Syrma SGS Technology Limited (SYRMA) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Sirma SGS Technology Limited Q2FY27 earnings call hosted by JM Financial Institutional Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Shalyn Chokshi. Thank you, and over to you, sir.

Thank you, Saisha.

Good morning, everybody. On behalf of GM Financial Institution Securities, I welcome you all to the Q2 FY27 earnings call of SIRMA SDS. We have the senior management of the company joining us today morning, and I will now hand over to Mr. Nikhil Kupta, Head of Investor Relations, to take the call forward. Thank you, and over to you, Nikhil.

Thank you, Shalim. A very good morning to all of you. On behalf of SIRMA SGS family, we welcome you all to the SIRMA SGS quarter two and half we have discussed 2027 earnings call. We have with us today Mr. J.S. Gujaran, Managing Director, Mr. J.S. Doshi, Whole Time Director, Thank you.

Good morning, everyone. A pleasure to speak to you for the Q2, F527, and H1, F527 earning call. The quarter bond buy has been very, very satisfying, and almost on all the parameters, whatever we have guided, we have either delivered better performance or almost the performance which we have committed. The most significant and satisfying aspect to the management is that a 71% growth has been achieved while maintaining physical hygiene. I think that's the most critical factor for us. We had a negative operating cash flow in Q1, and as committed, we sort of see the, from the prism of one year, this quarter we have turned positive, and we generated 120 crores of positive operating cash flow, which is approximately 30-odd percent of EBITDA, and that's what we have committed to everyone. We have almost surpassed all the beggars of FY25. In FY25, we had a revenue from operations of 3,787 crores. This time it's about 3,568 crores. EBITDA was 324 crores for full FY25. For this half year, it is 355. FAT was 184. This year, it is 230. Exports were 854 in FY25. In H1, they are 901. ODM, it was 453 crores in FY25. It's 591. So on all the qualitative aspects, we have surpassed what we did in FY25, and this gives us the confidence to revise our guidance upward that we would be able to deliver a 40 to 45% growth this year on an analyzed basis, which would translate into around 7,000 crores of revenue. Recommit or reaffirm that this revenue growth will be achieved. Maintaining the fiscal decoder, my working capital, net working capital has gone up to about 71 days. It has come down back to 60 days. I'm confident that next year, that is FY28, we should be able to cross the $1 billion revenue mark, which is sort of, which the management is seized off, is the supply chain constraint. Whenever there are supply chain creation, be it the PCB project, the camera module project, the magnetic project, they have all been sort of initiated, the construction and commissioning. The major one which will have a significant impact in the long run, a positive impact rather, on our revenues and margin profile is the PCB project. It is on-screen, and we expect, as we are committed to power on the equipment by March, start the trans-production. It takes about three to six months to get all the quality certifications, customer approval, and all those things, so that by about September of 27, we should start the volume production. This would result in 28-29, a significant decline because the CCB project is for 35-plus years or 40-plus years. The exports have grown a significant crore mark. We had estimated at the start of the year it will be around 1,600, anything between 1,500 to 1,600. On a base of 1,200 crores in that we'll achieve the 1,700-plus crore mark. Next year, it should give us about 2,000 crore in exports. We support our marketing presence in the USA. And going forward, I think we'll see 41% last year versus 31% in FY25. Another thing which the management has sort of shared with the street, that we would like to increase the ODM part of our revenue. While the percentage is remaining stagnant because my non-ODM revenue is also showing a very strong increase, what gives us the satisfaction is that the ODM revenue in H1 F527 is 591 crores versus 273 crores of the previous year, H1 previous year, which is 117.5 crores. So, the normal probability and certainty will be crossing the 1,000 to 1,100 crore mark, which have a longer gestation, and I think they have started bearing fruit now, confident that the person with my 10 and half to 11, or maybe marginally better than 11, I think we'll have more clarity once the supply chain constraints are eased out. And we expect that for the industry and the chambers and the trains, that the supply chain constraints will remain for the next five to six months and are expected to ease out only April to June of 27th. On the whole basis, I think the company is on a solid footing, and we have strived over the last three years to build a risk-mitigated model. One vertical, any one geography, any one customer or major customers, which can sort of disturb the equipment. It's a truly, in terms of exports, accounting for about 26%. None of my customers are accounting for one odd customer, maybe about 12% to 14%. But all other customers would be less than 10% of my revenue. Automotive, industrial consumers would continue to form the backbone. Healthcare, railways, whichever small waste, will show higher trajectory of growth in terms of percentages. But the base being small, they would still contribute to some 10% or 8% of our revenue. So I think a very satisfying thing and full compliments to the team, which has tried to deliver these results with qualitative, sort of keeping the qualitative factors into mind. With this, I hand over to Vijay to run you with all the details for financials and the final points of the financials. Over to you, Vijay.

