Avalon Technologies Limited (AVALON) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Avalon Technologies Ltd. Q1 FY27 Earnings Call hosted by Dam Capital Advisors. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Tanesha. Thank you, and over to you, sir.

Thanks, Atarva. Good afternoon, everyone, and a warm welcome to the Q1 FY27 Learning School of Avalon Technologies. To take us through the results today, we have with us from the management, Mr. Koneymar Bicha, Chairman and Managing Director, Mr. Suresh Suryad, Chief Financial Officer, Mr. Sriram Vijayagwan, Chief Operating Officer, and Mr. Wenki Wenkatesh, Chief Sales Officer. Mr. Bicha will give us an overview of the business performance and will be followed up by Mr. Suresh's remarks on the financial performance, post which we'll open up the floor for Q&A. As we move forward, it is important to bear in mind that any forward-looking statements made during the call are subjective potential risk and uncertainties, both known and unknown. Now, without any further delay, I'll hand over the floor to Mr. Vitcher for his initial remarks. Thank you, and over to you, sir.

Thank you, Tane. Good afternoon, ladies and gentlemen. A very warm welcome to Avalon Technologies Q1FI27 on each call. I want to begin by thanking our investors for your continued trust and support. Your confidence has enabled us to stay focused on what really matters, consistent execution, disciplined investment, and building a long-term profitable business. We are grateful for your trust and commitment to deliver has only grown stronger. Q1 FY27 was another strong quarter. This marks our eighth consecutive quarter of improvement in performance and growth across key metrics. What stands out is the quality and the breadth of this growth. Our revenue growth is well diversified across geographies and industry verticals. Our profitability metrics has improved. ROCE has moved up to 23.4%, reflecting that we are scaling with discipline. Networking capital has improved, and our order book continues to provide good visibility on quarters ahead. Our three growth engines are existing business, new program wins, and our expanding opportunity pipeline are all gaining momentum together. Based on this strong momentum across our business and the visibility we have on programs ramping through the year, we are revising our F527 revenue growth guidance upward from 24 to 27 percent to 26 to 30 percent. Moving to the financial highlights, revenue for Q1 FI 27 was Rs. 484 crores, up 50% year-on-year from Rs. 323 crores in Q1 FI 26. Q1 revenues are marginally ahead of Q4 FI 26. A positive start for FY27. During the quarter, India contributed 41% of the revenue, and export business contributed 59%. India business grew 53% year-on-year, and export business grew 48% year-on-year, with both geographies contributing to the growth. Now on Industry Vertical Revenue Contribution. Industrial contributed 32% of our revenues, growing 52% year on year. Mobility contributed 25%, growing 36% year on year. Within mobility, rail accounted for approximately 15% and aerospace 8%, growing 37% and 47% respectively. Clean energy contributed 29%. Our gross margins for the quarter came in at 34.7%, within our guided range of 33 to 35%. EBITDA margins came in at 12%, up from 11.8% in Q4 at 526, reflecting continued operating leverage as revenues grow. Profit after tax was Rs. 35 crores with a fat margin of 7.2%, a meaningful improvement year on year. As of June 13, 2026, our order book grew 23.4% year-on-year to Rs. 2,208 crores with an average execution period of 14 months. Long-term contracts with execution timelines ranging from 15 to 36 months. Stands at Rs. 1,256 crores. Order book growth remains well diversified across industry verticals and geographies. Net working capital days improved to 117 days in June 2026 to 142 days in June 2025. An improvement of 25 days year on year. Within this, inventory days improved from 104 days to 94 days. Receivable days reduced by 13 days and payable days improved by 2 days over the same period. Asset terms are at 9.9 times and return on capital employed stands at 23.4%. India Manufacturing Operations, which served both domestic and global customers, accounted for 72% of our revenue in Q1 FY27. Delivering healthy profitability at an EBITDA margin of 16.7% and a price margin of 11.1%. U.S. operations contributed the remaining 28%. Moving on to our U.S. operations. Losses in U.S. manufacturing has continued to narrow, coming in at approximately 4 crores in Q1 and 527. Our U.S. manufacturing plant has a clear and deliberate role. It is where new customers come in, validate our capabilities, and get comfortable with Avalon as a partner. Once that comfort is established, production progressively transitions to India manufacturing. Our manufacturing presence in both geographies gives customers the flexibility to start in the U.S. or come directly to India. And we are well positioned to support both. As India manufacturing continues to scale over the coming years, we expect U.S. manufacturing contribution to naturally settle at around 20 percent of our total revenue. On revenue guidance, we have previously committed to double revenues from FI24 to FI27, a target of approximately Rs. 1,734 crores. Our trailing 12-month revenue have already crossed that milestone, nearly a year ahead of our commitment. As highlighted earlier, reflecting on the strong Q1 performance, we are now focused on the next doubling from Rs. 1,603 crores in FY26 to approximately 3,200 crores in FY29. The products we manufacture and the verticals we build are long-term in nature. Program life-cycles run for years, sometimes decades. Our customer relationships deepen over time and our revenue compound accordingly. We encourage you to evaluate our progress over a multi-year process. Multi-year period. That is how we manage this business, and that is the length through which our strength, performance, and value will most meaningfully be perceived. Now, moving to our key growth drivers. Our existing business continues to provide a strong and steady foundation with long product life cycles, mission-critical programs, and recurring revenues across rail, aerospace, industrial. Clean energy and communications. On new business winds, the programs we have been building for the last two or three years are now progressing well. Aerospace cabin sub-assemblies are moving towards volume. Production of locomotive engine subsystems is underway. The Kavach anti-collision system is on track for commercial production. On semiconductor equipment, we have increased our allocation with one of our worst. Leading wafer fabrication equipment suppliers, expanding from power box assemblies into other products with production ramping over the next few quarters. In aerospace, we have secured incremental boxable business with a leading aerospace company, further strengthening our engagement in the export market. On the Opportunities Pipeline, we continue to see a healthy, expanding set of opportunities across geographies and verticals. Southeast Asia and Europe continue to add a new dimension to our geographical reach. All three growth engines are gaining momentum together. On our manufacturing footprint, a new manufacturing plant focused on domestic demand in Chennai is now complete and will commence commercial production from Q2 FY27. As we deepen our presence in semiconductor equipment and advanced electronics, the need for world-class infrastructure becomes increasingly important. We are in the process of acquiring a large parcel of land in Chennai that will support Avalon's growth over the next decade. We are now building the organization for the next phase of growth. We are investing in leadership, process automation, IT systems, and AI-enabled capabilities across functions. Some of these investments are being made now ahead of the growth. As I close, let me offer a broader perspective. Global supply chains are being realigned. Customers are looking for reliable manufacturing partners beyond traditional geographies. India is emerging as a credible and competitive destination. We are well placed in this environment. Avalon is building a global integrated electronics manufacturing business focused on complex box-built solutions for machine-critical application across high-growth industries. Our continued goal is to build an enduring institution that customers trust, that is deep in engineering capability, and that is built to last. We remain committed to efficient capital allocation, strong governance, Discipline execution and, of course, profitable growth. With that, I hand over to our CFO, Suresh Veeropan, for a detailed overview of our financial performance. Thank you.

