Ladies and gentlemen, good day, and welcome to the Syrma SGS Technology Limited Q1 FY 2025 Earnings Conference Call, hosted by ICICI Securities Limited. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I'll hand the conference over to Mr. Aniruddha Joshi from ICICI Securities Limited. Thank you, and over to you, sir.
Yeah, thanks, Neha. On behalf of ICICI Securities, we welcome you all to Q1 FY 2025 results conference call of Syrma SGS Technology Limited. We have with us today senior management from the company. Now, I hand over the call to Mr. Nikhil Gupta, Head of Investor Relations, to introduce the management and take the call proceedings further. Thanks, and over to you, Nikhil.
Yeah. Thank you, Aniruddha. Hi, very good morning to all. Welcome to Syrma SGS Q1 FY 2025 earnings call. We have with us today Mr. J.S. Gujral, Managing Director, Mr. Jayesh Doshi, Director, Mr. Satendra Singh, Chief Executive Officer, and Mr. Bijay Agrawal, Chief Financial Officer, Syrma SGS, to discuss the performance of the company during the first quarter of fiscal FY 2025, followed by detailed question and answer session. During this call, certain statements that will be made are forward-looking, which involves several risks, uncertainties, and assumptions and other factors that can cause the results differently from those in such forward-looking statements. Request is to kindly refer the disclaimer statement as presented in the earnings release for the same. With this, I now hand over the call to Mr. J.S. Gujral, Managing Director, Syrma SGS. Over to you.
Ladies and gentlemen, a very warm welcome to the Q1 FY 2025 earnings call of Syrma SGS Technology Limited. We have had a good quarter, Q1 of FY 2025. Maintaining the growth tempo of the last year, we are happy to share that our sales grew by 92% year-on-year, and for the second quarter in succession, we have crossed the INR 1,000 crore sales mark. EBITDA for Q1 grew by 26% to INR 54 crore. The first quarter saw subdued export sales, which stood at 16%. We expect and are confident that the exports will pick up in the coming nine months, and we would be seeing a 20% growth in the export base.
During the quarter, as explained in the earlier call, we have achieved a glide down of working capital to 62 days from the 70 days of last year. During the quarter, we generated positive operational cash flows. The order book, as of 30th of June 2024, stood at a healthy INR 4,500+ crores, and the order intake during this quarter was approximately INR 1,200 crores. All our planned expansions are on schedule, and we expect our MedTech design center to go on stream later part of this month and our Pune campus to go on stream in Q3 of this year. Now, coming on the, developing on the business front, the order intake is healthy, and we have received significant orders in smart metering.
In this year, we expect the smart metering business to contribute INR 200+ crore to our revenue. We have also received a sizable contract for design of medical devices from a global company, which would result in MedTech devices going up in the coming years. The HVAC segment also continues to see strong traction with onboarding of a new multinational German client, where we have got the green go-ahead for doing the sample series. We have onboarded significant customers in Auto segment and added products, new products in the Auto vertical, and this would continue to be one of the mainstays of the business of the company. Now, I hand over to , Bijay Agrawal, to tell on the financials in detail.
Hi, good morning, everyone. I will now quickly take you through our brief financial performance for the quarter Q1 FY 2025. Our consolidated total revenue for the quarter is INR 1,175 crore, up by 89% year-on-year, and primarily the growth has been contributed by small strong demand growth in the Auto sector and the Consumer segment. Consumer segment, mainly led by high volume telecom business, contributed 53% of my total operating revenue for the quarter. Our export revenue for the quarter is about INR 180-odd crore rupees, which is 16% of my total operating revenue. And same day, OEM revenue for the quarter is about 10% of the total revenue for us for the quarter.
My gross margin for the quarter is 16%, as against 18% last quarter, mainly on account of business mix change, wherein the Consumer business contributed higher on the mix side by about 53%. Our operating EBITDA for the quarter is INR 53.8 crore, which is 4.6% of operating EBITDA margin. PBT for the quarter is INR 29.5 crore, and PAT for the quarter is INR 20 crore, which is 1.8% of my total revenue. During the quarter, we have also received a Telecom PLI claim related to FY 2023, which we have already accounted for on a net basis, which is approximately INR 4 crore of benefit, and we are expecting another INR 15 crore-INR 16 crore on a net basis during this financial year, which is related to FY 2024 claim.
Moving to working capital, with consistent focus on the working capital efficiencies, we have been able to reduce our working capital investment from 70 days last quarter to 60 days - 62 days in this quarter. There is a saving of about eight days, and we still are focused to continue to further reduce it going forward during this year. Coming to our debt and treasury position, our total debt outstanding as on 30th June 2024 is about INR 610-odd crore, and we have a total treasury investments with us is about INR 490 crore, which gives me a total net debt position of about INR 120 crore as on quarter end, which is almost INR 55 crore lower or maybe reduction in the net debt from my last quarter position.
This treasury balance also includes unspent IPO proceeds for about INR 150 crore here. Coming to CapEx, we have spent almost INR 70 crore-INR 75 crore during this quarter, and we are expecting to spend another INR 50 crore-INR 70 crore during this financial year. All this CapEx, as our MD has already explained, is going towards newly commissioning or under commissioning facilities in Pune and Stuttgart, Germany. Our ROC for the quarter is 11%, if we exclude the unutilized IPO proceeds and the goodwill from the capital acquired.
