Ladies and gentlemen, good day and welcome to Syrma SGS Technology Q2 FY2026 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital. Thank you, and over to you, ma'am.
Yeah, thanks. Good morning, everyone. On behalf of DAM Capital, I welcome you to the Q2 FY2026 earnings call of Syrma SGS Technology Limited. We have the entire management of the company with us. At this point, I'll hand over the floor to Nikhil Gupta, Head of Investor Relations of Syrma, to take the proceedings forward. Over to you, Nikhil.
Thank you, Bhumika. Hi, everyone. A very good morning to you all. Welcome to Syrma SGS second quarter financial year 2026 earnings call. We have with us today Mr. J.S. Gujral, Managing Director; Mr. Jayesh Joshi, 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 second quarter of the financial year 2026, followed by a detailed question-and-answer session. During this call, certain statements that will be made are forward-looking, which involve several risks, uncertainties, assumptions, and other factors that can cause results to differ materially from those in such forward-looking statements. We request you to kindly refer to the disclaimer statements as presented in the earnings release for the same. With this, I now hand over the call to Mr. J.S. Gujral, Managing Director, for his opening remarks on the performance. Thank you.
Good morning, ladies and gentlemen. A very warm welcome to all of you. Q2 has been a quarter full of activities and a lot of positivity. While we achieved record EBITDA, profit margins, turnovers, what was most significant in this quarter is the slew of tie-ups and joint ventures which we have executed. I think these joint ventures and tie-ups lay the foundation for the sustained future growth in the years to come. While the figures for the quarter and the half-year will be explained by Bijay in detail, I would like to dwell on the macro-level scenario. As we have been always communicating that we would be going in for inorganic expansions in verticals where we were not present. Defense has always been highlighted as one of the verticals where we had a very minimal presence.
Now, we are very happy to announce that we have acquired a 50% stake in Elcome, which is almost a 50-year-old company that was established in 1978, and provides navigation, surveillance, communication, and such solutions to the armed forces, paramilitary, and private sector. It has a very good reputation in the market and has a top line of about INR 200 crores with a profit/EBITDA margin of about 25%-24%. We expect that this acquisition would, in the coming years, show a very good growth and will be margin-accretive to the company. The second tie-up which we made, as we have announced earlier, was a joint venture with Elemaster of Italy. Elemaster is, again, a very old company servicing clients across the world. The venture which we are setting up in India would, in the initial phase, cater to the demand of the Indian market.
Once we have established our credibility in terms of delivery, quality, and other things, it opens up doors for integrating into the global supply chain of Elemaster. This may not happen in 2026, 2027, but in the years to come, I think this will form a very substantial base and growth strategy for the Elemaster joint venture. The PCB project which we are setting up since our last call, we have got the ES PLI approval from the Government of India. We were the first among the three companies. The project has already been approved by the Andhra Pradesh government. We should be breaking ground for construction in the coming months, somewhere in December. We hope that by December 2026, we should be able to start out our trial production.
The response, the sort of feedback which we have got from the customers on the PCB, to say the least, has been very, very encouraging. All major companies are looking at indigenizing their supply chain for the PCB. We are very confident that going forward, this project and this sort of diversification would help us to not only expand our revenues but also be margin-accretive. The fourth tie-up which we made was acquisition of KSolare along with Premier Energies. It is a decade-or-15-year-old company into solar inverters, does a revenue of about INR 300 crore. The solar market is growing. Syrma and KSolare have tied up to manufacture these inverters. They have been manufactured at our Pune facility. We expect a good revenue traction coming out of this in the coming year.
The product portfolio, which currently is sort of tilted towards the rooftop solar, would be diversified to bring in the grid inverters, the microinverters, and the like. We are very confident and gung-ho about this particular venture. All four ventures which we have sort of entered into lay the foundation for a very strong growth trajectory in the years to come. For the current quarter, we have onboarded eight major customers which have a potential of giving revenues of $100 million in the next year. In addition to that, we have now started focusing on long-term framework contracts with the customers. We have entered into one such contract with one of our major customers which has the potential of giving a revenue of about $250 million over a two, three-year period.
Going forward, we would be strategizing to sustain this momentum of long-term contract so that the growth visibility for the future becomes more clearer. We are very, very confident that the results achieved thus far would be sustained in the coming quarters. Next year would see an incremental jump in revenues and EBITDA margins. I now hand over to Bijay to take you through with the detailed financials. Thank you.
