Aeroflex Industries Limited (AEROFLEX) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Aeroflex Industries Limited Q1-FI27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Should you need assistance during the 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 would now like to hand the conference over to Mr. Asad Dood, Managing Director, Aeroflex Industries Limited. Thank you, and over to you, sir.

Thank you so much. Good morning to everyone. I welcome you all to Aeroflex Industries Q1 FI27 earnings call. Joining us today are members of our senior management team along with representatives from Strategic Growth Advisors. our investor relation partner. I hope that you have had the opportunity to review our financial results and the investor presentation, which is available on the stock exchanges and also on the company's website. We are pleased to report our highest quarterly performance ever. Our consolidated revenue for Q1FI27 stood at 145.97 crores. Which is an increase of 72.4% on a year-on-year basis, with growth coming in both from our core business as well as our emerging businesses. Our flexible host business grew 41% on a Y&Y basis, and the assemblies and other value-added products grew even at a faster pace. Revenue from SFN skid assembly reached 32.4 crores in this quarter, which is contributing to approximately 23% of the total revenue. These kit assemblies enable control circulation of the coolant across the entire cooling systems in the data centers, and it is engineered to meet the stringent requirements with regards to reliability, pressure management, and also leak prevention. This marks a major step in our company's evolution from being just a flexible hose manufacturer to an integrated provider of advanced flow control and flow management solutions for mission-critical applications. As part of our capital expenditure plan, we have expanded the capacity of scale assemblies from 6,000 units to 9,000 units per annum, and we have the plan to further increase it to 15,000 units per annum based on the requirements from our customer and also the deployment timelines given by them. We also continue to invest in automation, advanced building solutions, and also precision manufacturing to help strengthen our product quality and reliability. On the flexible hoses vertical, we have planned to increase the production from 17.5 million meters per annum currently to 20 million meters per annum, and it should be completed by Q3 of this financial year. So talking about our financial performance for Q1, our total income stood at 145.97 crores, which is an increase of 72.4% on a year-on-year basis. Our EBITDA stood at 33.5 crores, which is up by 116% on a year-on-year basis, with margins expanding by 468 basis points as compared to the same quarter in last year, who could be 3.04%. Our profit after tax stood at 18.79 crores, which is up 162% on a year-year basis, and our fat margin currently stands at about very close to 13%, which is an improvement of 140 basis points from last year, same quarter. Our cash profit grew by more than 100%, to 26.5% to 26.64% with the cash profit margin improving by 278 basis point to 18.25%, which reflects strong operating leverage and improved cash conversions and profitability across our various business verticals. Our exports grew by 43% on a year-and-year basis, and the higher contribution from the domestic market in this quarter was primarily driven by the rapid scale-up and supply of the liquid cooling solutions, the grid assemblies of the liquid cooling solutions. Looking ahead, we are confident in the business model that we have, in the products that we manufacture, and the long-term momentum of our growth story, which is built on a strong core business of flexible hoses and assemblies, and the fast-growing vertical of skid assemblies for data centers. Thank you. It gives us an opportunity to scale rapidly, along with seeing the growth coming in from the opportunity that the AI infrastructure provides. We remain firmly focused on scaling all our business verticals, including the liquid cooling business, expanding the capacity of scale assemblies, and also for flexible hoses and hose assemblies. Deepening our customer relationship across our customers, both in India and across the world. Advancing new product development and also undertaking automation and digitalization initiatives. I would like to thank our employees, our customers, our suppliers, our business partners, and all our shareholders for showing the continuous support and trust to the company. Thank you, and with that, I conclude my remarks, and we can now open the floor for questions.

Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone 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 the moment while the question queue assembles. We have our first question from the line of Shweta from I Thought BMS. Please go ahead. Yes, Shota.

Yes, sir. So my first question is, I saw there was a spurt in reviews from Europe in this quarter. So could you please explain where that was specifically found, which segment?

So, we are seeing an increased business coming in from both Europe and also in the USA market. From Europe, it's a mixture of the business growth coming in from various countries, which includes Italy, Spain, France, and also the UK. And we are seeing the business, you know, across Europe coming in not only from the traditional industries, Please, but also we are supplying our. Flexible hoses to applications, to data center applications in Europe as well.

Okay, so we are exporting data center applications.