Our order book position, open order book position, is almost INR 4,500 crore as on June end, and which comprises almost 23%-25% from Auto segment, near about 38%-40% from Consumer segment, 22%-25% from Industrial segment, about 6%-7% from Healthcare, and balance from IT & R ailway business. Another update on the merger side, merger of our subsidiaries, SGS Tekniks and SGS Infosystems, we have already received an order from NCLT for first motion, and next steps are in process. We are expecting the merger to be concluded in another six to nine months. We are confident to continue similar growth of 40%-45% in the revenue and operating EBITDA delivery, as guided previously, also for about INR 310 crore-INR 325 crore for the full year.
We continue to focus further on the reduction of working capital, improving free cash flows for the full year and reduction in the net debt position for the company. With this, thank you very much. Now I'll hand over this call to Neha and Aniruddha to open the forum for the questions and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. 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 we have is from the line of Deepak Krishnan from Kotak Institutional Equities. Please go ahead.
Hi, sir, am I audible?
Yes, please.
Yeah. I also just wanted to understand sort of the margins, because if you remove the FX and the PLI benefit, then on an effective basis, the margins come to about, you know, 3.6% for the quarter, and we are guiding to about 7% for the full year. Obviously, we understand there will be some impact of Johari, which will add up, but are you confident of, you know, 8%+ margins, 8%+ operating margins for the, you know, 2/8 of the year or the remaining part of the year to get us to 7%? And, you know, what kind of gives us the confidence that, you know, this will kind of flow through in terms of numbers?
You see, the margin is 4.6% and not 3.6%, because PLI is part of the business. The very fact that we have taken the Consumer business is because of the PLI. So PLI is an integral part of the business, and hence, we include it in our business profitability and the guidance. Similarly, the foreign exchange fluctuations are related to the purchase and sale and purely operational in nature. They are not related to the treasury incomes. Hence, we stand at 4.6% of the EBITDA margin in the current quarter.
Going forward, based on the orders in hand, which Bijay has just shared, the composition of the orders in hand and the sales mix, put together, we are confident of achieving the earlier guided figure of INR 315 crore, INR 310 crore-INR 320 crore of EBITDA margin. These may translate into 7.1%, 6.9%. That's, the only thing, but we're confident of achieving that figure and a growth rate of 40%-45% over the FY 2024 figures.
Sure. Just a follow-up on revenue, given that, you know, we're indicating 45% at the top end, would imply that, you know, this kind of quarterly run rate continues for the next, you know, three quarters plus. So does that mean that, you know, deceleration in Consumer business is partially offset by increase in, Healthcare? Does the Consumer revenue even flatten out or slightly decrease from these levels for the coming quarters?
See, in the first quarter, the Consumer business accounted for 54% of my revenue, against the guided figure of 40% for the full year. This logically implies that we are expecting, and we are seeing the softening of the Consumer business in the coming quarters. It has been front-loaded in Q1.
Mm.
Now, if we have to achieve the budgeted sales, we have the order pipeline of our high margin, low volume business, which is primarily in the Automotive, MedT ech, Industrial, Healthcare. So that would be the thing. The softening of the Consumer will be offset by increase in exports, increase in Industrial. Automotive accounts for only 16% of my revenue in Q1. We are targeting about a 20%, 25% , 25%+ approximately Automotive segment to contribute to our business. So this quarterly play, as I've always been saying, we are focused on the annual figures and the long term. Quarter variations will continue to happen. Sometimes it will be a positive variation, sometimes it will be a negative variation, and in the coming nine months, we see a positive play in that direction.
Sure, so maybe just one last question on order inflow. So this particular quarter, Q1, the order book is relatively flat, even though we have won, you know, large orders in smart metering and medical. But how are you in terms of order inflow guidance for the full year? Do you have any sort of range of where you think order inflow or order book would reach by the end of the year?
See, our order inflow continues to be strong, and in the last quarter we had an order inflow of approximately INR 1,200 crores. It was INR 800-odd crores in Q4 of last year. So we expect the order pipeline to continue to grow. And as we progress in the years, this number of INR 1,200 crores quarterly intake will only go up.
Sure, sir. Those are my questions, and thank you.
Thank you. The next question is from the line, Rahul Gajare from Haitong Securities. Please go ahead.
Good morning, gentlemen, and thanks for the opportunity. Sir, your Consumer business, like you said, you know, was front-loaded in this particular quarter. But you know, that 40% contribution that you're talking about, do you think that is a more sustainable contribution, you know, to balance the profitability? Is that how one should look at this company?
See, we are expecting Consumer to constitute about 40% of the sales based on the order pipeline which we have got. Ideally, we would love this Consumer business to come down to 35% or even lower, but based on the order pipeline which we have, we should expect around 40% of Consumer business in the current financial year.
Okay.
The guided figures which we had shared earlier factored in a 40% Consumer business, 60% non-consumer business.
