Centum Electronics Limited — Q2 FY25 earnings call

Call held 14 Nov 2024

Management summary

Centum Electronics reported a mixed Q2 FY25, with consolidated revenue growing 4.7% YoY and EBITDA up 18%. The company anticipates a significantly stronger second half, driven by Built-to-Spec (BTS) deliveries and improved subsidiary performance, targeting 18-20% full-year revenue growth and 10-11% EBITDA margin. A robust order book of INR1,772 crores and planned equity fundraising of up to INR250 crores underscore confidence in future growth and capacity expansion.

Highlights

  • Consolidated revenue from operations for Q2 FY25 increased by 4.7% YoY to INR260 crores.

  • Adjusted for net accounting, Q2 FY25 revenue grew 11% YoY.

  • Consolidated EBITDA for Q2 FY25 rose 18% YoY to INR20 crores, with a margin of 7.81%.

  • The company reported a minor consolidated net loss of INR0.3 crores in Q2 FY25.

  • Order book expanded to INR1,772 crores as of September 30, 2024, driven by defense and space contracts.

  • Management guided for 18-20% consolidated revenue growth and 10-11% EBITDA margin for full-year FY25.

  • A fundraise of up to INR250 crores via equity is planned over the next two years for working capital and capex.

  • Capex guidance for FY25-FY26 combined is INR100 crores (INR50 crores per annum).

Key financials

  1. Consolidated Revenue ₹260 Cr +4.7%YoY
  2. Consolidated EBITDA ₹20 Cr +18%YoY
  3. Consolidated EBITDA Margin 7.8%
  4. Consolidated Net Loss ₹0.3 Cr
  5. Standalone Revenue ₹167 Cr +4.2%YoY
  6. Standalone Net Profit ₹10 Cr 0%YoY

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.

Guidance & targets

Revenue

  • Consolidated Revenue Growth (Gross Basis) Revenue · FY25 · High confidence 18% to 20%
    We have been saying that on a full year basis, we are targeting to have something in the range of 18% to 20% growth on a consolidated revenue basis.

    — Management

  • Consolidated Revenue Growth (Net Basis) Revenue · FY25 · Medium confidence 14% to 15%
    But if it is continuing for net accounting basis, maybe another 5% or so you may have to reduce. It will be about 14% to 15%.

    — Management

  • Consolidated Revenue Growth Revenue · coming years · High confidence more than 20%
    So, yeah, I think the point on it is, even if you look today, for the current year and the past years, if you look at a standalone basis, our growth rate has been much more than 20%. We've growing at 25%-plus. And so that's what we are targeting for going forward as well.

    — Mr. Nikhil Mallavarapu, Executive Director

  • FY25 Revenue Mix - BTS Revenue · FY25 · High confidence 25%
    So roughly about 25% or so would be BTS.

    — Management

  • FY25 Revenue Mix - Engineering Services Revenue · FY25 · High confidence 30%
    And then maybe around 30% or so will be on engineering services.

    — Management

  • FY25 Revenue Mix - EMS Revenue · FY25 · High confidence 45%
    And then the rest of it, which is probably about 45% odd will be EMS.

    — Management

Profitability

  • Consolidated EBITDA Profitability · FY25 · High confidence INR130 crores
    For the full year basis, we are targeting something in the range of about INR130 crores.

    — Mr. K S Desikan, Chief Financial Officer

  • Subsidiary Profitability Contribution Profitability · Q3 and Q4 FY25 · High confidence positive contribution
    Yes. So we expect to have a positive contribution for the subsidiary in the next two quarters, Q3 and Q4.

    — Management

  • Subsidiary Actual Profitability Profitability · FY26 · High confidence kick in
    And in FY '26, the actual profitability will start to kick in like in the numbers also? Right. Exactly.

    — Management

Margin

  • Consolidated EBITDA Margin Margin · FY25 · High confidence 10% to 11%
    Similarly, on an EBITDA level, we are targeting to have between 10% to 11% EBITDA for the full year.

    — Mr. Nikhil Mallavarapu, Executive Director

  • Consolidated EBITDA Margin Margin · next 2 years, 3 years · Medium confidence 14% or 15%
    And that's the reason why we are saying in the next 2 years, 3 years we should be able to go to 14 or 15.

    — Management

Headcount

  • Quarterly Employee Cost Run Rate Headcount · per quarter · Medium confidence INR88 to INR90 crores
    It may not go up significantly. It may be in the range of INR88 to INR90 crores per quarter.

    — Mr. K S Desikan, Chief Financial Officer

Other

  • Equity Fundraise Other · next 2 years · High confidence upto INR250 crores
    It is again upto 250 is what we said. We are evaluating the number. It may be even slightly lower, number one. Number two, this is not immediate. It is for the next 2 years at least.

    — Mr. K S Desikan, Chief Financial Officer

Capex

  • Total Capex Capex · FY25 and FY26 combined · High confidence INR100 crores
    So for the next couple of years, it will be in the range of about INR100 crores.

    — Mr. K S Desikan, Chief Financial Officer

Tax

  • Consolidated Tax Rate Tax · next year · Medium confidence less than 25%
    It will be too early to say for next year. It will be definitely less than 25%.

    — Management

Debt

  • Debt Level Debt · coming years · High confidence peak at current level, will reduce
    But I would go with your first statement saying that the current level would be the peak and it will not go up. We should be able to bring it down.

    — Management

Risks & concerns

  • Seasonality and lumpiness of BTS business impacting quarterly performance

    medium

    The BTS business is seasonal and lumpy, leading to variations in quarterly performance, with H1 FY25 being poor but expected to be compensated in H2.

