AXISCADESNSEFebruary 21, 2023

AXISCADES Technologies Limited

10,677words
97turns
7analyst exchanges
3executives
Management on call
Arun Krishnamurthi
CHIEF EXECUTIVE
Shashidhar Sk
GROUP CHIEF FINANCIAL
Shishir Gahoi
INVESTOR RELATIONS – AXISCADES TECHNOLOGIES LIMITED
Key numbers — 40 extracted
200 million
r this job and whilst in London was in Tata Technologies as the President for Europe and managed $200 million engineering services portfolio for automotive, aerospace and industrial. Prior to that, I had a l
rs,
e 3 wins of defense forces. I'm happy to report that the company continues to record healthy numbers, both in terms of revenue and profitability. The consolidated revenues grew by 10% quarter-on-quart
10%
rd healthy numbers, both in terms of revenue and profitability. The consolidated revenues grew by 10% quarter-on-quarter and 26% year-on-year at INR 213.4 crores, which is the highest-ever revenue re
26%
terms of revenue and profitability. The consolidated revenues grew by 10% quarter-on-quarter and 26% year-on-year at INR 213.4 crores, which is the highest-ever revenue recorded in any quarter in
INR 213.4 crore
d profitability. The consolidated revenues grew by 10% quarter-on-quarter and 26% year-on-year at INR 213.4 crores, which is the highest-ever revenue recorded in any quarter in any financial year. So for us, as
INR 590.4 crore
For the 9 months of the current financial year, the company's revenues was at INR 590.4 crores, a growth of 42% over the previous year. With EBITDA at INR 93.6 crores, which excludes other
42%
months of the current financial year, the company's revenues was at INR 590.4 crores, a growth of 42% over the previous year. With EBITDA at INR 93.6 crores, which excludes other income, the company
INR 93.6 crore
ompany's revenues was at INR 590.4 crores, a growth of 42% over the previous year. With EBITDA at INR 93.6 crores, which excludes other income, the company 9 months has exceeded the full EBITDA of INR 68.7 cror
INR 68.7 crore
NR 93.6 crores, which excludes other income, the company 9 months has exceeded the full EBITDA of INR 68.7 crores recorded in FY '22. The EBITDA margin at 15.8% of revenue is a significant improvement over EBIT
15.8%
9 months has exceeded the full EBITDA of INR 68.7 crores recorded in FY '22. The EBITDA margin at 15.8% of revenue is a significant improvement over EBITDA margin of 9.8% recorded in the same period of
9.8%
FY '22. The EBITDA margin at 15.8% of revenue is a significant improvement over EBITDA margin of 9.8% recorded in the same period of previous year. All our subsidiary entities and verticals have show
INR 230.4 crore
d digital first as was elaborated by Arun. For Q3 of FY '23, our consolidated revenue stands at INR 230.4 crores, the highest ever revenue recorded in any quarter of the financial year in the history of the co
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Guidance — 20 items
Arun Krishnamurthi
opening
“Our strategic focus in the short to medium term is to derisk the business with a 3-pronged approach of vertical diversification, customer diversification and digital first, and the company has made considerable progress on all 3 fronts by diversifying our revenue streams from new verticals, expanding our client base and bringing digital and automation to the forefront.”
Arun Krishnamurthi
opening
“In line with our guidance at our previous earning calls, I am pleased to report that we have concluded the acquisition of Mistral Solutions.”
Arun Krishnamurthi
opening
“Going forward, we will put our best effort to drive the synergies from this acquisition in terms of competencies, incremental revenue and profitability.”
Arun Krishnamurthi
opening
“Moving forward, this segment will be a key focus area and a key contributor to our financial and profitability metrics.”
Shashidhar SK
opening
“My focus in this company in the short to medium term is to build momentum in revenue growth, cash generation, profit margin and velocity, meaning optimization of working capital.”
Shashidhar SK
opening
“We state that there will be no more exceptional charges in the company's books on this account going forward.”
Shashidhar SK
opening
“While it is clear the company's free cash flow generation from EBITDA is impacted by investment of own funds for Mistal acquisition, some part of it investments in incremental working capital, especially in Mistral, and additional finance costs resulting from Mistral acquisitions, our endeavour in FY '24 will be to optimize working capital, refinance, pay down the debt and reduce the gap between EBITDA and free cash flows.”
