AXISCADESNSENovember 17, 2022

AXISCADES Technologies Limited

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Management on call

Nachiket Kale

ORIENT CAPITAL

Arun Krishnamurthi

CHIEF EXECUTIVE

Shashidhar S. K.

GROUP CHIEF FINANCIAL

Shishir Gahoi

INVESTOR RELATIONS OFFICER

Key numbers — 40 extracted

100%

s in the coming periods. I am also happy to inform you that the board considered and approved the 100% acquisition in a phased manner of add solutions, GMBH, Germany. This is a company which specializ

Rs.1,937 million

ofitability for the second quarter and in the first half year. In Q2 FY2023 our revenue stands at Rs.1,937 million recording a 43% year-on-year growth and in H1 FY2023 our revenues were at Rs.3,769 million where

43%

arter and in the first half year. In Q2 FY2023 our revenue stands at Rs.1,937 million recording a 43% year-on-year growth and in H1 FY2023 our revenues were at Rs.3,769 million where we grew 53% year

Rs.3,769 million

nds at Rs.1,937 million recording a 43% year-on-year growth and in H1 FY2023 our revenues were at Rs.3,769 million where we grew 53% year-on- year. Our EBITDA margins for Q2 FY2023 is at 19.3% an improvement of 69

53%

ng a 43% year-on-year growth and in H1 FY2023 our revenues were at Rs.3,769 million where we grew 53% year-on- year. Our EBITDA margins for Q2 FY2023 is at 19.3% an improvement of 690 basis points q

19.3%

s were at Rs.3,769 million where we grew 53% year-on- year. Our EBITDA margins for Q2 FY2023 is at 19.3% an improvement of 690 basis points quarter-on-quarter and 1,110 basis points year-on-year. Our H1

690 basis point

on where we grew 53% year-on- year. Our EBITDA margins for Q2 FY2023 is at 19.3% an improvement of 690 basis points quarter-on-quarter and 1,110 basis points year-on-year. Our H1 FY2023 EBITDA margin is at 15.9

1,110 basis point

BITDA margins for Q2 FY2023 is at 19.3% an improvement of 690 basis points quarter-on-quarter and 1,110 basis points year-on-year. Our H1 FY2023 EBITDA margin is at 15.9% an improvement of 720 basis points year-on

15.9%

oints quarter-on-quarter and 1,110 basis points year-on-year. Our H1 FY2023 EBITDA margin is at 15.9% an improvement of 720 basis points year-on-year. Profit after tax for Q2 FY2023 is at Rs.211 mill

720 basis point

er and 1,110 basis points year-on-year. Our H1 FY2023 EBITDA margin is at 15.9% an improvement of 720 basis points year-on-year. Profit after tax for Q2 FY2023 is at Rs.211 million registering eight-fold growth

Rs.211 million

at 15.9% an improvement of 720 basis points year-on-year. Profit after tax for Q2 FY2023 is at Rs.211 million registering eight-fold growth year-on-year and adjusted profit after tax for H1 stands at INR 338

INR 338 million

million registering eight-fold growth year-on-year and adjusted profit after tax for H1 stands at INR 338 million registering an eight-fold growth again year-on-year and if you look at segmental performance the

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Guidance — 20 items

Arun Krishnamurthi

opening

“First of all I know you all must be very disappointed to see outcome of the India vs England match and you are hoping to see India have got through to finals but that is life, but I hope our results will be able to cheer you up a little bit.”

Arun Krishnamurthi

opening

“We plan to strategically build domain expertise within the automotive industry and enable our clients to leverage the fast pace technological evolution which are developing in this sector.”

Arun Krishnamurthi

opening

“We are also growing our relationship with global majors in the energy space and the payment solutions space and hope to be strategic vendors to each of our customers in the coming periods.”

Shashidhar S K

opening

“To conclude we are confident that we will continue to maintain and yield on the momentum going forward and both with respect to revenue and profitability.”

Jeevan Patva

“Okay, and that Rs.72 Crores will be paid at what valuation.”

Jeevan Patva

“Okay, and that will be given this quarter?”

Shashidhar S K

“We do expect that the entire merger process and the share swap as it stands today is going to be completed by the year end.”

Shashidhar S K

“We have floated this mandate in all as you rightly said that depends on the enterprise valuation which a prospective investor will come up with and obviously we will be able to recognize the synergies as what we have got with the acquisition of Mistral and the growth as what is happening and the business transformation as what is happening.”