Thank you, sir. Good morning, everyone, and thank you for joining us for this quarter to an H1FI 27 earnings call today. I will briefly walk you through our financial performance for the quarter and the first half of the year, followed by our working capital position and capital allocation priorities. Please. We have delivered another quarter of strong growth and robust numbers. The performance reflects the continued momentum across our diversified end markets and our focus on scaling the business while maintaining profitability and financial discipline. Let me start with the financial performance first. Our consolidated total revenue for Q2 FI27 is approximately 2,000 crore, registering a strong year-on-year growth of 73% and sequential growth of 25%. Our consolidated total revenue for H127 is 3,603 crore, representing a growth of 71% year-on-year. Operating EBITDA for Q2 increased by 68% year-on-year to 193 crore rupees, and for H1, it is 355 crore with a 68% growth on a value-wide basis. Our EBITDA margin for H1 is 9.9% as compared to 10.1% last year, and despite a slight moderation in the operating EBITDA margin, our absolute PBT for the quarter is 165 crore, and for H1 is 306 crore, resisting a strong 95% growth year-on-year basis for H1. Similarly, PAC for the quarter grew by 87% to 124 crore, and for H1, it grew by 98% to 230 crore. PBT margin improved from 7.4% to 8.5%, and while TAC margin increased from 5.5% to 6.4% when compared on a year-on-year basis. This improvement in the bottom line reflects the growth in operating profitability and the benefit of operating leverage into my financials. When we see the revenue growth, it was broad-based across multiple, all the verticals. Automotive sector business recorded a revenue growth of 91% year-on-year basis, increasing its contribution to approximately 26% of operating revenue. We continue to see strong business momentum in this segment, supported by our customer relationship and participation across multiple automotive platforms. The consumer business contributed approximately 29% of our operating revenue for the quarter. Health care business grew by 61% year-on-year. This is actually a good margin business for us, maintaining a stable contribution to overall business. Industrial business recorded a strong growth of 86% year-on-year and 31% sequentially. As highlighted in our previous call also, apart from automotive segment, we expect this segment should grow faster in the second half of this year. IT and bandwidth also performed strongly, while revenue growing by 59% year-on-year, 82% sequentially. Its contribution increased to approximately 14% of our operating revenue during the quarter. Overall, the performance across our end markets demonstrated the benefit of our diversified business portfolio, and this diversification remains important as we continue to expand our presence across industries and build capabilities in higher-value manufacturing programs. Coming to export business, as highlighted by Mr. Gujaral also, our export revenue increased by 91% year-on-year, approximately 514 crore for the quarter, and 901 crore for H1, registering a growth of 80% year-on-year for H1. Our export performance reflects our increasing participation in the global supply chain, and our abilities to serve customers across a broader range of customers and markets. Our ODM revenue for the quarter is 322 crores, and for H1, it is 591 crores, which is still in a year-on-year growth of 117% for H1. Coming to customer concentration for H1, our top 5 customers contributed approximately 38% of our revenue, top 10 approximately 50%, and top 20 is contributing near about 66% of our revenue. Coming to order book visibility, as on September end, we are carrying the overall open order book plus visibility position of 7420 pros, of which auto is approximately 30 percent, consumer and investor segment ease is contributing approximately 24.5 to 25 percent, healthcare is 8 percent, and IT and railways is contributing 12 percent. We remain confident that the volumes continue to scale, newer programs mature, and our operational efficiencies will continue to improve our overall profitability over the medium term. Moving to our working capital position and cash flows, our net working capital cycle improved to 63 days as of September 26 compared to 71 days in the previous quarter, and 73 days as of September 25 on a year on a basis. This is an encouraging development, particularly in the context of ongoing supply chain constraints, and still we have been able to maintain a disciplined working capital investment. During H1 FI 27, our net operating cash flows was approximately 120 crores, resulting into OCF to EBITDA conversion of approximately 34% for the H1. Coming to balance sheet position, our balance sheet continues to remain healthy and support our growth plan. As of September 26, we continue to maintain a mid-cash position of 258 crores, supported by a strong, healthy, treasury balance position of approximately 1,000 crores and a gross debt position of 746 crores. We continue to invest prudently in capacity expansion, technology and manufacturing capabilities, strategic growth initiatives while maintaining financial discipline. During the quarter, we incurred approximately 200 crores of capex, of which around 140 crores is towards the PCD project and valences towards other ground-trail capability enhancement across the multiple units. Coming to our ROC returns, the returns for this period, adjusted annually ROC is 21.4%, reflecting improving working capital productivity. Our investments into the PCV projects are progressing. We have already spent more than 200 crores for the project and are expecting to spend another 200 crores in the balance of the year. We continue to target a commercial production start of this facility by April 27. We remain mindful of the importance of margin discipline, working capital management, cash conversion cycles, capital and efficiency as the business grows. Our priority is to deliver consistent and profitable growth supported by operational excellence and disciplined capital allocation and long-term custom partnerships. With that, I would like to thank you, all the investors and stakeholders for their continued support. I will now hand it over to the operator to open the floor for questions. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on 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 a moment while the question queue assembles. The first question is from the line of Samit Sinha from Macquarine. Please go ahead.

Yes, thank you very much, and congratulations. This has been an excellent last few quarters. I have a couple of questions. First is, you know, in terms of the ODM revenue, Clearly, that has been a good area for you as well as margin accretive. Can you give us some more details on, you know, are you expanding ODM beyond your healthcare, medtech, sort of vertical? Where else could it go? What sort of products are you developing for your customers? That's the first one. And then the second is, can you talk about just the, you know, with your updated guidance for this year? It still kind of implies a slowdown in the second half. But the second half is generally your seasonally, the stronger part of the year. So can you help kind of meld the two, please? Thank you.

So if I understood, your first question was on the ODM part, and second was on the guidance for the whole year. On ODM part, we continue to grow strongly in medtech defense. So developing ODM products for the industrial segment, we'll see a significant bump in this. So ODM primarily will be in healthcare, defense. We have had a good half year, and that gives us the confidence to revise the guidance from the 35% to 45%, which means we should be touching or crossing the 7,000 crore mark this year to be anything between. Going forward, we would see a further excretion in 27, 28, and 28, 29, as I said in my opening remarks, was a high-margined critic project.

Right. I was just checking on, I mean, it implies the growth rate for the second half is much lower. Is that just conservatism? Because seasonally, it's a better part, or is it just a higher base?

On the demand side, we remain very bullish. The supply chain is still an area of concern. And what happens after the midterm elections, what happens in Middle East, these are all conjectures. So I would rather sort of err on the side of caution. I think of the growth, which I'm saying that you're saying is you're grown at 71%, but you're saying 45% for the full year, is essentially driven by your concerns on the supply chain, which as of date doesn't seem to be easing out. It is expected to continue for the next six to nine months. And what the analysts, the trades, the industry says, somewhere in Q1 of FY28, we could see some stabilization or easing on the supply. Whatever we are guiding is keeping ourselves sort of cautious of the supply. We are very, very bullish.

