Avalon Tech — Q3 FY26 earnings call

Yes, we are conservative, okay, because the different programs cut in at different times for us. And this last 9 months has been tariffs, no tariffs, what tariff, what percentage. So we were really reluctant to come out with a specific number because we didn't know. We didn't know what the tariffs are going to do to our business.

Management confirmed a conservative approach to guidance due to external uncertainties, and clarified that operational investments for existing programs are largely complete.

Asked by Sameet Sinha

So with respect to U.S. manufacturing, which constituted 22% of our business for this quarter, the PAT losses are at around minus INR7 crores. If you look at the last couple of quarters, it was approximately at around minus INR9 crores each quarter. We have been talking about a possible operating leverage opportunity in U.S. manufacturing as well, alongside India manufacturing. The beginning of that is what we see this quarter.

Analyst probed on U.S. margin profile; management indicated reducing PAT losses and expected profitability improvement in the next fiscal year due to new program ramps.

Asked by Tanay Shah

So typically, we have not shared a tariff absolute number, but just to give you a heads up on that, let's say, without tariffs, our gross margin percentage would have been better by 100 bps.

Clarified that while absolute gross margins were maintained, the percentage was optically impacted by 100 bps due to the pass-through mechanism of tariffs.

Asked by Archit Shah

Thank you for the question, Vipraw. For me, we believe the order book has done really well in the last quarter. So it's grown 26% looking on a year-on-year basis. The business is growing faster, but the key is we're not tying all the orders, we are giving a 14-month number, okay, which is at INR2,000 crores. And we are giving you a number, which is for 14 months to 36 months, which is INR1,183 crores. So totally, we have INR3,199 crores if you look at that for a 3-year period, okay?

Management clarified the total order book visibility, distinguishing between the 14-month executable book and additional long-term contracts, and noted that many new programs are currently in prototype stage.

Asked by Vipraw Srivastava

So what we are doing is part of their larger system. We're not making the whole equipment. These usually are $2 million - $3 million machines. And we are doing small parts of that, okay? So again, we don't want to give a number, the opportunity. These companies earn hundreds of billions. So we are getting our small steps in there with the hope that it's going to be a big part of what we do.

Management provided qualitative insight into the semiconductor equipment opportunity, emphasizing their role in making critical sub-parts for large systems, primarily for export.

Asked by Santosh Seshadri

So we've been in the U.S. for the last 25 to 30 years. So we understand the market well. In the last 7, 8 months, there have been a lot of customers on the fence because I can't say I can make it in India faster, better, cheaper, but you pay 50%, okay? So a lot of people have just put on hold. But today, with the 18% number, you're better than a lot of the Southeastern economies, better than China.

Management explained how the reduced U.S. tariffs make India a more competitive manufacturing destination, attracting customers who were previously hesitant due to higher tariffs.

Asked by Santosh Seshadri

I believe that we will do that number you mentioned and more. We are conservative in our approach, but we don't just want to come out and tell the numbers. So for example, this year, we have upward revised because we didn't know how -- where the world is going, 3x, okay?

Management expressed high confidence in sustaining or exceeding FY26 growth rates in FY27, citing long-term contracts and diversified growth drivers, while maintaining a conservative stance on explicit guidance.

Asked by Jeetu Panjabi

The fastest-growing segment in clean energy in the U.S. is battery systems for storage. It's been growing in the last couple of years. And it's not impacted by the pulling out subsidy in the sense which happened in the wind and some of the other solar stuff. This is a focus for U.S. because of the grid and with all the data centers coming in. So they're getting closer to home. And I think this is supposed to SO but the only issue is that you have to make it in the U.S. And we are well positioned for that, and that's what we're doing.

Management clarified that the U.S. battery storage business is not subsidy-dependent like other renewable segments and is driven by fundamental grid and data center needs, requiring local U.S. manufacturing.

Asked by Archit Shah