Thank you, Mr. Govender. Good morning, everyone. I'll now quickly take you through the brief summary of financial performance for the quarter and half-year ended September 2025. I can start with the consolidated total revenue. For the half-year, we did approximately INR 2,109 crores of total revenue. For the quarter ending September 2025, we did INR 1,146 crores of revenue, which is a growth of 37% on a year-on-year basis. This robust growth for the period is contributed by higher growth in auto, industrial, and IT segments. Our export revenue for the quarter is approximately INR 270 crores, which has grown by 40% on a year-on-year basis. For the half-year, it is around INR 502 crores, which is a 35% growth on a year-on-year basis. Our ODM revenue for the quarter and for the half-year is around 38%.
On the customer contribution, my top 10 customers contribute near about 56%-57% of my total revenue, and top 20 customers near about 72%. When we see this overall business mix, wherein the industry sector contributed 26% as against 21% in the first half of last year, it has decreased as a business mix here in this current year. Similarly, auto has also contributed 24% of my total business as against 21% of last year. Consumer sector has contributed around 32% in the first half, as anticipated and previously communicated that we will bring it down below 35%. This overall improvement in the business mix has helped in improving the gross margin by about 500 basis points in the first half as compared to the similar period of the previous year. Our gross margin for the quarter is about 23.8%. For the half-year, it is 24.3%, which has been expanded for 500 basis points here.
My operating EBITDA for the quarter stood at [audio distortion] around INR 116 crores, which is a 56% growth on a year-on-year basis, and again 10.1% of my EBITDA margin, operating EBITDA margin. Similarly, for the half-year, my total overall operating EBITDA is INR 211 crores, which is again 10.1% of my EBITDA margin, and with a growth of 64% on a year-on-year basis. Same way, when we see PBT for the quarter, it is around INR 90 crores, which is again 7.8% of my PBT margin. For the half-year, it is INR 156.6 crores, which is a PBT margin of 7.4%. Our PAT for the quarter is INR 66.3 crores, with a PAT margin of 5.7%. For the half-year, it is around INR 116 crores, with a PAT margin of 5.5%.
With this, when we see the overall order book position as of September 8, it is approximately INR 5,800 crores, which comprises maximum from auto segment, which is around 35%. Both consumer segment and industry segment contribute near about 25% in the order book, open order book currently. Healthcare is about 6%-7%, and balance is from IT and revenue sector. Coming to our networking capital days position, as of September 8, my overall networking capital days investment is around 73 days, which is four days higher on a year-on-year basis. We again continue to make efforts to bring it down to below 65 days, and we are confident of bringing it down by another 5-7 days in the next two to three quarters. Moving to our debt and treasury position, we have a total gross debt of around INR 282 crores as of September 8.
On treasury, we hold a healthy balance of INR 758 crores as of September 8. With this, we have a net cash position of INR 477 crores. Coming to operating cash flow, my operating cash flow for the half-year is INR -115 crores. This is mainly because of incremental investment into the working capital. We are carrying higher inventory by almost INR 100 crores, mainly because of anticipation of supply chain constraints around rare earth and some bit of volume push-out related to the U.S. tariffs, which we see gradually in the second half, we should be able to liquidate the same quickly. With this, we are confident of achieving a positive cash flow of around 25%-30% for the full year, as targeted and communicated previously. Coming to CapEx for the half-year, we have spent around INR 45 crores during the H1 of this year.
We expect to invest around INR 60-INR 100 crores, including my investments towards the PCB business also, in the balance of the year. My asset plan currently is about 5.3 times. The ROC for the period is approximately 15% when we adjust it for the goodwill and surplus IP and QIP money which we have recently raised. Coming to the acquisition of Elcome and Navicom, together, as Mr. Gujral has already explained, we expect this to be consolidated in our overall financials in Q4. That is what we are targeting. The company, together with Navicom, is currently doing about INR 205 crores of revenue, with a healthy EBITDA margin of 25%-26% and PAT margin of near about 15%. With this, we continue to focus on high-margin business verticals, expanding our portfolio base, improving our operational efficiencies, and the overall cash flow improvement thereby. Thank you very much.
I will hand over to Mr. Satendra, our CEO, to take on the budget strategy side.
