower than other segments here. The gross margin for the nine months is 21.3%, and for the quarter, it is with a very healthy gross margin of about 22.67%, broadly 200 basis points of expansion on a quarter-on-quarter basis. Our operating EBITDA for the quarter stood at about INR 79 crores, with a year-on-year growth of 88% and an operating EBITDA margin of approximately 9.1%. For the nine months, it is around INR 208 crores, growing 53% year-on-year basis. Similarly, PBT for the quarter is INR 66 crores, again with a growth of 144% year-on-year. For the nine months, it is INR 146 crores broadly.
PAT for the quarter is 53%, again approximately 6% of a PAT margin. For the nine months, it is around 113 crores. Coming to our open order book visibility as of date, as of December 2024, it is around 5,300 crores, which comprises almost 30% plus of contribution from auto segment, about 38%-40% from consumer segment, approximately 22% from industrial segment, and balance from healthcare plus IT and railway segment business. On the working capital side, currently, as of quarter end, we stood at around 64 days of net working capital-based inventories. Again, it is slightly higher than the last quarter. We continue to make efforts to keep this net working capital below 60 days on a sustainable basis.
Moving to our debt position, we have a gross debt of approximately INR 685 crores, against which we are maintaining a treasury of INR 412 crore rupees, and with that, our net debt position is INR 273 crore rupees. Out of this total debt, it is primarily funded through the working capital, and only INR 65 crore is what is the term loan here. Coming to our CAPEX, for this nine months, we had spent approximately INR 180 crores of CAPEX, and largely towards building up this new campus facility in Pune and a facility there in Germany. Some bit of additional CAPEX towards some SMT lines and plant machinery setup for new customers onboarding. Our asset turn for the quarter is about five and a half times, and ROCE for the quarter is around 13% on an asset basis.
We expect this to improve further as we work on higher utilization of our CAPEX going forward. Slight bit of update on the merger side. We are waiting for the final order from the NCLT, and we hope we should be able to complete this merger in another three to six months of time. We expect this full year, as we have guided broadly previously also, we expect this full year we should be able to close at around 300 plus crores of overall EBITDA for the full year FY25. With this, I hand it over to Satyendra Singh, our CEO. Thank you very much.
Thanks B ijay. Good morning, everyone. I think Gujralji and Bijay covered the numbers pretty well. I'd like to start with the comment, which is to thank all my colleagues in the company who have worked hard to execute the strategy, which we have been kind of sharing with you and executing every day. So thanks to the colleagues, I think we have had this very, very good quarter. To repeat a little bit about the strategy, I think we continue to build for the future, which is to focus on the people, to focus on the processes, and to focus on the plant capabilities, and Pune, which was opened in October, is one such investment which we have made to build our capability and also to fill in the white space which we have had as a company because we were not present in the western region.
So that kind of takes care of our ability to fulfill the customer needs in the region. Overall, I think we are executing day in and day out on the operational side. So there's a lot of initiatives which we have done to streamline and improve our processes on the process excellence side. So with this, I think I'll say thank you, everyone, once again, and back to Nikhil to take the questions and answers.
Yeah, thank you, Satyendra. Jayesh Gujral, we'll just ask you to please take us through the Q&A session.
Thank you. Ladies and gentlemen, 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 their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Dhananjay Bagrodia from ASK Investment Managers Limited. Please go ahead.
Hello, sir. Just wanted to ask you regarding your debt position. Debt has increased year on year. So how should one look at that going ahead, and how are we thinking about this?
So, year-on-year basis, debt has increased slightly with primarily basic working capital investment. In this quarter, we had additional working capital towards some bit of new additional inventories related to new customers onboarded. That will keep on within this quarter-on-quarter. These operations may come. But on the full year basis, we have already guided that we will bring down this overall working capital investment below 60 days. That's what we are confident we will be able to maintain on a sustainable basis.
So the 60-day working capital, that is standard?
Yes, that's there. As of this quarter end, December end, we are at 64 days of net working capital investment. But gradually, on quarter-on-quarter basis, this can again come down below 60 days. And again, it's a dynamic number. When the business is growing, revenue is growing, overall working capital investment, it may increase depending upon the business. That's how the overall working capital borrowing is also linked with the working capital investment.
Last quarter, we also commissioned a Pune plant, which is yet to give revenue. The inventory build-up happens when you start up a new plant and you bring in new customers. The prototyping and all that takes time, but the inventory goes up. As you have seen, a marginal increase of about four to five days in working capital, net working capital, which we believe that we're very confident that in the coming quarter, by the end of this year, we should be sitting at about 60 days of net working capital. This is all working capital, and there is no sort of long-term loan on this.
Gradually, this is reducing.
Bijay, in terms of order book, what would be the order book for this quarter, and how much do we see that executed over the next 18-24 months?
See, Bijay will go into the details. Orders, we normally track it on an annualized basis. As I've all the time been saying, we are mindful of quarter on quarter, but what we are very focused on is what is the long-term story. Is it intact, growing, or is it having some issues? So we don't have figures available, but we don't track orders on quarter-to-quarter basis because in one quarter, a new customer comes, he gives a 200 crore order, it will show a bump. On an annualized basis, we have a very solid order book, which Bijay will deal with in detail.
During this quarter, we have executed orders into.
Sorry?
Please go ahead.
No, I said this order book, how long are you seeing that being executed over?
