Avalon Technologies Limited (AVALON) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Avalon Technologies Limited 4Q FY26 Earnings Conference Call, hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on a touch-tone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Sumanth Kumar from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Good afternoon, everyone, and a warm welcome to Avalon Technology 4Q-426. Post-result are being called, hosted by Motulawas for Financial Services. To take us through the result today, we have with us from the management, Mr. Kulhamad Mishra, Chairman and Managing Director. Mr. Suresh, we have Chief Financial Officer. Mr. Sriram Vijayarakwan, Chief Operating Officer. Mr. Venki Venkates, Chief Sales Officer. Mr. Richa will give an overview of the business performance and will follow up by Mr. Surish remarks on financial performance, post which will open the floor for Q&A. As we move forward, it is important to bear in mind that any forward-looking statements made during this call are subject to potential risk and uncertainties. Both known and unknown. Now, without any further delay, I will hand over the floor to Mr. Bitsha for the initial remarks, the CMD. Thank you, and over to you, sir.

Thank you, Suman. Good afternoon, ladies and gentlemen. On behalf of Avonaut Technologies, a very warm welcome to our QCore and full-year FY26 earnings call. I want to begin by thanking our investors for your continued trust and support. Your confidence in us has been instrumental in enabling us to execute consistently, invest with discipline, and build a business that is both resilient and scalable. FI 26 has been our best year, and Q4 is our seventh consecutive quarter of growth. But what stands out is not just the growth rate, it is the quality of it. Profitable, broad-based, and consistent across verticals and geographies. We delivered a 46% revenue growth for the full year. Higher than our 40% guidance. On net working capital, we reported 112 days, better than our guided range of 120 to 130 days. Our ROC improved to 20.6%. On revenue, profitability, working capital, and ROC, we have delivered improved performance across all the key matrices. We have also made steady progress in new product introductions, especially on semiconductor manufacturing equipment and power systems. All three of our growth engines are gaining momentum together, and that is the foundation of our journey forward. Moving to the financial highlights, for Q4 FY26, revenue came in at rupees 480 crores. Gross margin was at 33.7%, within a guided range of 33 to 35%. EBITDA margins came in at 11.8%, up from 11.5% in Q3. Operating leverage is playing out as revenue scale. The path for the quarter was 41.2 crores. For the full year FY26, revenue was at Rs. 1,603 crores, up 46% year-on-year. Gross margin for the year was 34.3% at the upper end of our guided range. Full year EBITDA margin was at 10.8%. Full year PATH was Rs. 113 crores. Rajneet's revenue growth over the last seven quarters has been 45 percent. As of March 31, 2026, our order book grew 24.7% year-on-year to Rs. 2,196 crores with an average execution period of 14 months. In addition, long-term contracts with execution timelines ranging from 15 to 36 months is at 1,245 crores. Autobook growth remains well diversified across industry verticals and geographies. India Manufacturing Operations, which continue to serve both domestic and global customers, accounted for 77% of our revenue in Q4 FY26, delivering healthy profitability at an EBITDA margin of 16.7% and a FAT margin of 12.2%. Revenue from our U.S. operations contributed the remaining 23%. Losses in U.S. manufacturing. I've continued to narrow, coming in at approximately 5 rows in Q5-FI26. We are working towards a break-even in U.S. manufacturing in the later part of F527. Our presence in both India and U.S. gives customers the option to start in the U.S. and later transition to India or come directly to India. In FY26, revenue mix was 38% from India and 62% from U.S. India business grew 29% year-on-year, while the U.S. business grew 59% year-on-year. Moving to segment-wise contribution. Industrial contributed approximately 34% of our revenue, growing at 65% year-on-year. Mobility contributed 28%, growing at 50% year-on-year. Within mobility vertical, rail accounted for 16% and aerospace for 9%. Clean energy stood at 20%, growing at 45% year on year. Driven by the ramp-up of our energy storage systems, communication contributed 8%, growing 58% year-on-year. Our mantra to focus on mission-critical complex box builds continue to gain traction. Box build has increased from 44% four years ago to 56% in Q4-FI26. This highlights the deep integration we have with our customers and drives thickness and long-term potential. Net working capital