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Centum Electronics Limited — Q3 FY25 earnings call

Call held 17 Feb 2025

Management summary

Centum Electronics reported a mixed Q3 FY25, with consolidated revenue declining 6% YoY but showing QoQ growth. Standalone performance remained robust, driven by the domestic Build To Spec business. However, consolidated results were significantly impacted by losses in the Canadian subsidiary and an exceptional item, leading to a downward revision of full-year EBITDA guidance. Management is actively pursuing strategic measures to address subsidiary challenges and remains optimistic about standalone growth, particularly in the defense and space sectors.

Highlights

Consolidated revenue from operations declined by 6% year-on-year but increased by 8% quarter-on-quarter to INR281 crores.
Adjusted for gross value, Q3 FY25 revenue grew 13% quarter-on-quarter and 6% year-on-year.
Consolidated EBITDA margins stood at 6.9% for Q3 FY25, with a net loss of INR19 crores primarily due to an exceptional item.
Standalone EBITDA margin was stronger at 11.79% for Q3 FY25, with a net profit of INR9 crores.
The overall order book position stands at INR1,675 crores as of December 31, 2024.
Management revised the full-year FY25 consolidated EBITDA target downwards to INR100 crores from an earlier INR130 crores, mainly due to subsidiary underperformance.
The Canadian subsidiary continues to be a major drag, with strategic decisions expected in the coming quarters to address losses.
The domestic Build To Spec (BTS) business is performing well, with its order book increasing to INR563 crores by end of 9M FY25.

Concerns

Canadian Subsidiary Losses
Exceptional Item / Provision for Associate Company

Key financials

2 periods

Headline

Consolidated Revenue
₹281 Cr
YoY -6% QoQ +8%
Consolidated EBITDA
₹19 Cr
YoY -33%
Consolidated EBITDA Margin
6.9%
Consolidated Net Loss
₹19 Cr
Standalone Revenue
₹181 Cr
YoY +2.5% QoQ +8%
Standalone EBITDA
₹21 Cr
YoY -5% QoQ +3.4%
Standalone EBITDA Margin
11.8%
Standalone Net Profit
₹9 Cr
YoY -16% QoQ -5.2%
Overall Order Book
₹1,675 Cr

9M FY25

Consolidated Revenue
₹787 Cr
YoY -1%
Consolidated EBITDA
₹55 Cr
YoY -19%
Consolidated EBITDA Margin
7%
Consolidated Net Loss
₹24 Cr
Standalone Revenue
₹480 Cr
YoY +3.5%
Standalone EBITDA
₹55 Cr
YoY -9%
Standalone EBITDA Margin
11.5%
Standalone Net Profit
₹23 Cr
YoY -16%

What they filed

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

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	167	187	274	185	206 +23%	238 +27%	344 +26%	205 +11%
Expenses	146	167	231	159	181	213	299	182
EBITDA	20	20	43	26	25 +25%	25 +25%	45 +5%	23 −12%
Margin	12%	11%	16%	14%	12%	11%	13%	11%
Other income	1	1	4	3	3	-201	8	5
Interest	4	5	6	3	5	4	5	4
Depreciation	5	5	5	4	4	5	5	6
Profit before tax	13	11	36	21	18 +38%	-186 −1791%	44 +22%	18 −14%
Tax rate	25%	30%	23%	27%	26%	-4%	26%	26%
Net profit	10	8	28	15	13 +30%	-178 −2325%	33 +18%	14 −7%
EPS	7.44	5.89	19.02	10.51	8.87	-120.85	22.17	9.17

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

Segment	EBITDA Margin	EBITDA Margin (Upper)
Build To Spec (BTS) Business	18%	20%
EMS Business	11%	13%
Engineering Division (French Subsidiary)	1.5%	2%

Guidance & targets

Profitability

Subsidiary EBITDA Margin Profitability · short-term (coming year) · Medium confidence 7%

And our objective is to try to move that margin up to a 7% level or so in the short-term in the coming year, and then push it up further as growth comes in to 11% to 12% range in the subsequent years.