Deepak Poddar

“Fair enough, and in three years we can expect 25% revenue from these new verticals?”

Arun Krishnamurthi

“So, I am very confident that we will be above the industry growth rates.”

Risks & concerns — 5 flagged

These statements are not guaranteed of the future performance involves uncertainty that are difficult to predict.

— Shishir Gahoi

So, their order book is actually full and we don’t see any slowdown in fact if anything that is more acceleration and more productivity initiative we are trying to bring in to get it done faster.

— Arun Krishnamurthi

Again, in automotive we don’t expect the slowdown what could potentially happen with the inflation, the macro-economic situation is car sales and availability of cars because of semi- conductors might be impacted.

— Arun Krishnamurthi

I would say heavy engineering probably the only sector which could have some impact in terms of softening because of the fact that investments might not come in and there might be a slowdown.

— Arun Krishnamurthi

We do recognize that it has come at a higher cost and we are already in the process of re-financing it and whether you will take a foreign currency loan or to a rupee loan obviously we are looking at a significant savings in cost in terms of the agencies with whom we are discussing this risk and we are confident that before the end of the current financial year we should have the re-financing in place.

— Shashidhar S K

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Q&A — 12 exchanges

Good evening, sir. I want to understand the total acquisition details that we have done with Mistral. How much we have decided to pay, how much we have already paid and how much is remaining to be paid?

Arun Krishnamurthi

Thank you Jeevan for the question. Shashi can I request you to pick that up please. The acquisition with respect to Mistral, commenced way back in 2017 and the total purchase consideration was at Rs.292 Crores and of course the acquisition was supposed to have in various phases and today as we stand payment access for phase-2 where we are supposed to acquire about 40% of the shareholding in Mistral the rest of all the entire acquisition is over and the total consideration which we have already paid to them is an amount of Rs.210 Crores odd and the phase-2 is essentially a share swap through a

Thank you very much for the opportunity and a big congratulations for a wonderful set of numbers. My first question is, now it is new verticals that we have been discussing about. How do you see that revenue mix changing in next three years from this new verticals as compared to our legacy in aerospace, heavy engineering, and other verticals. How do you see that mix changing and will that be margin accretive for us, this new verticals will give us better margins than what we currently are garnering here? Arun Krishnamurthi: Mr. Deepak, this is Arun here. I can take your questions. The reason t

Deepak Poddar

Fair enough, and in three years we can expect 25% revenue from these new verticals? I don’t want to give a forward-looking guidance, but the industry level growth is anywhere between 15 to 18% and last year we do at 17.6% this year we are on a very positive trajectory. So, I am very confident that we will be above the industry growth rates. So I don’t want to comment on specific percentages but we are on a good trajectory. No, I am talking about this new vertical revenue mix basically, in three years this new vertical can form 25% of your revenue? Yes, it could form 25%. Yes, that is what I wa

Thanks for the opportunity. Sir, what was the Mistral revenues during the current quarter?

Shashidhar S K

The Mistral revenue for the current quarter was Rs.626 million which was about 30% of our total consolidated revenue. Okay, and based on the order book what could we see for the FY23? We would not like to give a specific guidance in terms of numbers and as Arun was mentioning now we hope to grow at a much faster pace than how the industry is going. Last year our revenue growth was around 20%, we hope to meet the target beyond that we do not want to commit specific numbers. Okay, sir what was the order book in Mistral as on 30th September? They have a large pipeline of orders because they do a

Hi! First of all congratulations on a great set of results. My question is for Arun, AXISCADES and Mistral have very large customers where currently you have relatively small revenue. In your previous experience at Wipro you had record of making large clients where there was small revenue and then growing into large revenues. How do you see this opportunity compared to the success you had at Wipro utility business where you grew small accounts at big companies to large accounts and big companies?