We are exporting our hose assemblies, the flexible hose assemblies, also for data center application in Europe.

Got it, sir. That was my question.

Thank you. Thank you.

We have our next question from the line of Karan Dholi from Aset Seemhetha. Please go ahead.

Yeah, I'm an audible.

Yes.

Thanks for the opportunity and conversation on good setup number. I had a question more on SIF, could I assume the segment? So, who are the domestic competitor was supplying the same products?

So, in skid assemblies, right now, we are among the few players who are into this space, who are supplying. In terms of competition, there are a few people who have just started to work on that, but it would be difficult to share the details of competitors because not much data is available in public forum in regards to that.

Okay, okay. Now, what about the international market? Who are the led?

So, in international market, there are companies in the US, there are companies in Europe who are manufacturing of, you know, these SFN assemblies, plus also our competitors such as Senior and Parker are also into this, they've also started with this, you know, this business vertical. So these are our competitors internationally, plus there are local players in the international market who are supplying and serving their local industry, like in the US and in Europe.

Okay, that was my question. Thank you.

Thank you. We have our next question from the line of. Raman from Sequencing Investments, please go ahead.

Hello, sir. Can you help me?

Yes.

So, I have a couple of questions. First, on the flexible hose assembly part, I just want to understand two things. What is our current utilization of our current capacity in this segment? And once we are done with the… capacity expansion of this flexible hoses by I think three will be done. What will be the peak revenue potential from this segment?

Okay, so currently we are operating at about between 65% capacity utilization right now 65 to 66% capacity utilization. With the, at the peak utilization and assuming that 70% of the sales comes in from the SMBs, we are looking at a top line of anywhere between 650 to 675 crores.

Okay, so you are basically saying we can do around 650, 670 crores of revenue from

flexible hosts, including the SMB part, right?

Correct.

So, I mean, sir, about two years back, you wanted, you were more towards like the margins on the flexible SME will improve and move towards 25%. So, from this, during the current quarter, what's the margin from this business itself? And are we on the road to achieve that 25% margin in this business?

Yeah, so our idea is to achieve a 25% blended margin, you know, combined as a whole, so which includes all our products, which includes the flexible hoses, the flexible hose assemblies, bellows, and also the skid assembly. So the target for the company overall is to achieve an EBITDA margin of 25% in the next few years, and we are right now on track to achieve that.

No, I'm just talking about the flexible hose assembly card. Two years ago, your aim was to get 25% margin in the flexible hose. So, I just want to understand where are we at?

So, the margins in the flexible hose business depends on the product. So, when we sell the flexible hose, just in the hose form, margins range between 16 to 20%. And when we, you know, sell the assemblies, the margins range anywhere between 22 to 26%. That's the range of the margins. Yeah.

So can you give the blended split between how much are you selling as just a flexible hose part and how much are you selling as a flexible hose press assembly?

That split is already there. Like I mentioned, I think in the last, in this, in this quarter, approximately 60, 60, 66 to 66% of the business. Uh, was through, uh, I beg your pardon, 63% of the business was selling off the fittings and, and assembly products. And about 37% of the business was, uh, selling the flexible hoops.

Okay.

Only. So, 60 to 37. Yeah.

Okay. Understood. So, so basically, uh, on a blended basis, this is more towards, uh, 22, 23% margin. Because of higher contribution from, yeah, okay, understood. And for my last question is, can you also give us the revenue from Hyder and miniature metal bellows and metal bellows as well?

Yeah, so the revenue from Hyder in the last quarter was around 7 crores, and the revenue from the metal bellows was about 3 crores. In this quarter, in Q1.

And what about the miniature metal bellows, which we were planning?

Miniature metal bellows is part of the metal bellows, you know.

Okay.

Yeah. And for metal bellows, we have a thing. Yeah, for Metal Bellows, we are seeing increased business also, you know, coming in. So we are expecting the next two quarters to be, to see really an uptake in the sales for the Bellows division.

And do you have any KPEX plan for Hyder? You said you will share it in the next financial year.

Yeah, we are in the discussion for the same. We would announce it as soon as it is finalized.

Okay. Thank you, sir. Thank you so much.

Thank you.

Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one on your touchstone phone. Anyone who wishes to ask a question may press star and one on their touchstone telephone. We have our next question from the line of Shubhi Gupta from Thrayanetra Asset Managers. Please go ahead.