Thank you, KB. Good afternoon, everyone. Let me take you through the financial performance in detail. Revenue for Q1FI27 was Rs.484 crores, up 49.8% year-on-year from Rs.323 crores in Q1FI26, and up 0.9% sequentially from Rs.480 crores in Q4FI26. Our average revenue growth over the last eight quarters has been 46%. Box bill contribution has increased from 44.5% in FI-22 to 59.9% in Q1 FI-27, reflecting our continued focus on complex high-value manufacturing. Gross margin for Q1 FI-27 was Rs.168 crores at a margin of 34.7% within our guided range of 33-35%, representing year-on-year growth of 46.3% from Rs.115 crores in Q1 FI-26. EBITDA for Q1-FI27 was Rs. 58 crores with a margin of 12%, up from 9.2% in Q1-FI26 and 11.8% in Q4-FI26, reflecting operating leverage as revenue scale. Adjusting for the tariff pass-through impact, our EBITDA margin would have been approximately 0.9% higher. Pack for Q1FI27 was Rs. 35 crores with a margin of 7.2%, up 145.3% year-on-year from Rs. 14 crores in Q1FI26. We continue to invest in talent, capacity, and inventory to support upcoming growth in new programs. These initiatives strengthen our foundation for long-term growth and are expected to enhance operating efficiency as business volumes continue to scale. Moving on to the balance sheet. Networking capital improved to 117 days in June 2026 from 142 days in June 2025 and improvement of 25 days year-on-year. Within this, inventory days improved from 104 days to 94 days. Trade receivable days reduced from 87 days to 74 days. Trade payable days improved from 49 days to 51 days. On a sequential basis, networking capital moved from 112 days in March 2026 to 117 days in June 2026. Cash flow from operations was positive at Rs. 32 crores in Q1-FI27 and improvement from Rs. 16 crores in Q4-FI26. As of June 30, 2026, total debt was INR 196 crores with cash and investments of INR 171 crores resulting in a net debt position of INR 24 crores. Net debt to equity ratio stands at 0.03, a comfortable position. CapEx for Q1 FI27 was Rs.16 crores. Assert turns remain strong at 9.9 times. Return on capital employed improved to 23.4% from 10% approximately 2 years ago. A consistent and meaningful improvement. With improved business visibility, we have revised our FI27 revenue growth guidance upwards to 26-30% from the earlier guidance of 24-27%. To summarize, Q1 reflects continued progress across our key operating and financial metrics, demonstrating the strength of our execution. As we move forward, our focus remains on delivering sustainable, profitable growth, improving operational efficiency, and strengthening long-term customer relationships. With that, I request the moderator to open the floor for questions. Thank you.

Thank you very much. We will now begin with 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, these wait for a moment while the question queue assembles. The first question comes from the line of Santosh Cheshadri from Avengers Park. Please go ahead.

Yeah, hi. Good evening, sir. Congratulations for trade setup numbers. My first question is on long-term steady-state gross margin. You know, we have been historically talking about 33% to 35% kind of margins. And just as we think about some of these, you know, newer businesses like semiconductor equipment and the power modules and coverage that we are working on, so as it scales up, how should we think about the, you know, structural impact of these businesses on margin profiles? Do you think are these businesses, like, inherently higher on the margin curve and any scope for margin improvement? So that's my first question. I have a follow-up.

