AXISCADESNSENovember 16, 2023

AXISCADES Technologies Limited

10,805words
109turns
10analyst exchanges
4executives
Management on call
Arun Krishnamurthi
CHIEF EXECUTIVE
Shashidhar Sk
GROUP CHIEF FINANCIAL
Mujahid Alam
CHIEF EXECUTIVE OFFICER -- MISTRAL SOLUTIONS PRIVATE LIMITED
Shishir Gahoi
HEAD, INVESTOR RELATIONS – AXISCADES TECHNOLOGIES LIMITED
Key numbers — 40 extracted
rs,
e forefront of ER&D.. Our Q2 business performance was characterized by onboarding of new customers, rejigging our senior management teams, strengthening our sales team and consolidating our newly ac
100%
is add solution in Germany. During the quarter, we also signed a definitive agreement to acquire 100% of EPCOGEN, which is a niche solutions provider in the energy sector. These acquisitions will enh
INR252 crore
n the region. In terms of financial highlights, the company in Q2 posted consolidated revenues of INR252 crores, its highest ever quarterly revenue, growing by 30% from INR194 crores in Q2 of last year. In US
30%
Q2 posted consolidated revenues of INR252 crores, its highest ever quarterly revenue, growing by 30% from INR194 crores in Q2 of last year. In USD terms, the company recorded revenues of $30.6 milli
INR194 crore
d consolidated revenues of INR252 crores, its highest ever quarterly revenue, growing by 30% from INR194 crores in Q2 of last year. In USD terms, the company recorded revenues of $30.6 million, growing by 26%
30.6 million
ing by 30% from INR194 crores in Q2 of last year. In USD terms, the company recorded revenues of $30.6 million, growing by 26% from $24.3 million recorded in Q2 of last year. In the
26%
ores in Q2 of last year. In USD terms, the company recorded revenues of $30.6 million, growing by 26% from $24.3 million recorded in Q2 of last year. In the first half of th
24.3 million
f last year. In USD terms, the company recorded revenues of $30.6 million, growing by 26% from $24.3 million recorded in Q2 of last year. In the first half of the year, the company r
INR 465 crore
ast year. In the first half of the year, the company recorded revenues of INR 465 crores, growing by 23% from INR 376 crores, recorded in the same period of previous year. Similarly, in
23%
In the first half of the year, the company recorded revenues of INR 465 crores, growing by 23% from INR 376 crores, recorded in the same period of previous year. Similarly, in USD terms, the
INR 376 crore
the first half of the year, the company recorded revenues of INR 465 crores, growing by 23% from INR 376 crores, recorded in the same period of previous year. Similarly, in USD terms, the company recorded rev
56.8 million
d in the same period of previous year. Similarly, in USD terms, the company recorded revenues of $56.8 million, growing by 19% from $47.9 million recorded in H1 of last year. The company recorded a consolid
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Guidance — 20 items
Arun Krishnamurthi
opening
“Going forward, automotive and energy verticals will constitute significant portions of our revenue with synergies from add solution and EPCOGEN.”
Mujahid Alam
opening
“In coming quarters, we continue to expect healthy revenue and profitability growth in both domestic and international markets.”
Srinath Krishnan
qa
“How has the performance been in the project engineering space and also in the defense space?”
Mujahid Alam
qa
“Growth will be on the professional services of defense business which in turn will result in production revenue moving forward.”
Srinath Krishnan
qa
“So what is the performance of the PES space in the first half compared to last year and also is the kind of the work over that can we expect to pick-up in second half?”
Shashidhar S K
qa
“And we have already started taking projects with respect to digital analytics and manufacturing engineering which we hope will kind of outstay scale-up and will be able to kind of come to control in terms of the heavy engineering vertical in the coming year.”
Arun Krishnamurthi
qa
“And of course, the macroeconomic situation would possibly improve going forward and that would also help us recover the segment.”
Shashidhar S K
qa
“So going forward in the coming quarter, our finance cost will be around INR11 crores to INR12 crores, which in fact takes into consideration the cost saving as what we are having for the refinancing which we did for the NCDs which we had raised for the Mistral acquisition.”
Arun Krishnamurthi
qa
“Automotive, we expect, will also be strong both from the client roster that we have within AXISCADES, but also through add solution, we have a strong pipeline in place and we can do much more.”
Arun Krishnamurthi
qa
“So that will be a good growth driver for us.”