So this is getting executed over a period of nine to 15 months. The current order book is INR 5,300 crores.
5,300 crores. Sure. And so lastly, most of our businesses, excluding industrial, have Q on Q been flat. Is there any seasonality in these businesses in terms of auto, consumer, and you mentioned healthcare, but auto and consumer, is there any seasonality in the businesses?
See, quarter on quarter, it could have ups and downs. Each industry has its own what you call dynamics. For example, the auto industry or the consumer industry where we are not present typically stocks up for Diwali in Q2 for the financial year. And the dealer and the sales happen in Q3, but at the production and the manufacturing and the uptake happens in Q2. So this over a period of time gets neutralized, and we are on track to achieve the growth rate in the respective verticals which we are set out to.
Thank you so much. Congratulations again for a good set of numbers.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, we request you to restrict to one question per participant. The next question comes from the line of Rahul Gajare from Haitong Securities. Please go ahead.
Good morning, gentlemen, and congratulations for the very strong performance in this quarter. So my question is on the margin profile, that improvement that we have seen. Is it, and if I see your order book composition, I think auto and consumer continues to be almost 60%-70% of your order backlog. So is it that incremental orders that you all are taking are at a better margin, or what would we really attribute to the margin improvement over here?
The margin improvement, as I've all the time been saying, is a function of the product mix which we sell. For example, in Q3, my consumer business is only 31%, high-volume consumer business, which is a tight margin business, whereas my industrial business is 30% for three months against the average of 25% for nine months. My automotive is 24% of my revenue for this quarter comes from automotive. For nine months, it is 21%, so the product mix change results in this change in the margin profile, and as I had said earlier, that for this year, we are guiding, we have targeted about 40% of our revenue coming in from consumer business. The wish and the desire of the management on which we are working with a very focused strategy is to bring this high-volume business to about 35% of our revenue.
I would be happy with 30, but I don't see it happening immediately. If it comes down to 35, it will have a natural positive impact on the margins.
I recently saw operating efficiencies, which we have been working upon since last maybe almost two years, both on the supply chain side and maybe operating scale side. Both have been at least now delivering on the result side.
Okay, okay. So this is basically product mix. It is not that the incremental orders that you all are taking or you all are getting are at a slightly better margin. It is basically the product mix that is driving really the efficiency over here.
Every industry has its own margin profile, and every customer has its margin profile. We always endeavor and strive to increase that margin profile within the industry. For example, if an automotive customer gives me a 22% gross margin, our endeavor is to take it to 24% with some customers, 28% with some customers, so that the blended margin comes down to about 23%, 24%, 22%. So it's a mix of a vertical-wise sales, and then the endeavor of the management that new businesses which we take in the upcoming seas in EV and all that, they should be at a better margin.
So when we say this is business mix, in that business mix, we are automatically getting covered at higher margin business, and now we are adding much more in the profile.
Sure. Thank you very much.
Thank you. The next question comes from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi. Thank you for the opportunity. I have two questions. First, what exactly is happening in the consumer segment? Because we have had this 38%-40% of the order book as consumer last quarter as well, but growth over has been tapering. So is it more like by choice, or there are some execution issues? What exactly should we read through over there?
There are no execution issues. Normal execution issues are running in the factories, or they're always there. What we have done in the last quarter is that we have started renegotiating prices for the high-volume consumer business to see whether we can have a bump in some margins or not. That is a long-term strategy of the company to move to the high-profit, high-margin business, low, medium-volume, high-margin business. Consumer business will continue to be about one-third of my revenue. That's the design. That is also guided by the PLI. See, we have a limit on the PLI, so there is no point of bumping up the business which is not with PLI.
So we are structuring the business in a way so that we can maximize on the PLI side, on the benefit side, and additionally then improving the overall margin either through pricing, and that is where we are at least with business. On the delivery side, we are keeping as a check here. We should be keeping it as a balanced number in the overall profile also.
Understood. Sir, a follow-up on that, does low margin also mean low ROC or asset turns are better so that the ROCs are offset in the consumer segment? And secondly, is consumer largely exports?
See, typically in the industry, in the EMS industry, a high-margin business will have a low asset turn, higher working capital involvement. You can't have all the positives or all the negatives in one. So a low-margin business has a comparably significant lower working capital involvement and a higher asset turn. So this is the typical nature of the industry.
On this question of export side, this is largely domestic business. Maybe almost as of now, the consumer segment business, about 80%-85% is domestic, and the rest is export.
Sure. Thank you. I have more questions. I'll join back.
Thank you. The next question comes from the line of Sonali Salgaonkar from Jefferies, India. Please go ahead.
Thank you for the opportunity and congratulations on a great set of numbers. So my question will be regarding firstly, could you reiterate what is your guidance for FY 25? And also, you mentioned for FY 26, sorry, I joined the call a bit late. And secondly, what is the kind of steady margin that we should expect considering, and we do appreciate that every quarter will have its own product mix changes, and every segment will have its own margins?
Yes. For the FY 25, we had guided a 7% EBITDA, which comes to about 3,305 to 3,310 or something around that, north of 300. We are confident that we'll be able to achieve that in this quarter and for the year. Now, FY 26, we believe and we are confident that we'll grow at an industry rate, and the industry growth rate is typically 30-35% currently. If we grow at 30-35%, then there'll be a corresponding bump in my overall EBITDA margin also when the operational leverages kick in and all those things. We are on track to achieve what we had guided for FY 26 early on, that this is a wish list. We are on track for achieving that.