Got it. Okay. Thank you very much.

Thank you very much, ladies and gentlemen. In order to ensure that the management is able to address all questions, kindly limit your question to one per participant. Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead. Mr. Aditya, please go ahead.

Am I audible?

Yes, sir, you're audible.

Hi. Hi. Good morning, sir. So, again, speaking on the revenue guidance itself, if we just analyze the second quarter revenue number, we get to almost 8,000 odd crore rupees of revenues for the full year. At just first quarter, we are still speaking about around 7,600 odd crore rupees of revenues. So, is it that supply side challenges are further becoming more difficult versus what we have seen in the last few quarters? First, because these concerns have been there, and despite that, we've been kind of delivering anywhere between 50% to 70% kind of revenue growth. So, just trying to understand, is it that scenario is getting more difficult, or is it that we're just being aptly cautious?

So, there are two aspects to it. See, as we have all the time being saying, we don't work on quarter-on-quarter basis, and a 71% growth in first half is because some of the orders of the customers have been front-loaded. So we expect that rationalization should come in. And coupled with the supply chain, we believe that delivering of 40-45% annualized growth would be the target of the company. Now, whether I deliver 7,000 or 7,500 or 7,400, today, it all depends on the supply chain. And because I may be ready with a product, but my customer may not have a component, so his sale may not happen. If his sale doesn't happen, it has a ripple-down effect on me. So I, being the intermediary in a B2 business, I am walked in by two. My customer is ready, my supply chain is not ready, my sale suffers. I am ready, my customer is not ready, my sales suffers. Hence, keeping all the things into account, we are guiding a 45-45% growth rate for the current full year, which would take us to 7,000 plus. Sure. I guess, sir.

Arita, while we have also previously communicated the quarter and quarter seasonality is there, in H1, consumer segment is much more front-loaded. So, we have done almost 1100 crores plus kind of a revenue on the consumer segment side. So, gradually, we may see a taper down of this one particular segment and another segment going up. That is why this quarterly seasonality will play. Full year basis, we are adding 45% plus kind of a overall revenue growth.

Understood. Perfect. That's helpful, sir. And in the annual report, we had spoken about one of the framework agreements of almost $250-odd million. If you could share more details around that, what kind of revenue regression may happen on account of it, what are the timelines like, and whether it's a one-off contract, or are you looking to be entering into a similar contract? Because you have at least kind of indicated that that would be the intent.

Please, we have entered into that same war contract, and it will start yielding revenues next year. I request Jadid to throw more light on that.

So, you know, we have made very good progress on that agreement. So, all the NPIs, all the sort of early production runs have been done, and we have a ramp-up plan agreed with the customer. But these are all sort of very demanding, discerning customers. So, you know, we go step by step. So, as Mr. Gujaral said, we see the full impact of this in FY28 and beyond.

And this will continue. It's not a one-off contract for this. Having entered into their supply chain, the global supply chain becoming an integral part, I see this particular vertical of the customer to become one of our major growth drivers in the coming years. 27, 28 in any case will be there. But once we get integrated, we have opportunity to tap the white product range which they make. So these are all long-term gestation period contracts, and the growth which we are seeing in the current year is the customers which have onboarded a couple of years back, and they have started yielding the volume production or the series production in 26, 27. The customers which you have on-boarded last year, late part of last year and fifth year, will give a feasible revenue impact in 27, 28 and beyond.

Sorry, sir, if you could also indicate who the customer could be or what kind of products are we speaking about? What could be the revenue?

Confidentiality doesn't allow me to name the customer. You will appreciate that. These are into the industrial power management, power distribution, data center. So, that's a broad mix. And these will be sizable contracts, sizable revenues generating out of this mix.

Any indication that you can give on the revenue number, sir?

Analyze can be achieved 500 to 600 crore to start with.

Sure. Understood. Thank you so much.

Thank you very much. The next question is from the line of Santosh Sesadri from Aventus Park. Please go ahead.

Hi, sir. Thanks for the opportunity, and congratulations for a great set of numbers. So, just wanted to double-click on what was driving the second quarter results. If you could explain how much of this growth was done by any new customer ramp-up or any new program that you mentioned in the previous call. And also, how much was the pull forward in demand that you were mentioning? Just on a related note, you know, you also reached a revenue run rate closer to 2,000 crores in a quarter, and getting for a billion-dollar kind of revenue in FY28. So I just wanted to understand how really is the platform to deliver these kind of revenue, both on the domestic front and also on the export front? So, if you can explain if there is any additional hiring or any major capex that is required in the base business to ensure we get to those seven new doubles.

So, there are three or four parts to the question. One is the growth coming in from new customers and existing customers. Well, it's a secular growth. All customers, new and the old, are firing. What is most significant is all the verticals are growing at a very fast length. So if I compare H-127 to H-126, our automotive business has grown by 80+. Healthcare has grown by 78%. Industrial, 58%. IT on a small base was over 100%. Railways by 50%, 45%. Land consumer by 62%. So, all the cylinders, the verticals are firing. Now, within this 85% growth, my new customers would also add to that. Quotes have grown by 79% in H1. My ODM has grown by 100%. So, we see a settler in almost every vertical and the segment. Going forward, these segments would continue to fire the growth. And the three segments, because of their large base, which will continue to grow, automotive, industrial, dealers have a smaller base. Even if they grew at 100, 120 percent, they would not form a significant impact on my overall top line. But being high margin product, they will be adding equity to the margin profile of the company. No significant investments are required for these businesses. They are the normal businesses which we are catering to. The only thing is the profile of customers has changed. So when the profile of the customer changes, it does not necessitate a significant increase in capital investment. What it sort of requires is strengthening your processes, procedures, communication channels, program management, interface on the supply chain.