Hello, sir. My question is that our average price for Skid Assembly has declined. So what is driving this? Is it coming from competition? What is driving this price decrease?

So, you know, each skid assembly, you know, for every data center and for every floor of a data center has a different design. Based on the design of the skid assembly, the value of the skid assembly changes, you know, even in the same data center building, the value of the skid assembly might change, you know, based on floor to floor. So, technically, the price has not declined because the value per skid assembly depends on the design of the skid assembly. So, if the skid assembly has less number of, you know, for example, piping, the value will be definitely less. And if the skid assembly has a longer piping, the value will be higher. So, it's more of a tailor-made product. Hence, it's not the right way to see the price per skid assembly. Because it varies, you know, vastly. We have supplied skids worth one lakh rupees also, we have supplied skids worth five lakh rupees also. You know, obviously the materials used for one lakh is much lesser as compared to what the piping used in, you know, in a five lakh.

Okay, so this will not impact our margins per se?

No, it does not impact our margins because the costing for every skid assembly, depending on the design, is done separately. So it's not like a standard of the shelf product.

So my second question is that we are doing a lot of R&D. So any product which is close to commercialization, also R&D, will this lead to some better market opportunities for us or will that impact on margins, any technological improvement?

So we are working on a lot of products, both in the, in our hose assembly business and also in the, you know, in the liquid cooling where we are developing certain products in collaboration with our customers. So definitely these products are, these products are there for. Uh, so these products are basically will be ultimately commercialized and used and used, uh, you know, in our, uh, in our application.

Is there any timeline on this? Will this improve work efficiency, cost, or will it lead to better margins?

It depends. Products depends, you know, at what stage they are in. So, some are towards the end of completion, some have just started, some requires a lot more, you know, in terms of engineering, in terms of its, you know, end-use application. Some products might require special machine for us to make it. So, it's difficult to, you know, give a specific, you know, timeline that's, you know, what product will happen at what time. Some products stay in R&D for a long time, right? Because, you know, sometimes it is difficult to, you know, to meet the requirements of the customer. So, that's part of, you know, that's part of R&D.

So, thank you.

Thank you.

We have our next question from the line of Prem Lunia from Astute Investment Management. Please go ahead.

Hello. Hello.

Yeah.

Yes, Prem, we can hear you. Yeah. So, congratulations on the numbers. I had a few questions about if you can give us the update on the firehose assembly for the data center.

Firehose assembly, Favla?

Data Center, which we were developing. Is there any update on that?

Yeah, so that product is already almost towards the end of completion, should be commercialized by the end of this quarter or latest by the start of next quarter.

Okay, but in terms of realization, can you quantify how big it can be?

Well, difficult to give a number right now, but, you know, we have put in certain investments based on the projections or the estimation that we've received from our customer. So, I think once it is commercialized and into production, I think probably at that time we'll be able to, you know, give a better, you know, perspective on that. Right now, it will be difficult for me to comment on it in, you know, in public forum until unless something is not yet, you know, commercialized.

Sure, but will it be for domestic use or international? No, international.

International supply.

Right. And also on this, the other products, other than the SFN product, we had developed some 15 odd different products which we exhibited. Is there any update on any traction on that front?

The 15 products which are under development?

No, there are 15 products which we showcased in the exhibition in April.

Yeah, yeah. So these were the products. Are there any orders? Yeah, so these are the products. Some of it, we already had the orders from some of the customers in Europe. So we showcase those same products in the US as well. We have already received the orders for the assemblies, which will be used in the data centers. For the skid assemblies, we are in talks with a few potential customers. So once everything is finalized, we'll definitely, you know, let the shareholders know right now it is still under discussion. And these things take some time because, like I mentioned, the partner that we are working with in India, right, from the day we started the discussion with them to the date of the first transaction that we did with them took almost 10 to 11 months.

Sure. And just an update, as you have shared that at the end of the year, 25% of the revenue will be distributed by SFN. But in this quarter, you have done already 22% and you have not completely utilized the capacity. So, do you want to reiterate the statement or anything on that plan?

