Centum Electronics Limited — Q1 FY26 earnings call

Call held 6 Aug 2025

Management summary

Centum Electronics delivered a strong Q1 FY26, driven by robust standalone performance in the high-margin build-to-spec business for domestic defense and space customers. While international subsidiaries faced degrowth and continued losses, management is actively pursuing strategic actions to address these. The company's order book remains healthy, supported by new EMS customers and development orders, with a positive outlook for the second half of the financial year.

Highlights

  • Consolidated revenue from operations grew by 11.4% year-on-year to Rs. 273 crores.

  • Standalone revenue from operations increased by 35% year-on-year to Rs. 180 crores.

  • Consolidated EBITDA grew by 47% year-on-year to Rs. 23 crores, with an EBITDA margin of 8.38%.

  • Standalone EBITDA grew by over 100% year-on-year to Rs. 27 crores, with an EBITDA margin of 14.92%.

  • Consolidated net profit was Rs. 4.5 crores (PAT margin 1.65%), while standalone net profit surged by over 250% to Rs. 16.5 crores.

  • Order book position grew to Rs. 1,769 crores as of June 30, 2025.

  • New development orders received from DRDO for critical programs like the Virupaksha Radar.

  • Canadian subsidiary incurred an EBT loss of €600,000 - €700,000 in Q1 FY26, with strategic actions underway to stop losses.

Concerns

  • Continued losses from Canadian subsidiary

Key financials

  1. Consolidated Revenue ₹273 Cr +11.4%YoY
  2. Standalone Revenue ₹180 Cr +35%YoY
  3. Consolidated EBITDA ₹23 Cr +47%YoY
  4. Standalone EBITDA ₹27 Cr +100%YoY
  5. Consolidated EBITDA Margin 8.4%
  6. Standalone EBITDA Margin 14.9%
  7. Consolidated PAT ₹4.5 Cr
  8. Standalone PAT ₹16.5 Cr +250%YoY
  9. Consolidated PAT Margin 1.6%
  10. Order Book ₹1,769 Cr

What they filed

Q1 FY27: revenue up 10.8%, net profit down 6.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue167 187 274 185 206 +23%238 +27%344 +26%205 +11%
EBITDA20 20 43 26 25 +25%25 +25%45 +5%23 −12%
Net profit10 8 28 15 13 +30%-178 −2325%33 +18%14 −7%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Order Book Split
    ₹710 Cr EMS Order Book₹886 Cr BTS Order Book₹171 Cr ER&D Service Order Book

Guidance & targets

Performance

  • International Subsidiaries Performance Performance · H2 FY26 · Medium confidence better performance
    And we expect a better performance in the second half of this financial year, of course, contingent on the conversion of these identified opportunities.

    — Nikhil Mallavarapu

Growth

  • Consolidated Revenue Growth Rate Growth · Medium-term · Medium confidence 18% to 20%
    As we have mentioned in the past, our medium-term growth objective is to be in the range of about 18% to 20% at a consolidated level, and at a standalone level, we will be higher than that.

    — Nikhil Mallavarapu

  • Standalone Business Growth Rate (Build-to-spec & EMS) Growth · Medium confidence 25% plus
    And that is a combination of both the build-to-spec and the EMS business growing at a healthy growth rate of 25% plus that we are targeting.

    — Nikhil Mallavarapu

Profitability

  • Consolidated EBITDA Margin Profitability · Medium confidence 13% to 15%
    EBITDA margin, our objective is to be at the range of 13% to 15% at a consolidated level, which today is at 8.5% or so.

    — Nikhil Mallavarapu

  • Subsidiary EBITDA Margin Profitability · roughly 2 years · Medium confidence 10% - 11%

    Previously 1.5% → 10% - 11%

    So, with all of this, we are working on a roadmap that would help us improve this subsidiary margin from this 1% to try to get to a 10% - 11% kind of level in roughly two year time period.

    — Nikhil Mallavarapu

Capex

  • Standalone Capex Capex · FY26 · High confidence Rs. 40 crores
    So, the Rs. 40 crore CAPEX that you had announced on the last call will be done purely for the Indian business? Yes.

    — K. S. Desikan

Revenue

  • Revenue from NPI qualifications Revenue · FY26 · High confidence USD 15 million
    I think for the current financial year itself, our objective is some of these NPI itself will add about USD 15 million or so, in terms of revenue, U.S. dollars revenue.

    — Nikhil Mallavarapu

Capacity

  • Standalone Utilization (Gross Block) Capacity · next 1-2 years · Medium confidence 8x to 9x

    From 6x to 7x today

    But considering the growth from 6x to 7x, we expect this to move about 8x to 9x in the next year or two because significant CAPEX will get added to this.

    — K. S. Desikan

Risks & concerns

  • Continued losses from Canadian subsidiary

    high

    The Canadian subsidiary lost ~€2.4 million in FY25 and ~€600,000-€700,000 in Q1 FY26 (EBT level), with management actively exploring options to stop the bleeding.

    Management acknowledged

  • Degrowth in international subsidiaries

    medium

    Demand in ER&D business is yet to pick up due to delays in customer decisions in Europe, impacting international subsidiary performance.