Okay. Sir, and you did also indicate, you know, uptick expected in the Healthcare business, you know, based on some new orders. Just wanted to understand, what particularly happened in this particular quarter, you know, given that sequentially that business is halved, in Healthcare business? So just want to understand what is happening on the Healthcare front also. Thank you.
See, Healthcare business for us consists of two segments. One is the RFID Healthcare business, one is the EMS and the MedT ech devices business. The MedT ech devices business has been soft in the Q1, and it was not there in Q1 of last year because the company was acquired somewhere in September of 2023. As you see in in terms of percentages, our Healthcare business going up, but we expect significant contribution from the MedT ech devices business in the coming quarters. And typically it is a low first quarter, a higher second quarter, a still higher third quarter, and a highest fourth quarter. That's the normal trajectory of the medical devices business.
We expect this year, the MedT ech business, including RFID, including EMS, including MedT ech devices, to be the tune of about INR 350+ crores, INR 350 crore-INR 360 crore.
Okay. So my last question, you know, we've done about 4.5% or so in this particular quarter, and, you know, you've pretty much sticking to your guidance for the full year. So we are basically looking at about 8%+ in the balance nine months. You think based on the order book composition and the execution that is lined up, you think that kind of margin is something which you can easily achieve?
Well, it can be achieved, and we are confident of achieving it. Easily or not, I would not comment on that on a lighter vein.
Okay.
Yes, based on the order pipeline, operational efficiencies. For example, if we see this particular quarter, Q1, we have had almost like a 4% operational efficiency, 4.7% operational efficiency in overheads. But this was partly or significant, it was offset completely because of the change of the product mix. But once the product mix gets back to normal, this operational efficiencies will also help us in achieving the guided figures of margin.
Sure, sir. I'll get back to you. I have some more questions. Thank you very much.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address the questions from all the participants, please limit your questions to one per participant. I repeat, please limit your question to one per participant. Thank you. The next question is from the line of Sonali Salgaonkar from Jefferies. Please go ahead.
Thank you for the opportunity. My first question is regarding the order books, INR 4,500 crores, as of now, and also the order intake of INR 1,200 crores during this quarter. Could we get an approximate segmental split of both these numbers just to gauge, you know, which segment is currently higher in the order book?
I'll request Bijay to take this because he has all the details with him.
Of the current order book, I've already given a breakup of that thing is like, about 23%-25% is there from Auto segment, and about 38%-40% from my Consumer segment, and again, 22%-25% from Industrial segment. About 6%, 6.5%, 7% is from Healthcare, and balance is IT & R ailway. Order intake for the quarter, about INR 1,200-odd crore. If you see this intake mainly is increasing thing, yes, it is mainly on the Auto and Industrial segment here, apart from the Consumer one.
Understood. That's very helpful. So secondly, about the exports, you did mention about some weakness in Q1 and your confidence of ramping it up over the next few quarters. Could you throw some light as to what gives us the confidence that exports can ramp up? And secondly, we are targeting 20% full year growth or 30%? Because I think last quarter we did mention 30%.
What we had mentioned last quarter also, that in Q1, we were seeing some slowdown in exports. It was planned by the customer. It was nothing as a surprise. The uptick has already started from this month, which is August. We grew exports last year at about 26%, and they stood at about $100 million, or INR 800 crore. We expect the exports to touch 1,000+ this year, whether it's 1,000, 1,100. So 20%-25% growth in the exports would happen on an annualized basis. Quarter on quarter, it would see an increasing trend. 16% was the composition of the exports in my total revenue, which we had shared that the long-term mission or objective of the management is to have a third of our revenues coming in from exports on a long-term basis.
It may not happen this year. This year, it may be around 24%, 22%, 25% of my total revenue, 25% of my total revenue, coming in from the exports.
Understood.
1,000 + 1,100, that's the export figure which we targeted, and that's what we shared last time. 800 + 25% or something more.
Understood, sir. Very clear. So my third question is about IT hardware PLI. We have been a recipient of that. So any updates as to from when we can start the production, and have we inked any, you know, pact with any of the leading customers on that front?
We have not as yet tied up with any major player for IT. I'll request Satendra, because he's spearheading this, to answer on the IT part. But as of date, we have not tied up with. There's no concrete tie-up with any player. Satendra?
Yeah. Thank you, Gujral, and a quick comment on this. So like Gujral mentioned, we don't have a tie-up with a large player, but we are working as of now with one ODM, and we've got the order with them. So we will start to see some IT revenue kicking in, which is relevant to the PLI in next quarter.
Understood. And just the last-
And, maybe another, another quick comment on the exports. I think exports, as Gujral mentioned, there is, there was a known softness in the business with an existing customer, and then we have a ramp-up of a customer, which is gonna start from next quarter onwards. So that's, a new, a new business which will ramp up.
Understood. So just my last question, what's our average capacity utilization right now?
For the Q1, my average capacity utilization was again sub 70% on an average, closer to 60%, 65% on an average.
Got it, sir. Very helpful. Thank you, and all the best.
Thank you. The next question is from the line of Vipraw Srivastava from InCred Capital. Please go ahead.
I'm audible, right?
Yeah.
Yeah, just, two questions. So first on the smart metering part, so just want to understand, that what kind of margin profile the smart metering order carries? I mean, is it, with the current margins or it higher than the current margin?