Well, I think I would, you know, talk about this at the end of the year because, like I mentioned, it is the plan for the end of the year. Quarter on quarter, you know, you know. Things change, but we work on a yearly basis, so that's why I think it's better that I answer it at the end of the year.

Sure, sure. Thank you.

Yeah, thank you.

Thank you. We have our next question from the line of Tej Patil from Neosha Investments. Please go ahead.

Hello. Am I audible, sir? Thank you so much for the opportunity and, you know, congratulations on the good side of the number. I mean, given, you know, recently there are a lot of announcements by the Charity Tasker and, you know, the Rikujat policy coming in, you know, there's a lot of friction of data centers in India. Just wanted to get your thoughts on, are we contemplating based on our engagement with customers, you know, and their order pipeline? Do you know, expand our capacity to beyond 15,000? And if the thought is so, I mean, you will already in talks to with your existing customer to expand capacity beyond 15,000, right? So your thoughts on this, you know, once you probably, let's say, get the capacity to 15,000 by Q3, are we contemplating to, let's say, put in more capex beyond 15,000 as well, based on your conversation with your current customer and, you know, what are your thoughts?

So, you know, the capacity increase that we have planned from $2,000 to $15,000 was based on retail, the discussion that we had with our customers, you know, with our customers, and based on their projections at that time, we have built up the capacity to $9,000 now and to complete the $15,000 by the start of Q3. Now, in terms of the further expansion and, you know, beyond 15,000, you know, We are under discussion, but it's too early for me to comment right now on this until and unless something is finalized and then I shall share the same. But yes, demand is increasing. As we all know, you know, with the kind of data centers coming up, but obviously it takes time for a data center to be built up and to be up and running. So, we will definitely plan our capacity expansion after discussion with our customer, and the customer definitely shares with us their orders in the pipeline that they have for the next few months, and also the kind of business that they see coming in the foreseeable future. So, we are in constant touch with our customer for this. Probably, our first target is to get the 15,000 skids commissioned and up and running, and then to look at further expansion.

Understood. Understood. That was helpful, sir. And you're taking from the last phone call, you say probably... We will probably do some business internationally in the skid business. I mean, not the firehose assembly, but in the skid business. Are we on track? I mean, how hopeful we are to, you know, get some order and execute in this financial year only?

Yes, we are definitely on track, and in this financial year, we will definitely have business coming in from the international market.

Okay. So, I mean, of course, you will be, given you are to execute this year, you might already be engaging with the customer, right? So, is it the same customer that we are dealing with within India or is it a complete different customer?

I will not be able to comment on that. That's slightly proprietary on that aspect.

But it's not a problem. In terms of quantum or, let's say, in terms of quantity, if you could help us understand is it significant to our current capacity or, you know, will it be a part of our existing, there's a planned 15,000 capacity or will it be probably required to put up another capex for it?

In terms of the potential, right, you know, you can just see the potential in the international market is multifold as compared to the India market, right? You know, just talking about Europe and USA themselves, you know, probably would have multiple times of the potential as compared to the markets in India, right? The design of their skid assemblies is slightly different than what we have in India, so we are developing their talks with them to develop the skid assemblies that is required by them. So I think once we get some, you know, confirmation finalization, only then I'll be able to share more details on that.

Got it, got it. Not a problem, not a problem. And sir, the fire hose assembly, which earlier participant was asking, that is for the same customer? He's probably our largest customer, right? Yeah, that's for that customer. Got it, got it. And sir, if you could probably help us understand with some indication on margins on the skid business, you know, this quarter, is it possible to give a range, if not an exact number, you know, what margins are we making on the skid business right now?

See, the margins on the skate business is on a blended, on a same level as the margins on an average for the entire company as a whole. So, I think we'll only be able to share that much detail because I will not be able to share the exact margin details on public forum.

Got it, sir. Not a problem. Thank you so much and all the best.

Thank you.

Thank you. We have our next question from the line of Deepak Podar from Sapphire Capital. Please go ahead.

Hello, I'm an audible, sir. Yeah, thank you very much, sir, for this opportunity. Sir, just wanted to understand, you know, this skid, this capacity expansion from 9,000 to 15,000, right? So what is the KPIX involved there?

