E2E Networks Limited — Q2 FY25 earnings call

Call held 28 Oct 2024

Management summary

E2E Networks reported exceptional Q2 FY25 results, demonstrating significant year-on-year growth across all key financial metrics, driven by robust demand for its cloud GPU services. The company successfully completed a fundraise of INR405.6 crores, primarily earmarked for expanding its GPU infrastructure and investing in AI/ML research. Management emphasized its early mover advantage in the AI/ML/GenAI space and its strategy to offer predictable pricing and efficient platform software to a diverse customer base.

Highlights

  • Total revenue of INR48.4 crores, up 120% YoY.

  • EBITDA of INR31.4 crores, up 181% YoY.

  • EBITDA margin at 66.1%, expanded 1,440 bps YoY.

  • PAT of INR12.1 crores, up 108% YoY.

  • Diluted EPS at INR7.8, up 98% YoY.

  • Successfully raised INR405.6 crores through preferential issue.

  • GPU-CPU mix is approximately 90-10, with GPUs growing.

  • Exit MRR for September stood at INR16.5 crores.

Key financials

  1. Revenue ₹48.4 Cr +120%YoY
  2. EBITDA ₹31.4 Cr +181%YoY
  3. EBITDA Margin 66.1%
  4. PAT ₹12.1 Cr +108%YoY
  5. PAT Margin 25%
  6. Diluted EPS ₹7.8 +98%YoY
  7. Fundraise Amount ₹405.6 Cr
  8. Total Equity ₹487.4 Cr
  9. Exit MRR (September) ₹16.5 Cr
  10. Assets Added H1 FY25 ₹107 Cr
  11. Assets Added FY24 ₹185 Cr

What they filed

Q1 FY27: revenue up 336.1%, net profit up 1566.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue48 42 33 36 44 −8%70 +67%96 +191%157 +336%
EBITDA31 25 13 11 18 −42%40 +60%58 +346%118 +973%
Net profit12 12 14 -3 -13 −208%-6 −150%6 −57%44 +1567%
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

Capex

  • Capex over next couple of years Capex · next couple of years · Medium confidence more than INR800 crores
    See without putting a time limit to it I think like over the next couple of years we should definitely do more capex than INR800 crores.

    — Tarun Dua

  • New addition to gross block Capex · next three years · Low confidence INR300 crores-INR400 crores to INR1,000 crores to INR1,500 crores
    So it could be anywhere between say INR300 crores-INR400 crores of new addition in terms of gross block all the way to like maybe something like INR1,000 crores to INR1,500 crores.

    — Tarun Dua

  • Hardware buy per cycle Capex · per cycle · Medium confidence INR90 crores to INR120 crores
    Every time we buy, it's like a typically like INR190 crores to INR110 crores or INR120 crores kind of a buy for the hardware.

    — Tarun Dua

Fund Utilization

  • Infrastructure capacity (GPUs) Fund Utilization · future · High confidence 75% of funds
    See, broadly, I think like 75% of the funds will at least go towards augmenting the infrastructure capacity, which majorly includes the GPUs.

    — Tarun Dua

  • General corporate corpus Fund Utilization · future · High confidence 25% of funds
    And for the remaining 25%, we have taken that in the general corporate corpus, where there is sufficient optionality.

    — Tarun Dua

New Market Entry

  • New major cloud zone New Market Entry · future · Medium confidence one new major cloud zone, south of India
    So, we do intend to establish at least like one new major cloud zone, south of India. So, that would also include GPUs.

    — Tarun Dua

Customer Base

  • Diversity of customer base Customer Base · future · Medium confidence increase
    So, we do intend to increase the diversity of our customer base. So, where we want to incrementally add more government and enterprise customers.

    — Tarun Dua

Strategic Initiative

  • Scaling accelerated computing, GPU capacity Strategic Initiative · future · High confidence key strategic initiatives
    Obviously, scaling up of accelerated computing, GPU capacity and overall cloud infrastructure remains one of the key strategic initiatives for us.

    — Tarun Dua

Operational Health

  • Engineering and technology capabilities Operational Health · future · High confidence add to
    And last but not the least, like we also intend to kind of like add to our engineering and technology and operational health in terms of both software and processes for delivering to our customers like the latest and greatest in the AI ML and AI technology.

    — Tarun Dua

Risks & concerns

  • Supply Chain Inefficiency/Variability for Hardware

    medium

    Hardware supply chains can be inefficient, causing delays in procurement and deployment of new capacity.

    Management acknowledged

  • GPU Utilization for New Capacity

    medium

    Newly deployed 256 H100 GPUs in October are currently mostly unutilized from a revenue perspective, indicating a ramp-up period.