continued to improve through the year. On a year-on-year basis, net working capital improved by 12 days from 124 days in March 2025 to 112 days in March 2026. Receivables reduced by approximately 12 days year-on-year. Inventory improved by two days as programs moved into execution phase. Payable dates reduced by approximately two days year-on-year. Overall, The improvement in net working capital delivered a positive cash flow from operations of 57 crores in FI26. We continue to follow a CapEx-like model. Asset terms are approximately 9.9 times. Net debt-to-equity ratio is around 0.06. Return on capital employed stands at 20.6%, a meaningful improvement from 10% two years ago. Now, looking at the macro environment, it continues to stay positive. The reduction in U.S. tariffs on Indian goods makes India manufacturing of customers more competitive, and we are seeing increased engagement as a result. Unfortunately, the period of elevated tariffs also helped us accelerate a new set of business opportunities. We added new programming in the U.S. as customers look to Diversify the supply chains and reduce risk. This is over and above the wins in the India domestic business. We have also made progress in expanding exports into Southeast Asia, further broadening our geographic footprint. The government's focus on semiconductor equipment under ISN 2.0 aligns well with our capabilities. And business, we have recently won in this space. Our efforts to build a meaningful sales presence in Europe over the last few quarters also coincide with the India-Europe trade deal. Taken together, domestic demand, U.S. export opportunity, and new geographies, the structural tailwinds are intact. Now, moving to our key growth drivers. Our existing business continues to provide a strong, steady foundation, long product life cycles, mission-critical programs, and recurring revenues across rail, aerospace, industrial, clean energy, and communications. On new business wins, the programs we have been building over the last two to three years are now progressing well. Our energy storage system program continues to ramp in line with plan. Aerospace cabin sub-assemblies have progressed parts for statistical inspection and are moving towards volume. Production of locomotive engine subsistence has commenced. The Kavach anti-collision system has completed testing and is on track for commercial production. In semi-colour equipment, we have completed the project readiness phase with our global partner, a meaningful milestone. Ahead of volume production expected in FI27. For our satellite communication customer, we have successfully completed the first batch of prototypes for control units and expect volume orders from FI27. Prototypes for industrial processing and power sector customers have also commenced. On our opportunity pipeline, we continue to see healthy and expanding set of opportunities. We are seeing increased interest from aerospace majors in various commodities. We are also pursuing opportunities in advanced metal cockpit assemblies and landing gear components, areas where we have not previously participated. The three large U.S. customers we onboarded last quarter across industrial and defense are progressing from prototype towards production. And as mentioned earlier, Southeast Asia and Europe are adding new dimensions to our geographic reach. Taken together, all three growth engines are gaining momentum, and we expect this to increasingly reflect in our numbers through a 527 and beyond. On revenue guidance, we have previously committed to doubling revenues from FY24 to FY27, a target of approximately 1,725 crores. We are almost there a year ahead. That gives us confidence to set our sights on further doubling in the next three years. That is, from the higher base of 1,603 crores in a 526, To approximately 3,200 crores in FY29. The order book is healthy, new programs are entering production, and our customer base continues to expand. The foundation for the next doubling is already in place, and from a multi-year perspective, we are confident of our growth. On FY27, we believe our growth story will sustain and continue. We always seek to be conservative and hence guiding for a revenue growth of 24 to 27 percent. In summary, FY26 has been a defining year for Avalon. Strong revenues, improved profitability, better margins, a stronger balance sheet, and better capital efficiency. All delivered together. Our order book is healthy. Our three growth engines are aligned, and the external environment remains supportive. We enter FI 27 with clear visibility, a strong pipeline, and the confidence that comes from consistent execution over seven consecutive quarters. With this, I will hand over to our CFO, Suresh Meerappan, for a detailed overview of our financial performance. Suresh.