So, the overall capex, see, the plan was to have to increase the capacity, okay, sorry, I can just hear myself, so. Yeah, the plan is to increase the overall capacity from 2,000 skits per annum to 15,000 skits per annum. And for that, we have budgeted the capex of 48 crores. So the entire capex should be utilized to increase the capacity from 2,000 to 15,000. Some of the machines are required right now, but they will be used, you know, like some of the machines are such that they are answering machines which don't, you know, add to the capacity, but are used, you know, right from day one. So, it will be difficult to give an exact number of how much capacity is required from 9,000 to 15,000 because some of the machines have already, you know, come in. Some of the machines have been planned to come in this quarter and a few of them would, you know, come in in the next quarter.

I understood. And what about the capex for this, the flexible hoses from 17.5 to 20?

So the, like again, when we plan to increase the capacity in the flexible hoses, it was planned from 16.5 to 20, and the budgeted capex for the same for the entire was around 54 crores. The plan, yeah, so some of it was spent in FY25, some of it was spent in FY26, and now the remaining would be completed in FY27.

Understood. And this also we expect to come on stream by third quarter, right?

Yeah, so by Q3 of this financial year, most of the capex that we had planned, you know, last year would be completed.

And on coming to SCID, this 15,000 capacity, I mean, we expect to optimally utilize in FI28. Now that FI28, you will get the entire year of this capacity, right?

Yeah, yes.

So do you expect to optimally utilize in FI28?

Yes, once it is commissioned, we expect it to be up and running and then to be utilized as the optimum level in the next financial year.

In Fi20. And what would be the optimal utilization? I mean, can we reach 90-95% or 80-85% would be your optimal utilization?

No, about 80% is the optimum utilization.

So, 80% is what the optimal utilization? Okay. But you did mention that, I mean, the approval takes a lot of time, right? About 10-12 months in this segment. So, will the scale-up happen fast? I mean, for you to kind of have this 80% utilization in Fi20?

So the approval is in terms of, there are two kinds of approval. One is when you have a completely new customer, you know, to whom that you are working with, that obviously takes a lot of time. The second kind of approvals are when you're already working with an existing customer, but the data center that they are working with, they need to take approvals for all kinds of drawings, all kinds of design before we start the production. So, that is where sometimes the delay happens where a lot of the time the designs are not approved by the customers. So, until that time, you know, we cannot produce the products, you know, because unless the design is not approved, the production cannot happen.

I got it. And given that, I mean, skid assembly revenue share will increase because it will grow way faster than your base business, which might be expected to grow at 15-20%, right? So ideally the share will increase. So that's margin accretive for you? The skid would have superior margin as compared to your flexible hoses or assemblies?

So, like I said, you know, again, difficult to give a number on the margin increase just from the Skid SMB on a public forum. But like I mentioned, the target for the company is to achieve a better margin of 25% over the next few years. And that is where we are focusing our efforts towards.

Yeah, okay. Understood. Got it. Got it. Yeah, that's very helpful, sir. I mean, I wish you all the best.

Thank you so much. Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and 1. Anyone who wishes to ask a question, may press star and 1 on their touch-tone telephone. The next question is from the line of Nirvana Laha from Badrinath Holdings. Please go ahead.

Hi, Asad. Thanks for the opportunity and congrats on a great quarter. My question is, Asad, this 15K expansion, you said Q3, can you also tell which month it will come? And for Q4 exit run rate, I think in the last call you had said 750 skits per month we will hit. So is that guidance in time?

So, first of all, you know, when we talk about Q3, it's an expected Q3, it may come anywhere between October to November. So, difficult to tell an exact one because it depends on our machine supplier because from where we are, you know, facing certain delays from their end. So, it might come in October, it might come in November, difficult to specify a month specifically for that. That's why we have given a quarter, because we are dependent on external suppliers for specific machineries. And with regards to, you know, Q4U, 750 skids, can you just repeat your question? Central Key Sketch is for, yeah, yeah.

So overall, I mean, the exit run rate for Q4, I think last time you had said you expect to hit about 60-65% utilization on the 15,000 skid capacity. So that works out to, I think, approximately 750 skids per month. So that was my question. Is that guidance intact? Do you think you can do higher than that?

So, you know, as of now, you know, how the things are flying up, you know, we feel that that is intact. Obviously, it depends on closer to those particular, you know, when we reach Q3, you know, Q3 will have a much better idea in terms of the planned dispatch for Q4. But yes, the entire team is working towards increasing the supply of the skin assemblies to, you know, to our customers.