Arun Krishnamurthi

Thank you for your question Inder and actually that is a really good question. I think the opportunities exactly at the same interaction point. What we are doing with the existing customers we have, they know us in a certain way, there is a certain kind of work that we deliver for them. But with the acquisition of Mistral for example, with the strong embedded capability that we have, we will be cross selling those embedded capabilities into our existing clients. Because if you look at the engineering space getting into a supplier and getting a supplier code is really hard work. But once you ge

Yes, with regards to the anti-drone system, last year or so we have bagged the order. Is it the order along with the BEL. Can you throw some light on these orders and going forward how we are looking at the repeat order of this kind of the same anti-drone system? Arun Krishnamurthi: Order is not with BEL, it is something that we have won and we have a partner with whom we are developing the product and the customer is Indian Army but equally there are potential customers like the Airforce, Coast Guard, Navy etc. We have already delivered a few of these and already have a repeat order which is

Ketan Gandhi

Sir, is it possible for you to share the number of units of anti drone systems? Arun Krishnamurthi: Yes, it is about 100 units and about close to 50 have been delivered rest of them are being delivered. And after this we will be getting the repeat order of this kind of or higher numbers? That is correct. Sir, in the space of radar where are we, like we do in ex-band, S-band and do we have any role in SR radar which has been developed recently is known as with some SR radar. So, are we in TR modules or sub-system, I just wanted to know our capabilities in terms of the radar space. I think that

Hi! Arun and Shashi, congratulations on a very, very good set of numbers. You guys are in a sweet spot both in defense as well as in the R&D space. My question is relating to Mistral, one they are working on the defense side but I thought they were also working on the semi-conductor side, could you elaborate a little bit on that? Arun Krishnamurthi: You are absolutely right Nikhil, 50% of the revenues come from defense and 50% of the revenues come from the semi-conductor industry and all of that are overseas customers and they are all again big leading names in the US and in the Europe. So, yo

Nikhil Shah

Okay, we are currently at the run rate numbers that Shashi talked about are at about $35 million of revenue a year. How do we see that scaling up as you rightly mentioned that you do some work initially on an embedded side on defense and then it scales up big So, is it that we have reached an inflexion point on Mistral orders? If you look at the defense business like I said there is an R&D phase and then there is a production phase and we are actually seeing a lot of our products which gone through R&D now coming into the production phase. Equally there are some new orders that we are working

I would like to congratulate Mr. Arun and the entire team for the good set of performance within a short period of less than one year after joining the new management team. Sir, my most of the AXISCADES Technologies Limited November 10, 2022 questions regarding Mistral and fund raising have been answered. So, I would like to restrict myself to the recent Tata and Airbus have announced that project in Gujarat, our association with Airbus is on the civilian side as well as both the Gujarat plant with Airbus and Tata. Are we going to have any association with this vertical also? Arun Krishnamurth

Naveen Bothra

Okay, and if you can throw some more light on the add solutions numbers and revenue numbers have been said, the EBITDA numbers and something like performance and this year’s performance up to three quarters? Arun Krishnamurthi: Yes sure, but add solution their financial is from January to December and their forecasted completion this year will be about eight million Euros and they actually have very healthy EBITDA, so they are at about 12 to 13% EBITDA which for a German company is very, very good because as you know usually companies which there only German or European tend to be in single di

I just want to get a feel from the operating leverage in different projects. To get a feel for the kind of profit and growth that you can have. That is example and defense you mentioned that once you put in the money for R&D then you get a production order then all that hopefully will transpire into a lot of operating leverages. Can you just give us some feel for the operating leverages in different sectors and type of work that you are doing?

Shashidhar S K

Basically, at an enterprise level we are now at a level where operative leverage is picking in of course we are not able to specially comment on the defense thing which you talked but as an enterprise we are at the cusp of taking the benefit of operating leverage. For us any in incremental revenues beyond the number of around Rs.550 Crores is where every incremental dollar or incremental rupee revenue will add close to about 25% plus in terms of EBITDA. I just want to add Mr. Rajendra that both of us joined this year and we are in the journey of transformation. We are looking at obviously how

Congratulations on a good set of numbers. On the revenue by geography that as given, if I see it is got 36% of your revenue coming from Europe. Considering the current situation in Europe can you give us an idea if your order book in hand already for execution in next one or two quarters.

Arun Krishnamurthi

If it is specific to Europe, it really depends on the sector that you talk about. I’ll try to give you a very quick sense of each sector. If you look at aerospace the client that we work with they have a full order book which will probably extend for the next four to five years. If you wanted to order a new aero plane that is only going to come into their list five years from now and as you know in aerospace there are two large OEMs and the one that we work with is doing extremely well and they have a market position. So, their order book is actually full and we don’t see any slowdown in fact

We have actually almost Rs.200 Crores debt on the balance sheet and the debt cost seems to be little higher looking at the interest cost. So, are we planning to re-finance that in the foreign currency where we can actually have a natural rates?