    Analyst acknowledged

  • Predicting Future Growth/Capex

    low

    Management finds it hard to predict specific long-term capex numbers due to market dynamism, preferring a nimble, reactive approach based on demand.

    Management acknowledged

Areas of evasion (2)

  • Specific long-term capex targets (e.g., 3-year gross block)
  • Precise current utilization rates for newly deployed capacity

Q&A highlights

1 direct
Future Capex and Asset Turn Partial
So, it could be anywhere between say INR300 crores-INR400 crores of new addition in terms of gross block all the way to like maybe something like INR1,000 crores to INR1,500 crores. So there is no upper limit in our mind that like it cannot go beyond like any number. And obviously, it is completely based on like the demand we are able to capture.

Management provided a very broad range for future capex, making it difficult for investors to model future asset growth and potential returns, emphasizing demand-driven deployment over fixed targets.

Asked by Ritesh Chadha

GPU Utilization Rate for New Capacity Partial
So, I don't have it handy currently. So, but like, the last 256 CPUs, they were just are very, very recent. So, I would believe that, most of that would be unutilized from a revenue perspective, although they would be utilized for some purpose or the other. But, like, from a revenue perspective, I think most of that should be unutilized as of today.

The inability to provide a current utilization rate for recently deployed H100 GPUs leaves ambiguity regarding the immediate revenue generation efficiency of new assets, despite historical utilization being high.

Asked by Keshav

Impact of Competition and H100s on Yield Direct
So, as yet, we have not seen like a major impact of competition in terms of the yield. So, with regard to like the overall scenario of competition, I think it's also a reflection of the growing market. Now, some of the largest companies of the world have already been working in this space.

Management directly addressed concerns about increasing competition and new hardware, stating no major impact on yield due to a growing market and E2E's established competitive advantages and software capabilities.

Asked by Pankit Shah

2 min read 7 chapters

Detailed narrative

Strong Q2 FY25 Financial Performance

E2E Networks reported robust financial results for Q2 FY25, with total revenue reaching INR48.4 crores, marking a substantial 120% year-on-year growth and 16% quarter-on-quarter growth. EBITDA stood at INR31.4 crores, growing 181% YoY, with an impressive EBITDA margin of 66.1%, expanding by 1,440 basis points. Net profit (PAT) increased by 108% YoY to INR12.1 crores, and diluted EPS grew 98% YoY to INR7.8, reflecting strong operational efficiency and market demand.

Significant Fundraise for Infrastructure Expansion

The company successfully raised INR405.6 crores through a preferential issue of equity shares, significantly boosting its total equity to INR487.4 crores as of September 30, 2024. Management stated that approximately 75% of these funds would be allocated to augmenting infrastructure capacity, primarily GPUs, with the remaining 25% reserved for general corporate purposes, including investments in engineering and technology capabilities. This capital infusion positions E2E for accelerated growth and market capture.

Focus on Cloud GPUs and AI/ML/GenAI Market

E2E Networks continues to leverage its early mover advantage in the AI, ML, and GenAI space, having operated its cloud GPU platform since 2019. The company has expanded its GPU infrastructure to approximately 700-800 GPUs, including securing 256 H100 GPUs in October. Management emphasized the robust demand for cloud GPU services, driven by startups and increasingly by enterprises allocating budgets for AI solutions, highlighting India's significant market opportunity.

Strategic Positioning and Competitive Advantage

The company positions itself as a middle-ground provider, offering predictable pricing and efficient platform software compared to high-cost hyperscalers or the complexities of running large GPU machines in-house. Management highlighted its USPs, including over a decade of supporting unicorn-scale customers and four years of GPU solutioning, which provides an early mover advantage in understanding customer needs and delivering tailored solutions.

Dynamic Capex Strategy and Supply Chain

E2E Networks adopts a demand-driven approach to capex, with hardware purchases typically in blocks of INR90-120 crores. While management indicated future capex could exceed INR800 crores over the next couple of years, specific long-term targets were not provided due to market dynamism and supply chain variability. In H1 FY25, the company added approximately INR107 crores in assets, demonstrating ongoing investment in capacity.

Market Opportunity and Future Growth Initiatives

Management underscored the significant growth opportunity in India's AI infrastructure market, projected at a 25-30% CAGR, with AI potentially contributing hundreds of billions of dollars to India's GDP. E2E aims to diversify its customer base by targeting government and enterprise clients and plans to establish a new major cloud zone in South India, further expanding its accelerated computing capacity and market reach.

GPU-CPU Mix and Utilization

The company's asset mix is heavily skewed towards GPUs, with a current GPU-CPU ratio of approximately 90-10, which management expects to be a steady state. While historical GPU utilization rates were reported between 80-90%, management noted that the recently added 256 H100 GPUs in October are mostly unutilized from a revenue perspective, indicating a ramp-up period for new capacity to generate revenue.

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