See, the smart metering business in India would typically have the profile of an Industrial product, which is a domestic-based business. The export business on the utility metering would have slightly higher margins.
Okay. So by that you mean around 7%, 8% margin, right?
Are you talking of the gross material margins?
Like, in terms of gross margins, how much is it, 20%?
Yeah, approximately.
Okay. Thank you. Thank you. Second question, sir, regarding the forex part. So I mean, if you are taking forex as a part of your operating income, then are you betting that forex will always be in your favor? I mean, let's say in second quarter, forex goes against you, then is there a probability that you might miss your guidance?
So you see, end of the day, these foreign exchange variations are part of the operational income. If it goes negative, we have contracts with the customers to have a pass-through. So the only point which I was trying to make is that it is related purely to the purchase and sale of material. It's not related to creation.
Okay.
You can factor it into the cost of the material or the sale value, either way.
Okay. Fair point. Fair point. So last question. So sir, this, order with the, this export part, which you're talking ramping up there, so, the international environment currently is still not favorable, so, and the demand is still not coming U.S.. So you are still confident, right, that the export will start to pick up from next quarter?
Yes, absolutely. You see, as Satendra just mentioned, it was a known softness of existing customers in Q1, and uptick from Q2, and going back to the original, figures and the growth in Q3 and Q4. Plus, the new customers which we have onboarded, they, we have just done the sampling and the prototyping and the sample series, they would see the series production, the volume production starting in from later part of Q2, running into Q3 and Q4. Hence, we are confident that we would cross the INR 1,000 crore export sales figure this year, up from INR 800 crore last year. So whether we end at INR 1,100 crore, INR 1,050 crore, I think that guidance we can share, during the course of the second quarter or the third quarter, but very confident we'll cross the INR 1,000 crore mark.
Okay. Thank you. Thanks a lot. Thanks a lot.
Thank you. The next question is from the line of Ashutosh Parashar from Mirabilis Investment Trust. Please go ahead.
Yeah, hi, sir. Am I audible?
Yes, please.
Yeah. Sir, I was trying to calculate the order intake for this quarter for the Consumer segment, and I could be off by some margin, but it does seem that of the INR 200 crore order intake, about roughly INR 500 crore is from the Consumer segment. While this number was a bit lower in the previous quarter, and I also understand that the execution pace for Consumer has increased. But on the other hand, it seems that the incremental orders still carry a large portion of the Consumer segment. So I wanted to understand the nature of these orders, and by nature, I mean the margins of this incremental Consumer orders.
I think Bijay has already answered. I'll request him to clarify much more.
So on the order intake side, if you see the order intake, during the quarter, we have received another INR 200 crore of order. And if we see, analyze the order intake, about INR 400 crore out of it is related to Auto segment. Similarly, another INR 400, which is towards Consumer segment, about INR 130- odd crore is from Healthcare, another INR 360 crore from Industrial, and rest is, like, slightly there is a reduction in the IT related or to the order segment, at least in this INR 200 crore. Coming to your question of Consumer here, we can see in this year, this quarter, quarter one, we have delivered about INR 600+ crore of Consumer business, but the order intake in this quarter is only INR 400 crore.
That is where we were saying there is a softness in the overall Consumer segment, which is where we are saying in the full year, it will... this number will be around 38%-40% of my total thing. If we say margins accordingly, so margins for the full year, we have already guided. Based on this mix, this overall margins will be delivered.
Right, sir. But specifically for this INR 400 crore order intake, I mean, for the INR 500-INR 600 crore that we executed, large part was the FTTH orders. So, does this incremental INR 400 crore also constitute the FTTH orders, or is it something else? Broadly, I mean, just in terms of mix wise, if you can give some comment.
Yeah. What Bijay is referring to is the Consumer business, which is the high volume, low margin business, which was around INR 600+ crore in Q1. The intake of orders of the same nature is around INR 400 crore. Consumer, which is ODM, my own design, which is a higher margin, we don't consider it in this discussion. So it's all part of the Consumer, but specifically referring to the low margin, high volume business of Consumer, the order intake is approximately INR 400 crore in this quarter.
And broadly, so what would that margin be? About 2%-3%, or, or a lower number?
Well, it is, the gross material margins are approximately 8%-9%, 7%, 8%, so it translates into the same figure what you are referring to.
Got it. Got it. And the INR 310, INR 315 crore EBITDA guidance that you're providing us, does that include the PLI INR 15 crore, INR 17 crore-INR18 crore PLI incentive as well, or is it excluding that?
PLI is integral part of the business, and as I had guided in my earlier comments, earlier interactions, we are guiding for a EBITDA of about INR 310 crore-INR 320 crore, which is all inclusive.
PLI portion would be about INR 18 crore-INR 20 crore in this?
That's part of the business. Otherwise, without the PLI, the business may not make sense.
Sure. Sure. Great, sir. That's all from my side. Thank you.
Thank you. The next question is from the line of Manikantha Garre, from Franklin Templeton India. Please go ahead.