Hemant Shah
qa
“So going forward, can we expect some margin improvement, sir?”
Hemant Shah
qa
“And what kind of synergies we can expect with Mistral, sir, going forward, in terms of, say, reduction of cost as well as improvement in efficiency and the quality of the contribution of Mistral overall with AXISCADES.”
Arun Krishnamurthi
qa
“And number two, because these skills are quite rare and niche, the rates are better and the profitability will be higher.”
Risks & concerns — 6 flagged
These statements are not guarantee of the future performance of the company and involve risks and uncertainties that are difficult to predict.
— Shishir Gahoi
So we feel with that spread, and at any point in time there is always going to be some sector which has a headwind, right?
— Arun Krishnamurthi
And I think there was some pricing pressure like long back from these accounts.
— Pradyumna Choudhary
So we did not feel that we wanted to take a risk of acquiring a business where the contracts are not secured.
— Arun Krishnamurthi
If we didn't have the contracts, we didn't have the business, it would have been a situation where I would have to move to Wolfsburg, take an apartment and manage the company because the risk would be too high.
— Arun Krishnamurthi
What will be difficult is to understand a certain use case.
— Arun Krishnamurthi
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Q&A — 7 exchanges
Q
I have two questions. You said the realistic margins in this space is 14% to 15%. Is that correct?
Shashidhar SK
I basically talked about AXISCADES Aerospace, and the margin as what we are recording is about 14% to 15% on a normalized basis. You see, the margins, essentially what would happen is, during the development of prototypes, the kind of margins as what we get is around 14% to 15%. But the moment it gets converted to production runs, the margins are far, far higher. At the moment, we are completed quite a lot of, I would say, design programs where the prototypes have been completed, both with respect to Mistral as well as AXISCADES Aerospace. We are waiting for the production runs to happen for m
Q
Congrats on the wonderful performance. Arun and Shashi, it would be helpful if you could share maybe your 2-, 3-year view on qualitatively, both qualitatively and quantitatively the strategy for AXISCADES and Mistral. That's my first question. And secondly, I guess, both Shashi and you own ESOPs in the company. What would give you happiness in terms of growth margins over a 2-, 3-year period? I understand that you are restructuring the company. So maybe a 2-, 3- year view would be helpful.
Arun Krishnamurthi
Thanks a lot, Srinath. I'll start by answering your questions. So firstly, good to talk to you again. Just in terms of what the outlook is going forward, I'll just spend a minute in talking in terms of what we have done over the past 1 year since we joined the company. So one is that, like we talked during the introduction, we have the 3-pronged strategy, which is predominantly around vertical diversification, the reducing the client concentration mix through client diversification and the focus on digital and embedded. So this is something that we are banking big on because now we have 5 vert
Q
So Shashi, can you just give you a breakup of 9 months number between AXISCADES and Mistral? So how much is Mistal and how much is AXISCADES?
Shashidhar SK
So as I told earlier, the number with respect to AXISCADES in terms of revenue is INR 328 crores for AXISCADES, the parent entity. And all, of course, the standalone business plus all the other subsidiary entities and the global entities as what we have. And AXISCADES Aerospace is at INR 65 crores and Mistral is at INR 198 crores. Just to give you a comparison, the AXISCADES at INR 327 crores compared to numbers for last year was INR 262 crores. So we have grown by 25%. And AXISCADES aerospace, INR 65 crores this year, 9 months, last year INR 36 crores. That means an 82% growth. And Mistral, w
Q
Sir, I just wanted to understand, I mean, in one of the earlier comments you mentioned that going forward we do expect some margin improvement, right? So what is the steady state margin our kind of business you are looking at? I mean, from currently on a consol basis will be about 14.8%. So what 17%, 18% is the fair over the next 2, 3 years is what the kind of margin level you might be looking at?