— Nikhil Mallavarapu, Executive Director
Subsidiary EBITDA Margin Profitability · subsequent years · Medium confidence 11-12%

— Nikhil Mallavarapu, Executive Director
Canadian Subsidiary Profitability Profitability · by June (best case) / September (worst case) · Medium confidence no longer a dragger

So I would say June is a good estimate. The worst case before September we should be able to ensure that Canada is no longer a dragger.

— K. S. Desikan, Chief Financial Officer
Consolidated EBITDA Profitability · FY25 (full year) · Medium confidence INR100 crores

Previously INR130 crores → INR100 crores

So in the light of this, I would say that considering the good performance of standalone in Q4, we should be doing about INR100 crores of EBITDA for the full year.

— K. S. Desikan, Chief Financial Officer
Standalone EBITDA Margin Profitability · FY26 (next year) · Medium confidence 13-14%

No, like what Nikhil was saying, at a standalone level, we should be able to achieve around 13% to 14%.

— K. S. Desikan, Chief Financial Officer
Subsidiary EBITDA Margin (including Canada) Profitability · FY26 (next year) · Medium confidence 6-7%

And at a subsidiary level, including Canada, we should be between 6% to 7% of EBITDA.

— K. S. Desikan, Chief Financial Officer

Revenue Growth

Consolidated Revenue Growth (gross accounting basis) Revenue Growth · FY25 (full year) · Medium confidence 13%

Previously 18% → 13%

Yes. So on the revenue growth, yes, the drag in the Canadian subsidiary is pulling it down, and we expect to close the year with gross accounting 13% of revenue growth as against the 18%, and mainly because of the drop in the subsidiary.

— K.S. Desikan, Chief Financial Officer
Standalone Revenue Growth (gross accounting basis) Revenue Growth · FY25 (full year) · Medium confidence 26%

So on gross accounting basis at the standalone level, it should be similar to what you said last year, about 26%.

— K. S. Desikan, Chief Financial Officer
Overall Growth Rate Revenue Growth · next few years · Medium confidence 15%+

And still we maintain our 15% plus kind of growth guidance for next few years?

— Nikhil Mallavarapu, Executive Director

Space Sector Revenue

Space Sector Revenue Space Sector Revenue · next 4-5 years · Low confidence INR2,500 crores to INR3,000 crores

Sir, leaving aside the market cap, so is it realistic to assume that our company, can it reach at a consolidated level, the revenue of INR2,500 crores to INR3,000 crores in the next 4 to 5 years? Is it achievable because of the huge demand in the defense sector and all the initiative by government of India. Is it a realistic expectation, sir?

— Yash, Shareholder

Risks & concerns

Canadian Subsidiary Losses
high

Losses from Canadian operations are majorly contributing to consolidated net loss and impacting overall P&L, leading to strategic decisions being considered.

Management acknowledged
Exceptional Item / Provision for Associate Company
high

A net loss of INR19 crores (consolidated) was reported due to a provision for the entire exposure to an associate company (Ausar Energy) referred to redressement judiciaire.

Management acknowledged
Delays in New Project Starts (France)
medium

Delays in new project starts in France have led to lower utilization and impacted margins in the engineering services business.

Management acknowledged
Slowdown in PAPIS Business (Canada)
medium

There has been a general slowdown in the PAPIS (Passenger Information Systems) business in Canada, with no significant fresh orders.

Management acknowledged
Difficulty in Reaching IR Team
low

An analyst reported difficulty in contacting the company's IR and CS teams for information.

Analyst acknowledged

Areas of evasion (1)

specific timeline for full resolution of subsidiary issues beyond 'June/September'

Q&A highlights

3 direct

International Business Profitability and Roadmap Direct

So our first priority and action is around basically addressing the Canadian losses that we have. And towards that I think there's a couple of points. First, in the short-term itself, we are we've been negotiating quite strongly with some of our customers to obtain additional purchase orders for or additional variation orders for the -- to support the engineering team in Canada.

This question directly addressed the core issue impacting consolidated profitability, with management outlining specific actions and long-term margin targets for subsidiaries.

Asked by Harsh Mehta

Revision of FY25 EBITDA Target and Canadian Subsidiary Timeline Direct

So in the light of this, I would say that considering the good performance of standalone in Q4, we should be doing about INR100 crores of EBITDA for the full year. ... So I would say June is a good estimate. The worst case before September we should be able to ensure that Canada is no longer a dragger.