Yeah. Good morning, sir. Thank you for providing me this opportunity. Sir, for the first question, which I have is on the Consumer business. This quarter it was 53% of the total revenues, and for the full year, you are expecting that to, you know, average at 40%. Out of this 53% in Q1, you said 40% is telecom. What would be the corresponding number for the full year 40% expectation that you have?
We call it guidance of annual revenues of 40% would translate into around INR 1,800 crore.
Out of that, how much would be telecom server? Which was 40% out of 53% of the total revenues in Q1. So what would that number be for the full year as per the order book visibility that we have got?
Yeah, I think, we can clarify here. What we have said, in the quarter one, Consumer business is 53%, and 40% is what we are targeting for the full year Consumer business. It is not 40% out of 53%. So that's what we want to clarify here. And that 40% for the full year sub would be somewhere around INR 1,800 crore of total business on the C onsumer side for the full year.
Right. Okay. And, sir, just wanted to also understand on this, telecom piece, of the Consumer business, how much of the products would have been towards 5G network-related products, and how much would have been towards FTTH-related products, or the salience of these two products of the telecom business? Could you share that details?
Well, these are fiber- to- home products, and 5G is yet to be rolled out. 5G on a pan-India basis is yet to be rolled out. So these are fiber- to- home products, whether they are the Wi-Fi mesh, the outdoor units, the indoor units for connectivity. So I won't be able to share the breakup between the 5G and non-5G as of date.
Sure. Can you at least give some understanding about whether this 5G exposure is meaningful or, you know, it's negligible as on today?
Sorry, I couldn't get the question.
If you can, can you at least share if this 5G exposure is meaningful or it's not meaningful as on today?
When we are saying this is a telecom business, which we are referring. Telecom business is broadly a sizable business out of this INR 1,800 crore, somewhere around INR 1,500 crore is what we are expecting out of this telecom business. And balance INR 300 crore is something with what, what we are saying that will be other non-telecom Consumer business.
Okay. Sure. So within telecom, you are, as of now, it's predominantly FTTH is what you are saying. Is that the right understanding?
That's right.
Okay. Thank you, sir.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thank you. Two questions. First, on the working capital reduction, so if you can just throw some light on, is it because of the change in mix? So, overall working capital days of around 90, 95 days on full year basis last year, how each of the segments are different in terms of working capital?
Bijay.
Yes. So yes, you are right. Consumer business, being a high volume business, commands or maybe requires a lesser number of working capital days, and as my Consumer business was almost 50% plus, so my overall working capital days requirement was lesser for this business. That's right. And all other businesses also, because of our continued focus, and maybe I can say we have worked upon the inventory things. So overall inventory days has also been reduced. So out of this total eight days, yes, primarily I would say this has been driven by high Consumer business also and savings on the other businesses, both put together.
If I look at the company-level working capital intensity, how different each of these or at least key segments would be, say, Industrial, Consumer, Auto, from, say, company-level working capital days? So I just want to understand that as the mix changes, I mean, or as the share of Consumer goes up, I mean, whichever way it moves, how do we think about working capital days at the company level?
Okay. See, the working capital intensity is very clear. The low margin business have a low working capital intensity, net working capital, and as you go up, the working capital intensity becomes normal. Having said that, having said that, as we scale up and the client profiles change, we have bigger clients in our portfolio, the pressure on working capital goes down. Servicing INR 100 crores with 10 clients and servicing INR 100 crore one client, it is a different ballgame, and the working capital intensity is significantly lower when we are servicing bigger clients rather than smaller clients. So hence, the guidance which we had given that we would like the net working capital to be around 60-odd days is based on the mix. And we are very confident that it is there at the year-end also.
So just one follow-up. So 60-odd days of working capital in foreseeable future, and if I just calculate the trailing 12 months fixed asset turn, that would be around 4.5 years. So that is what we should take in the near future or medium future and going for next one or two years for the fixed asset turn as well?
Asset turn?
Yes, fixed asset turn. On gross-
I think we should be 4.5-5. Going up, the objective is to have it 5+, but on a conservative basis, it could be anything between 4.5-5.
Understood. Okay. We'll get back in with you. Thank you. All the best.
Thank you. The next question is from the line of Aditya Bharti from Investec. Please go ahead.
Hi, good morning, sir. Sir, if we just compare this quarter's margins with last quarter, which is the preceding quarter, fourth quarter, FY 2024, even in that quarter, we had a fairly high mix of Consumer business. Margins even in that quarter, the sales were disappointing, but from there on, margins have further slid down, despite having a INR 4 crore of PLI benefit, which we didn't have in fourth quarter. So, what kind of explains that?
See, in the fourth quarter, we had a very high Healthcare business also. See, again, we have to see the composite picture. In bits and pieces, it will throw up sort of conflicting views. We had a very high Healthcare component in our turnover and EBITDA in the fourth quarter, which is not there in this quarter.
Understood.
Export business was much higher. The export business in Q1 is subdued at only 16%. Last year, it was about, I think, my export business was about 25%, 24% of my total revenue.
Sure. Sure.
31% and then so it's about 25% of my revenue on export. This is down to 16%. Now, if you take, it's almost a 33% reduction in my export as a percentage. Healthcare has come down, so INR 4 crore PLI is there, fair enough, but then there are other offsetting factors also.