Sure. And, Asad, I had a question, the skid assembly facility, right, the CAPEX that you're doing for skid assembly. Suppose, you know, skid demand, after a few years, skid demand tapers off. This particular facility, can you repurpose for your flexible hoses or for bellows? Is it a reusable facility, the same machines, et cetera?

So, some of these machines can be utilized for bellows, okay? A lot of these machines can be utilized for, you know, for providing flow control solutions for other industrial applications as well. Not exactly flexible hose, but it can be used for flow control applications in HVAC, in, you know, in the other industries, in ports and terminals industries. So, uh, the machines are something which. Say, five years from now, demand for SCID SMDs, you know, goes away, which I feel is, you know, it's a little far-fetched to think that, but, you know, just to assume that if it goes away, the same machines can be utilized for developing piping solutions for some other, you know, industry. So it's quite fungible from that aspect.

Awesome. Awesome. That's great to hear. Last question. This quarter, while gross margins went up quite a lot, QOQ I'm talking about, 200 BIPs gross margins went up, but you had 300 BIPs of deleverage coming from employee costs and other expenses. So is it expansion-related costs which will get absorbed completely by the next two quarters, or is there some one-off?

So, these are mostly, you know, the cost related to, so we have, you know, setting up of the plant at Chakan in Puna. So, some of these costs of the employees, if you see, the employees cost has increased because of the ramp up in manpower that we have done both at the facility for SFM in Kalosha and also the new facility coming up in Chakan. And so some of these costs are for those particular, you know, projects, you know, which has affected, plus also with, you know, With increased business, we expect in the next few quarters coming in from Bellows as well, because Bellows has not yet reached optimum utilization in terms of its positive contribution to the presented margin. So once that also comes up, I think we'll see a bigger uptake or a higher uptake in the in terms of the in terms of the bigger margins.

Great, great. Thank you so much and all the best for the upcoming waters.

Thank you. Thank you.

We have a next question from the line of Ritesh Chheda from Lucky Investments. Please go ahead.

Sir, on this case, is there an order book that you have? Is there a delivery schedule that you have as of now?

So, we generally receive the tentative. Dispatch schedule from our customer two months in advance with regards to the tentative dispatch that they plan, you know, for which the designs are in the final stages of approval. So, and then the other, you know, for Q3, they have given a tentative that, you know, these are the projects that are in finalization and these are expected to come in Q3. So that's what they, you know, you know, give us. So we have candidate, you know, for this quarter, we have already have brought the dispatch plan.

So basically, every time you will have a three-month delivery schedule available to you, which is a defined delivery schedule and a defined schedule to be made. And beyond the three months, you will have a visibility in terms of a client telling you that this is the identified project and I will come back to you with my designs. That's how we have to understand, right?

Yeah, so it's two months of plan, dispatch plan for two months, and the projects for the customers, so the customers don't tell us directly because it is not our customer, the end customer who was ultimately setting up the data center, it is the customer of our customer. So, based on what discussions that they have had with the customer, they gave us a tentative, you know, plan that these are the projects that we will plan to dispatch in this particular, the next quarter.

And from each project to each project, the skid type and the skid value will differ, right?

Yes. Even in the same project, on different floors, the value of the skid might change and the value of the amount of the SFN for each floor might vary, you know, between a floor to floor also. So that's why the design of the floor, how are they planning to set up the data center is extremely important to design the SFN.

Lastly, sir, you have given the value of 34 crores in quarter one as your value. Can you tell us the volumes there and what delivery schedule do you have for quarter two, value and volume?

So in Q1, we had 32.4 crores as the value of the sales and the volume was 1040. It is mentioned in the presentation also. So, this is what we have achieved in this particular, in the last quarter, Q2 delivery schedule we have, but I will not be able to share it right now. Probably, we can take it on a one-to-one basis.

Okay. And lastly, the exit run rate which you are saying at 65% utilization, that is on the expanded 9000 skilled capacity or the 15000 skilled capacity, which one?

Sorry, can you repeat the question?

You have guided for utilization run rate to improve to 65%, right?

For the scale SMB, right?

Yeah, for the skid assembly. So that was, one has to take as exit 100 on 15,000 skid capacity or 9,000 skid capacity?