Okay. Thank you. Thank you, Santosh. That's an interesting question. So, if you look at in the last five years or so, we've always maintained this range. Sometimes we are a little bit higher and sometimes a little bit lower, but this is a comfortable range. Seeing this certain set of our industries and products. I have much higher margins, and certain industries have lower margins. So what you're seeing is a blended rate. So as you see the higher margin business kick in, you will see some difference. But as of now, you know, this rate is at 33 to 35, with a few quarters being up or down.

Got it. So there is scope for improvement in the long run, but as of now, we are maintaining at 33 to 35 percentage. So is that the takeaway?

That's our aspiration, as you will know it.

And my second question is on the cost structure below the gross margin line items. So here we have been talking about roughly 50-50 split between fixed and variable cost. So my question here is, given the strong revenue growth and the kind of ongoing investments that we have in the manufacturing footprint that you mentioned in the opening remarks, So, at what stage do you think some of these fixed costs become semi-variable in nature, and what would be the implication on operating leverage over the medium term for FI27 and FI28?

Hi, Santosh Suresh. You've always seen that between 45% and 50% of the expenses below the gross margin are semi-fixed or fixed in nature. And some of the expenses, most of the expenses are semantics in nature. What we believe is with scale in revenue, with growth in revenue, we believe the operating leverage will continue to play out. If you look at our India manufacturing business, it has delivered an EBITDA of 16.7% and it is a continuing delivery in terms of profitability over the last few quarters. So we expect the operating leverage to play out. We do not give any particular guidance per se for EBITDA margins. But otherwise, I would add to what KB said that we have consistently maintained our gross margin percentage in the range of 33 to 35. We believe we can continue to do that.

Thank you. And just one last question. Some of your peers have recently spoken about, you know, opportunities in the data center space and, you know, ramping up business starting from FY27. Could you share your perspective on this particular opportunity? Are you currently in talks with any of the potential customers, and also where do you see yourself positioning within this value chain? Will it be mostly into servers or rack systems or power management? Any thoughts on that?

So, as you know, Santosh, that, you know, one piece is the world is going through a super cycle in power, where the HVDC systems and all that. See, we are playing with some of the leaders, and we started production with a couple of them. So, that's going to be a part of that, but saying that, we are also working with multiple... We have brought customers who supplied power, off-grid power into the data centers, okay, and that is bound to grow. And also, now in the future, you will see us work more towards the rack and the cooling systems, okay, which we have not won the business yet, but we are still working towards that. And, of course, the, you know, all this growth comes with the semi-con industry, okay, equipment industry. We are well positioned for that in the near future. So, we are not going to make server boards as of now, okay, not saying that we won't do that in the future. But anything around it, which is probably the fastest growing element, we are intending play and we are playing in some of those areas. Did I answer your question, Santosh?

Absolutely. Thank you very much, sir, and all the very best.

Thank you. Thank you, Suntas.

Thank you. The next question comes from the line of Siddharth Bera from Namura. Please go ahead.

Yeah. Hi, sir. Thanks for the opportunity and congrats on a great set of numbers. Sir, first question is on the two segments, AADC and SEMI-SPE. Where are we in terms of the other wind cycle? When should we expect that to come true for us this year? And second is, on the clean energy side, we did have seen a very strong growth in this water on a via-way basis. So, is there any new customer addition or it is more from a higher share of business from the existing customers? If you can throw some more like this.

Yeah, on the first piece, I mean, the full revenue is not started, but revenue has started for both the sectors, okay, for SVDC as well as Semicon equipment. Revenue has started, but it will gradually grow. It is not, you know, switch on and off, and because there are multiple systems, multiple products, so it started, okay, it started this quarter, and we'll see. The ramp in the following quarters. On your second part of your question, clean energy has been, you know, fluctuating for us over the years, and this has been a great quarter for that, and we will continue to see the growth, but certain quarters you may see clean energy up, that's why we are diversified, certain quarters you may see the mobility up, certain quarters, industrial, industrial has always been up. Okay, so it's not that it's... It could be since everything is growing and certain cut-ins and certain production happen at various time frames, so you will continue to see growth in all sectors. What we are happy is that every sector is growing, except for communication we are at it.

Got it. And would you be able to share the U.S. loss for this quarter? Have you already turned around or hear where are we in terms of the plan?

So, in terms of U.S. manufacturing, we have reported a patch losses of approximately 4 crores in Q1 FA27. It has largely narrowed down. Two years ago, it was approximately around 14 crores. One year ago, it was around 9 crores losses, and now it has narrowed down to 4 crores losses at patch level.

Got it. Thank you very much, sir. I will come back in the queue.

Thank you, Siddharth.

Thank you. The next question comes from the line of Samit Sinha from Macquery. Please go ahead.