Thank you, Bijay, and thank you, Mr. Gujral. As always, I would like to start my remarks by thanking the customers whose trust over decades has brought us here. We would continue to do everything in our power to continue to delight them over the next decades. We had a stellar quarter with organic growth of 37% and almost 53% growth in EBITDA, in addition to the inorganic moves which Mr. Gujral already alluded to. This is possible only with the wholehearted support and efforts of all our team of almost 10,000 colleagues in the plants and the offices. I would definitely like to thank them once again for all their efforts to delight our customers and the investors as well. There are three elements of excellence: people, strategy, and execution.
We continue to focus on all of them, which is what is resulting in the results which we reported just now. On people side, we continue to augment the leadership capabilities, and we brought in a new leader on the digital and information systems. Strategy remains unchanged, and we have always said that we will focus on a certain strategic segment. We will look at growth across geographies, and we'll continue to build capability for the future. I'm encouraged with the results which we reported today and very excited and very optimistic about Sma SGS as a family here, as well as the wider electronics industry. Thank you very much, and I'll turn it over to Nikhil to take it forward.
Thank you, Satendra. Open it back to you. We can get into the Q&A session. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Bhavik Mehta from JPMorgan. Please go ahead.
Hi. Thank you. There's a couple of questions. Firstly, given how 2Q or, let's say, 1H has panned out, are we sticking to the 30%-35% revenue guidance from an organic perspective for the full year? Also, if you can update the EBITDA margin guidance, given that we've done extremely well in the first half.
Bhavik, thank you. I request if you can repeat your question. I think there was some problem with the mic. Yeah.
The question was that given how first half has panned out so far, are we sticking to the 30%-35% top line guidance for fiscal year 2026? Also, if you can update the EBITDA margin guide, given first half has been extremely strong.
Okay. See, on the turnovers, we stand by a 30% approximately growth, give us a couple of percentage points here or there. On EBITDA, we had guided it an hour to 9%. And seeing the performance for the first half year, which is now 10%, we are very confident that we'll be able to exceed the guidance which we had shared with the street last quarter. Whether it is 9.5%, 9.4%, 9.6%, I think that will leave it at that, but we'll be positively giving a bit of north of what we had guided last quarter for the full year as a whole.
Okay. Got it. That's helpful. The second question is on the ECMS approval, since you have referred it now. How should we think about the CapEx outlay of INR 8.5 billion over the next 12 months? Is this something which you will start right away, or will it be coming over phases over the next 12 months?
Okay. No, we got the ECMS approval. We were in the first list, and the plans are on target. The land has now been allotted to us. The formalities of getting the land registered are being done. Architects have already been finalized. Tenders for civil and building and other things are being floated or have been floated in some cases. We expect to break the ground for construction sometime next month. The moment the property is registered and running, that takes about a week, 10 days. That is a government process. The plans are on track. From our side, we are all ready, and the layouts have been finalized. The machine vendors are being finalized. These things will go on parallelly.
We are confident that we would be able to stick to the deadline of starting trial production somewhere around December 2026 or first quarter of 2026-2027. There is no change on that.
Okay. Thank you.
Thank you. The next question is from the line of Sameet Sinha from Macquarie. Please go ahead.
Yes. Thank you. A couple of questions here. We have been just talking about revenue increase sequentially, but gross margin declines. My guess is some sort of a mix issue or something did not—one of the high-margin verticals did not go as per plan. If you can address that, then also talk about kind of EBITDA margin increase sequentially. Obviously, you saw some operating leverage. Was there anything one-time there, or is that sustainable? I have a couple of follow-up questions.
If you're seeing comparing Q2 gross margin versus Q1 gross margin, there is a slight difference, but that is because of the business mix. Because in Q2, IT business has taken a larger portion, near about 5% of my total business. That is where we see there is a slight mix change and some impact of 0.8% on the overall gross margin. Overall, EBITDA margin-wise, because that comes at a very low cost on the low operating cost, that is why overall EBITDA margin further remains the same, Q1 versus Q2.
Got it. Okay.
I think the analysis basis, there could be marginal variations quarter on quarter, and as we've always been saying, that we don't look at businesses on quarter-on-quarter basis rather than yearly and long-term. We are very confident that what we have guided will be able to deliver a performance better than that.
Got it. The second question is regarding these long-term contracts that you're signing. Do you have to provide some sort of incentives to these customers to get into these long-term contracts, maybe heavier discounting? I mean, it's obviously important to have the long-term visibility, which is at least we would love. Just wanted to kind of get a thought, raise a thought there. Secondly, you mentioned some sort of deferments because of tariffs. If you can clarify that as well.