Thank you, KB. Good afternoon, everyone. Let me take you through the financials in detail. Revenue for Q4FI26 was Rs. 480 crores, up 40% year-on-year from Rs. 343 crores in Q4FI25, and up 14.9% sequentially from Rs. 418 crores in Q3FI26. For the full year FI26, revenues were at Rs. 1603 crores, reflecting 46% growth year-on-year, ahead of a guided range of 40%. Gross margin for Q4 FI26 was Rs. 162 crores at a margin of 33.7%. For the full year, gross margin was Rs. 550 crores at 34.3%, at the upper end of a guided range of 33-35%. I would like to note that during the period of elevated tariffs, we passed on substantially all of the tariff impact to customers, so absolute gross margins were not affected. However, since both revenue and cost were grossed by the tariff pass-through, gross margin percentage was optically impacted by approximately 110 basis points. Adjusting for this, our underlying gross margin performance was better than the reported percentage suggests. EBITDA for Q4FI26 was Rs. 57 crores, up 37.5% year-on-year, with a margin of 11.8%, up from 11.5% in Q3FI26. For the full year, EBITDA was Rs. 173 crores at a margin of 10.8%, reflecting year-on-year growth of 50.9%. The sequential margin improvement reflects operating leverage as revenue scale. Pat for Q4FI26 was Rs.41 crores, up 69.5% year-on-year, with a margin of 8.4%. For the full year, Pat was Rs.113 crores, reflecting year-on-year growth of 78% and a margin of 6.9%. Finance costs for the year were Rs.15 crores and depreciation was Rs.34 crores. On working capital, trade receivable days improved from 84 days to 72 days year-on-year. Inventory days improved from 86 days to 84 days as programs moved into execution phase. Trade payable days moved from 46 days to 45 days. Overall, net working capital improved by 12 days year-on-year to 112 days in March 2026, better than our guided range of 120 to 130 days. On a sequential basis, net working capital improved by 6 days from 118 days in December 2025, supported by improvement in inventory. The sustained improvement in working capital supported cash flow from operations of Rs.57 crores in FI26 compared to Rs.25 crores in FI25. As of March 31, 2026, total debt was Rs.183 crores with cash and investments of Rs.143 crores resulting in a net debt of Rs.40 crores. Net debt-to-equity ratio stands at 0.06, a very comfortable position. CapEx for Q4 FI26 cost Rs.21 crores and Rs.56 crores for the full year. Asset turns are at 9.9 times and return on capital employed improved to 20.6% from 15.7% a year ago. A consistent and meaningful improvement. As KB mentioned, we doubled our revenues ahead of schedule. We are now committed to doubling again from the higher base of Rs. 1503 crores in FI26 to approximately Rs. 3200 crores by FI29. The balance sheet is clean, working capital is improving, and operating leverage is playing out. The financial foundation for that journey is firmly in place. With that, I request the moderator to open the floor for questions. 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 1 on the touchstone for telephone. If you wish to remove yourself from the question queue, you may press star and 2. 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 comes from the line of Tanisha from Dam Capital. Please go ahead.

Hi, sir. Good afternoon, and congratulations on an amazing set of numbers. I think we've truly seen all our efforts translating into the growth which we've delivered. So, my first question is on, you know, any potential supply chain disruptions with respect to components. I mean, order books are strong, and, you know, we're seeing healthy growth coming into the quarters, but any sort of supply chain disruption which we're seeing?

Yes, sir.

Hi, Tanmay. Right now, I mean, there are a few things here and there, but nothing that's adversely affecting us. As you know, you know, we service mostly industrial mobility and clean sector. For these, you know, at the moment, visibility is okay.

All right. So, don't expect any major pressure on margins or anything of that sort, given the supply chain problems.

Yeah, as you see it now, We don't see any effect. Okay. Saying that, what I would say is we saw the tariffs, which was the question of last year, right? We managed through that. So I think our gross margins will hold between the range we have specified in. Sure.

So my second question is, you know, all the incremental growth drivers which we spoke about across, you know, sectors, could we possibly, you know, speak a little more about them in detail as to what are we trying to do out there? I mean, just a little more on the product specification, if you could, and the potential size, which it can deliver for us into our revenues going forward.

So, Taneh, I'll give you the vertical growth, right? So, you know, industrial is 34% of a business, it grew at 65, and it will continue high growth rate. Mobility is at, you know. 28% of our sales is growing at 45. Clean energy is at 20% growing at 45 again. So you're going to see a broad-based growth. It's not lumpy, because in our business, a lot of it is once the business comes in, it sustains for the next 5, 10 years. It comes and goes, and products don't change over a period of time. So, once it comes into production, it normally stays, and these are larger Fortune 100 type companies who are working with us. So, I don't see too much of a lumpy sales. Once it comes in, it's going to stay.

Understood, sir. And so my last question is on the U.S. manufacturing. Obviously, it's inched up on a quarter-on-quarter basis due to the tariffs, but what do we expect it as a percentage of sales going forward? Should it be at around this 20-22% or should it logically inch up a little higher with the U.S. execution happening with our customer out there? And if so, then the control on, you know, margins out there and how do we expect to break even and how soon would that be? Thank you.