It is a quarterly seasonality. If we compare it from quarter one of last year also, we can see the seasonalities are there across every year. Quarter one generally is lower on this Healthcare side, export business side, and which gradually picks up from quarter two to the quarter four.
Understood, sir. And just taking a slightly longer term tragically, I'm just kind of trying to arrive at the profitability of Consumer business. We used to deliver, let's say, around 9% odd kind of EBITDA margins until FY 2023. And even at that time, in FY 2023, you had shared the gross margins of 5%. The Consumer business used to be the lowest gross margin business, which means that others, by definition, were higher margin. But let's say that we, for the sake of simplicity, we assume that every business was 9% margin. Non-consumer business continues to operate at 9% margin. That essentially means that our Consumer business is not yielding any profit. So what has really happened?
Is the Consumer business extremely low, almost negligible margin business, or are we seeing a reduction in margins across every vertical?
See, the high volume Consumer business is a low margin business. Another, a comparatively lower margin business, very low margin business. The ODM part of my Consumer business is a standard business, which gives me the standard margin. Now, if this high volume business content as a percentage of my total sales goes up, the overall reduction is there, but we are not, and I'm sort of re-emphasizing, we are not seeing any contraction in margins per vertical. The Auto vertical continues to work at the same margin or marginal accretion. The Healthcare, the Industrial, the export, the ODM, the RFID, each of these verticals continues to operate at the same margin. There is no contraction of margin in the verticals. It's the product mix which is creating this distortion in the margin profile.
See, in that case, essentially we are saying that, the Consumer business ramp up that we have seen could very well be almost a 0% margin business.
I wouldn't call it a 0% margin business, but it would be sub-4%, sub-3% margin business.
Okay. Sure, sir. Thanks.
Thank you. The next question is from the line of Bhoomika Nair from DAM Capital. Please go ahead.
Yeah, good morning, sir. First, if I can just understand, what is the JDHL performance for this-
We lost you.
Hello? Hello.
Yes, ma'am, go ahead.
Yeah. Hi, can you hear me?
Yes.
Yeah. So, the first question is on the JDHL performance for the quarter. If we can get what was the revenues and the EBITDA PAT for that entity?
Definitely due to quarterly seasonality, the revenues were maybe about INR 10 crore-INR 11 crore for the quarter, and similarly, profitability was also very low. EBITDA profitability was only less than INR 1 crore, about a INR 1 crore there for this quarter.
Okay. Okay, got it. The second aspect is we spoke about, you know, scale up in terms of the Auto as also exports and scale down relatively versus first quarter, on the Consumer segment, and thereby margins actually improving to about 7%, 7.5% or closer to 8% for the balance nine months. Now, in the first quarter, we've seen a strong reduction in terms of the net working capital days to 60 days. Given that there will be scale up in these segments of Auto and exports, do we expect that, you know, net working capital days will actually come back to 70, 80 days, as we saw, at the end of FY 2024?
Primarily speaking, this saving is based primarily from businesses also. We don't expect the working capital days to increase back to 70 days. Yes, we are seeing that growth in that Auto, Industrial business, but, we are very much clearly focused on this working capital efficiency. We are even targeting it should be furthermore down from here, from 62 days to less than 60 days towards the end of the year. Between that, in any quarter, it may slightly change quarter-on-quarter basis, but there may not be any significant change here.
Yeah. Just to add on, with the plans in place where we said that the Consumer, high volume Consumer business will be around 40% and remaining 60%. With this mix maintained, we believe we are very confident that we'll be able to maintain the working capital at lower levels than the 70, 75 days. It could be 60 days, it could be 62 days or 58 days. So four days here and there, I'm not discussing, but the trend is very clear. We don't expect to go back to the earlier levels with this product mix.
Understood. And the third question is on terms of the... You know, we spoke about exports scaling up and Auto also being a key driver of new order inflows. If you can just talk about in terms of exports, which are the areas which are driving growth with geographies? And in Autos, again, you spoke about new products and new client additions. If we could get some more details in terms of the end customers and areas where we are seeing, what kind of, you know, volumes we are seeing there, etcetera. Some more color on both these.
Yeah. The exports primarily are RFID, Healthcare, Industrial, very little of Automotive. Industrial would include power controls, Industrial cleaning, utility metering, solar, and these are primarily focused at Europe and America. Now, if I was to sort of have a breakup of Europe and America, it could be 40%-60%. 40%, approximately, going off to E.U. part and about 50%-55% to the U.S. part. The whole basket, which stood at INR 800 crores last year, we expect this to grow to INR 1,000 crore-INR 1,100 crores, which would be also driven by some of the new customers which we have added last year. As Sridhar just explained, they would see serious production starting Q2 to Q3 of this year.
Yes, sir. On Auto, sir?
Auto exports are very less. On domestic, we are well placed in both ICE and, EV, and we are seeing strong traction with existing customers. We are adding on new product lines, and we are also onboarding new customers. We have onboarded,
Three new customers.
We have onboarded three new customers, which would result in revenues coming in the Q3 of this year. Additional incremental revenues kicking in, in Q3 of this year, apart from the normal business of the existing Automotive customers.
What would be the mix between EV and ICE?
I think broadly it could be 50/50, 60/40, 55% or 45%.