Risks & concerns — 13 flagged
These statements are not guaranteeing the future performance of the company and involve risks and uncertainties that are difficult to predict.
— Shishir Gahoi
We have also strengthened our governance standards with the onboarding of a Global Controller and Chief Risk Officer and enhanced the depth of our Board leadership.
— Arun Krishnamurthi
The company has been able to maintain its EBITDA with marginal decline in EBITDA margins despite annual increments, but we also had a few plant closures with some of our major customers, and we have also added resources who will get billed in Q3.
— Arun Krishnamurthi
To conclude, while the current geopolitical and macroeconomic headwinds do pose a challenge for the industry as a whole, we are confident that our efforts of derisking the business will stand us in good stead for the balance of the year and thereafter.
— Arun Krishnamurthi
The employee cost in Q2 of FY '24 is INR123 crores, has gone up by INR15 crores quarter-on-quarter, mainly due to annual increment impact of INR 6 crores, new hirings, including senior leadership hiring, impacting INR 1.2 crores and employee cost of add solutions, which we started consolidating from 1st of August, which has impacted by about INR 8 crores.
— Shashidhar S K
This cost considers the beneficial impact of INR2 crores per quarter with respect to refinancing of acquisition debt, which was completed in Q1 of FY '24.
— Shashidhar S K
So these have gone through a slowdown because of overstocking in the past.
— Mujahid Alam
So this is the reason why there is a slowdown in production and we foresee this correction to happen in the next two quarters.
— Mujahid Alam
But with respect to heavy engineering, there was a flattish growth for the quarter and a bit of marginal decline as in the first half of the year.
— Shashidhar S K
The reason for the decline is basically the macroeconomic factors which impacted the heavy engineering industry and it is yet to recover from that.
— Shashidhar S K
You talked about, automotive, it's difficult to get into customers unless you have an existing relationship.
— Inder Soni
So the quarterly impact of that is around INR 3 crores, which is right away charged into the P&L, and we're not capitalizing it as intangibles.
— Shashidhar S K
So what will be the impact of that in the long run?
— Tushar Bhavsar
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Q&A — 10 exchanges
Q
Congratulations to you on such a strong performance in a challenging environment. My first question is on Mistral. There are a lot of articles and reports that suggest that the semiconductor space is going through a challenging phase now but despite that Mistral has done really well during the quarter. So I wanted to understand what is driving this growth in Mistral? How has the performance been in the project engineering space and also in the defense space? And as it has been guided in the past, the defense has considerably picked up. So I think it is close to about INR35 crores to INR40 cror
Mujahid Alam
Yes, Srinath, we have a legacy of having built design wins for the last 25 years and these design ones which we have built, tested and qualified on field are getting into production phase today. So the systems which we have done about 10 years back are getting into production. So this is something which will continuously give us revenue moving forward. At the same time, there are many issues which DRDO has taken wherein a lot of things are being outsourced. So this also will drive growth. Growth will be on the professional services of defense business which in turn will result in production re
Q
Thank you, sir. And congratulations on the good set of top line numbers. And secondly, Arun sir, congratulations completing two years in AXISCADES. And my question is on the segment side that could you please provide more information about the performance of the HEG which has been underperforming for several quarters except other segments which are doing better?
Arun Krishnamurthi
Thanks, Jyoti. Firstly, happy Diwali to you. I will request Shashi to just chip in specifically with regards to the heavy-engineering sector. So basically, you are right there. All other verticals have grown substantially for the quarter as well as for the half year. But with respect to heavy engineering, there was a flattish growth for the quarter and a bit of marginal decline as in the first half of the year. The reason for the decline is basically the macroeconomic factors which impacted the heavy engineering industry and it is yet to recover from that. And what we are actually doing now is
Q
Yes, hi, happy Diwali and congratulations on a very strong set of growth numbers. Question about add solution. You talked about, automotive, it's difficult to get into customers unless you have an existing relationship. But through this acquisition, it looks like you have some of the best OEMs, right? I'm looking at the chart from the company that says they have Mercedes- Benz, BMW, Volkswagen, Alstom, many big companies. So I'm not asking specifically about any of these big companies, but if you are already in one of these companies, does that give you the opportunity to grow in other areas w
Arun Krishnamurthi
Yes, Inder, thanks a lot for your question. Happy Diwali to you as well. So, yes, you're absolutely right with add solution. The reason that we acquired add solution is that if you look at the German automotive ecosystem, they have a very stable vendor ecosystem. And it's really difficult to break in. And the approach that we've taken is to acquire a company who already has a supplier code. And actually, this is something some of our peers have done as well. So now with this, we have supplier codes and obviously the brands you mentioned. So Volkswagen is a big name. That's a big customer for u
Q
So actually, I wanted to understand more on the defence order pipeline. We used to -- is that there is a INR2,000 crores- 3,000 crores order pipeline. So what is the situation currently? Are you participating in any big tenders? How is the order book visibly looking there?