Yes, thank you very much. And congratulations on another incredible quarter. I guess a couple of questions here. So, Kim, I was really happy to see about how you spoke about bolstering your operations and leadership, because usually, you know, when smaller companies grow at this pace, you don't have a great job with execution, but at some point, you know, things start to fall by the wayside. So if you can just talk a little more, provide a little more color about what you're doing, what sort of leadership positions you're hiring for, I think that would be really helpful. Secondly, You know, historically, most of your products have been PCBA and VoxBuild. Do you think you have an opportunity to go into new product categories, or you'd rather just service with these products because, you know, demand obviously is there, and you're executing on the pipeline? Or maybe you'll tell me that, you know, coverage and aerospace and all have different new products, so I'd like to know more about the SKUs that you have. And the third question is, generally, your business, the second half of the year, your business does better than the first half. So, with 50% growth in Q1, how should we think about the second half? I know the guidance implies it's got a 25% growth in the next three quarters, but if you can provide some clarity more around the second half versus first half dynamic. Thank you.

Hi, Samit. Nice to talk to you again. So if I miss out any part of your questions, just remind me once. The first part was leadership. See, as we grow each of our divisions and capabilities and verticals, we need leadership. These are growing from $20 to $100 million, however you want to look at it. So we have taken a dedicated or a very focused approach. To get leadership, I believe the first level of leadership is there already with our CEO, CFO, CSO, and we're adding, you know, probably five or six new candidates at the VP level to either lead a BU or lead a capability, okay? And that work has already started. So, we're trying to plan for the next three years of growth at least, who are the right leaders. The same thing we did three years back when we started with the C-levels to get the company going in the right direction. And so, we are, you know, looking for the right candidates. We may be, we're not going to rush to it because that candidate is very important to us. Okay. Yeah. So, you want to add something?

Yeah, thanks, KB. So, three pieces of fundamental building blocks, right, of growth. One is people. Second, I think what KB touched upon are processes internally. And third is automation, right? So, the focus is to build the capability in all three areas, and that's work that's underway. I think KB has given you the highlights on the leadership. I just want to touch, make sure that, you know, it's across all three areas.

And the second question, if you could remind me, Subit.

Yeah, it was Monoronga products, so, you know, historically you've done PCBA, Boxbit.

Okay, got it, got it.

So, we are vertically integrated. So, that's why you see our box build move from, you know, what, 43% to 59% in a year. So, we are building a lot more metal, we are building a lot more cables, we are building a lot more plastics, we are building a lot more magnetic to get into our own final product. And that's why you see a box build ratio going up. It's saying that, you know, there's one or two areas. Actually, one which we may announce, you know, I don't want to preset that, we will enter into one area, which is well within our capability, and that I think the next two quarters will make that announcement. So, there's one area we'll add, because we see a lot of opportunity in that, and it will add to our box full capabilities. Excellent.

Just to add to that, we are getting into newer industrial verticals as well as newer geographies like Europe, Southeast Asia. So in terms of increasing our target market, the work is already underway, and we will start seeing the results of that in the coming quarters.

And last question about the guidance.

Samit, you know we are conservative. The problem we have, to be honest, is, you know, when we get these into these large programs, for example, it may cut in in February of next year. Okay. Or it could, you know, customer may delay to April. So we're trying to be conservative. So if it cuts it in February, everything is well and good. Okay. If it cuts it in April, it's the next year thing. But look at us from a three-year lens, right? Like we said, you know, our business is not quarter to quarter because our customers look at us over a multi-year period and are we a good partner over the next 10 years, right? So, but just we're trying to kind of get that all together and try to give you a feel of what we can be. But in a three-year period, as we have done in the last time, we said we'll double, instead of three years, we'll do it in two years. But aspiration is always to do it faster. So you need to look at us from that rather than, you know, what's going to happen next quarter or the following quarter.

Thank you very much. All the best.

You're welcome, Samit. Thank you.

Thank you. The next question comes from the line of Bala Subramanian from Arihant Capital. Please go ahead.

Good evening, sir. Thank you so much for the opportunities. Follow up on the previous participant on the guidance side, sir, we are doing 50 to 60 crore annual CAPEX with 10x of asset 10. It's a right way to understand every year 500 to 600 crore additional revenue. I think if you're adding that, it will cost nearly 3,100 to 3,400 crore top-line range by 529. And secondly, the sunrise sectors like clean energy and aerospace and designs, and these also are the same kind of 10x sector.

Hi, Suresh here, Bala. So firstly, on the CAPEX side, last year we did a CAPEX of 56 crores and Q1 at a 16 crores. But like what KB highlighted in his opening remarks, we are looking at expanding our manufacturing footprint in Chennai. So whenever that happens, we will do it in a modular fashion and that will involve incurring additional CAPEX to an extent. Having said that, we are focused on capital efficiency. If you look at our ROCEs, a couple of years back, approximately 200 years back, it was around 10%, today it is 23.4%. Our goal is to improve that even further. But every asset, new asset, new plant that comes into the picture, it will take its own time frame for it to reach its optimum capacity in terms of utilization. So, it will gradually get to that, but our focus is to improve our ROCE.

And I will add to this, as we go into this bigger box build solutions, space is a premium. So we are building up, you know, land and buildings before we actually put machines. So that, you know, we are comfortable with that. And then we will add the machines when required. Is your question answered, Mr. Subraman?