Shashidhar S K

We of course have to take on this quantum of debt at a very short period because of the timelines which were imposed by the arbitral tribunal. We do recognize that it has come at a higher cost and we are already in the process of re-financing it and whether you will take a foreign currency loan or to a rupee loan obviously we are looking at a significant savings in cost in terms of the agencies with whom we are discussing this risk and we are confident that before the end of the current financial year we should have the re-financing in place. Okay, and second question is for Arun actually. Jus

Hi! Arun sir and the team. Congratulations on a fabulous performance. Sir taking clue from one of the previous questions. I understand that there are about at best twenty to twenty-five OEMs and given that there are a limited number of OEMs the kind of companies that cater to them almost on the automotive side be at aid as after SAR or like you said the wire and harness. Would it be IP essentially that will kind of relationships will get us in the door and it will get us business. But what will help us maintain our margins given that so many people are catering to such a limited set of people.

Ansal Thacker

That would essentially involve some sort of cost, right given that either we have to develop or then we will have to acquire. So, do you have any amount or a figure in mind as to what you are setting aside for these kind of acquisitions? Arun Krishnamurthi: We obviously do our annual planning. We have a budgeting process, so we put in some money that we want to invest in R&D and things like acquisition of add solutions for example will go in the same direction where there will be capabilities and solutions that they have. This is something we take in during the annual process I obviously don’t

Thanks everyone for joining on this call. I would also like to thank the management taking time out to answer all the questions today. Orient Capital is the Investor Relations Advisors to AXISCADES. For any queries or follow up please feel free to reach out. Thanks everyone, have a nice time. Thank you.

Management

Speaking time

Shashidhar S K

Jeevan Patva

Moderator

Arun Krishnamurthi

Deepak Poddar

Akshay Kothari

Ketan Gandhi

Vignesh Iyer

Naveen Bothra

Ansal Thacker

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Opening remarks

Shishir Gahoi

Thanks, Mike. Good evening everyone and I am delighted to welcome you all to this earnings call pertaining to the second quarter and first half year ended September 30th 2022. I hope you all had an opportunity to review our press release and the investor presentations which are available under the investor section of our website and the same are accessible in BSE and NSE websites. To discuss our results, we have with us our CEO and Managing Director Mr. Arun Krishnamurthi and our Group CFO, Mr. Shashidhar. S. K. They will take you through our results after which we will proceed for the question-and-answer session. Before we begin the conference call, I would like to mention that this conference call may contain some forward-looking statements about the company which are built on the belief, opinions, and expectation of the company as on date of this call. The actual results may differ materially. These statements are not guaranteed of the future performance involves uncertainty that ar

Arun Krishnamurthi

Thank you very much, Shishir. First of all I know you all must be very disappointed to see outcome of the India vs England match and you are hoping to see India have got through to finals but that is life, but I hope our results will be able to cheer you up a little bit. I take pleasure in welcoming you to this earnings call, the first time since I took over as a CEO & Managing Director about a year back. At AXISCADES, we are consistently raising the bar with our performance with growth delivered over the last several consecutive quarters and delivering double-digit growth across key financial metrics. Historically, we have been focused on aerospace and heavy engineering verticals and derived majority of our revenue from some of the biggest global clientele in this space who have been our valued clients for over a decade. While these verticals continue to sustain and expand registering double-digit growth. We are currently on a business transformation with three strategic focus areas n

Shashidhar S K

Thank you, Arun, and good evening to everyone. As in the case of Arun this is my first earnings call after I joined here as a CFO in January 2022. We are delighted to share with you that we have delivered a robust growth in revenue and profitability for the second quarter and in the first half year. In Q2 FY2023 our revenue stands at Rs.1,937 million recording a 43% year-on-year growth and in H1 FY2023 our revenues were at Rs.3,769 million where we grew 53% year-on- year. Our EBITDA margins for Q2 FY2023 is at 19.3% an improvement of 690 basis points quarter-on-quarter and 1,110 basis points year-on-year. Our H1 FY2023 EBITDA margin is at 15.9% an improvement of 720 basis points year-on-year. Profit after tax for Q2 FY2023 is at Rs.211 million registering eight-fold growth year-on-year and adjusted profit after tax for H1 stands at INR 338 million registering an eight-fold growth again year-on-year and if you look at segmental performance the overall revenue growth of 43.4% in Q2 FY202

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