Thank you very much, Sathana.

Yes, sir, absolutely. And I have a follow-up. So if I understood right, growth is mostly organic, you know, coming from the base business, And the new projects that we are working on is mostly an add-on. So can you provide, you know, a status update on some of the projects that we are working on? So in addition to the PCB project, you know, I believe we have also applied under ECMS schemes. And also, is there any project that we are considering to apply under ISM scheme? So if you can help us, if you can provide a status update on that, that would be helpful.

In the ECMS scheme, we have applied for, I think, five or six projects. One is the PCBs, which is under construction, and we'll see the power on by March, and trial production by March April, and series production by June, July, August, September quarter. So, for 2728, the PCB project will deliver six months approximately of production, commercial production, series production. 2728 will be a full year. The second project which we have got is under the ECMS scheme is the CTL. We intend to commission it in the year 28-29 as of date. The third one is HDI, flex, and other things. Some PCBs are being clubbed with the current phase of the project. HDI and all that will again come in 28, 29, not before that. The fourth application which we have got is for camera modules. The facility construction has started. We have got the expression of interest or intent from the customer for camera modules for automotive application. And we expect that by around the end of this fiscal, we should be in a position to start production in that. The last one which we have got in the ECMS is in the magnetic state. It's a small investment, nothing major, but it would add in the coming years, 28, 29, a decent amount of high-margin business to my state. Magnetics, per se, would not significantly alter my top line. Even if I do 10-20 million dollars, it doesn't alter my top line, but they are very high margin-acredited products. As far as the ECMS is concerned, on the ISM 2, our stand has been very, very clear right from day one, from the ISM days, that we are very interested in entering into this sort of ecosystem, but we would enter only if we have a credible partner. And currently, discussions are going on, but nothing concrete, which I can share with anyone, that we are going into this aspect or this part or whatever it is. But we are interested, and hopefully, we should sort of have something concrete in the next six months.

Thank you, sir. Just on the camera module side, you know, are we contemplating any JV here? And also, how should we think about the capex and revenue contribution from the business?

See, the camera module business to start with would not have a significant capex. It would be less than about 25 crores to start with, 25, 30 crores to start with. It is a capability which we have built in. In the automotive sector from this, but you say, do I expect 1,000 crores from this? No, it could be, to start with, it could be 50, 100 crores, and they are scaling up as we sort of diversify our portfolio in the camera module. Currently, we are concentrating on high-end camera modules for automotive sector. We are currently not contemplating camera modules in the consumer sector, which means the mobile or the laptop and other things. So, once we start doing that, then we will share with you. But currently, it's only camera model for the automotive sector.

Thank you very much, sir.

All the very best wishes.

Thank you very much. The next question is from the line of Mayang Pandey from MK Global. Please go ahead.

Hi, sir. Thank you for the opportunity, and congratulations for a very good set of numbers. So, my first question is to get your sense on what you're observing in the overall business ecosystem. Could you tell us if you're observing some trends with respect to inventory stockpiling at your customers? Like last quarter, you mentioned that you're observing supply chain pressures, and you might look to hold on to some strategic inventory. Is that a trend if you're also observing at your customers? Or are we observing any shift in their ordering patterns that, you know, may be favoring longer-term contracts or shorter-term contracts, ordering contracts more? Any light you can throw in terms of, you know, how your customers are navigating the supply chain challenges vis-a-vis when they talk to you?

See, on the supply chain challenges, I think, which is a good challenge to have in the sense that while we are sort of every member in the industry is having this supply chain also, The demand side doesn't show signs of response. The automotive sector is very bullish and keeps increasing its demand quarter-on-quarter, month-on-month, or whatever it is. So it compounds the problem of supply chain constraint. Now, this naturally results when my supply chain gets constrained, when the delivery lead times get extended to 36 weeks or 42 weeks or whatever. Obviously, the customer and we, we work in partnership and in tandem. The customer would give us a longer visibility, a longer commitment for the longer lead items. So that sort of assures us that the business going forward would continue to grow at that pace. Customer also stocks inventory, but since the customer is B2C, whatever is produced when the demand is going up, it shifts. In a B2B, it is the stocking of the inventory. So, customer would also be stocking critical parts on which it is facing supply chain constraints, which essentially are in the electronics, and electronics are being supplied by us. On mechanicals and other things, the cost push is there, the supply chain constraints are not there. Copper may have gone up, but the wire shortage is not there. In electronic components, it's slightly different because we're a data center. We, with the customers, work in partnership in a very close, transparent interaction, and both of us work in tandem because the strength is the weakest link. If my customer's thing is the weakest link, then he suffers. If I'm the weakest link, then he suffers. So we try to mitigate that. The price is still at about 71 days, and overall working capital at about 60.

So, are we not seeing any evidence of any kind of, you know, inventory stockpiling as we have seen in the past, let's say, FY23, FY24 sort of era when there was an expectation that inventory should be stockpiled in anticipation of demand? In this case, are we not seeing any kind of inventory stockpiling by customers? I'm talking specifically to the B2B customers. They're not looking for stockpiling.

My inventory from March of 26 has gone up by from 1,000 crores on rupees to 1,570 crores, but number of days it is still 71. March 26 also it was 71 days of inventory, and September 26 also it is 51 days of inventory. Now, if you see isolation, there's a 50% increase, and there's a 70% increase in revenues. So the number of days remains the same or comes down. Quarter on quarter, there could be a mismatch that in some quarter I stop more, I get something by the end of the quarter, and I have to ship it next quarter, the inventory of the March, September, end or June, and they go up. But on an analyzed basis, we will strive and we are sort of focused on maintaining the fiscal discipline on working capital built in the coming six months. Three odd days, plus minus two days.