Yes, sir, and the qualitative perspective is being answered. And, sir, my second question, I think we have in Q1 nearly 50% top-line growth, order also increased nearly 2 to 3%. But if you look at our working capital, it came down to 142 to 217. So, generally, with growing order book and revenue, it leads to working capital strain, for example, building inventory for new programs. So, I'm just trying to understand how we managed to improve the working capital days, and how do you look at incoming years?

Thank you for that, Mambala. So, that was a consistent and continuous effort over the last two, three years. On each bucket, inventory, receivables, and payables. Inventory days, it actually improved to 94 days from 104 days. Same as the case with receivable and payable. But like, again, what we said in the opening remarks and in the previous quarters, we are also having some new programs going parallelly. So for new programs, we may have higher networking capital. At the start, and you will find that efficiency over a period of time. For existing businesses, you would have already found our efficiency in networking capital. But overall, what was our guided range in the previous quarters were around 120 to 130 days. So we are well within that range.

Okay, sir. Say, my last question, I think U.S. loss, it's around 4 crore in this quarter. Last year, it was 9 crore. So, I'm trying to understand what is the minimum revenue run rate required to achieve a break-even, whether we can expect by Q3 or Q4?

We have not given any particular Quantum at which we will reach the break-even, but what we have highlighted in the earlier calls also is by the end of this fiscal year, we would like to see a steady state EBITDA break-even and then following that apparent break-even. But what I would like to highlight here, Bala, is the important way to look at our U.S. businesses, U.S. manufacturing operations is that is our plant to reel in the customers, make the customers comfortable, and then as it ramps up, transition it to India manufacturing. So, it is our reach-head from that perspective. I hope that answered the question well.

Okay, sir. Thank you.

Thank you. Thank you. The next question comes from the line of Praveen Sahai from PL Capital. Please go ahead.

Yeah, thank you for opportunity. My first question is related to the box built. As from the last four quarters, we are continuously seeing the increase in the contribution from the box built. And also you had highlighted the way forward also. We will see this trend to continue. How you are seeing the gross margin profile with these box built contributions to increase the way forward?

Yeah, see, we have always, you know, our business model is, you know, to get to the box fill, right? We may start with the PCB, we may start with the metals, we may start with the cable, but our goal two to three years from where we start with the customer is to do the whole box, if he doesn't give it to us in the beginning. Of course, the gross margins are better in box fill. Okay. And some of these, you know, it takes time for the gross margins to improve. It's over a period of time. It's not as soon as you start. When the program starts, the gross margin may be a little lower. Okay. But over a period of time, it does increase as we, our processes and our quantum buys help. The other piece is, you know, with the status, we're still maintaining the gross margins, okay? It does have an effect. Though not a big effect, it does have an effect. So, in spite of that, we have maintained the gross margins.

So, if you will maintain this, you know, the contribution of 60%, we may see the improvement in the gross margin. Is it fair understanding?

The way to understand it is, if you ask, do we anticipate our box build percentage to go up, the answer is yes, because that is one of our strength points, building complex boxes. But on one side, we will have new programs, which will start maybe at a lower percentage, and on the other side, we will have existing business, which may be at a higher percentage. What you see as 33 to 35 percent is a blended mix of both of that. So I think it is best to assume and estimate a gross time percentage of 33 to 35 percent to continue.

All right. Next question is related to the order book, out of your 2,200 growth. Can you give some indication that's how has been mixed up segments?

So it's broadly... Based on the segments and the growth or the percent wages we have kind of declared, across verticals, some certain quarters, some may be higher than the others, and we always aspire to be around 25 percent, but industrial right now is around 30, 32 percent. And our total order book, if you look at it, you know, we only look at a three-year window. We have orders from three to 15 years. We don't count that. That itself is 3,465 crores. And in the short term, which is the order book for the next 12 months or so, it's 2,208 crores. So, we're very comfortable on what we need to do in the near term. And we have long-term contracts, which we don't count on this.

All right. Lastly, one clarification. So, in the international business, which now the U.S. is 60% of your business, is that the majority is from the clean and the mobility businesses?

No, it's across. A lot of the clean is done in the U.S., but the rest of it is done in India. A lot of it is industrial. We don't have rail in the U.S. Aeroa Industrial Communications as well as clean, a big chunk is there because of the subsidies in the U.S. But again, the subparts of these... U.S. build is done in India. Okay. So, it's a mix.

Even in U.S., we have a well-balanced and diversified growth across verticals.

Okay. Got it. Thank you, sir. All the best. Thank you. Thank you, Paran.

Thank you. The next question comes from the line of Viprav Srivastava from Philip Capital. Please go ahead.

Just two quick questions. Firstly, on the order book side. So, for the last three quarters, your order book has been hovering around 2,000 crores. This quarter also is around 2,200. So, I mean, in that sense, given that your revenue growth is exceeding order book growth, any reasons for that? Why is this order book growth slow or am I missing something?