Great. So, secondly, a very important point is that for the last two quarters, we have been showing considerable improvement in our EBITDA margin. This is the second consecutive quarter. So has anything structurally changed in terms of whether we are targeting certain subsegments within the key segments, or how should we look at it? Or probably it finally boils down to the function of our product mix change, which could be transitory.
It could be a product mix. See, in Q1, we had 54% high-margin consumer business, and that hit us badly on the margins. In Q2, that came down to about 41%, and we sort of bumped up to 81% EBITDA margin. This quarter, it is down to 31%. So the EBITDA margins go up. So EBITDA margins are a clear play of the product mix, and operational efficiency is kicking in. The endeavor of the management on a long-term basis is to bring down the high-volume consumer business, which is inherently low margin, to below 35. 35 is the bare thing. I would be happy if it can come down to 31, 32, 33 and grow over other business. The efforts of nurturing clients over the last two years in other sectors like industrial, like automotive, have started yielding results.
In industrial, we have got some very formidable names in various applications. For reasons of confidentiality, I will not be able to take the names, but they are with superior margins and reasonably decent revenues.
Understood. So very clear. And also, is exports a driver of our margins in any way? Is it a higher margin business as compared to?
Export is a higher margin business. Unfortunately, for the current year, we are only at 20%. So we're down from 25% because of slowdown in Germany. Germany is today a sick baby of EU, and Trump has just come in. I think it'll be a while before the policies get settled down. But on a long-term basis, again, I said we are worried about quarter-on-quarter short-term. On a long-term basis, we are very focused that exports should constitute north of 25, possibly 30% of my revenues. Now, whether it is 25 or 26, that I really can't say because it's a play of domestic business also panning out in various segments other than the consumer. But yes, exports are comparatively high-margin business, and we intend to bring it back on track to about 25% of the revenue, which currently has come down to about 20%.
Understood. Very clear, sir. All the best, and thank you so much.
Thank you.
Thank you. The next question comes from the line of Deepak Krishnan from Kotak Institutional Equities. Please go ahead.
Hi, sir. Just wanted to understand on the new entity that we have formed for laptops, what sort of revenue potential can we see from this new venture that we are entering into? And maybe just on revenue guidance, wanted to check if the INR 4,500 crore guidance still stands, or is that number sort of revised down with a higher EBITDA margin?
Okay. What I could understand is about the laptop business, and the guidance which you are giving of 30%-35%, does it include laptop, or laptop will be in addition to that? Is this your question?
No. So the laptop business revenue potential and the INR 4,500 crore revenue guidance that we have given for this year, does it still hold?
Okay. The laptop business has just started last month. It's still in the infancy stage. It will mature in the coming quarters, and in the coming year, it would also mature into going up to the backward integration of board-level assembly. Currently, it's a laptop assembly. On the guidance of revenue, we are more focused on the margins, and we are very confident that whether we do 4,200, 4,100, or whatever, the 300 plus 305 crores of EBITDA margins are intact. Revenue is a play of consumer business, other businesses, so to us, based on the inputs of the street, we are more focused on growing at the industry rate with margins of 7% or 7% plus.
Sure, sir. Maybe just wanted to check if any PLI incentive is booked this quarter, and is there any one-off income because the other income is relatively higher? Just wanted to check these two items.
One-off income. One-off income. We had acquired a piece of land for expansion in the north. Once we put up the campus in Pune, we felt all expansions should happen in the Pune campus. So we sold off that piece of land in Haryana, Manesar, and that has resulted in a one-off income which is shown separately and not in the operational EBITDA.
All right. Sure, sir. Any PLI this quarter? About ₹15-17 crore rupees of total income for the PLI.
Sure. Okay. Okay. Thank you, sir, and best of luck for future quarters.
Thank you. The next question comes from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Yeah. Namaste, Gujral, sir.
Namaste.
Gujral, sir, this, I'm actually asking Bijay. You have referred to EBITDA margin of 7%, but I suppose what you mean is operating profit margin of 7% because EBITDA margin will mean operating profit plus other income. So that's a bit of a.
Yes.
Sorry?
Without operating income.
This is operating EBITDA margin, right? 7% plus. Bijay, आपका आवाज नहीं सुनाई दिया. [Translator] I couldn’t hear your voice.
I am saying this is operating EBITDA margin which we are referring 7% plus, and other income will be over and above that. Ha. Because we kept saying EBITDA, therefore I just wanted to clear the confusion. Because that's what it means is operating profit margin of 7%. All right.
The outlook for the year coming, we were earlier discussing turnover of closer to INR 6,000 crore or thereabouts, so is that something intact?
I think we would come back with that figure, but with the current estimates, I think there could be a marginal variation in that. But with a caveat, the EBITDA margin which we had guided based on 6,000 crores of revenue would be intact.
Okay. So which means it will be a play on the overall profits. Turnover will be a resultant number.
Yes. Yes. Absolutely. So we say that, okay, if you are guiding the street for X EBITDA margin, absolute figure, then that X can be constituted by 100 revenue or 120 revenue based on the product mix. But to us, it is the X which we are guiding the market. That is more important.