About 60-odd% by EV business and rest 40% from ICE.
You see, the way you classify EV, if the lighting of a vehicle or I may classify it as a neutral thing, to me it is not EV. To me, the EV is the one which goes on the engine, the battery management and the engine control. Any periphery, it doesn't make a difference whether it's ICE or EV.
Sure. Understood. Understood, sir. I'll come back in the question queue. Thanks.
Thank you. The next question is from the line of Arafat Saiyed from InCred Research. Please go ahead.
Yeah. Hi, sir. Thanks for taking the question, and congrats on strong sales growth. So my first question is on the business model. Where you see Syrma over the next few years, let's say, are you looking to follow model of Dixon or Kaynes, let's say, which are the 14% EBITDA margin? Although, let's say, in smart metering, the margin, let's say, the Kaynes enjoy almost 14%, while you are still targeting for 4%-5% margin. So can you just elaborate on that?
See, we'll follow neither the Dixon nor the Kaynes, we'll follow the Syrma model. We have our own story, we have our own plans, we have our own strategy. So we will not follow one or the other model. Business which makes sense to us in terms of margin accretion, in terms of cash flows, in terms of growth, we'll work on. And we are very clear that we will be a design-led manufacturing company, focusing on Industrial, Automotive, Healthcare. Exports would be one of our significant contributors to the revenue, and last year we were INR 800 crore of exports, and I think perhaps among the largest exporter of electronics other than mobile phones in the space. So our strategy is very clear. The pillars, which I've already been alluding to, would be Industrial, Automotive, MedT ech, RFID, and ODM.
Okay. And, sir, coming to your guidance, so let's say for FY 2025, you're guiding for 45%-50% revenue growth. So let's say, is that, is that mean that the, over the next three quarters, the, your, revenue growth will be moderate to around 34% around? Is that correct?
See, we guided end of the year, we, end of the day, we guided a 45%-50% growth rate over the previous year's target, which was about INR 3,000 crores. We said about INR 4,500 crores would be our target for this year. Now, whether it translates into INR 1,000 crores a quarter or INR 1,200 crores a quarter, that's quarter-on-quarter. But what we are focused on is on, annualized figures and long term.
Got it, sir. Got it. Thank you. That's it from my side.
Thank you. The next follow-up question is from the line of Ashutosh Parashar from Mirabilis Investment Trust. Please go ahead.
Yeah, hi, sir. Thanks again. I just one more question on the receivables factoring. So I think you alluded also earlier in the call that after a certain point, once a consumer once a customer reaches a certain scale, we get some working capital benefits. So just wanted to know, I mean, in our current consumer set, who all, how many customers are there who are, you know, who kind of qualify, and who qualify us for us to be a part of the receivables factoring, so help us in our working capital management. So are there any customers or...
If not, then how many customers do you see in future, in the recent, near term, who would qualify us for that?
Okay, I'll let Bijay take that answer, but to the best of my knowledge, the balance sheet doesn't have any factoring in it. I think Bijay will delve into it.
We are not doing any factoring at all on the receivable side, so this is all gross receivables, no discounting, no factoring. But to answer your second question here, how many customers would be eligible? We are dealing with the best-in-class customers who are the known names. So almost maybe a majority of my customers on sales are eligible for any kind of a factoring discounting from any of the maybe top banks here. But yes, deliberately, we have not yet decided to do, go for any factoring here.
To put it another, there's no off-balance sheet adjustments in the books. Everything is shown. We are not doing any factoring, any filter counting, anything of that sort.
Sure. So but, I think in the industry, even some of our peers, kind of tend to do that to manage their working capital. So is it like a conscious decision, or is it, that we need to reach a certain scale for the customer to be able to qualify for that?
As I said to an earlier question, Syrma is what Syrma is. We will do what we believe is the best in terms of corporate governance, best in terms of cost, best in terms of liquidity. And as of date, as of thirtieth of June, I can say with the full force that we have not done a penny worth of factoring. Whether we'll do it in the future or not, that's a call to be taken at that point of time. Currently, whatever receivables, working capital, whatever we are, sort of, showing in the balance sheet is a plain vanilla figures, without any factoring, without any bill discounting.
Great, sir. That helps. Thank you.
Thank you. The next follow-up question is from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thanks for the opportunity. Just one question on the capital allocation. So firstly, on the CapEx, you mentioned around INR 75 crore done and INR 60 crore-INR 65 crore to be done in rest of the year. So, if you can just give more granular details of where the capital is going, this includes this expansion or onshoring in Germany as well. That is first part, and second part, we had set up a subsidiary for, say, adjacent expansion in categories, adjacent categories. Any update or basically, is there any capital allocation going or is planned to be going for, say, any inorganic opportunity or any organic opportunity in the adjacent categories?
Yeah, on the capital allocation, what we have done and what we propose to do, I'll hand over to Bijay. He'll answer that in detail. And then on the inorganic part, me or Satendra will delve on it.