So, if you look at it, right, it's always consistent and it's growing, but it's year to year it's grown 23.4%. Okay. So, we are very well covered for the next 12 months to 36 months. Okay. In the sense of what we want to achieve, if you look at it, you know, we are saying we're going to do 3,200 crores in three years. More or less that order book is covered, right? If you look at it from 2,208 crores in 12 months and 1,256 crores in 12 months to 36 months. And again, we have five-year contracts, we have 10-year contracts. It's easy to add them, but it's not the right message to give that, you know, these orders are there for years, right? Okay, so... So we like to keep it in this range, which is 14 months to 36 months, so that, you know, you get a realistic perspective rather than a hype perspective of, you know, I've got orders worth so much. Because somehow if you multiply this into 10 years, what you do in one year, it's a huge number. We don't want to put that out.

Another important perspective to have on this is some of the new programs may be on pilot stage, and so whenever they move from pilot stage to ramp up production, the larger sum of orders will come and fall there. But for us, the benefit and advantage what we see in our business is The annuity sale of orders, what we receive, the long-term nature of the life cycle of the products as well as the customer relationship with us. Hope this answers the question.

Sure, sir. So just a quick follow-up on this. So given that your, again, please correct me if I'm wrong, given that your current order book is around 2,200 crores and your average execution period is 14 months, So, that is very close to what the guidance you have given. So, is this understanding correct?

See, some... We already finished one quarter, right? Yeah.

The way to look at it is our order book is executable over an average period of 14 months. So, for some customers, it may be three months, some customers, it may be six months, some customers, yeah. So, it's not a straightforward, straight line number over there, but yeah, you can have the fair attention over there.

Last question from my on the clean energy side. So obviously, that has been a very rapid growth in quarter one. So you've been going forward for FY27 and 28. Obviously, since the IRA incentives for solar projects in US ends on December 31, 27. So, I mean, you expect such growth to continue for the next couple of years, or you plan to offset that by onboarding new clients, new projects? Any thoughts on that?

So, Sriram here, just a quick point here, you know, the subsidies and the support continues until 2032 because this is, you know, storage solutions. So, these have a longer, you know, sort of subsidy support in the U.S. at this point. Suresh, hello.

So, Viprav, like we have discussed in the last four, five quarters, we are not in a solar panel business, we are in the energy storage solutions business, that is number one. And number two, if you look at the growth across verticals, industrials has grown by 42%, aero has grown by 47%, rail has grown by 37%. Medical has grown by 15%. So the growth is across verticals. It's just that in some quarters, one vertical may have a lumpy growth and it goes on like that. But for us, the comfort, from where we derive is the long-term annuality style of business. So that's where it's the kind of business what we're targeting.

Sure, sir. Just a quick follow-up on what Sriram sir said. Sir, you rightly mentioned that battery energy storage incentives is till 2032, but as far as I know, again, please correct me if I am wrong, majority of battery installations in US happens along with solar. It's not in isolation. That's what the data says. So, even if the incentives continue to 2032, if a panel is not being installed, what are your comments on the future of the battery energy storage industry?

We're happy to answer this offline. There's a method to this situation. We're happy to take this offline and take it.

For us, over the last two years, even this vertical has grown along with all the other verticals. Sure. Thank you. No worries. Thank you.

Thank you. The next question comes from the line of Bhavik Mehta from J.P. Morgan. Please go ahead.

Hi, thank you. Just one question again, going back to the guidance. Obviously, after a very strong 1Q, one would have assumed that the guidance would have been upgraded to at least more than 30%. But given the range is more 26 to 30% right now, just trying to understand what are the various scenarios you are baking into the guide? Is this new guide like the worst possible outcome? Even if everything goes wrong, you could still deliver on this guidance and this is like the worst case was you, man, there could be some upside to it if you are hoping to convert, you know, comes true.

Mr. Vavika, this is Kunamat. The way we look at this, you know, I know everybody loves quarter to quarter, but as a business, when we plan, we plan on a three-year horizon. And that's what we try to deliver. Some quarters may be used, some quarters will be lower. But saying that we are conservative, to answer your question, we are conservative. We don't want to. Some of the reasons of when these new projects will kick in into volume, right? Like I explained before, it could be in February of this year or it could be in April of next year. It's two months. It doesn't matter to the customer, but it does matter to us. So we do have some. We have conservatism in this, and that's what we are comfortable to be honest, rather than go out with flying numbers and chase that thing. And we have demonstrated that in the last seven, eight quarters.

To add to that, Bhavik Sureshya, to add to that, the kind of new programs... What we have gotten, whether it is semiconductor equipment or in the industrial sector or in the power vertical or in terms of new geography, getting into Southeast Asia or into Europe, that is an exciting phase for us because it may not be fully reflected in the P&L today, but it is there either as a pipeline or a proto or waiting to be into a, waiting to get into a commercial ramp of perspective.

Sir Bhavik, just to kind of echo on what Suresh said, I think we have never been this excited on the possibilities. It might not show in the P&L, okay? The type of products which are coming in and the type of geographies that's coming in. At least, you know, in 25 years of doing this, I have not seen that. Okay, so we are very, on the long term, we are very, very, midterm and long term, we are very, very positive.

Okay, got it. That's helpful. Thank you.

Thank you, Baba. Thank you. The next question comes from the line of Archid Shah from 361 Capital. Please go ahead.