Absolutely. Last bit on the capital efficiency, return on capital employed, what is the progress being made? One element you highlighted that working capital will be sought to be kept below 60 days, and hopefully it will improve further going ahead. New facilities have been built. New hiring and talent investment has happened. So physical infrastructure, people infrastructure, other initiatives, all are in place. Therefore, hopefully with the growth of the business, should it result in a measurable improvement in return on capital employed?
That's right. That's what we are also targeting. My overhead costs are much more stable now, and the expenses are largely being taken care of. So with this, the way we are anticipating next quarter also, we are targeting like this year we should be closing around 14.5%-15% of ROC, and gradually it should then move towards our targeted ROC of 20% over the next two years. By fiscal 2027, we should be hugging closer to 18%-20% return on capital employed.
Yes. Yes, please.
Thanks, thank you, and all the best.
Thank you.
Thank you. The next question comes from the line of Keval Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thank you. So just to clarify, as you mentioned that, I mean, revenue may vary and margin may vary, so we are targeting for absolute EBITDA. So in that backdrop, how should we think about, say, gross block asset turn, or is there any other measure, say, EBITDA per 100 crores gross block? Basically, how should we think of that measure of ROC?
Currently, we are at a breakeven average asset turn of around 5.6 times. With this increasing scale, we are hoping we should be around somewhere around 6 times of asset turn. That is where we are saying this year probably we may get much closer towards 14.5-15, and gradually then this should improve thereafter.
Anywhere between 5-6x Asset Turn is a sustainable and, or I would say, more optimum Asset Turn that is possible and targeting operating EBITDA margin of 7-7.5%. Is it correct?
Yes. Gradually, yes, operating margin will again, we see an improvement in the operating margin there, or maybe asset turn should improve thereafter, six to seven times in that case. That's the closest revenue and soft inflation.
I mean, as you discussed that share of consumer should or would come down, that should impact theoretically negative gross block asset turn, and that should be offset by higher margins. That is how it will play out, or just want to understand the concept of the ROCE with the mix change?
If we say this 35% or maybe less than 35% of consumer business, that is actually not a negative growth. There will be a growth and positive, but other businesses may grow at a better pace so that overall in the overall total portfolio of this business should be within the check of 35%. That's what we are saying, so asset turn side, I still don't see a negative from 6 to below 6. That way, gradually it should improve further, the increasing scale, and as my Pune facility also ramps up, this will also add to my asset turn going forward.
Okay. Last follow-up. So based on current Gross Block, what is the maximum revenue that we can generate? Ballpark?
With the product mix, which we have said about 35%-37% consumer and all that, we should be able to achieve INR 6,000-INR 6,500 crores of revenue with this Gross Block, with marginal additions for balancing equipment and all that.
Okay. Understood. Noted. Sir, thanks a lot and all the best.
Thank you. The next question comes from the line of Bhoomika Nair from DAM Capital. Please go ahead.
Yeah. Good morning, sir, and congratulations on a good set of numbers. Sir, just wanted to understand how JDHL has performed in the quarter and for the nine months, if you can share revenues, EBITDA, and PAT, and outlook for the same. My second question is on the auto and the industrial segment. We've seen order backlog growing quarter on quarter, but I guess I got the. I'm not too sure if I got the number right, but you said that industrial was about 20-25% of the total order book. So if you can just give some outlook on industrial, what are the new segments, what orders you've seen? Because it seems a little lower than us in historical trend.
I can explain the medtech business, and then maybe Gujral, you can add on the industrial piece side. Medtech business is slightly subdued in this quarter, which we have already explained at the start of this call, that we are expecting this to rebound from next quarter onwards or maybe this current quarter onwards, let's say. So as of now, in the last quarter, this business has done approximately INR 20-25 crores of revenue with less than INR 10 crores of EBITDA, around INR 10 crores of EBITDA, that way. And going forward, we see this should rebound better on the quarterly basis.
See, on the medtech business, we are building the platform, and there has been a slight sort of delay in customer lifting, customer approvals, and all those things. But we are very confident that in the coming year—so we are delayed, pushed out by about nine months—but in the coming year, financial fiscal 26, I think medtech should come back to what we had advantage. Thereafter, beyond 26, it should grow because the customer, the designing, and the products, and the areas which we have entered in the last one year, we have recalibrated the entire business in the medtech space so that we are now more outbound, more customer-centric rather than executing businesses which were historically coming in. So more outbound and customer-centric than inbound business.
I still believe, and I maintain that in the coming years, medtech business should be a very reasonable, decent chunk of our business. Currently, it's at about 6%. Now, if we grow at 35% and this business also grows at 6%, it has a natural growth, but I expect it to grow at a faster rate in the coming year.
I mean, what is the current, I mean, where do you expect? What is the order book out here? And when you're saying 26, 27, you'll see a significant ramp up, what kind of revenues are we looking at from this business?
I would not be able to share the revenues, to be very honest. But the pipeline, the product development pipeline, which we are today capturing too, including designing, which would go into production in the coming years, I think gives us the confidence that in the year 2025, 2026, we should be closer to maybe 160, 150, 170, or 200. But it's a bit early because it also involves designing. It's not pure plain manufacturing of a product which has already been developed.
In the order book, also, this medtech business in totality is contributing almost seven, seven and a half% of my total order.