That's for the Q4 that I mentioned to the other, you know.

Yeah, I know it is for Q4, but on what capacity? 9,000 or 15,000?

So, that is on $15,000 once it is, you know, commissioned.

Okay. Okay. Okay. Okay. Thank you.

Thank you.

Thank you. We have our next question from the line of Yashika Pancholi from Haytong Investments. Please go ahead.

Hi, sir. Am I audible?

Yes, we can hear you, Yashika.

Congratulations on great results. Just one question on firehose assemblies. What kind of, of course, you may not be able to give us the exact number, but a ballpark on what kind of margins are we looking at in case we go ahead with the firehose assemblies for the customer to do it?

The firehose assemblies have margins ranging between 23% to 26%.

Great, sir. Thank you. That's all I wanted to know.

Thank you.

We have our next question from the line of Omkar Chachar from Mothi Laloswal Financial Services. Please go ahead. Hello, sir.

So, I can see on sequential basis, your margins have decreased by approximately 80 bits, but the scale volumes have also increased, like they have doubled. So, is this because of any product portfolio changes?

No, so in terms of the, so if you see the gross margins have increased, but the, like I mentioned into the earlier, you know, the gentleman would ask. So, because we have, if you see, we have, we have put more investment in terms of team, where we have increased the team, you know, for the skills business, plus also we have set up a new facility for, you know, for manufacturing this, the whole assemblies for specific application for one of our international customers. So, we have invested a lot of amount in terms of this particular future expansion, hence that's the reason for slight, you know, deadline on the margins on a sequential basis.

Oh, I got it. Thank you.

Yeah, no worries. Also, to add to that, just a little bit, is because the, you know, barring the material cost in the last, in the Q1, if you also would see that logistics cost also has increased because of the crisis that has happened in West Asia. So that is also a cost which has seen significant increase, specifically in Q1, because the real impact of the West Asia crisis started to begin towards the middle of March, and then it became more and more severe in Q1. So that was also a reason for increase in expenses, the other expenses that you will see.

So for 2K also, we should assume like a marginal system, right? Around 23 percent.

Yeah. So, you know, I keep mentioning that, you know, Quarter-on-quarter is, you know, I would want everyone to look at it, or we definitely, you know, look at our business not from a quarter-on-quarter basis, but from how we see it on a year-on-year basis because, like I mentioned, some quarters, you know, can be very good, some quarters can be not so good depending on external circumstances. So, you know, it's better that we adjust on an annual basis because over a period of a year, you know, things tend to average out.

Okay, I got it. Thanks.

Thank you. We have our next question from the line of viajurani from code advisors. Please go ahead.

Hi, sir. On the SSN skid, I wanted to understand what's actually yours versus bought out, say, on a typical skid. Roughly, what share of value is Aeroflex's own manufacturing, say, the piping, hoses, bellows, versus the components that you're sourcing and integrating? And over time, do you plan moving up to the higher value pieces like CDU's, manifolds, or quick disconnects, or stay focused in fluid transfer?

So, you know, it's difficult to give a number in terms of see some of the components, the raw materials that we are buying from our suppliers, then we are converting into the SFN some of the components that we are buying from our, you know, our vendors in terms of the The fittings and the connectors and the valves and all. So difficult to give a number in terms of exactly how much is we are managed to. So the entire, you know, our manufacturing is for the entire product, right? And in manufacturing, you, you, for us, all of the components that we are buying from our suppliers are raw materials, because ultimately we convert them into a complete skid, a skid, and then we supply it. So, you can, the best way to judge is to see our, you know, gross margins, because ultimately, those are the materials that we have purchased, and then ultimately consumed into manufactured.

Understood. And the second one would be, so, everyone's quoting the 9 gigawatt India pipeline in terms of their data centers. Just wanted to understand one thing from you. For 1 megawatt of liquid-cooled IT load, how much Aeroflex's content is there in rupees? Roughly, how many skids does a megawatt absorb? Just trying to understand how you get from gigawatts of pipeline to a revenue number from 2 for Aeroflex.

About 40 odd skids go into 1 megawatt on an average.