Thank you for the opportunity, and, sir, congratulations for the good set of results. Sir, just one question that the growth that we are seeing, the 40% growth and the guidance that we are giving. So, it's a fundamental question that is there any split or is there a pricing growth because of the components price that has gone, you know, has increased so much, And tomorrow, if they correct or remain stable, will our growth remain the same? Will we still be able to beat the guidance that we are doing right now?

Hi, Sureshya. Our last eight quarters average revenue growth is 46%. And over the quarters, across verticals, across geographies, this growth has been changed. And even now, if you look at this quarter, it is well diversified in both the U.S. markets as well as export market as well as India market. So, if your question is if there is any one-off growth in this, the answer is no. The answer has been the same over the last past quarters also.

Just to get that, we don't have exposure to memory as much. It's very limited. We're not in the consumer space, we're not in the server space.

Okay, so, like, if, let's say, other components like copper and PVC and everything, so tomorrow, if those prices continue to rise or increase, will it show higher growth in the numbers and versus if they stay stable or will be decline a bit, is, like, just that I wanted to understand.

Yeah, actually, Sriram here. So, you know, all of these components you talk about form a part of the, you know, bill of materials, right? So, you will have metals, you will have cables, you will have PCBs, you will have a lot of other things. So, on the whole, you know, we don't believe this is driving the increase in prices, right? Ultimately, as Suresh said, right, this is broad-based growth. It's been driving for the last eight quarters, you know, and, you know, the margins are holding up. So, this is the sort of inherent business growth that you see.

Oh, okay. That's what I was looking for. Thank you so much, sir. Thank you very much.

Thank you, Arshad. Thank you, Arshad. Thank you. We have the next question from the line of Sarnesha from Dam Capital Advisors.

Please go ahead. I don't know you there.

Hello, Mr. Tanek. Can you hear me?

Shall we go to the next question?

Done. Okay.

So, we'll move to the next question.

The next question comes from the line of Siddharth S from Napa. Please go ahead.

Oh, congrats to him on a good set of numbers. So, I'd just like to get some clarity on your exposure on an overall basis to the defense space. It seems to be the, you know, center sector and the hottest sector at the moment. So, at the moment, I think the medical and defense combined comes close to 10% of your revenues as per Q1 and FI27. What would you like to get some light on if you plan to foray into that space via the PCD or the, you know, the whole EMS, you know, ecosystem or the supply chain as a whole, if you have any plans to, like, actively increase the, you know, focus there or what's your stance on it?

Thank you, Siddharth, for that question. We have nothing against the defense business, but it's a very lumpy business. It's all a feast of famine, the right way I should say. Saying that we do defense, we do defense in India as well as in the U.S., okay, and it's one of the verticals we are looking at to focus. We have done the first set of hiring for looking at defense. Segment three years from now, okay, because that is the time frame we need to spend to get the larger chunks in, okay. So, again, whether the whole world is, you know, out of ammunition, right, so the defensive will grow, and I'm pretty sure we'll be a part of it, and we have taken the first steps to look at it as a vertical, not saying that we have created the vertical, we're starting to look at it, how do I expand to. We will get into this space, in a meaningful way. We are still doing quite a bit of it, but not in large numbers.

Understood, understood. Thanks for the clarity and wish you all the best.

Thank you, Suta.

Thank you, Suta.

Thank you. The next question comes from the line of Tane Shah from Damn Capital Advisors. Please go ahead.

Yes, sir. Am I audible now?

Thank you, everyone. Yes, sir. Thank you so much for taking my question again, sir. I have two questions, right? I mean, if we look at it over the last few quarters, we've steadily increased our U.S. manufacturing, right? I mean, almost from 18 to 20% to now almost 28%. And that's now, in fact, even sort of helped us if I'm not wrong, almost reach a break-even level for my U.S. manufacturing standpoint on the EBITDA level. Is it fair to say that this is a base which now helps us sort of build on and this becomes a base where we break even on the US? Or do you think that this is just a quarterly fluctuation and, you know, what would the ideal split be between the India versus US manufacturing?

So, as we grow, as our top lines grow over the next few years, our goal is to keep it, U.S. manufacturing, around 20%, okay? So, I'm not saying the best growth for us is made in India for export. And made in India for India. Okay. So, but to get these margins made in India, I need the U.S. manufacturing. So, in the short term, if you want to cap it at 20, you'll have a few quarters which goes up and on. And most of the significant growth, what we anticipate over the next two, three years, is going to be made in India. Okay. Saying that, we are also opening up two geographies, right, which we are very excited about. Okay. Which is Europe. Which was a very small percentage of exports. The next two years, we see that hopefully growing in a very, very meaningful way. And Southeast Asia, I mean, that is a foray which I believe will take us to the next level. So you're basically competing with the best in the world, with the best products you can make made in India. And this comes with relatively very decent margins. We are not doing commodity type stuff. We are doing complex systems. So, saying that, you know, the U.S. will always be there. And again, it is a treadmill. You know, I feel bad for the U.S. guys. Because every time there is a good number coming there, it is always more profitable to move to India. Okay. So, as a group, we tend to do that. So, you will see certain spikes. And that has helped us through the tariff situation, if you look at it, right? It has given a lot of solace to our customers that we are in the U.S. And if they want to launch there, the more they come to launch there, the higher cost. Does that answer your question, Vanny?