Okay. Okay. The second part was on the industrial business, if you can throw some light on how the order intake has moved and what is the outlook in terms of new client additions, etc., and which segments are we seeing the growth being driven by?
Current order book on the industrial side is about 20-32% of my total things. On the subsystem side, we see a lot of traction on the smart metering business side mainly, and a lot of we have added one more new customer recently. Previously, as we have explained, Honeywell business is also now picking up gradually. So we see this subsegment will perform much better on the industrial side. Additionally, we are working on the renewable piece, which is kind of a solar segment here in this case and maybe other power supplies business, which will contribute to this particular segment.
Just to add on to what Bijay and Gujral has been covered on industrial, it's a combination of Indian business as well as exports business. So in exports, I think we see we have a couple of customers, which we would not be able to share the names at this point, but we have the business logged in, and that should start trickling in in the FY 25, 26. So we would see a growth over there from those customers. And just to tell on the applications within the industrial segment, utility metering, including smart metering, whether for gas, electricity, or water, is one dominant component. Power supplies and power management units for data centers is another dominant segment. Industrial cleaning, wet, dry steam is a decent-sized business.
Then we have in the renewables like solar trackers or solar inverters, which is developing, which I think in the coming years should go up. And then it would be like automation, communication cards, automation cards. I can't think of the name of the segment, very good order from a global giant for interface cards. And this goes in a very, very high volume.
Got it, sir. I have more questions. I'll come back in the question queue. Thank you and all the best.
Thank you. The next question comes from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Sir, two questions. One, what is the total PLI benefit that we would have booked in nine months? and also, in a way, is the money received or is it accounted for? That is question number one. and secondly, we have seen now back-to-back slowdown in the consumer business, so how do you see the outlook from over the next two or three years? and also, as I understand, generally, the Q4 is quite heavy from an RSC perspective, and Q1, Q2 are strong because of demand for water purifiers, so Q4 and Q1, we should see a higher revenue share of consumer business. Is that understanding correct also? Yeah, thanks.
On the business part, the consumer business, which is not high volume, is on track, and that's a high-margin business. It's not a low-margin business, though it's clubbed in the consumer segment, and for this quarter and the coming quarter, we are on track to grow as per the industry rate with the margins which we had guided. Again, end of the day, it is a focus of the management to give margins and see that the margins consistently over a period of time inch upwards, so with that in mind, you have a flexibility to play with the product mix without sort of sacrificing the margins and still doing the business. As I said, we are renegotiating some of the prices to see what incremental margins we can get, so that's a work in progress. On the PLI, I think Bijay will make that answer.
PLI for the full year, we are estimating it should be around INR 15-17 crore. For the nine months, for current financial year, we have accrued around INR 14 crore.
Okay. And what was the number last year, nine months?
Last year also, full year number, I don't have a nine-month number that way, but last year also for FY 2024, this number was around INR 16.5 crore, full year to FY 2024.
Okay. Okay. Sure. Sure. Yeah. That's helpful. Thank you.
Thank you. The next question comes from the line of Aditya from Investec. Please go ahead.
Hello. Hi, good morning, sir. So my question again is on the PLI scheme. I remember in one of the earlier conference calls, you had indicated that there's a PLI benefit due of almost INR 45 crore in respect of FY 24, of which our share would be around INR 16 crore. So just want to clarify these numbers that we are saying. Is this our share which we retain and which we kind of record as income in our books of accounts? Or it's the total quantum that we have received in nine months of the fiscal?
This is a net basis, like whatever we probably may need to share. So these numbers which we are quoting around net basis, which should be our share retention.
Okay. So ₹14 crores that we have received in nine months of the fiscal is roughly our share?
Yes.
Correct? And.
For the current financial year.
Understood, sir. And this will be in respect of entirely FY 24, correct?
This will be in respect of current financial year. Current financial year, what we are saying, it will be around INR 17 or so. Of which nine-month numbers will be around INR 14 crore on a net basis.
We record it on a cash receipt basis, or we are doing it on an accrual basis?
We are doing it on accrual basis.
Understood. Because last year, sir, wasn't it a case that we thought of doing it on a cash receipt basis, and therefore we weren't really recording a lot of PLI benefits? and we had spoken about PLI benefits coming into the books of accounts in the following year.
So that is something previously, in the initial start of the very first year, we were doing. We were in fact at the time getting the first approval there. So we changed then later on. It is now concurrently on all approvals.
See, the first year is always a tough year when the entire application has to be vetted by the department, and the agency is nominated by it. So that takes a lot of time, and hence we were conservative to not account for it. Once the products are approved, the CAPEX is approved. Then it's only data which generates the sort of how much sales and how much is the PLI. So it's a very simple methodology. And hence, as per the industry practice, we have migrated to accrual basis.
Fair point, sir. So does that mean that in one particular year, we would have recorded on cash basis PLI benefits which was meant for the preceding year, as well as on the accrual, we would have recorded the benefits of the same year?
Yes. Previously, it was on cash basis, so we changed it previously then to accrual basis. Now we've changed it to accrual basis. So there's been a change in practice.
Sure. So this year, 14 crores is in respect of current year accrual, but we would have recorded for cash for preceding year also, right? So overall PLI benefit that we would have recorded would have been higher? There would be some amount for FY 2024, I assume?
For previous years, it is all linked to whenever we get it, so that's why it is slightly different that way. For current year related, we have accrued around 14 crores.