    Management acknowledged

  • Delays in government budget allocations and commercial bid opening for the Indra system MOU

    medium

    The company is awaiting final decisions from the government regarding budget allocations and commercial bid opening for a significant project, which is causing delays.

    Management acknowledged

Q&A highlights

3 direct
Quantifying H2 FY25 revenue growth and operating margins Direct
We have been saying that on a full year basis, we are targeting to have something in the range of 18% to 20% growth on a consolidated revenue basis. And this is accounting for the specific contract I talked about. We continue to maintain that target that we are driving towards. Similarly, on an EBITDA level, we are targeting to have between 10% to 11% EBITDA for the full year.

This question clarified the expected significant improvement in the second half of FY25 and provided specific full-year revenue and EBITDA margin targets, including the impact of net accounting for a specific contract.

Asked by Ankit Babel

Motive behind the planned INR250 crores equity fundraising Direct
So predominantly, it will be for the increase in working capital, and also the capital expenditure that we need to incur to ensure that growth happens. Since we already have a debt on our balance sheet, we thought it would be better to look at the opportunity of raising it to equity and that is what we are looking at.

Management explained the strategic rationale for the equity raise, emphasizing funding working capital and capex for growth, and managing the existing debt profile rather than for inorganic opportunities.

Asked by Ankit Babel

Sustainability of 13-15% EBITDA margins in the next 3-5 years Direct
A quick point on that is as Nikhil earlier mentioned, the increase happens in the second half, mainly because of the BTS business, which is actually seasonal and lumpy in nature. So if you look at the first half of the BTS business, it was very poor. So now that will be compensated for in the second half. So it's always better to look at for full year as a perspective. And that's the reason why we are saying in the next 2 years, 3 years we should be able to go to 14 or 15.

This addressed the long-term margin trajectory, clarifying that while the target is 14-15% in 2-3 years, quarterly performance can be lumpy due to the seasonal nature of the BTS business, and subsidiary improvement is key.

Asked by Nirali Gopani

3 min read 7 chapters

Detailed narrative

Q2 FY25 Consolidated and Standalone Performance

Centum Electronics reported consolidated revenue from operations of INR260 crores for Q2 FY25, marking a 4.7% year-on-year increase. When adjusted for a specific contract accounted for on a net basis, revenue growth was 11% year-on-year. Consolidated EBITDA for the quarter grew 18% year-on-year to INR20 crores, achieving an EBITDA margin of 7.81%. The company recorded a minor consolidated net loss of INR0.3 crores, a substantial improvement from the INR5 crores loss in the prior year. Standalone revenue for Q2 FY25 was INR167 crores, up 4.2% YoY, with a net profit of INR10 crores, flat year-on-year.

H1 FY25 Financial Overview

For the first half of FY25, consolidated revenue from operations reached INR505 crores, representing a 2% year-on-year growth. Consolidated EBITDA for H1 FY25 was INR36 crores, experiencing an 8% year-on-year decline, with an EBITDA margin of 7.08%. The consolidated net loss for the period was INR4 crores. Standalone H1 FY25 revenue stood at INR300 crores, growing 4% YoY, while standalone net profit was INR14 crores, down 16% YoY.

Robust Order Book and Market Opportunities

The company's order book expanded to INR1,772 crores as of September 30, 2024, driven by new contract wins from domestic Built-to-Spec (BTS) customers in the defense and space sectors. Management highlighted a strong pipeline across both BTS and Electronics Manufacturing Services (EMS) segments. They noted increased order intake from export customers due to global geopolitical shifts and new customer additions, particularly benefiting from 'China plus one' and 'Make in India' initiatives in industrial equipment.

Optimistic H2 FY25 Outlook and Full-Year Guidance

Centum Electronics anticipates a significant improvement in performance during the second half of FY25, primarily due to increased BTS deliveries to defense and space clients and enhanced contributions from EMS and subsidiaries. For the full fiscal year 2025, the company targets consolidated revenue growth of 18-20% (on a gross accounting basis) and an EBITDA margin of 10-11%, aiming for approximately INR130 crores in EBITDA. If net accounting continues, revenue growth would be 14-15%.

Strategic Equity Fundraise and Capex Plans

The company plans to raise up to INR250 crores through equity over the next two years. This capital infusion is earmarked for increasing working capital and funding capital expenditures necessary for growth, rather than for inorganic opportunities. Combined capex for FY25 and FY26 is projected to be INR100 crores, equating to approximately INR50 crores per annum, to expand manufacturing lines and capacities. This strategy aims to manage existing debt and support future expansion.

Long-Term Growth and Margin Trajectory

Centum Electronics projects consolidated revenue growth exceeding 20% in the coming years, with standalone growth expected to be even higher at over 25%. The company targets a consolidated EBITDA margin of 14-15% within the next 2-3 years, driven by a stepwise improvement, particularly in subsidiary profitability. The revenue mix for FY25 is anticipated to be approximately 25% from BTS, 30% from Engineering Services, and 45% from EMS.

Subsidiary Profitability and Tax Outlook

Management expects the subsidiary to achieve a positive contribution in Q3 and Q4 FY25, with actual profitability commencing in FY26. Q2 is typically the slowest quarter for the subsidiary due to fewer working days. On a consolidated basis, the tax rate is projected to be less than 25%, as the standalone entity maintains a 25% rate, while the subsidiary is expected to offset simulated losses against future profits, potentially incurring no tax.

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