See, there's no discount for things to be given on the long-term framework contracts. It's just that we have to build up capacities. We have to commit capacities. With big customers, it's a mutual two-way street. When we commit capacities and capital, we would like to have a commitment from their side on what businesses they would give to us. It's not linked to any discount. On the tariff part, I think the last ball is yet to be bowled. There is still a lot of sort of confusion, lack of clarity, and that has impacted us slightly. I [audio distortion] decision-making and taking only need-based supplies. I think from whatever we hear in the press, for whatever it is worth, I think the worst is behind us.
In the coming few weeks or a month or so, I'm confident before Christmas, we should have a deal on the table. I think that will help us to strategize for the future growth. As we have communicated, USA accounts for about 5%-6% of my total revenue, the exports to USA in the current year. On the longer sort of time frame, USA would be a key player which would help us increase our export presence. I think once the clarity on the tariff emerges, we have more clarity on our future plans, which is next year and the year beyond.
Got it. Thank you very much.
Thank you. The next question is from the line of Ankur Sharma from HDFC Life. Please go ahead.
Oh, yeah. Hi. Good morning. Thanks as always for your time. A couple of questions. One, in Q2, we've seen a slowdown on the industrial segment sales, so I think about 9%-10%. If you could just help us understand what's driving that slowdown and, more importantly, how do you see sales for the full year?
See, again, we are mindful of Q1, Q2 things, but on an analysis basis, we are very confident on our industrial portfolio, which has grown very decently in the half year, about 30% in the half year, and which has, I think, a robust growth despite the American tariffs and other things. We believe that industrial portfolio would continue to be a mainstay of our growth and profitability. The contracts which I was alluding to, where we had entered the orders which we've got from new customers, they are spread across industrial vertical also in the power management, power distribution, and the like.
Understood. Okay.
We don't look at quarter on quarter. We are mindful, but our strategy is based on the long term.
Fair. Okay. So we're broadly on track for the full year. Okay. Fair. Similarly, on the IT railway segment, we've seen very strong growth, I think, this quarter. I think about INR 160 crore of sales. Is there something, yeah, is there some orders that are now getting executed? Can we expect this quarterly run rate to sustain? Just some color there, please.
See, the IT products are essentially laptops and other things. One of the major clients with which we had tied up has shown very good growth in the last six months, and we expect that the growth would continue, whether it is at the same pace. We believe that IT would continue to grow at a decent pace. With onboarding of another client, Dynabook, I think we get a broader base for additional customers to grow the revenue.
Got that. Okay. Just one last one on this acquisition that we've done and you announced on Elcome. If you could just spend maybe a minute, what does it bring to the table for you on the defense electronics side? How do you see this business kind of shaping up over the next two, three years? What other synergies are you talking about? Just if you could spend some time on the street.
See, we have all the time been sharing with the street that defense is one of our priority areas for growth, where we had a minimal presence. If defense approvals and other things take a long time, it is a long gestation period. We had sort of indicated to the street that we would be going in for an inorganic route to enter the defense sector. Now, this company is almost a five-decade-old company established in 1978, so it is about a 47-year-old company. It has been in this business and is supplying navigation, communication, display, surveillance, safety, helideck monitoring, alarm monitoring, a lot of solutions to the armed forces, especially Navy and paramilitary forces. We sort of get a platform on which to build the business.
Defense business by nature is lumpy, so it is sort of loaded always towards the second half of the year. We believe and we are confident that we would be able to grow this business from the current level of about INR 200 crores to maybe INR 300-INR 350 crores in the [audio distortion]. These businesses are comparatively higher margin business with a higher sort of working capital cycle also. These two go in tandem. I think we are very excited about this acquisition, and it gives us the opportunity to add in other portfolio and skill sets as we go along to widen the product offerings to the defense forces.
Got that. Okay. If I may just squeeze in one more on this long-term agreement, you said these could add close to $253 million-$300 million over two-three years on top line. I do not know if it is too early for the 2027 kind of guidance, but can we expect a higher growth rate than the 30% we have been guiding for 2026 with these long-term agreements kind of coming through? Is that how directionally we should be thinking about it?
I think based on whatever figures we have got today and the budgets and the things for the next year are being finalized, we are very confident that we should be able to give a better growth trajectory in the coming years, starting for 2026, 2027. Under normal circumstances, and the tariff condition gets sort of clarified and all those things, we're confident that the growth rate would be of a higher trajectory than what we would achieve in 2025, 2026.
Okay. Great. Got that. Thank you so much and best of luck.
Thank you. The next question is from the line of Anupam Goswami from SUD Life. Please go ahead.