Sorry, sir, your voice was cracking a little.
So, I'm saying previous year related, it is linked to the receiving of the cash. But currently, for current year related, we have accrued around INR 14 crores.
No, no, that's a fair point, sir. I'm just requesting for one simple data, 14 crores is in respect of this year. Have we recorded any amount in respect of preceding year, FY 2024 as well, which we may have recorded on cash basis?
Preceding year related, it is linked to the receiving of the amount, which will happen gradually.
Understood, sir. Thank you.
Thank you. The next question comes from the line of Sumant Kumar from Motilal Oswal Financial Services Limited. Please go ahead.
H i. Can you talk about the railway ordering flow and also what are the subsegments we got ordered for railway?
Railways.
Yes.
Railways, I think we had guided that this year we'll be doing about INR 70 crores of revenue from the railways, and we are on track to achieve that revenue this year. New product approvals are in pipeline, so till those product approvals by RDSO happen because every product has to be approved by RDSO, it'll be tough to give a figure, but I believe that next year, this figure should be higher than INR 70 crores. Even if it's a 50% growth rate, it'll be about INR 100 crores. So anything between 100 or 100-plus crores in railways in FY 26 is what we are targeting.
Which are the subsegments in railways, sir?
Sorry?
Which are the subsegments in railways, the product types?
These are the brake controllers. The bulk of it will be signaling equipment and other products which go onto the bogies, but bulk of it would be the signaling system for the railways, so it will be a mix: 50% what goes onto the locomotive or what goes onto the bogies, and 50% what goes onto the infrastructure, which is the signaling.
Thank you. Thank you so much.
Thank you. The next question comes from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Gujral Sahab , barely have you mentioned that a big turnover from the current infrastructure can be around INR 6,500 crores, which means virtually before the next year ends, we will need to raise physical infrastructure to prepare for the growth ahead.
See, we have this facility in Pune where the equipment can be plugged in. We have just got two lines in Pune, and it has capacity to take in a large number of more lines, and then, yes, for 2026, 2027 onwards, we will be constructing within the same campus a production facility to take care of for the 2026, 2027, 2028 because there will always be an overlap. But the bulk of the cost is the land which has already been acquired, the building and all that cost, but it's not comparable to what the land cost is.
So which means if we need to raise the capacity, we can do it fairly quickly.
See, currently for the nine months, my capacity utilization is around 70% or a little less than 70%. So if I have done 3,000 or 2,900 crores of revenue at 70%, this takes us 4,000 crores in the new assets which we have just put in, which are not called or taken into the capacity, would yield additional results. The Pune facility has just been set up, so we don't count that into the capacity because it takes time for us to build the output from a new plant here to get customer approvals here, to get quality approvals. But with this asset base, with some marginal balancing equipment, 6,000-6,500 crores is achievable, and this would also depend upon the product profile. Hypothetically, if I was to do only consumers, then it could be even more than 7,000.
But with a low volume, high mix, all those things, the blended output should be about INR 6,000-INR 6,500 crores.
So basically, as we get into the next year, at some stage, we will have to unlock new capacity to prepare for 2026, 2027. So basically, what we are saying is that can be done reasonably quickly at Pune facility to raise the overall production capacity.
You are right. You are right. It takes about six months to set up, since it's not a vertical growth, it's a single-story growth in Pune. It takes about six months to set up a manufacturing facility, and by the same time, you order the equipment, and you can sort of align the receipt of the equipment with the completion of construction.
Sure. And Bijay, just one issue. For the current year, what is the likely tax rate for the profits?
This is approximately 23%-25% there. For the quarter, it is lower because there is another income which attracts a lower capital gains tax, and that's where it is lower. Otherwise, it will be around 23%-25% currently.
The next year would be presumably similar?
Yes.
Okay. Thank you.
Thank you. The next question comes from the line of Praveen Sahay from Prabhudas Lilladher. Please go ahead.
Yeah. Hi, sir. Can you give the CapEx number for 2025 and 2026?
Currently, in nine months, I have already spent around INR 180 or so rupees. In this quarter, I may spend somewhere around INR 30-50. Current year, it will be around INR 200-225. Next year, I may spend around INR 100-150 crore rupees.
Okay. And also, in the past, you had announced for the QIP. What's the status of that?
We have the approval from the board and shareholders together. As of now, we have not initiated anything on that team. We are internally working on a few of the expansion growth projects. If we need any further additional capital, then we'll probably go for that.
Okay. Thank you, sir. All the best.
Thank you. The next question comes from the line of Dhaval Shah from Girik Capital. Please go ahead.
Yeah. Hello, sir. Thank you for the opportunity. So, sir, if we understand our progress as a company over the last two, three-year period since we went public, so does it mean that our strategy as a company is now more focused on EBITDA margin the way you mentioned about renegotiating the contracts, going back to the customer, versus the kind of growth we were talking about and chasing growth? The working capital had expanded, and that's why we also thought of doing fundraising. And now we are more of talking more on the margin front. So what has led to this change in this thought process over the last two years? You saw things changing on the customer side, demand front, competition front. If you could help us understand on this part, number one.
And number two, going forward, in the order book, consumer is still high, but your industrial order book is also increasing. So does the increasing pile of industrial and others, which is railway IT, also benefit your margin? And will we now consistently be looking at, on an annual basis, 7% plus kind of EBITDA margin without other income? These are my two questions.