Absolutely, sir. Absolutely. That makes sense. Sir, and the second question which I had is that, you know, we're seeing a lot of supply chain disruptions, especially from a bare PCB board side, maybe for the raw materials or even the glass, the fiberglass or, you know, the high-quality PP, which is required. Sir, any comments on that, that is it impacting our operations by any means or do we expect any impact going forward or are we well covered?

Hey, I'm here. See, you know, you have instances and different commodities that go up and down. We are generally okay, you know, last quarter and this quarter. We've tried to stay a little ahead of the curve in terms of securing some of the supplies of the commodities that you mentioned. So, for the time being, you know, with the environment the way it is, we think we're okay, but obviously we, you know, stay on high alert and, you know, we'll move quickly where we have to if we need to. Perfect. Perfect.

Great. Thank you so much for answering my questions and wishing you all the very best. Thank you.

Thank you, Tanay.

Thank you. The next question comes from the line of Mayank Pandey from MK Global. Please go ahead.

Hi, sir. Congratulations on a good set of numbers, and thank you for taking my question. I have two questions. Question number one is your asset turns 9.9x. Now, with our ODM revenues going up to 60% of our total revenues, I would have expected that this would probably be a driver to move up the asset terms. So, just want to get a theoretical understanding as to what would, you know, cause us to breach this level or put another way, what could be the maximum level that we can see on asset terms with the current asset base and the current sort of growth that we are having. That's question number one. And the second question is on the ODM mix itself. If you could just walk us through the segments that we have in the ODM mix in each of those segments, if that's possible, or if, you know, what is the main driver, which segments are the main drivers for the ODM to go further from these current events? Those are my two questions.

Okay, great. Thank you, Maya. First and foremost, we don't do ODM. Okay, we do Boxville, which is? A custom design by a customer, even if we do the design for them. The IP is owned by the customer. So, we do build to print, and that is the reason why most of these complex systems are coming to us. So, we don't want to have a situation where we can do our own products. Okay. So, end of the day, even though we do design, it is done for the customer. So, the ODM piece is not there. What you're referring to is a boxable solution, which is where we do the whole product for the customer.

Okay.

So, um... So, we have always strived with our vertical integration to get this number as high as possible, and we've been successful so far, and we continue to strive, and I think that portion of our business will grow, because we may start with one commodity, and then we try to, in two to three years, get the whole box, that's PCB, a cable, plastic, all in a box, yeah. So, that's always been our aspiration, as well as our goal. Did I miss anything?

I just want to understand it from a different lens. Is it like, can this go up to, let's say, 10x, 12x, 15x? How should I, or what would be the incremental CAPEX required in that sense?

You know, we are, you know, probably, even if you look at a global market, probably the best in a set terms, you know. What we always commit to is 8 to 10 times. Sometimes it goes up and down when you do an investment in a building. So, the rate to 10 times is what you should look at, and we... We want to stay in that range, because we have to make investments also, right? So, that's our goal. I think you should look at it 8 to 10 times.

And we are looking to improve our ROCs even from here, to answer that. Yeah, yeah, yeah, of course.

And if you could, sorry, I misspoke earlier on the ODM versus box, which is my bad. Yeah, if you could just, if you could just help me understand which of the segments have the highest, let's say, percentage of box builds, or how should we look at it from a segment to segment perspective?

I think most of the segments, except for aero, we can't build a plane, but we build boxes, yeah?

It's spread across various verticals.

All verticals.

It is not focused on just one industry vertical.

For example, railways, we do the interlocking systems, braking systems, the complete box. In the clean energy, we make different type of inverters, battery storage, it's all complete boxes. Only in the aero piece where we do sub-assemblies. Got it, got it.

And just one last question. The ISM 2.0 scheme came out, and I know you must have been getting a lot of questions on that, but any chance you see that we could be one of the beneficiaries from it, given that we will, because it specifically calls out equipment suppliers, and we might be part of that value chain now with your wins in that space. Any possible benefits you see to Avalon from that scheme?

We believe so, but we are able to look at the finer details of the ISM 2.0. But definitely, semiconductor manufacturing equipment is one of the key verticals for us over the coming years. And when the finer details come, then we will have more details to share to everyone.

So, in short, yes, we are looking at it.

Right. And would you be open to... Like incremental CAPEX for that as a separate carved out sort of structure, not carved out structure, but let's say the separate CAPEX to that effect, or would you want to continue with the current business model?

The opening remarks were highlighted about acquiring a large piece of land in Chennai for our future growth, the next phase of growth, whether it is with respect to semiconductor manufacturing equipment or advanced electronics. So both of them. So yes, the answer is there. Okay. Thank you. Thank you so much.

Thank you, Maya. Thank you. Thank you. Ladies and gentlemen, in the interest of time, that was our last question, and I would now like to hand the conference over to the management for the closing comments. Thank you, and over to you.

Healthy order book, expanding customer engagement, and a flexible manufacturing model, we remain focused on delivering profitable growth. We thank our investors for the continued support and look forward to updating you in the coming quarters. Thank you. Thank you very much.

Thank you. Thank you. On behalf of Dam Capital Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.