And just to add in this 1570 crores of total inventory, still we are maintaining certain strategic inventories of only critical components which are maybe having a longer delivery schedule as of now. And as Mr. Gujallara has previously also communicated, the situation may go on strictly beyond FI27 also. So, till the time the overall situation eases out, we will continue to maintain this kind of inventory level.

See, I would rather err on the side of higher inventory level versus not being able to meet my customer requirements. To me, that one is the second one. Meeting the customer is far, far more important than a couple of 100 crores or so in inventory because that brings in stickiness with the customer.

If I can just ask one more question, that your export performance has been very strong and it has continued to strengthen, like even the monthly runways have continued to strengthen for you. Could you just help me understand which verticals are driving the strong export growth performance And what does our contract on the export side look like? Is it fixed currency or do we get the full benefit of any currency appreciation that happens? If you can just help me understand that. Thank you.

See, my export primarily are in the industrial medtech, a little bit of the C-verticals constitute the bulk of that. C-verticals are growing very good with the customers and the new customers which we are onboarding or the dialogue which has started with the new customers. We say we have grown at 31% in FI25, 41% in FI26, 70-odd percent in FI27 half-year. Please appreciate this is only because we are onboarding new customers. Neither North America nor Europe is growing at that rate. So we are onboarding big logos onto our customer portfolio sort of thing, and that is yielding them trust. Customers being onboarded is a continuous phenomenon. So the customers which we onboarded in 23, 24, 24, 25 are giving results now. And the customers which we onboarded in 24, 25, 25, 26 will give serious results in 27, 28. And the customers which we onboarded today would result into series production, volume production in 28, 29. So, this continuous replenishment of the customer portfolio, export customer portfolio with big logos gives us the confidence that exports would continue to be one of the cornerstones of our strategy for growth. And exports being margin-egrative, it will also help us in delivering superior margin, which I have said that this year we expect to deliver anything between 10 to 10.5. Going forward, this could be 10.5 to 11 or even greater than 11 in 27-28. The question on the Forex thing is concerned. These are fixed price contracts I know, unlike in the garment industry, because there's a lot of import content also, we don't have to calibrate the prices with the forex movement in terms of export customers. Another side advantage is that my export revenue gives me a natural hedge for imports. So, if I export goods worth 1,600 crore rupees in a year, for example, in the first six months, 900-odd crores have been exported. It provides a natural edge to the foreign currency on imports.

We also have a pass-through mechanism related to the foreign exchange impact for almost all of our large businesses.

For domestic?

For domestic businesses, yes.

Thank you very much. The next question is from the line of Arjel Lahadeh from Novama Wealth Management Limited. Please go ahead.

Yeah. Good morning, sir. Thank you for the opportunity. Congratulations on the excellent show once again. Sir, the first question is in terms of the, you know, the PCP revenue, how do we see this, you know, for FI 28 and 29 in terms of what kind of contribution we can expect?

And the margins.

So, by the end of this year, we will be incurring about 400 to 450 crores kind of a capex. By the end of next year, we will be completing it by another 400 to 45. So, the total investment towards the project could be 800 to 900 crores.

This 800 to 900 crores of investment will come through by March 28th. March 28th? Have I understood that? Oh. So, that March 29th, FI 29th, we should have a full, you know, revenue potential in that case.

Considering one-and-a-half times per sector, the total revenue can be in the range of 1,200 to 1,350, assuming a full capacity ramp-up in the year 1, that is FI 29, and if there is a maybe 70 to 80 percent kind of capacity utilizing, the revenue can be in the range of maybe, as Gujarat has eluted, between 900 to 1,000 croons.

And what kind of margin we should work with, sir?

So, on a steady state basis, with the margins, the full capacity ramp-up should be within the range of 50 to 18 percent.

And this excludes the incentives, right?

Yes.

Includes or excludes, sorry.

Without it.

Without. Okay. Okay. Understood. And if you could help us in terms of the KPEGs at a console level, what kind of KPEGs we should budget in which particular segment for FI 27 and FI 28?

So, PCV, we have clarified. Apart from PCV, the normal greenfield come boundfield capex is what we estimate somewhere around 100 to 150 crores per year for next two years.

And no other adjacency, the camera module and the other?

Camera module related, like the special initiatives, just like camera module, there is a JV, Elimaster, which we have done, there is a JV, Kaga JV is also there. So, for those JVs, there will be a different Capric, but for Elimaster, it will be in the range of around 40-50 crore rupees. Camera module, again, to start with, it will be around 30 crore rupees, and gradually, as we get more and more business, we may expand further, more Capric there. Similar way for Kaga JV, also, it will not be significant, it will be still in the range of like 30-50 crore rupees at max.

Got it. Is there any way to get some idea in terms of the new customer contribution in the quarter or half year revenue?

Generally, it is like a mix of everyone and when we see new customers, new customers whom we have onboarded in FI25, actually we are getting the revenue benefits from those customers in this year. So, that's where we see maybe the customers are technically not a new customer because we might have at least seen an initial revenue volume from them in FY26 also, but this year we are getting a full volume, ramp up volume. So, that's where we see this growth is like across all the customers that way.

Let me put it in another fashion. Is it possible to get some quantification in terms of, you know, customers onboarded in last 18 months kind of thing? Would that be possible?

So, last year, we onboarded near about 32 customers, as we have previously also come in EKK. This year, I think in total, H1, we have onboarded near about 18 customers so far.

Got it. Sure, sir. Thank you. I'll call back in the queue for further. Thank you.

Thank you very much. The next question is from the line of Kishore Kumar from Unify Capital. Please go ahead.