Hi sir.
You're not audible. Anupam, you have to be slightly louder, please.
Yeah. Hello. Hi sir.
That's good.
Hi. Sir, congratulations on the good set of numbers. Sir, my first question on the—if you can give us a little picture on the X of acquisition, Syrma, where does the growth lie in which segment, and what are the TAM we're looking for, and the growth avenues for Syrma itself, apart from the acquisitions that we have done?
Okay. You see defense acquisition is a new vertical. PCB is a backward integration, a new vertical. Elemaster is into railways, so it is part and parcel of our existing portfolio. So is the renewable energy. Now, if I was to only talk of excluding the defense and the PCB venture, we still believe that we are in a position to deliver superior growth rates in the coming years than what we have achieved this year or thus far. I hope that clarifies a thing. This would primarily be driven by industrial, automotive, including EV, renewable. The solar business would grow. It would add a decent amount of top line. It is a competitive landscape and a decent margin. Exports would continue to be the cornerstone for our growth in the coming years. Long-term sustainance of any EMS company cannot come without exports.
We are well-positioned to cater to this market. In the first half of the year, my exports—so our exports have grown by almost 36%. We have already achieved about INR 500+ crores of exports, and we are guided about INR 1,000 crores of exports in the current year. We are on track to achieve that. The defense and the PCB, the defense revenues will kick in in 2027-2028. No, 2026-2027. Sorry. The PCB revenues would kick in in 2027-2028. Whatever guidance we are giving today of a superior growth rate is without defense and without [PCB].
Right. Sir, you mentioned about auto and industrial segment to take lead in our growth. Where do you see the growth coming from in terms of the pipeline of new customers or new products? How is that pipeline shaping up and inquiries?
Automotive growth would come in from the automotive sector, including the EV as the adoption of EV becomes bigger. The per-unit electronic content need is bigger, and that would increase the pie of the business available. In industrial segment, the growth would come in from the meter trade, with a lot of data centers coming into the country, the requirement of power management unit, power electronics in the contracts, which I was referring to, essentially cater to those requirements.
Thank you.
Yeah. Sir, in addition, I think industrial is a segment which we are addressing not only for India but also outside India customers. Some of the global customers—one Mr. Gujral referred to today, and there are more in the works—are for global requirements. Our growth in industry will come across geographies. Automotive growth will have two pieces. One is EV, which Mr. Gujral already spoke, and second is the holistic growth on the electronics content in the traditional vehicles as well. There are new things which are being added, like safety systems or adult requirements. Those are going to fuel the growth of electronics absorption into traditional automotive vehicles as well.
Got it, sir. Thank you. I'll join that.
Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund. Please go ahead.
A few clarifications. First, if you can quantify what was the PLI incentives?
Yeah. Your voice is not clear, sir. Can you speak a bit loudly? Your voice is not clear.
First, wanted to check if you can quantify what was the PLI incentives we booked in this quarter and what was—and for the same quarter last year.
Okay. PLI is something a part of normal income business is what we are accruing here. For the full year, generally, we have already guided it should be in the range of INR 20-INR 25 crore. Quarter-specific numbers, we are yet to check what is the exact figure in that.
It is in line with the revenue. You see, we had guided our consumer revenue, for example, that it will come down. The consumer revenue of the PLI-denominated business would be almost the same as last year. We have guided about INR 24-INR 25 crore of PLI income on an annualized basis. This is what was there last year on an annualized basis. There is nothing abnormal, short, or excess in the PLI.
Should it be equally spread in all four quarters or more or less, or should there be a lumpiness?
It could be margin again, but quarter-on-quarter business in my consumer business of a pickup. For example, in the first quarter of last year, it was 54%. It will be there, but I now believe if we have passed that bump. It should be by and large—I am not saying it will be secular—but by and large, it should be evenly spread over the four quarters. By and large.
How much revenue will be booked from smart meters in this quarter?
Ladies and gentlemen, please hold. We seem to have lost the connection with the management. Ladies and gentlemen, we have the management back online with us. Sir, you may proceed.
I was asking on smart meter, how much revenue we did in this quarter?
Just told her, I think Bijay will pull out the details, but I think we did about 4 million units of smart metering.
We did approximately INR 50 crore in this quarter.
Okay. If I remember it correctly, we had a target of roughly INR 250 crore-INR 300 crore from this piece of segment. Are we on track to achieve our full-year guidance on smart meter?