The analyst pressed for a revised full-year EBITDA target and a clear timeline for resolving the Canadian subsidiary's drag, leading to specific (though somewhat qualified) commitments from management.

Asked by Ankit

Subsidiary Strategy and Space Sector Opportunities Direct

And as I mentioned, some of the decisions or discussions that we are having with regard to the Canadian operations as a first, but more generally, the subsidiary are being discussed and considered in light of the substantial growth opportunities that we and everybody believes exists for the standalone part of the business. ... So with regard to space, as I mentioned, we have a good position there. We've basically, over time, moved up the value chain from where we were -- many years ago where we were delivering very niche components to now delivering full satellite payloads.

This question challenged management on the long-standing subsidiary issues and also explored the significant growth potential in the space sector, providing insights into both problem areas and future drivers.

Asked by Pranav

3 min read 6 chapters

Detailed narrative

Q3 & 9 Months FY25 Performance Overview

Centum Electronics reported consolidated revenue from operations of INR281 crores for Q3 FY25, marking an 8% quarter-on-quarter increase but a 6% year-on-year decline. Adjusted for gross value, Q3 FY25 revenue grew 13% QoQ and 6% YoY. Consolidated EBITDA margins stood at 6.9%, leading to a net loss of INR19 crores for the quarter, primarily due to an exceptional item. For the nine months ended FY25, consolidated revenue was INR787 crores, a marginal 1% YoY decline, with an EBITDA margin of 7% and a net loss of INR24 crores.

Standalone Business Resilience and Order Book Growth

In contrast to the consolidated figures, the standalone business demonstrated resilience. Standalone revenue for Q3 FY25 was INR181 crores, growing 8% QoQ and 2.5% YoY, with a healthy EBITDA margin of 11.79% and a net profit of INR9 crores. The domestic Build To Spec (BTS) business, focused on defense and space, is performing strongly, with its order book increasing from INR376 crores at end of FY23 to INR563 crores at end of 9M FY25. The overall order book stands at INR1,675 crores as of December 31, 2024, with BTS orders executable over 2-2.5 years and EMS orders over 9-12 months.

Subsidiary Challenges and Strategic Measures

The Canadian subsidiary remains a significant drag on consolidated profitability, primarily due to uncompensated costs for engineering teams and a slowdown in the PAPIS business. Management aims to make strategic decisions in the coming quarters to ensure the Canadian operations cease to be a drag by June (best case) or September (worst case). The French engineering services business is currently at a breakeven level, with efforts to improve utilization and margins to 7% in the short term and 11-12% in subsequent years. Work is being shifted from Canada to India to leverage cost advantages.

Revised Financial Guidance for FY25

Due to the underperformance of the subsidiaries, management revised its full-year FY25 consolidated EBITDA target downwards to INR100 crores from the earlier INR130 crores. Similarly, the consolidated revenue growth on a gross accounting basis for FY25 is now expected to be 13%, down from the previous 18%. However, standalone revenue growth for FY25 on a gross accounting basis is still expected to be around 26%. For FY26, standalone EBITDA margin is targeted at 13-14%, while subsidiary EBITDA margin (including Canada) is aimed for 6-7%.

Space and Defense Sector Opportunities

Centum Electronics is well-positioned in the domestic defense and space markets. The company recently secured a contract worth over INR300 crores for satellite-based payloads for Electronic Warfare Applications. Management expects substantial orders from the radar domain and naval programs in Q4. They are also actively involved in indigenizing Russian imported products for land systems. In the space sector, Centum has moved up the value chain to deliver full satellite payloads and is pursuing opportunities in situational awareness and debris tracking, with expectations of new projects from ISRO in the coming years.

Exceptional Item and Fundraising Plans

The consolidated net loss for Q3 FY25 included an exceptional item of INR19 crores, which is a provision for the entire exposure to Ausar Energy, an associate company (30% shareholding) that has been referred to redressement judiciaire in France. Management is hopeful of recovering at least a partial amount, as four interested parties are bidding on the company. Additionally, the Board has approved fundraising through a QIP or other means, with the timing to be announced later, in anticipation of significant growth opportunities, especially in the standalone business.

This is an AI-generated summary of a publicly available earnings call transcript.

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