Thanks for the opportunity and congrats on the fantastic quarter, sir. Just have a follow-up to Archer's question on PCB. This PCB can be used for captive purposes as well as for the external sales. How are you looking at the output? Are we looking at more towards external sales right now? And as we get approval, we'll start using it for captive purposes. This is my first question.

Now, on the PCB part, we would be using it for both internal consumption And the external sale of PCB, the approval cycle in both cases is by and by the same. For example, if I'm doing anything for Suzuki, whether I sell it to a vendor of Suzuki or I use it for internal consumption, the approval process has to be followed. Where the approval process can be sort of shrunk or reduced is my own design product in the PCB space, where I don't have to take approval of the customer because I am taking the ownership of the design. So, as we intend to start with the ODM part of PCBs in the image phase, we also will have to do all the testings and regulatory checks and approval so that the product meets all the guidelines.

Also, can you give us some insights on the type of the PCB you will be doing, single, double, or six layers?

Bulk of the consumption in PCBs is some 8-layer. Bulk of it. Above 8-layer, there are something in the display modules of the sort of dashboard electronics for the cars there. It could be 12-layer or 14-layer. Bulk of the PCBs are less than 8-layer. And we'll be catching to all those segments. We are also putting up a single airline to cater to the requirements of the consumer electronic part, where the PCBs are typically single. So, bulk will be two layers to...

Clarification on the revenue growth for this quarter, we read about 70% growth. You did mention about some orders being front-loaded, some of our customers. I just wanted to understand what percentage of the value growth is coming from the price increase that we have done On the back of the raw material price inflation, in comparison to the underlying volume growth, is there any numbers that you can quantify as?

See, the cost push, typically, we have shown a material margin decline of a material cost increase of about 3%, but that could also be because of the product. We've done about 1,900 crores of revenue in this year, this quarter, or 2,000 crores, or 2,60-70 crores could be attributed to the cost push. Three to five percent, to be very honest, but that could be attributed to the cost. The rest is the volume growth.

Clear, sir. Got it. And can you just brief us on the performance of recently acquired entities, Navicom and Elcom, and how the newly started venture with Elimaster going on? That's it, my opinion.

So, on Navicom, Elcom, I think BJ will throw light. We commissioned the factory in September of 26, which is about 60 days ago. Approximately 3rd of September, I think, or 2nd of September, we commissioned the factory. Being a new factory, it has to go through all the regulatory approvals like the ISO, the IRS certification, and perhaps the RDSO certification also. We expect to complete all these activities in this year. So this This year, we don't expect a sizable revenue from the Elimaster joint venture in that entity. However, next year, once these regulatory approvals and certifications are in place, to deliver anything between a crores of revenue. Elimaster and FY27. Elicom and J.D. Sirma Johri, I think they did.

So Elcom has contributed approximately 135 crores of revenue during H1 into my consolidated revenue. And in a similar way, Sirma Jari MedTech Limited contributed approximately 140 crores of revenue towards my overall consolidated revenue for this period.

Sir, any comments on the future outlook for these two acquired businesses?

Elcom, we had previously communicated we expect this year somewhere between 300 to 350 crores kind of a revenue. This is a good growth business, currently delivering a growth between 20 to 25%. And we are again targeting how do we at least achieve a steeper growth from year onwards, based on our new customer additions or maybe certain market expansions also, which we are currently working upon. Similarly, SJML this year has been going good growth. As of now, in H1, we have received 140. Full year basis, again, we should be targeting somewhere around 300 crores, as against 220 to 10 of last year.

We expect a 45 to 50% growth in the same majority this year. What is very satisfying in that is that we have onboarded some very good clients. I forgot to share it in my opening comment. We have commissioned high-grade medical plastic facility in Sirma Johri. It would be molded, extrusions, and blow. This should give us good revenues with margins in the coming quarters. That's a new facility which we have set up in Jodhpur. Plastics, we are now doing it for internal consumption and third party.

Understood, sir. Thank you very much.

Thank you very much. The next question is from the line of Indrajeet Agarwal from CLSA. Please go ahead.

Hi, thank you for the chance. My first question is on the PCV business. Is it fair to assume that in FI28 and FI29, it will be a relatively lower margin, hence you could have a bad loss in this business for a couple of years? And as a result, what kind of tax rate we can see on a blended basis? All right. And of the 900 crore investment, what is the kind of time frame we can assume that the government, how much government subsidy should come in and what is the kind of time frame We should expect it to come in.

PLI income, which is there based on the yearly revenue number, once the year is closed, within a certain period, we'll have to calculate and apply for it. We can easily assume at least six to nine months or maybe a 12-month kind of a time lag for the PLI revenue realization. Similarly, on the CAPEX incentive, which is mainly from the state government, again, once the project is ready, by the end of this March 27, We should be compiling all these things, filing it, which may take another six months, and then thereafter, another six months may be for the realization of the thing. That's the initial estimate, but that is what we can target at least.

So, to give us quantification, we are investing approximately 400 crores by March of 27. So, if we file our application by March of 28 at the outside, we should be able to recover the 200 crores of capital subsidies. The PLI, whatever revenues we incur in 27-28, I will be eligible to file the application only after March 20th. Typically, the windows for the PLI open summer is July-August. So, the claims will be filed in July-August of 28 and then another three to six months for recovery.

This is helpful. Given the recent rise in some of the input materials like CCL, etc., Has the dynamic of this business changed, and are you looking to get into backward integration further in this?

We have plans to enter into the copper clad laminate, but we would not like to open too many fronts simultaneously. Hence, we will put in the copper clad, sort of going for the copper clad laminate plant once my PCB plant has stabilized. And I expect the PCB plant I should be able to stabilize the production processes by middle of next year. And then is the time when we start planning execution of the CCL plant. And the CCL plant, if we start planning execution sometime between the third quarter, fourth quarter, third quarter of FY28, it will get ready by around December 28th. It will get serious production in 28th, 29th.