So, I'll talk about the first part of your question, and Suresh will talk about the second part. So, you've seen growth from all sides, you know, close to, you know, 77 to 80 percent is made in India for India and for export, and that is our focus, okay, how we get customers into this model is why the U.S. factory, that is the primary reason. The secondary reason, you know, during the start of times and all that, it was easier to onboard customers in the U.S. and then give them time to transfer to India. So we anticipate this, you know, 80, 20, 78, 22, you know, that kind of range, and that is what is in our planning. The more that comes to, for India manufacturing, better off we are. But this is something which we need for our future as well as the confidence from customers on having local support. Suresh, you want to answer the second part?

Just to add to that, in FA26, 79% of our business is from India manufacturing and 21% is from US manufacturing. So it has been around this range of, let's say, 19 to 23%, which is what we have been discussing in the earlier calls. Thank you very much. And the operating leverage benefits are expected both from our India manufacturing as well as from our U.S. manufacturing plants. So that's the way forward that we are looking at.

All right. Thank you. Thank you so much for answering my questions, and all the best. Thank you, Tanay. Thank you, Tanay.

Thank you. Our next question comes from the line of Adiraj Singh from Amicus Capital Partners. Please go ahead.

Sir, firstly, congratulations on a good set of numbers. I just had a couple of questions. First, when we look at the growth, so we're going by 46% this year. We have added about 500 crore of revenue this year. So how much of this additional revenue or growth is coming from new customers' programs? So essentially, programs' customers that you would have onboarded one and a half to two years back. And how much of the growth would be from vintage programs and customers?

So it's very broad-based, and depending on the size of the customer cut-in, it could vary anywhere from 75 to 85%. Two-thirds, one-third is what you probably need to look at. But it varies. You may have a certain much larger customer cut-in, and that varies a little bit. But the next year, they become, you know, existing customers, right? And we are developing and managing these programs into production at least 18 months ahead. So, that gives you a broad range on what we think it is.

Just to add to that, so typically the average life cycle of a customer with us is very long. The product life cycle is also wrong. So, a customer who is this year and new will become an existing customer and then they continue for over a period of 8-10 years.

No, sir, but I understand, I mean, I just wanted to understand in this 500 crore, how much would be coming in from, let's say, programs that you would have started one and a half years back, and how much from the vintage programs?

570 will be existing, yeah, and then 30 will be, approximately. Okay.

Okay, understood. And second question, sir, a number of your peers are getting into, you know, components manufacturing, like PCB manufacturing, and have gotten ECMS in for that. Do you have any plans to get into components manufacturing?

So, we are very focused on what we do. So, we are a boxville, high-end boxville, complicated, technology-oriented boxville. We will look for further business in that segment instead of trying to do a green field, though there's a lot of money available for that. We think there's enough growth in what we do. Managing growth is what we strive on doing. And I think instead of going in multiple directions, we like to stay focused and deliver on what we say.

Wow. Sure, sir. Thank you so much and all the best for that.

Thank you. Thank you. Thank you. Our next question comes from the line of Santosh Cheshadri with Evendus Park. Please go ahead. Yeah, good afternoon.

Thanks for taking up my question.

So, basically, could you help us... Sorry to interrupt you, sir, Mr. Santosh. In case you're using the speaker mode, may I request that you use your handset mode, please? So, your audio is not very clear, sir. Thank you.

Better now?

It sounds better.

Yeah.

My first question is on the quarterly revenue project rate across, you know, different verticals, maybe specifically for the clean energy as well. Given that the U.S. business is ramping up and there is a usual one-two seasonality that we have observed historically, you know, how should we think about the dynamics, quarterly dynamics, and also if you could give some color on the cadence for other divisions as well. That would be helpful.

So, for us, that doesn't play out as much, okay? So, we try to level load our production across, you know, customers tend to do that instead of, you know, because Only certain businesses, you know, which are government-oriented could have this issue, but we have not seen that as much. So if you look at quarter to quarter, it's been fairly consistent, whether it's growth or whether it is, you know. And in clean energy, we're going to see growth, okay, as for the near future or foreseeable future. So it's not seasonal for us, as far as we know.

Got it. And just to be clear, our first quarter F5 or maybe like first off F527 revenue could be sequentially higher than last year, right?

So, we, Santosh Sureshya, we would request you to look at us from a three-year perspective. In the opening remarks, KB would have highlighted that from a higher base of 1,600 crores in FI 26, we are looking to double it in FI 29, and we generally do not give a quarterly revenue growth guidance.

Saying that, we are very confident.

Fair enough. And just one more question. And given our aspiration to double revenues over the next few years, and considering that our, you know, asset terms are already closer to 10 times, how should we think about the incremental CAPEX and also about the timing of CAPEX, you know, in capacity expansion?