Understood. Okay. And the last one would we say, against the global integrators like Boyd or Motivare, was the actual reason a global thermal management player would source FFN skids from India and from you? Is it like cost arbitrage, localization mandate, or like genuine engineering differentiation? And in a longer run, would this be a defensible mode for the company?

Talking about international customers?

Yes, in terms of international customers.

So, you know, first of all, international customers are right now obviously buying internationally from their own suppliers, you know, whether they're based in US or Europe or any other region, right? Now, they are looking at us both from the perspective of one, our engineering capabilities, you know, in just one year time, we have, you know, developed a product which was non-existent in India, right, in terms of... Uh, in terms of the business, which was a year back, there was a, you know, SFN was not available in India. So in this, in the span of one year, so our team, our engineering capabilities, our, our R&D, obviously the product quality that the manufacturer second is. The kind of, you know, innovation that we are doing. I think I mentioned in my previous call that the first skid that we supplied and the last skid that we have supplied, you know, recently, if you see the designs, we have done so much improvement that it will be difficult for anyone to judge that the first skid, the difference between the first skid and the latest skid that we have supplied, there's a huge, you know, difference in terms of, you know, capabilities and innovation. Now, that is... Not, you know, easily, you know, available in the market, you know, in terms of cost arbitrage, see, obviously, India will always have the cost arbitrage, but that is will always remain one of the factors. But for us, it's more important is how do we, you know, how do we innovate in the products in order to ensure that we give better products than, you know, what the customer has asked for. And that's what it says from our customer. And one more thing is our speed. You know, our speed is something which, you know, probably we, you know, we can probably say that we are among the ones who are the fastest and the most agile in terms of, you know, adoption of technology, both in engineering and also, yeah, in our production.

Understood. Thank you so much, sir. Thank you. We have a next question from the line of Muskan from Nivesha Investments. Please go ahead.

Thank you for the opportunity and congratulations on a great set of numbers. I just wanted to ask on the high-dye side, are we looking individual or standalone approval to sell components from high-dye to other scale makers or CDU players globally or is it only for our own internal purpose?

No, uh, we'll be using, uh, the products that had it for our own internal, uh, usage and not, uh, to supply to, uh, you know, not to supply to, uh, to other data center, uh, you know, manufacturers.

And how much is the percentage, um, if you can quantify how much of high there is, uh, high there component is going into our SSN script part.

So, right now, Hyder, in terms of the SFN, we are not, Hyder is not supplying the components for SFN because the components for SFN are made with a different technology. But Hyder is providing certain components which are used for our host assemblies, and those host assemblies are going into data centers. So, right now, we are utilizing the capacity for components for hose assemblies.

So, are we planning to move that also into data center?

Yeah, but it will not be directly. It will be as part of Aeroflex's product offerings.

But right now, we are not doing it? No. Okay, thank you.

Thank you. We have our next question from the line of Raman from Sequin Investments. Please go ahead. Hello, sir.

Can you hear me?

Yes.

Sir, just a follow-up on the previous participants question. On the flexible hoses part, you said there have been inquiries from Europe. I just want to understand what are the applications of the flexible hoses, not the SMV, in the data center, like where are they used and where are we seeing demand coming from?

So, there are two kinds of users for hose assemblies, you know. One is obviously for the last mile connection between the rack and the SFN, where there is a flexible component which is required. That is one. Second is the fire application where the hose assembly are used for, you know, for firefighting solutions or the fire, you know, for the fire suppression systems that are installed in the data centers. And then some data centers where even, you know, air cooling is already there. They use the flexible hose for HVAC applications. So it's different use applications for the hose. Also, what we're seeing is the old or the older data centers who used to earlier have rubber hoses as part of their, you know, as part of their fluid management system. They are converting it from the rubber hose and into metal hoses. These are the various applications that we are seeing, you know, come in for the hose assemblies.

Thank you.

Ladies and gentlemen, due to time pension, that was the last question of the day, and I now hand the conference over to the management for closing comments. Over to you, sir.

Thank you so much. Thank you to everyone who has joined the call today, and thank you for supporting our company always. If I'm not being able to answer any questions of anybody, you can please share your questions to HGA, who is our investigation partner, and they'll be able to provide you with the relevant details. So thank you so much again, everyone for joining. I hope to see you in the next learnings world. Take care, and have a good day.

Thank you, sir. On behalf of Aeroflex Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.