So on the capital allocation side, as of now, the planned CapEx and the CapEx we have incurred so far for this year. So this year we are planning to spend about INR 100 crore rupees for my new under commission facility there in Pune, which we are expecting should be on ground, maybe starting trial production starting from Q3 of this year. Same way, another about INR 35 crore-INR 40 crore rupees is what we have allocated towards my new facility there in Stuttgart, Germany, which will be a prototyping cum assembling center there in Europe. Broadly, these are the, two allocations on the organic side.
On the inorganic side, we are evaluating, but currently there is nothing concrete proposal on the table. But we'll address this and share it to the market once we have a concrete proposal on the table. On the Stuttgart facility, I would just like to add on that there we would be expanding our business by adding some new verticals like repairs, which we are already doing for one of the multinational companies. Now, since we have got a better, a bigger facility, not a better, a bigger facility, it gives us scope for expanding that operation to a decent size operation in the coming years.
On the setting up of new subsidiary for a new line of business, is it OSAT or OSAT is being planned or something else is being planned? Just more clarity on that.
I'll request Satendra to take the question on OSAT, because he's spearheading that effort.
All right. Thank you for the question. I think OSAT is a question which comes up in a couple of, in pretty much every call of ours. And, like Gujral ji said, we have our own style of doing the business, our own decision-making process, and which basically means we try to dot all the I's and cross all the T's before we come back and share information with the market. In this case, now coming to OSAT, it's an area which is of interest to us, but we are very clearly focused on making sure that we have done our homework before we jump into it. Essentially, around the product, around the technology, and around the longevity of the business. It's a very different kind of business, and we are working through the details.
As and when we are ready to share further information, we would be able to kind of share more with you. But little bit, one more comment on the capital side. I think the allocation, we are focused on building the capability in terms of the plant and manufacturing. So our major allocation is to the Pune facility, which we talked a couple of times about earlier, as well as to the Stuttgart facility, where we can provide more services to the customer closer to where they are, which mainly is the German market. So it's all around the capability building for the future, which will pay off in the years and quarters to come.
Okay. Thanks a lot.
Thank you. The next question is from the line of Anand Trivedi from Nepean Capital. Please go ahead.
Yeah, I, I had a question regarding the net working capital days. You've gone down from 70 - 62, but at the same time your working capital loan has gone up from INR 489 crores - INR 529 crores. So can you explain why is the loan going up whereas your days are going down? And sorry, and a related question is, the cash and cash equivalents have gone up from INR 85 crores last quarter to INR 189 crores. So what has been the reason for the INR 100 crores increase?
The working capital loan increase is primarily just like business related. Whatever it was required, we have borrowed, and simultaneously, you can see my internal accruals have also increased. So there is an increase in the investments also. When internal accruals, internally, we are keeping it separate as our investments, and simultaneously there is an increase in the working capital loan. It is offsetting on the both sides. There is no other reason for that thing.
The cash going up from INR 85 crore - INR 189 crore, is that the internal accruals or...?
Yeah, we have got a good collection, specifically on the very last day of the quarter, and that is where the cash has increased in the overall net debt position. But again, a portion of that was utilized towards paying it, paying for the creditors immediately after that in the upcoming, maybe 10-13 days. It was better collections which happened towards the end of the quarter.
See, I think-
Okay.
We are focused on long term, that our working capital cycle should be shortened as fast as possible. Currently, we are sitting at about 62 odd days. Our endeavor would be to bring it down further, whether it is 62, 65 or 58. That's a year-end, sort of, play out. You get one major collection, your cash balance goes up. You don't get it two days later, your debtors go up. But on a long-term, consistent basis, we would like to be at about two months of working capital cycle, net working capital cycle.
Okay, and my second question is that on the Consumer business, you mentioned the margins could be 3%-4%, but after taking into account the working capital intensity, that business generates the operating cash?
See, as I said, the low-margin businesses, typically as per industry, have low working capital intensity.
Well, I get that, but at 3%-4%, I just wonder, does that business generate any-
working capital intensity or marginal working capital intensity?
Sorry, your voice broke up in the middle. I couldn't get that.
I said, typically, in the industry, a low-margin business is accompanied by a low intensity of working capital involvement.
Yeah.
See, if a low-margin business was to be accompanied by a high working capital cycle, it would be not viable for any business house to do it. So this is the nature of the business. Typically, the low-margin businesses have low working capital intensity, and as the margins go up, the working capital intensity goes up slightly. We believe that based on what we are planning to do with the 40% Consumer, 60% normal, we should be available to achieve a two-month net working capital cycle, give or take a couple of days here and there.
Okay, thank you.
Thank you. Ladies and gentlemen, we'll take this as the last question. I would now like to hand the conference over to Mr. Gujral for closing comments.
We are very well aware of what we are doing, and we work the Syrma model, the Syrma way. What we are engaged is in building our institution, as I've always been saying, all along in all the calls, bringing in leadership talent at the top, which can take care of the organization when it becomes a billion-dollar organization. So we are making the organization future-ready. We are expanding over it upfront. We are building in systems. We are building in processes. We are building in the human resources of the company. And we are very confident of our track, where we are going. We would continue to grow at an industry plus growth rate with sustainable margins of around 7% going forward in coming years.
As my exports scale up, my ODM scale up, they would go up, generating positive cash flows, and be a responsible citizen for the country. We are working to make India great as a manufacturing base. Thank you.
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.