So, at least for me, it's not aspirational. They're going to do that, the doubling. So, saying that, see, when we started talking of doubling in 2024, we're supposed to double by 27, and we are close to one year ahead of that schedule. We're close to doubling already. So, we'll continue at the same momentum. There may be a few quarters up or down, but if you look at us in a three-year time frame, we'll do what needs to be there to do that. Did I answer the question? There's a last part.

Capex perspective.

From a Capex perspective, as far as we know, we'll continue. Our aspiration is to keep the ROCs higher than 20 and keep the set terms between 8 and 10 times. And we still believe that, you know, with this CapEx, as far as we know today, we are going to.

And any particular timeline that we are contemplating to spend this capex?

Usually, we say 50 to 60 crores, maybe a little bit over, over the next year, I mean, that's annually, yeah.

So, Santosh, in FY25, our capex was 58 crores. In FY26, our capex is 56 crores. And so for us to continue this trajectory of growth, we do not foresee any major, major capex, but it's something, nothing in the near term that we can see.

Thank you very much.

Thank you. The next question comes from the line of Mehul Panjwani from 40 cents. Please go ahead.

Hello, sir. Thank you so much for the opportunity. Am I audible?

Yes, Nehul, you are perfectly audible.

Okay, thank you so much. Sir, I have my first question about how much of a future audiobook worth? Can we expect from the box build and system integration opportunities versus the traditional KCV assembly?

Sir, if you historically look at it, around three years back, we are on 44% of box build. And our aspiration is to grow that number. And today, last quarter, we are at 56%. So we'll continue the trajectory. And for us, that's why we are very vertically integrated to achieve that. Okay. So we'll continue on that. And that is our goal. You know, we may start with a certain commodity, but our goal is to do the whole box in a two to three year period with a customer.

And sir, what kind of margin difference will be, how much high margin can we command for box bill compared to the traditional?

Usually it's higher because it's vertically integrated, so I don't want to get into how much, okay, because that depends on industry, that depends on vertical, that depends on commodity, you know, more of a certain commodity, you'll have a better margin. So, ultimately, we'll look at it as a box.

Right. Sir, I am not sure if you have answered this one, but my question is about what is our margin aspiration. Currently, our margins stand at 11%. So, do we have any operational levers to improve our margins beyond 11%?

Sir, if you look at 80% of a business which is India Manufacturing, EBITDA is at 16.7% and PAT is at 12.2%. So we are already high up there in 80% of our business. This quarter I think it is 7% of our business. And then with US breakeven and with the leverage playing out there after breakeven, we see some room to improve.

Right.

Sir, are we expecting any CAPEX in FI27?

Sir, our review CAPEX has been in the last two years in the range of 55 to 60 crores. So we see something similar there. Nothing major at the moment.

Okay. Thank you very much, sir.

Thank you, Mehul.

Thank you. The next question comes from the line of Swamit Sinha with McVeary. Please go ahead.

Yes, thank you very much, and I echo some of the sentiments. It's been a really, really strong year and great execution. I guess my first question would be in terms of your guidance for next year. I know last year you started at 18% to 20% year-over-year growth, and you ended the year at 46%, so that's been tremendous. Should we assume a certain degree of conservatism guidance for the guidance to be given for fiscal 27, you know, the geopolitical situation is still... The second question is, in terms of your make in India for India, that revenue growth slowed to about 13% year over year. Is that basically because of a high base? I have a follow-up question after that.

Okay, on your first question, Samit, you ask the question every time. So, we are generally conservative in nature. With the things going around in the world, every time we want to commit higher, we just, with the macroeconomics, we want to be conservative. Number two is that, you know, the programs cutting in are fairly large in size. It could cut in this quarter or the quarter from now, which we don't control as much. Our customer does. So ultimately, it's all there. It's when it cuts in and how it cuts in at what time frame, right? So that's the conservative nature of what we're saying, apart from the macroeconomics.

And in terms of the percentages that you mentioned, Samit, if you look at FI26 as sole, then the India manufacturing business grew by approximately 33%. So the growth has been broad-based across industry verticals, across geography, across manufacturing location as well.

Got it. My final question from my side, and this is, you know, real inflection that I saw in your finance-generated free cash flow, right, which I define as cash flow from operations minus capex. Is that something of a goal that you want to continue to, you know, stay in the positive territory with that metric?