See, we have recalibrated our sort of strategy based on the input and the growth areas available, which I had earlier also said. It was thought that we were sacrificing the high-margin business for the sake of low-margin business, and that continues even today. We are more focused on generating EBITDAs, and that's the recalibration we have done. Why we have done it? It's because of the inputs we have received from various quarters, and correction is always, I think, a welcome thing if it's for the better. We continue to sort of focus on margins with growth at the industry level. Now, on your other question of railways and others, those businesses are factored into our normal plan, which we share, and I'm very confident that going forward, what we had guided for this year and next year, we'll be able to achieve that.
Okay. Okay. And for this sustainable 20% ROCE, so what sort of margins would it require? 7%-7.5%? Because the way asset turns will change depending on the products. So what sort of margins are we looking at for that sustainable 20% ROCE number?
Bijay?
So I think if we are able to improve the overall Asset Turn somewhere between 6.5-7 times with an overall EBITDA margin of 8%, I guess we'll be nearing towards our target ROCE.
Also better working capital management and control.
Okay, so 6.5-7 times asset turn with almost 8% EBITDA margin. Now, this is possible when we go for what sort of product mix in this? Because the margins are also higher, assets are also higher than the historical.
When we talk about margin percentage, that already factors in the different product mixes. So whichever product mix comes, if we are able to deliver that EBITDA margin with a lower working capital investment, so automatically the ROCE will improve there.
Okay. Okay. Thank you. Thank you. Good luck.
Thank you. The next question comes from the line of Vipraw Srivastava from PhillipCapital. Please go ahead.
Hi. I'm audible, right?
Yeah. Yes.
Yeah. So quickly on the PLI thing, which one previous participant asked, so in FY 24, it was cash-based. In FY 25, it's accrual-based. Is this correct, or am I wrong?
So current year, accrual-only FY 2023 was cash-based, and then gradually we have changed the factor.
2024, 2025, both were accrual-based, right?
Correct. Yes.
Okay. Thank you. And secondly, sir, quickly on the consumer segment. So you had, if I remember correctly, you were saying 40% should be from consumers. So if we take nine months and if we take the revenue mix for nine months, we already are on 40%. So in Q4, should we see the same mix of business, or do we see consumer going up in Q4?
I personally don't see consumer significantly changing in Q4. At the end of the year, I think we'll be around 40%, maybe a percentage lower or half a percentage higher, maybe 38%, 39% consumer business. The endeavor of the management, as I've all the time been saying, is that to bring it down to 35%.
Right. Right, sir. And so lastly, I mean, we do know that in the electronics ecosystem, Government of India is coming up with a PLI on components where they're going to incentivize a component, let's say, like a bare board. So do we see some risk from that end? Because if your peers backward integrated into bare boards in your consumer segment, how do you plan to compete with them?
See, on the backward integration, I have been dealing with it all these quarters. The backward integration essentially would be into either the PCB manufacturing or the semiconductor manufacturing.
Right. Right.
And PCB manufacturing and semiconductor manufacturing, they are independent business units, business projects to be evaluated on an independent basis. Now, hypothetically, if I set up a PCB plant, will it give me a positive rub on my EMS business? The answer is no. I manufacture 700, 800 type of SKUs of all types. There is no way I can manufacture the entire thing in my factory. So maybe some critical boards I manufacture in the factory, but I'll continue to outsource PCBs from the PCB vendors. Today, also, we have got a dozen PCB vendors for each category, seeing the cost and the capability. So these projects are to be evaluated as standalone projects. It gives you a de-risking of business, fair enough. But there is a downside if the EMS business goes down. Who will use the semiconductor components which I make?
It's the EMS which is the major consumer of the semiconductor components. Who will buy the PCBs which I make if the EMS business goes down? So it is to be evaluated as such. Nothing negative, nothing positive. It has to be evaluated on a standalone basis. If it fits the parameters which the management has set, you only will go ahead for it. But it has no significant leg up to my EMS business.
Sure, sir. But sir, I mean, one of your large peers, they have been saying that they will consume the entire PCB board they manufacture internally. So do you think this understanding is not correct? I mean, you can't consume whatever they manufacture internally?
Procedures are different. For example, again, I'll clarify. For example, if I'm making televisions, I'm just naming a product, not meaning when I'm making air conditioners, and I make 500,000, 1 lakh, 1 million air conditioners, then I can logically configure my plant so that I can have that board from my own production. But in no case, which is a well-diversified portfolio and not concentrated on one model or one vertical or one application, I don't see that situation arising. But yes, if I was to make a million televisions in a year, then logically, my client can put up a backward PCB plant to supply me 1 million PCBs. But still, it has to be evaluated on its parameters, whether it's giving me the returns or not.
Got it. Got it.
The value addition which I'm giving to a PCB manufacturer, which I retain in-house, has to justify the CAPEX and the risk.
Got it, sir. Thank you, sir. Thank you.
Thank you. The next question comes from the line of CA Garvit Goyal from Nvest Analytics . Please go ahead.
Hi, sir. I'm audible?
Yes, sir.
Good morning, sir. So I'm just for a different set of numbers. My one question is on the product portfolio side, like the end industries. So our product portfolio is catering to various end industries, including auto, consumers, and railways. And our industry segment may be including power and capital goods sector as well. So I just want to hear from you, based on your discussions happening with the ministries, is there any change in the government budgetary allocation expected for CapEx and growth in any of our end industries, sir?