Mujahid Alam
As on date, while we are talking today, the order pipeline in Mistral is currently outstanding at over INR350 crores on integrated orders. And... These are like confirmed orders of INR350 crores, right? INR350 crores order in hand with Mistral. It also includes a few orders from non-defence business also, but majorly from defence. And we have already negotiated from a couple of contracts with BEL and HAL for some of the production numbers, which are due to us, and we expect these orders to come in Q3. So those will be to the upward tune of about INR100 crores plus of new orders, which will com
Q
Hi, team. I wanted to understand the projects that add solution is doing. So specifically, what is the timing of the products that add-solution is working on? Are they the upgrades of the current versions, or are they the EVs that would come later in the decade?
Arun Krishnamurthi
Yes, add solution has capabilities broadly in two areas. One is the whole software testing area, and the second is wiring harness. And if you look at it, they work across the passenger and commercial fleet for the large German OEM. So these, as you know, are projects which are long- term projects, and especially software testing is a business which is growing. Because if you look at the software-defined vehicle, there's more and more of a move towards software in the vehicle, and of course the architecture of the vehicle is changing as well. Until now, most of the cars had many ECUs, and there
Q
Most of my questions have been answered. Just a clarification on the fund raised, it's a significant amount. So if you can just elaborate, what are we going to use this fund for? Is there any further inorganic acquisitions or?
Arun Krishnamurthi
Yes. I think the first question you asked is the best kind of question I'd like to answer that all the answers have been provided. But yes, just in terms of fund raised, as you know,our Board has approved that we can raise funds up to INR500 crores. So the objective is twofold. One is that we will look at writing of debt that we have acquired because of some of the acquisitions. And the second part, of course, is for growth capital. We believe that the long-term story for the company is strong. And we do need to invest, hire more people, invest in R&D, build out products. And actually, in digi
Q
Just a clarification first. I mean there was some margin impact that you maintain. I think you mentioned in second quarter due to some digital investment or higher cost, I think, somewhere. So can you quantify the impact? What was the impact there?
Shashidhar S K
See, we have built a very significant digital team which we would like to call it as an investment. And today, we have a 50-member digital team working on various projects. They also will be working on billable projects. But at the moment, the 50 members digital team, cost us around INR 1 crores a month. So the quarterly impact of that is around INR 3 crores, which is right away charged into the P&L, and we're not capitalizing it as intangibles. Okay. Okay. Fair enough. So this will continue, right, I mean, as we go forward? Yes. So only that, it will not remain as a cost. It will remain, kind
Q
Sir, in the beginning of the call, I remember you were talking about certain client closures that have happened in Q2 '24. Can you please elaborate on that?