See, we always, I'll have Suresh to get into detail of it, but from our perspective, we always want to maintain the ROCs. There's a number we strive for, okay? The asset terms we strive for, okay? And unless, you know, we do this business, I think we can manage that between 8 and 10 times the asset term. Play in mind, that's what is drilled into all of us. We try to grow with that, okay? And a lot of times, most of this capex is going for building an infrastructure.

Just to add two points there. A couple of years ago, in FA24, our ROC was 10%, and then right now it is at 20.6%. And the second aspect on the operation cash flows, FI25 operation cash flows was 25 crores and now we are at 57 crores. So both the working capital improvement, the focus on working capital improvement and the focus on maintaining a high asset term are helping us get those operational cash flows and maintain and improve the ROCE.

So, if I can just add on to that one. So, when you double your revenues, you know, from this year onwards, what is the expected ROC at that point? What's your goal?

To put it this way, in the past, we have operated at 25%. So, I would say there is a target for a pre-march over a long period of time. That should be some goal.

Got it. Thank you very much. Congratulations.

Thank you. Thank you, Samuji.

Thank you. The next question comes from the line of Karan from Nivishai. Please go ahead.

Yeah, thank you for that opportunity. So, congratulations on the good side of numbers. I have a few questions regarding the semiconductor business that we have on board. So, if you could, you know, help us understand how are we, you know, if you can, you know, quantitatively state how is this program expected to ramp up and, you know, what kind of competition are we Doing it against and what kind of products we would be catering to in this segment.

Yeah, hi Karan, Sriram here. So, for the semiconductor equipment, we are building complex. Now, this is a fairly large program with multiple sub-programs, right? So, these are often very complicated to build. The first article inspection takes time, approval takes time. These are very sort of longer jet-stational programs, right? So we are in a journey of getting these approved and getting through deployment. So this is a long journey. This is not one that cuts in in weeks and months. We've been working on this program for a fairly long period of time. So we're on the journey, and hopefully in FY27, we will start to reach the benefits of this program.

Okay, so this FAS has been completed on this one, going for certain production in a second.

It's in progress. So, sir, you know, you have some part numbers that are done, some part numbers that are progressing, some that we are, you know, yet to start. So, you've got a spectrum of this progress.

Currently, multiple products, it's just not one product. So, I would say 50-60% is done and waiting for production approval. The other 40%, we are in the process of doing it, and then we'll get it. It's a reasonable production will start sometime in 27.

Understood. So, also, what would be the, you know, the major sector, apart from clean energy, which will be contributing to our export revenue?

A lot of it will be in aero and industrial, if I can answer that.

The growth is broadly current, even across India and in US. It is not just concentrated in one industry. It's across industrial, safety, clean energy, and communication.

One more question, what would be our client concentration, like what would be the contribution of top 5, top 10 clients for the full year?

Sir, let Suresh give the exact numbers, but as large customers cut in things, you'll start moving up and down for a short period, and then it moves on.

So, our top 10 customers, that's the one that we share, which is 61% in effective analysis.

Thank you so much and all the very best.

Thank you, Karan. Thank you, Karan.

Thank you. Our next question comes from the line of Chirag from Keynote. Please go ahead.

Yes, thank you for the opportunity. My first question is related to the manufacturing plant of US. We have almost doubled the production. Just wanted to understand how I'll be breaking news and actually tell it is for you guys.

Sure. So firstly, we have been discussing about increasing the revenues in U.S. manufacturing alongside our growth that we are seeing in the India manufacturing, which is what we are seeing in the last one year. The losses have significantly narrowed down. If you look at it a couple of years ago, the quarterly losses were around 14 crores. And if you look at Q2 of this fiscal year, it was 9 crores. And Q3, it came down to 7 crores. And in Q4, it has again further come down to 5 crores. So, there is operating leverage that has started to play out. But having said that, we expect to see ramp up of many of the new programs, which are at various stages, some on product type, some on commercial, some on pending to be ramped up fully. With that... As the scale-up expected to happen in FI27, we see the strength of losses coming down and moving towards break-even in later part of FI27.

But, Shirak, one thing you have realized is that lot of the customers, we enjoy the margins and we enjoy the properability in India because it came through. This is about where it starts in the US and then it moves to India. So you can't just look at it on a plant-wise. There's a lot of business effectiveness for India doing manufacturing in the US.

Yeah, I understand. That was the earlier assumption we had, because we were shifting our manufacturing towards India move, and now it is like, to gain more clients, we are now again starting to route it from the US, and down the line, probably we would be given some cost benefits to the client, and that would again shift to India. Is that my understanding correctly?