See, end of the day, if I go to the utility metering, which is end user, would essentially be government or these big private discoms which come up. I personally don't see that on a sustained basis, there should be any problem in that. Monthly, quarterly basis points, some payments not coming to the guy, funding arrangements, and all those things is part and parcel of the thing. But on a sustained basis, I don't think funding would be an issue. And again, this particular business is less than, if my memory serves me right, would be less than 20% of my industrial business. I think I should be doing about INR 200-250 crores, INR 220 crores of utility metering electronics this year. And our industrial will be about 1,000.
About 1,000. So it's about 20-25%, which is directly related to funding from multilateral agencies of the government. The rest of the industrial business is purely with private sector. Now, you scratch even that. That private sector may be selling into data centers or private utilities or power supplies, power management units globally or within the country. I personally don't believe that funding should be a crunch for us on a sustained basis. Peace and trust will happen.
Understood, sir. That's it from my side, sir. All the best for the future.
Thank you.
Thank you. Ladies and gentlemen, we take the last question from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Thanks. Sir, just want to clarify further on the possibility of QIP. So I guess we were contemplating entry in OSAT business. So just wanted to understand any update on that. And secondly, even if the company decides to go ahead with the QIP, will it be for the existing business, or will it be largely for OSAT, or third, for any acquisition? Because the existing business seems to be doing fairly well. So I am not sure whether we require any funding in that business as such. So if you can clarify a bit more on that. Yeah. Thanks. Thanks.
We have taken our QIP approval just to be ready for any future growth. We have never contemplated.
Inorganic growth.
We have never contemplated QIP for our existing business related to any kind of a working capital funding there. That's very clear. Regarding our OSAT plan, we have already communicated previously also. We are evaluating. We have been evaluating this business, and once we are clear in our strategy, yes, this business makes complete full sense in terms of overall profitability, business numbers, and capital risk, then only we will plan for it, but QIP, anyway, whenever we at least plan, it will be much more for the growth opportunity, not for the existing businesses. The approvals were clearly taken only just to be ready for any future growth opportunity.
Just to add to what Gujralji and Bijay said, I think equity raising is the most costliest of funding. We are very clear on that, that only when such an opportunity does arise, which requires equity funding, we will raise it.
That's true. That was organic.
We have enough accrual happening in the business itself to sustain continuous period of growth.
Yes. Yes.
Sir, this is very helpful. Just lastly, understanding on the inorganic opportunities, whether we are looking at opportunities in India or internationally? And again, which segments we would be looking at the opportunities, in a way, PCBA, or we would like to expand the services in overall EMS portfolio itself or anything else?
Okay. You see, we have all the time been maintaining consistently for the last several, several quarters that inorganic acquisition will not be made purely for the sake of having a bump up in my EMS business. We would do an inorganic acquisition if it gives me access to technology, fills in gap in my product offering, gives me access to regulatory approvals. Then I would look at inorganic acquisition because reinventing the wheel in such cases is a very long time-consuming. Another thing I think where clarity will emerge in the coming months is Mr. Trump's policy on manufacturing in USA. I'm just sharing my thoughts aloud. Nothing on paper, nothing on plan. But that may necessitate Indian industries to have a nearshoring facility to the USA. It all depends upon what the plans and what the policies which pan out in the coming quarters.
Currently, we are evaluating what you call inorganic acquisitions, but there is nothing which has reached a stage where we can share it with the Street or the analyst list. There would be areas of design. There would be areas of defense and analytics where we are not present today.
Okay. Sure, sir. This is very helpful. Thank you.
Thank you. Ladies and gentlemen, that concludes our question and answer session. I now hand the conference over to Mr. Gujral for his closing comments.
Ladies and gentlemen, thank you very much for an insightful Q&A session. From the management side, I would like to assure each and every one of you that we are, as I've all the time been saying, focused on building an organization and an institution. Business is a byproduct. Business will happen. But a growth, sustainable growth in business has to be backed by tangible steps to create the organization to which we are fully committed and we are doing. One of the steps is that instead of standalone units, we have started going on the campus routes to save on the cost. That's one of the long-term strategies of the company. We have commissioned or in the process of final commissioning of our facility in Germany. Germany currently is in a bit of a spot.
So I can't say today how fruitful that would be, but I'm sure in the long run, it will be a big leg up to my export business. We are very, very mindful of our social responsibilities and diversity and nurturing and retaining talent. Respect, mutual admiration, care of the employees and all the stakeholders is at the core of our philosophy. I'll just ask Satyendra to share his thoughts on it for the final word.
Thank you, Gujralji. I think thank you, everyone, for good questions. Your questions are motivating us to think different and make sure that we are doing everything we can to satisfy all our stakeholders, which is, of course, the shareholders, customers, suppliers, as well as our employees and society at large. We are committed to a strategy. We are always talking about consistency, thinking long-term. Yes, we are keeping very close eye on the quarterly results like we report every quarter to you. But on a long-term strategy, we are clearly focused on building this organization for the future. And we are continuing to invest there. We are definitely encouraged with the progress we have made over the last couple of quarters. And we expect to keep the momentum going. Thank you very much.
Thank you, gentlemen. Thank you very much, ladies and gentlemen.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.