Lastly, what kind of minority should we, like, book in the account for FY27 and FY28? Sorry? The minority that we put in P&L, right?

So, Minority is mainly related to this income and SJM together. So, as of now, for this six-month period, my minority profit is like approximately 14 crore rupees. And full year basis, this can be around in the range of 30 to 45 crore.

Thank you very much. The next question is from the line of Samanth Kumar from Motilal Oswal Financial Services Limited. Please go ahead.

So my question is regarding IT and railway. Can you talk on the marketing profile of this segment, IT and railway? I stay in railways, so we are doing memory models, we are doing assemblies of high-end gaming laptops, maybe other laptops for MSI and two other customers there. On the railway side, we are on this HVAC controls for wagon coaching, railway signaling systems, door controls, those kind of products is what we are manufacturing largely.

See, on the margin profile, IT business is typically a low margin profile business. Railways is a superior profile margin business compared to the, it is equivalent or superior to the industrial segment. IT per se is a low margin business comparatively, and since we are not making end-to-end products, when I make a motherboard, my customer gets a PLA because he is assembling the final computer. So we don't get the benefit of the PLI. For the laptop, if you are making for MSI, currently the volume is being small for the Indian market. The motherboards are being imported. So hence, we are not eligible for PLI. We are endeavouring that we should start making the motherboard so that we get the PLIs in the coming years. But as of date, we are not getting PLIs and it's a low margin. But a very low working capital or zero working capital involvement, the model is that.

Can we say the combination of IT and railway, the margin is better than consumer and in between auto and consumer?

It's very tough to quantify because if I do 80 crores of railways and I do 300 crores of IT, the margin gets skewed. The 300 crores will be a low margin business. So, marketing it, railways is a superior margin business. IT is equivalent to the high volume, low margin consumer business.

Thank you.

Thank you very much. Next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.

Hi, thank you for the opportunity. Sir, I want to understand one thing. If I see your order book growth, it has been growing by around 25%, 30%. But if we see the top line growth, that is pretty healthy. Why is there a mismatch from last couple of quarters? How should we rate it?

See, order growth, when we share the orders, it is the orders which we receive, not the contracts or the framework contracts or the guidance which we receive. And typically what happens if I have received a guidance for a full year, I don't take it as an order. The order may come at the beginning of the quarter to deliver it in the quarter. Since the guidance is there, I'm already ready with the production schedule and the material. As there could be a slight sort of mismatch, the order growth may not be equivalent to the revenue growth because we work, revenues are based on the guidance, the commitment, the agreement which you have signed up with the customer. They convert into purchase orders, maybe at the beginning of the quarter. Automotive industry typically works on a quarterly rolling forecast. So, they give a rolling forecast, which is not considered as an order, but they give orders at the beginning of the month to ship this much. So, hence, there could be a slight, there could be a mismatch because of this.

As we have seen recently, due to supply chain concerns, now we are getting orders for a little longer period also, in case of you select customers, specifically in the auto segment here. So, previously, when it was a much lower number beyond one year, beyond 12 months, now we see a lot of orders beyond 12 months also there. So, of my total, 7,400, near about now, 1,200 crores is related to a period which is beyond 12 months.

Understood. Got it. And if we talk about the PCP manufacturing, the return ratios are looking very strong. How should we see it? Because you said 1250 crore of a top line on 800 crore of investment, of that 50% might be, you know, recovered by a subsidiary of 15-18% margin business and P&L benefits above 18%. So what is the return ratio you are looking in this business once it will ramp up?

So, going by the projections number, assuming all pay, all capital incentives are there, the return ratio should be north of 30-35% plus. You are right there in that observation. But that gives us heads up at least to grow the business faster, target much more, maybe other geographies apart from India also, and that is where one can see a larger growth in that business.

The reason why I'm asking this question is because 30-35% return ratio, you know, look very attractive. Possibly what margin we are factoring in our assumption that might be on the slightly higher side considering the industry dynamics?

No. You see, if you see the margin profile of the unlisted space which is currently working in India, the margin profiles are even superior than this. So when we say 15%, we have considered all the factors into account. And since over this is an automated plant, our operating costs will be lower. So, we're very confident that we'll be delivering a 15-odd percent margin without the PLI. And the returns will be higher because of the capital subsidy, but that's part of the investment policy of the government.

Understood. Just to last follow up on this, 15-percent margin plus 4-5 percent PLI benefits, so approximately 20-percent margin. Is that understanding, correct?

We say 17% to 20%. Because once you have the PLI, the dynamics of the markets and all that, it all depends on the market dynamics at that point of time, whether we sort of share the PLI with the customer or not. So that's why I say 17% to 20% margin profile should be available.

Understood. That didn't help. Thank you so much.

Thank you very much. The last question for today is from the line of Rahul Marishwari from Ambit Private Limited. Please go ahead.

Hello. Good afternoon, and thank you for the opportunity. Three questions. First, in the annual report, you had given about the ARC system, which is being deployed across the manufacturing for quick decision-making. So can you give a bit some examples and also how much the efficiency drive, which is helping the company? Second thing, in terms of the backward integration, The main objective is to make the supply chain more resilient, whether it's towards wire, hardness, camera models. On a long term, this is how much, apart from supply chain resilience, how much margins it can add up to. And the last part on the JVs and the partnerships, especially on the Kaga Electronics, how much big it can become in terms of the overall scheme of things for the next four, five years. Thanks.