Correct, sir. I think you got it right.

The second question is more related to back-end journey and the future perspective of your commitment related to manufacturing.

You're breaking up, you're breaking up, if I may ask you to talk a little louder.

Am I audible now?

Now, now you're fine.

Right. So, my next question is more related to a back-end journey, what Avalon had. So, let's say we started with manufacturing. And we shift EMS and we shift it to box build. We thought to the perspective that this is a higher integrated complex product and we can serve our client a bit better for us to have better return ratios down there and growth. Maybe let's say from a component to an assembly supply kind of a process. This is like a forward integration. Just wanted to understand, you are remaining focused related to manufacturing box bit only, even if you would have started manufacturing PCB at your end. Have you considered this fact that this is not going to be value-recreative, and you want to make sure that it remains an outsourced product for you, and you don't want to get into the complication of manufacturing PCB, because this anyhow helps us from the perspective that 90% of the PCB gets imported in India, and we are now from the perspective that we can control our value chain and make sure that we keep on growing at the pace we are, without any hindrance related to raw material. So just wanted to understand the thought related to this.

Okay, so as a country, I, the personal opinion, I believe that we need to have PCB manufacturing in India, because as we scale up electronics, as we scale up being a global player, how competitive can be without subsidies? I don't know. Okay. But as a country, we do need it. See, our spend on PCBs is, I would say, less than, you know, very, very small percentage, not even in the teens. So, it does not make sense for us to look at it as a vertical integration model. There are enough players coming in now where there will be enough competition to get the PCBs cheaper than what we can make. That is our thought process on this, Chirag.

So, down the line, it would be correct for me to understand if the manufacturing of PCB starts happening in India itself. This can become a gross margin accretive for us because we would start closing it into India, and even further margin profitability can take place for everyone.

So, like you said, it's, you know, it's not even in the teens for us, the PCB buy. It's much lower because of a vertical integration. I don't think it will be an effective... Change, it will be better, but it's not something which we will chase, okay? And, Sriram, you want to add something?

Yeah, I think, Sriram, just to add to that, right, the way we are thinking about this is to grow into more complex box builds. In which case, you know, our, you know, sort of effort is going into more complex assemblies of different things, right? So, that's why, you know, the focus is not on getting into deeper down the value chain in terms of PCPs, but more up into more complex business.

I think, Shira, PCP is a chemical business. Okay, it's a very different type of business. So, and you need size and scale. And so it's something which we don't want. Our focus is always to do the complex box. We want to do the $100,000 boxes. Okay, which will make a lot more business sense in our focus as well as delivery.

And we believe there is enough growth in what we do across these verticals, across geographies. We're also looking at other geographies as well, export geographies as well now. So when there is enough growth with the higher asset, we have one of the industry-leading gross margins in what we do.

Got it. Happy to hear that one direction focus is there. We are not diluting it to start manufacturing something else where we don't have some kind of an itch. Very happy to hear that. Just one last question related to the context that you have mentioned to the earlier analyst. As almost, as you said that 50-60% of the products have gone some acceptance by the client for now. There is some 40% still in trials and work in prospectuses. So, what can one, and you're saying that from 2027 itself, we can start expecting some kind of a revenue to come into picture. Just a ballpark number, as now the. From the perspective that it is now just one year ahead for us, just a while now, how big this can be in terms of order book that we can expect, even if the last program is divided into sub-programs?

Yeah, so things are going very well. I'm not saying no, but these are slow things which kind of take time to materialize. I was saying that, you know, our goal is to in the next two to three years, I would say three years, make it a vertical for us. Okay. So you can understand the scope of it. It could be a smaller vertical. We hope it's a larger vertical, but it will become a vertical.

Hello.

Siddharth, did you get that? Hello, Siddharth. It will become a vertical for us. So right now it's in the industrial piece, and then we'll spin it off in the next two to three years as a separate vertical. So you know the size of our verticals, and we hope to have that, whether it's a smaller or a larger vertical, we'll be there.

Just to confirm one thing, I will say a new article, it is approximately 8 to 10% of revenue coming from that, and then we will divide it to another.

Shiraz, without putting a number to that, there is enough scope and scale to grow in this. We have just gotten to one customer right now, which means there is multiple customers there, and within each customer, we can get into multiple products. India has just got into the semiconductor equipment manufacturing, and even in the last budget there was a mention of India's semiconductor mission 2.0, which focused on semiconductor equipment. Definitely, we also hope for greater things to come here, but we do not want to put a number to that at this stage.