Shashidhar SK
So as I told you, we are currently -- like 9 months of the current financial year, we are at 15.8%, only on revenue, of course it excludes other income. That journey is to kind of reach either 400 to 500 basis points between now and the next couple of years is what we are looking at. If you look at the industry margins, it is usually around 18%, , 18% to 19% is what I would say. And we need to traverse this journey. We need to traverse this journey between now and the next couple of years. 2 years, so 2 years, we are looking at 400 to 500 basis point improvement, right? See, in 2 years -- see,
Q
So actually I had 3 questions. First being on the client concentration side. If you could just, in terms of certain numbers, like number of clients we have compared to same quarter of last year and revenue contribution of top 1 and top 5 customer, if you could just give some numbers so that we have a better idea how we are moving on this side. And another one on client concentration side is previously, as you mentioned, we had 2 accounts where we had a lot of dependence. And I think there was some pricing pressure like long back from these accounts. Today, what, like apart from client diversif
Arun Krishnamurthi
Yes, I think so. Then you can -- if there is a common answer, then we can probably answer it together. Pradyumna Choudhary: All right. Sure, sure. So the second one is related to the defense business of ours. Here I wanted to understand how do we create an USP in terms of -- especially if you look at the drones side of things, there are a lot of players in the industry. So how do we create a USP on the defense side? This is the second question. And the third one is I think related to the Add-Solutions acquisition. So through this acquisition, we were actually planning to enter the European aut
Q
So my question is regarding the capabilities for the radar business. First is that on your website, I could see you provide components for radar recorders, transmitters, exciters and so on so forth, so do your competitors. I just want to understand over here what is the product differentiation between you and your competitors? And you had mentioned that you specialize in sonar. Is that correct to assume?
Arun Krishnamurthi
Yes. So we specialize both in radar as well as sonar. And like you said, there is transmitters, there is receivers, there is exciters, which is what comprises the entire radar. So what we specialize in is that the radars that we develop go into aircraft and submarines. So there are different competitors, for example, who would develop radars which go into missile system, for example. So that's where the differentiation comes in. It's in the product that it's finally installed in. But our capability is high altitude. We do all the tests which comes with shock, with altitude, with temperature, a
Q
Thanks for all participants to join this call today. In the interest of time, we would now like to close the call. So I would also like to thank the management for taking the time out of their schedule to answer all the questions today. Orient Capital is the Investor Relations adviser to AXISCADES. For any queries or follow-up questions, please feel free to reach out to us. Our contact details are also mentioned in the press release. Have a nice day everyone. Thank you.
Arun Krishnamurthi
Thank you. Thanks.
Speaking time
Arun Krishnamurthi
25
Shashidhar SK
23
Deepak Poddar
12
Jeevan Patwa
11
Moderator
9
Jitin Jadhav
7
Hemant Shah
4
Srinath Krishnan
2
Pradyumna Choudhary
2
Shishir Gahoi
1
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Opening remarks
Shishir Gahoi
Thank you very much. Good evening, everyone and I am delighted to welcome you all to this earnings call for the third quarter and 9 months ended December 2022. I hope you all had an opportunity to review our press release and the investor presentation which are available under the investor section of our website and the same are accessible in the 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 SK. They will take you through our results and business performance. 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 based 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 guarantee of the future performance of the company an
Arun Krishnamurthi
Thank you, Shishir. Good evening, everyone. A very warm welcome to all of you, and I trust that you are keeping well. I am happy to address this quorum having recently completed 1 year leading AXISCADES. The last 1 year has been transformational and fulfilling for me and for the company, and we have been able to reposition the company in terms of its business performance and preparedness for the next level of growth. For those of you that I'm meeting for the first time, I joined AXISCADES in November 2021. I relocated from London to Bangalore for this job and whilst in London was in Tata Technologies as the President for Europe and managed $200 million engineering services portfolio for automotive, aerospace and industrial. Prior to that, I had a long stint in Wipro where I managed a half a billion dollor portfolio for the utilities Industry. I have about 20 years of experience on sales and managing P&Ls, and I have lived in the US and UK, working with customers intimately to win, grow
Shashidhar SK
Thank you, Arun, and good evening to everyone. I, as Arun, completed 1 year with AXISCADES in January of this year, and it has indeed been an engaging and satisfying year for me too, working with Arun on this business transformation journey. Being a CFO as well as the Company Secretary most of my career, I had an onerous task of performance as well as conformance. All along, in my entire career of 30-plus years, of which 26-plus years has been as a CFO, I have been part of business turnarounds in each and every stint of mine. As such, I have always been an operational CFO, facilitating and driving business turnarounds and growth apart from being a compliance CFO. Like Arun, I also come from the Tata stable. I was heading the aerospace and defense vertical of the Tata for close to a decade as the CFO and Company Secretary. My immediate past profile was as a CFO and Company Secretary with Stovekraft, a Sequoia-funded company, which I took public in 2021, one of the most successful public
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