    Management acknowledged

  • Dependence on government processes for large orders

    medium

    While a healthy pipeline exists for large tri-services orders, actual booking depends on government approval processes, which can cause delays.

    Management acknowledged

  • Stalled Indra Sistemas program

    low

    The Indra Sistemas program remains stalled with no further updates from the government.

    Management acknowledged

Areas of evasion (2)

  • Specific cash inflow from Canadian subsidiary sale
  • Exact pie size of SBS-3 project

Q&A highlights

2 direct
Canadian Subsidiary Divestment and Financial Impact Partial
Yes, I am not able to disclose anything of that sort at the moment. And also, you should remember this is a loss making business, so the expectation of any significant cash in is not high.

Reveals the financial distress of the Canadian subsidiary and the limited cash inflow expected from its divestment, indicating a focus on stopping losses rather than generating significant capital.

Asked by Raman KV

Discrepancy in Gross Margin vs. EBITDA Margin Trends Direct
Yes, I think for the part of materials consumed, just to clarify, there is a big contribution of the mix of the revenues that plays into this. So, fundamentally, each of these businesses have different levels of gross margins that we have. The build-to-spec business, considering the fact that design is done by us and so on, we have a higher level of gross margin in that business, compared to the EMS.

Clarifies that gross margin fluctuations are primarily due to changes in the revenue mix between different business segments (EMS, BTS, ER&D), which have varying material cost components and margin profiles.

Asked by Raman KV

Roadmap for Achieving Consolidated EBITDA Margin Targets Direct
EBITDA margin, our objective is to be at the range of 13% to 15% at a consolidated level, which today is at 8.5% or so. ... The opportunity for improvement will come largely from the subsidiary, which today is at almost, if you look at the last year, was at roughly 1.5% kind of EBITDA level, which is dragging down the overall consolidated number.

Provides a clear breakdown of how the company plans to improve consolidated EBITDA margins, highlighting the critical role of turning around the loss-making international subsidiaries, particularly Canada and France.

Asked by Ananth Shenoy

3 min read 7 chapters

Detailed narrative

Strong Q1 FY26 Performance Driven by Standalone Business

Centum Electronics reported a robust Q1 FY26, with consolidated revenue growing 11.4% year-on-year to Rs. 273 crores. This was primarily fueled by a 35% year-on-year growth in standalone revenue, reaching Rs. 180 crores, largely attributed to the high-margin build-to-spec business for domestic defense and space customers. Standalone EBITDA surged over 100% to Rs. 27 crores, achieving a margin of 14.92%, while consolidated EBITDA grew 47% to Rs. 23 crores with an 8.38% margin.

Healthy Order Book and Strategic Development Orders

The company's order book expanded to Rs. 1,769 crores as of June 30, 2025, indicating strong future revenue visibility. The order book is split with Rs. 710 crores for EMS, Rs. 886 crores for BTS, and Rs. 171 crores for ER&D services. Centum also secured new development orders from DRDO for critical programs like the Virupaksha Radar, a ~Rs. 10 crore order for the Sukhoi-30 platform, which is expected to unlock a significant long-term opportunity of around Rs. 1,000 crores.

Addressing International Subsidiary Losses

International subsidiaries experienced degrowth, with the Canadian entity being a significant drag. In Q1 FY26, the Canadian subsidiary incurred an EBT loss of €600,000-€700,000, following losses of ~€2.4 million in FY25. Management is actively exploring strategic actions, including potential divestment or repositioning, aiming to finalize a decision by the end of the current quarter to stop the bleeding.

Margin Improvement Roadmap Focused on Subsidiaries

While standalone EBITDA margins are healthy at 14.92%, consolidated margins are lower at 8.38% due to the underperformance of international subsidiaries. The company's objective is to achieve a consolidated EBITDA margin of 13-15%. The roadmap for improvement includes maintaining standalone margins and significantly improving subsidiary margins from ~1.5% to 10-11% over the next two years by focusing sales efforts on defense and aerospace customers in France and resolving the Canadian losses.

Capex for Indian Business and Capacity Expansion

Centum plans a CAPEX of Rs. 40 crores in FY26, exclusively for its Indian business, to augment capabilities and capacities. This investment is expected to improve asset utilization from the current 6x-7x to 8x-9x in the next 1-2 years. Management anticipates that this CAPEX will support an additional leg of growth, with a revenue turn of around 5x on gross block or 6x-7x on net block.

Diversified EMS Business and New Product Introductions

The EMS business is well-diversified across defense, aerospace, industrial, energy, medical, automotive, semiconductor, and biometric security sectors, with a high level of recurring revenue and geographical spread across Europe, the U.S., and Asia. The company expects new product introduction (NPI) qualifications in semiconductor, biometric security, and export defense/aerospace to contribute approximately USD 15 million in revenue in FY26.

Long-Term Growth Outlook and Strategic Partnerships

Centum targets a medium-term consolidated revenue growth rate of 18-20%, with standalone growth expected to be higher at 25% plus, driven by both build-to-spec and EMS segments. In the space sector, with an estimated opportunity size of USD 3-4 billion, Centum is pursuing a multi-pronged strategy, partnering with start-ups, working with ISRO on key programs, and collaborating with global companies to capture opportunities.

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