So on the ARC systems, we started implementing it somewhere last year, and we have implemented it in three or four of the plants. The remaining class is ongoing. The initial results have shown a 5% to 6% OEE improvement on the SMT lines. I think once the system is mature, we expect that the OEE should increase by anything between 6% to 10%. 500 hours is a line which works for a month, so we have 20,000 hours of OE as sort of capacity available. A 5% increase in OE would result into 1,000 hours. Initial results are very positive to give us superior performance on the SMT lines. Your second question was related to the backward integration. Wire harnesses is the project which we have started. It is more targeted for high-end applications. Not that we will not be using it in-house, but I would rather use these capacities for high-end applications in aerospace, defense, and other things. We are qualified for that purpose. We would be doing the wire harnesses, which we, when we consume without, theoretically, I'm giving a 10 or 15% EBITDA margin to my vendor. That gets retained within the company. But since wire harness internal consumption, I don't have the exact figure what is the sort of value of wire harnesses which we buy from oxide. I will refrain from putting a figure on the savings which we do. I'll have it collected. But it's not a very significant portion. It's more targeted towards third-party external and exports. On the third question of... I am doing 1 billion of revenue. So even if I get a 15% EBITDA on this, it will not tilt the needle significantly until this business scales up over the next 5 years and which we are targeting to a significant 4-500 crore business. Same is the case with revenue, camera modules. Camera modules are for the automotive industry. Automotive industry has its margin profile. So with the application, there could be a percentage or two percentage increase or decrease in the margin profile. But in a camera module for automotive industry, we cannot expect a 40% margin. If automotive industry is working at about 25% gross material margin, camera modules would be plus-minus something. Okay. And we just signed off the agreement with them a couple of months back, and again, since it's a new company now, it would require the regulatory approval, the quality approval. We have to take IATF 16949 for automotive sector, and this we cannot take until we do some two months of production, three months of production. So this year we will not see a significant revenue coming in from this venture.

Next year, 100 to

150 crores of revenue coming in from the Kata joint venture, 150 to 200 crores coming in from the Kelly Master Joint Venture, and 200 to 300 odd crores coming in from the PCB. So, these are the three new verticals which will sort of give revenue in the next year.

But in a five-year tenure, because I completely agree it takes time to ramp up, etc., but in a five-year period, each such kind of strategic partnerships can be at least a $100 billion type of 50 to $100 billion.

500 to 800 crores.

500 to 800 crores. Sure, sure. And this last question, when you mentioned in the quarter one also about the critical component, You are taking a strategic investment rather than the tactical. How much in your percentage of your COGS or your operations is the critical component, as a rough range would also be required irrespective of naming the components?

Typically, in an electronic sub-assembly or something, electronic components are 60% to 65%, 70% of the total cost. The rest is the PCBs, the mechanicals, and other books. So, if I take the electronic bomb at about 70-75%, as you call it, the electronic bomb, the controllers and all that and all those things would be about 40% of that. So, 28% of my total bomb, very rough estimated, it would vary from product to product, is the critical component which we are talking.

Thank you very much.

Ladies and gentlemen, this is the last question. I would now like to hand the conference over to Managing Director J.S. Kudral for closing comments.

Thank you, everyone, for attending the call. I conclude by saying that I think we are in a very firm footing. The effort which the team and the management under the guidance of the board has put in over the last three years, four years since we came into the public domain, I have started yielding results, and this will only be further strengthened, and the results will only improve on all critical parameters. I think we are well-placed to deliver better than the industry growth rate while maintaining physical discipline. I think that's the underlying statement, and with superior profit margin. We are well sort of aware of the market realities, the dynamics. Unfortunately, unstable market conditions, geopolitical conditions is the new normal, which was not there pre-COVID. So our organization is being built towards that end, that how do we sort of navigate these turbulent times in terms of global supply chain? The resources, human resources are one of the most critical factors. The adaption of technology, on which I'll request Jadid to delve on it in short in his remarks, I think will play a key role in optimizing our operations over the longer run. It is not a quarter-on-quarter thing. All these new adaptions, for example, the arc which we have adapted, it's not a one-off thing on one-off quarter. Madison, which we have to play, a long inning, which we have to play. Professional efficiencies have improved. I think the figures are speaking for themselves. My overhead structure has come down, and I expect it to further come down with the data. I think I may be a $500 million Indian. I think we are very confident of what we are building, and I think over the coming years, The performance of all. Quarterly, again, I sort of, word of caution, we don't work under with the length or prism of quarters. We work at least for a year, and when you're building a institution, even a year is a small sort of a time frame. The DNA, the ethos, everything. With this, I hand over to Jadit, and thank you very much. Jadit, all you have.

So I'll just amplify on the point on how we are deploying technology in various aspects of our business. I think there are three parts of it. The first area we're doing it is in improving our core operations. We already discussed the ARC system, but we also benchmark every plant, every line. And we are deploying technology, but also capability building at scale of our supervisors and ops managers. So the intent is that we get the full benefit of the assets we have, as Mr. Guzal had explained, and also we, every quarter, become more efficient on all the operating parameters across our plan. So this becomes even more important to use technology because we've been growing rapidly, right? So as the manufacturing footprint grows, to maintain that efficiency, both capability and technology is a big enabler. The second area we're deploying technology is being able to scale up our ability to work with very sophisticated and demanding customers. So be it in our, you know, material ordering systems, be it in our trafficking-facing systems, be it even the way we interact with the customer, EDIs, with their kind of inventory, et cetera. So that's the second layer of technology which is being deployed. And the third layer of technology we're deploying is, which I think, you know, with a little bit of use of AI right now, we're going to expand that, is to deal with the complexity of our business, which is, you know, a large number of components, which chains are complex, all of RFQs technology in handling that complexity. In particular, we've seen some very good success with using AI tools. So those are three layers we are in the middle of deploying, and that's something we are very vigilant on, that we have to scale up and maintain our efficiencies. We have to be very, very smart on all of these technological layers.

I think with that, we thank you, everyone, for attending this call. Thank you, Sushant.

Thank you very much. On behalf of Sirma SGS Technology Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.