We are on full track. These quarter-on-quarter variations would always be there. Broadly, we were targeting near about INR 300+ crore from the smart metering business. That is where we are already there on that track. We have also onboarded one more new customer, a large customer on the smart metering side. The respective revenue from that customer should now reflect in the H2 also, additionally.
Okay. All right, sir. Thank you. All the best.
Thank you. The next question is from the line of Sonali Salgaonkar from Jefferies. Please go ahead.
Sir, thank you for the opportunity and a big congratulations for the team for an all-round beat. Sir, my question is on the PCB manufacturing. I know Gujral sir has talked a lot about the timelines and the CapEx, etc. Just on the revenue front, should we assume sort of a 1x asset turnover to the CapEx? What would be the kind of steady-state annual revenues that you expect from PCB manufacturing to accrue to your overall P&L from FY 2029 onwards?
See, PCB industry typically works at 1, 1.2 of the gross fixed effect, 1.5 max, max. If we are targeting an investment of about INR 1,500 crores, the max revenues which we can expect from the business would be INR 2,500 crores.
Understood. Sir, and sort of I know it's a bit too early, but from the point of view of usage of your production, would you be targeting customers domestically or to the exports? And sort of which segment will you be targeting on?
Okay. See, this is something very, very exciting for us. The number of calls which our teams have been receiving from big companies in India who want to indigenize their supply chain of the PCB. I'm talking of big multi-billion dollar groups who are showing interest that when is the plant going on stream. These groups have usage in automotive, industrial, healthcare, all around. In the short term, the way we are planning is that we would be catering to the domestic market, and it has a certain time approval, the process approval, the product approvals take place. Going forward, when I say going forward, it is beyond 2028, we would be looking at the export markets also. The usage would be automotive, consumer, industrial, MedTech, telecom.
Got it. Got it, sir. Very clear. Just one last question. You mentioned total CapEx of about INR 1,500 crores. That's INR 15 billion. Of this, I think FY2026, we are expecting not more than INR 2,000 million. That's INR 200 crores. How should we look at the CapEx over the coming years, say FY 2027 or 2028?
Bijay will deal in detail on this.
FY 2026 may not be INR 200 crore only for PCB; it will be even much lesser. The CapEx is slightly loaded in FY 2027. What we are anticipating between FY 2026, 2027, 2028 together is what we will be spending around INR 700-INR 800 crore together.
Got it, sir. Very clear, and all the best to the team.
Thank you.
Thank you. The next question is from the line of Praveen from PL Capital. Please go ahead.
Yeah. Thank you for the opportunity. Sir, my first question is related to receivables. In this quarter or in the first half, if I look at your receivable, it has increased significantly. Is that, going forward in a year, going to normalize?
See, I wish everything would be normal above all the quarters. On an annualized basis, that was on a lighter wave. This is a work in progress. Clearly, we have sort of exceeded the target what we had set to ourselves for working capital allocation or utilization. We are very confident that by the year-end, as Bijay had alluded in his commentary, we would be able to bring down the net working capital to below 65 days. Receivables are a big chunk of that. We are very confident in all these big companies. You can see if a INR 200 crore payment gets delayed by five days, your month-end things go for a tough. On an overall basis, I think we are on track. This is a work in progress.
We should be able to come down to the levels which we had indicated of 65 or below 65 days in the net working capital.
Also, receivables and payables are going in tandem together. So there is an increase in receivables and simultaneously parallel increase in payables also. We are working on the overall net working capital basis to reduce it to the targeted level. That's what we are confident of bringing down towards the year-end.
Okay. Next question is related to the acquisition and especially the Elcome, where we have seen that last three years, the CAGR has been more than 20%. Do you see this business to grow more than that way forward? How are your estimates?
If we see the defense sector, it has really picked up speed, [audio distortion], only in the last two to three years. Before that, it used to have bumpy rides. We are very confident that we should be able to maintain the growth rate or slightly increase on it. In the next two to three years, we should be able to do about 350.
Yes. Additionally, with Syrma's synergy here together, we can even now target large-sized projects tenders together with the partnership. That is where we see the growth will be much deeper here onwards.
Okay. Okay. Last clarification on the order book. As you had mentioned about the eight major customers of $100 million order or one large contract, any of them are a part of your order book right now?
See, the framework contracts which we talk of are not part of the order book. They are general next two, three years. We talk of order book what we receive the orders and the delivery schedule from the customers. These long-term contracts would reflect in the coming quarters as of 30th September because one of the contracts was entered into after the close of the year. After the close of the period, sorry.