Arun Krishnamurthi
Client closures? Okay. Sorry, you mean plant closure. So what has happened is that some of our strategic clients have had to shut their factories for an extended period in summer this year for a variety of reasons. Some of them had to do it because some of their suppliers were not able to come up with components. And those subsystems are needed to complete the product that they usually build. The second reason is that in some of our clients who are growing at a very rapid rate, they had to shut the plant so that they can upgrade these plants so that they're much more productive and they're sma
Q
Congratulations on the grand performance, like at least on the revenue side, I understand the margins have gone down. But can you tell us like that what is the headcount as of today or this quarter, like for the company? And I wanted to know, like the dilution is -- but like as I heard like that INR150 crores to INR200 crores, which I think like would be around 25 to 30 lakh shares. So that is around 7% to 8% of dilution, right, on the equity, we can anticipate? So what will be the impact of that in the long run? And I did hear like a quote that we will still have the INR11 crores to INR12 cro
Shashidhar S K
Yes, you're right there. So when I quoted the number of INR11 crores, INR12 crores, it did not factor any, I would say, debt, I would say, repayment from the capital raise which we are anticipating to do. And once we pay the debt down, yes, there's going to be an impact on the EPS and proportionate, I would say, impact on the share price, too. So the INR11 crores, INR12 crores, which I said is a pre-writing of capital. Correct. And like our employee strength, sir, like the number of employees that we have today, just to have a comparative like you know? Yes. So we are close to about 3,000. And
Q
Yes. Thank you very much, and thank you for all the questions, the value, the support that you have given us. And like I said, we are very fascinated about the future of the company. We believe we're in the right space. Some of the things that we talked about a few years back about growing automotive and energy, you have seen that we have made acquisitions. That business is growing. So we are seeing a strategy that we spoke about playing out nicely. And we're very optimistic about engineering going forward. And we'll obviously keep in touch with you with every earnings call that we have. So th
Management
Speaking time
Arun Krishnamurthi
29
Moderator
12
Mujahid Alam
12
Shashidhar S K
9
Deepak Poddar
8
Pankit Shah
7
Inder Soni
6
Srinath Krishnan
5
Jyoti Singh
4
Saurabh Sadhwani
4
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Opening remarks
Shishir Gahoi
Thank you, Caroline. Good evening, everyone, and I'm delighted to welcome you all to the earnings call for Q2 FY '24 and H1 FY '24. I hope you all had an opportunity to review our press release and the investor presentation, which are available under the Investors 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; Mr. Mujahid Alam, CEO of Mistral; and our Group CFO, Mr. Shashidhar S.K. They'll take you through our results and business performance. After which, we will proceed with 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 beliefs, opinions and expectations of the company as on the date of this call. The actual results may differ materially. These statements are not guaranteeing the future performance o
Arun Krishnamurthi
Thank you, Shishir. Good evening. Firstly, I want to wish everybody a very happy Diwali. Welcome to our Q2 FY '24 earnings call. Like Shishir said, I'm accompanied by Shashi, who is Group CFO; and Muju who is our CEO for Mistral Solutions. I'm happy to address the forum today as I complete 2 years of leading AXISCADES. Time has just flown by. It actually seems like 6 months. It's been so busy. The transformative growth journey of the company in the last 2 years has been accelerating and exciting. And as we explore and harness the opportunities ahead of us in our quest to position the company in the forefront of ER&D.. Our Q2 business performance was characterized by onboarding of new customers, rejigging our senior management teams, strengthening our sales team and consolidating our newly acquired automotive business, which is add solution in Germany. During the quarter, we also signed a definitive agreement to acquire 100% of EPCOGEN, which is a niche solutions provider in the energy
Mujahid Alam
Thank you, Arun. Wishing you all a very happy Diwali. I'm delighted to report the FY '24 Q2 performance of Mistral solutions. Mistral is a cutting-edge technology design and system engineering companies delivering technology solutions in product engineering, aerospace, defense and homeland security to marquee global clients, Ministry of Defense and DRDO and defense PSU for over 26 years. Mistral recorded a revenue growth of 50% year-on-year in Q2 of FY '24, up from INR63 crores to INR94 crores. We have seen growth both in our professional services, engineering business and defense business. Of the INR94 crores of revenue, INR42 crores was from PES business and INR52 crores from defense business. For H1 of FY '24, Mistral recorded a revenue of INR 166 crores, growing by 41% from INR 118 crores recorded in the previous financial year. The defense order pipeline remains strong. Many of our earlier designed and developed prototype system for various defense programs have been tested and qu
Shashidhar S K
Thank you, Muju. Good evening to everyone. As has been detailed by Arun and Muju, our business performance, both in terms of revenue and profitability, has shown robust growth in Q2 of FY '24 and H1 of FY '24, bolstered by our foray into new verticals, such as automotive and energy, apart from our traditional verticals of aerospace, heavy engineering and defense. As reported by Arun, the company achieved consolidated revenue of INR252 crores in Q2 of FY '24, growing by 18% quarter-on-quarter and 30% year-on-year. Our constant dollar growth was at 17% and 27% quarter-on-quarter and year-on-year, respectively. At a revenue of INR465 crores in H1 of FY '24, AXISCADES grew by 23% year-on-year and at 19% at constant dollar. We have seen year-on-year double-digit growth in all verticals, except heavy engineering. The company is currently having robust order book to deliver on the revenue objectives for FY '24. The company has started consolidating the revenue of add solution Germany with eff
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