Thank you. Thank you so much, sir.

Thank you, Chirag. Thank you. The next question comes from the line of Arpit Jain with Walford Financial Services Limited. Please go ahead.

Hi. Thank you, and congratulations on the good numbers. Am I audible?

Yes, that's great. You are.

Yeah, so I came across the recent news that the council in the Middle East has disrupted the supplies of raw materials as PCBs and pulled up their prices. So I just wanted to know since regarding the tightening of the availability of PCBs, how has that impacted us and our inventory and how has the pricing impacted us too?

So, Arpreet, see, most of our pricing is a pass-through. Pass it through to our customers. There have been some increases, but it will always be pass-through. So, it's not something which will affect. If you look at over a five-year period, our gross margins of average between 33 and 35 percent or sometimes even higher. So, we always aspire to keep that. So, even if some of these prices increase, we pass it through to our customers. Did I answer your question?

No, and regarding the inventory thing, so regarding the shortening of the availability of PCBs, so, I mean, how do we hold those in the inventory and what's our outlook on that?

Yes, I will take that. So, you know, we manage this actively with the help of our customers. So, we work very closely with them as to what kind of inventory we should hold for their products. Right? We are always, we keep our eye out. So, where we feel it is getting tight, we will hold more inventory. And where we feel, you know, the lead times are good, right? We don't have to do so. So, this is actively managed across programs, across commodities, whether it's PCB, metal, wire harness, whatever it is, right? So, these are fluctuations that we manage day-to-day, but at the moment, nothing that we see is critical. Obviously, there are things that are long times and things that are moving around, but we're always actively managing them.

But saying that this changes on a daily basis.

As of now, we don't see a material impact, but you never know whatever happens here politically.

Okay, so my next question was, I see a growth impact, here and here, higher than the growth in EBITDA. So, correct me if I am wrong. So, I believe with depreciation and with the tax and with interest and all being stable across the year, so there is a component of other income that has increased substantially. So, I just wanted to know what does this other income comprise of?

So, other than, see, we are an export business, like a major part of our business is also in exports. So, there is a good currency depreciation, there is a benefit on forex income as well, which is part of the other income. It won't be part of EBITDA, but it will be part of other income.

Okay. Okay, thank you.

Thank you. Our next question comes from the line of Mehul Panjwani with 40 cents. Please go ahead.

Sir, thank you so much for the follow-up. All my questions and the answers. Thank you.

Okay, thank you. Thank you. Our last question for today comes from the line of Achul, who is an active investor. Please go ahead.

Sir, I have a question on order book. I have seen that the current order book is around 2,000 crores. What is the timeline to execute this?

So, Ashut, the order book is around 3,441 crores. Out of that, 2,196 crores is executable in 12 to 14 months, and 1,245 crores is executable between 14 months to 36 months. And we have got orders further than 3 years, which you don't count in the order book.

Okay, and the second question is regarding EBITDA margins. I remember that in previous phone calls, somewhere we have mentioned that the operating margins had increased from Q4 of FA26. So I just wanted to understand if operating margins are going to increase going forward.

So, I can talk about the past. So, in Q4 FI26, like you also rightly highlighted, the EBITDA percentage is 11.8%. And if you look at our India manufacturing piece, which is approximately 79%, that has generated 16.7% EBITDA. So, you can see a consistent increase in EBITDA percentage over the last few quarters now. With the increase in sales expected in FI27, we believe there is a further scope of operating leverage in both India plant as well as the US plant, so there is a little bit more scope as well.

Okay. Can you give any long-term guidance on the margins? I mean, because you see other EMAs players are able to make around 16%, so I think we have still room to make much more margins from Egypt.

So, we generally do not provide guidance on the EBITDA margin percentage.

Okay. Thank you.

Thank you. Ladies and gentlemen, that was the last question for the day. As there are no further questions from the participants, I now hand the content over to the management for closing comments.

FY26 was a great year for Avalon with robust revenue growth and solid execution. We remain focused on scaling new programs, enhancing capabilities, and investing ahead of our growth. Our entry into semiconductor equipment space marks a key step as we expand into more advanced high-potential technologies and segments. With a healthy order book, expanding customer engagement, and a flexible global manufacturing model, we are well positioned to sustain momentum through the year and deliver profitable growth. We thank our investors for their continued support and look forward to updating you in the coming quarters. Thank you very much.

Thank you. Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.