Okay.
Quarter.
Okay. Okay. Got it, sir. Thank you.
Thank you. The next question is from the line of Vineet from Invest ec. Please go ahead.
Yeah. Good morning, sir. Just continuing the question of the previous participant. Our working capital and within working capital, if I were to break it down, receivables have increased quite sharply, maybe 80% year-over-year versus 40% growth we've had in revenues. What specifically led to such a high jump in receivables in particular?
Obviously, the collections have lagged the sort of sales. To me internally and to me personally, managing receivables is comparatively the easier part of the working capital cycle management than managing inventories. Some sense of satisfaction in an otherwise sort of working capital sort of abnormality or thing. We have been able to control the inventories well, and the task is cut out to control the receivables. I am very confident that when we meet somewhere in January or whatever, when we announce the Q3 results, you will see a significant change in the receivables position. Yeah, Bijay.
Also, additionally, whatever businesses we do on a job work basis, that is not fully reflecting into the revenues because the net job work amount or maybe net value engine is what is reflecting into the revenues.
The related full value receivables and payables are reflected into the receivables and payables. That is also another point which is showing as an increase on a year-to-year basis here.
More than the amount, we stick to the guidance that we'll be able to bring our net working capital to between 60 and 65 days. 60 is the desired state, but it would be anything between 60-65 days of the revenues. To me, that is more important than the absolute amount.
Okay. So is the understanding correct? The IT business which we are doing now is more on job work basis, which is driving wherein the accounting is such that which is leading to higher receivables, and only job work-related revenues are getting recorded in the P&L?
No, it is not related to IT business. With few of the select customers, whichever we are doing it, and maybe accounting that says wherein the receivables and payables are there to the account of customers, that's how we are accounting it for. In those cases, receivables and payables are both reflecting at the full value on the balance sheet, but the revenues are reflecting on a net value basis.
Understood. Understood. My second question is on the KSolare bit. If you can give some idea about what proportion of their current revenues is coming from inverters. Solar rooftop is, what I understand, a larger proportion where we cannot contribute much as of now. Only when inverters' revenue pick up, that's where we will contribute. What is their proportion of inverter revenues as of today? Will the entire inverter sales which they will do be manufactured by us and will be reflected in our top line?
KSolare has been acquired 51% by Premier and 49% by Syrma SGS. The consolidation will happen at the Premier end and not at the Syrma end. KSolare is manufacturing inverters, primarily rooftop, and have capability of manufacturing other types of inverters also. What we will be doing is manufacturing the entire module and assembly of inverter, and then billing it from KSolare directly to the customers. To my books, the accretion will be on the module assembly, which will be done in Syrma SGS.
Okay. So module assembly and inverter assembly related will be in our books, or it will be directly from KSolare's books to customers?
KSolare books to customers.
Okay. So we won't get any benefit on revenues. It will be a single-line consolidation across KSolare.
We will get the benefit of value addition on the modules which we make in Syrma SGS. The inverter revenues will be accounted for in KSolare books.
So the EMS, whatever is going for those inverters, is what will be there as a revenue in Syrma books.
Understood. Perfect. That's helpful. Thank you, sir.
Thank you. The next question is from the line of Santosh from Awendes Park. Please go ahead.
Hi. Thanks for picking up my questions. Your margins have remained quite resilient this quarter despite the overall revenue mix shifting towards some low-margin businesses. Could you elaborate on what is driving this resilient margins? Is there any underlying efficiency or cost factors at play?
The margins, by and large, again, we don't look at margins quarter on quarter because if the product mix changes, the margins for a particular quarter would take a sort of positive or negative variation. Once my business has now stabilized with almost all the verticals being at the levels at which they were budged it to be, I personally don't see any significant variation in the gross material margins going forward. When my healthcare and exports pick up, there would be an uptick in the margins. My gross material margins continue to be hovering around 24%, 25%, 24%, 23%, 24%, 25%. When the consumer was very high, they were at about 15%, 16%. The consumer business having normalized, I think it will be around 23%-24% 25%-26%. That would be the range of the gross material margin.
Thanks for the clarification. My second question is, with the recent accretions and ongoing expansions, how are you thinking about scaling up your workforce? Should we expect to see some meaningful ramp-up in employee costs going forward?
See, the projects which are standalone, the PCB project would have its own workforce. Obviously, the cost will be absorbed by the PCB project. On the EMS side, whatever growth we do, my direct cost of sort of direct manufacturing cost would go up. The corporate cost, the indirect salaries would by and large, having now staffed almost all of our positions except one or two, I do not think there will be a significant increase in that. It will be the normal increase in salary cost year on year. The direct manufacturing cost, as the turnover ramps up, would go in tandem.
Thank you, sir.
Thank you. The next question is from the line of Vipraw Srivastava from Phillip Capital. Please go ahead.
Hi, sir. Congrats on a great set of numbers. Quickly on the JV with Shinyup, which you have signed for PCBs, what is some clarity on the HDI side? Because as far as my understanding goes, Shinyup does not have much capability on the HDI side. What are your thoughts on that? Do they manufacture HDIs, or is it only multi-layer as of now?
They manufacture multi-layers and HDIs also. HDIs will be starting to manufacture 2027-2028 onwards. They have the technology, and I do not see a challenge in that.
Right. And we'll get to receive approval for that, right? In coming months, we'll receive approval for HDI also, right?
We have applied for it. That's a separate set of applications because the multi-layer PCBs had only the PLI, no CapEx incentive. The HDI, another thing, have a CapEx incentive. That set of applications is already with the government. I think we'll see the approval of that in coming days. Our objective is very clear to cater to the high-volume market of multi-layer PCBs, which is about 70%-80% of the total PCB demand.
Right. Right. Fair enough, sir. Lastly, on the SGI side only, currently in India, obviously, HGIs are mainly used for smartphones and automotive, which are relatively more complex to manufacture. Do we have plans? Are we looking to onboard HGIs? Are there clients? Secondly, also on the CCL side, what are the plans on that? Because we have read online that Syrma also wants to do CCL. Do we have a client there? How are we planning to do CCL? Yeah.
Sure. See, on the CCL, we are planning to put up a plant of CCL in the second phase. It will be obviously when I am putting up a 2.5 million square meter capacity for the PCBs. That is a captive consumption which I'll be doing. In addition to that, I will be servicing the other PCB companies in the country.
Right. Fair enough, sir. Thank you, sir.
Thank you. The next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.
Hi. Thank you for the opportunity. On the PCB project front, as you highlighted, the first phase would be INR 800 crore CapEx. How about the second phase? When should we expect that to start? Secondly, how are the incentives on the state and central government, and what lag they will throw in?
See, the state capital incentives are 50% of the amount spent. In phase one, we will be spending approximately immediately $40 million and then $90 million in total, which would cover my multi-layer line. The next INR 800 crore will be spent on CCL and SGI. The state incentives work on an annualized basis. Whatever I spend after I have spent, I get it approved and will be given in the subsequent year. I believe that the state capital incentives should come back to us in the financial year 2027-2028 for the amount spent between now and March 2027.
Okay. Got it. When you plan to spend the balance, INR 800 crore for the phase two, any thoughts right now on that?
See, that phase two would start somewhere towards end of 2027, which will be the CCL part, followed by the SGI part. On the multi-layer line, we are putting up one multi-layer line which has a capacity of approximately 700,000 sq m per annum. The building and the facilities and the utilities are being put up for the complete three potential lines which we'll be putting up. The moment my first multi-layer line gets used to the extent of 50%, 60%, 70% is a time when we'll trigger the installation of the second. And when the second gets utilization to that extent, we'll trigger the installation of the third. Purely dependent upon demand, how would the pay for the CapEx?
Understood. That is helpful. Central incentive would be 5% of the revenue for six years, right?
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Between 5%-10% depending upon different layers. But yes, average would be somewhere around 5%-6% what we are expecting conservatively.
Got it. Thank you. Thank you. That's it.
Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to Mr. Gujral for closing comments.
Thank you, ladies and gentlemen, for sparing time for the Q2 earnings call of Syrma SGS. To sum up, I think we have never been so gung-ho about the business. With the government policies in support and the states vying for attracting investments, I think the EMS industry is entering the second phase. The first phase was establishing itself. I think going forward in the coming years, the electronic manufacturing industry would be one of the pillars of the growth of India. We are fortunate; Syrma SGS is fortunate to be present at that cusp of time when this is seeing a huge demand. We are very, very confident of growth with profitability, with sustainability, and social responsibility. Export would be one of the key sort of cornerstones of our growth in the coming years. They have in thus far.
We do about 25% of our revenues from exports. The endeavor is to widen this base and grow this bucket even further.
Thank you. On behalf of DAM Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you, everyone. Thank you.