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    E2E Networks

    E2EMixed
    Information Technology·22 Jan 2025
    Management Summary

    E2E Networks reported strong year-on-year growth in Q3 FY25 across revenue, EBITDA, and PAT, driven by advancements in cloud infrastructure and AI/ML focus. However, the company experienced a quarter-on-quarter decline in revenue and profit, attributed to bursty training workloads from large customers and muted demand in December. Management emphasized an agile CAPEX strategy and deepening strategic partnerships like with L&T to capture larger enterprise opportunities and expand its accelerated cloud infrastructure.

    Highlights

    7

    • Total revenue stood at INR 41.6 crores, witnessing a substantial growth of 73.7% YoY, but a decline of 12.6% QoQ.

    • EBITDA for the quarter was INR 24.6 crores, growing 119% YoY, but declining from INR 31.4 crores QoQ.

    • EBITDA margin for the current quarter was 59%, demonstrating a growth of 1223 bps YoY.

    • PAT was reported at INR 11.6 crores, showing a growth of 108% YoY, but a decline of 4.3% QoQ.

    • Diluted EPS was 7.03, an 86.5% increase YoY.

    • Cumulative CAPEX deployed reached INR 201.7 crores till December 2024.

    • INR 150.8 crores of raised funds utilized till Q3 FY25, with a balance of INR 1334.9 crores.

    Key financials

    Single quarter

    06 metrics
    1. 01Revenue₹41.6 Cr+73.7%YoY
    2. 02EBITDA₹24.6 Cr+119%YoY
    3. 03EBITDA Margin59%
    4. 04PAT₹11.6 Cr+108%YoY
    5. 05PAT Margin27.8%

    Guidance & targets

    5
    CategoryTargetPriority
    Capacity
    Chennai Data Center Operationalization
    Operational in next quarter
    		Medium
    Capex
    CAPEX Deployment
    Just-in-time deployment as much as possible
    		Low
    Capex
    Blackwell GPUs Acquisition
    Build a significant amount of capacity
    		Medium
    Capex
    Hopper Range CAPEX
    Reactive CAPEX
    		Low
    Revenue Mix
    Training vs Inference Revenue Ratio
    50:50 or 60:40 in favor of training
    		Medium

    Risks & concerns

    6
    RiskSeverity

    Quarter-on-Quarter Revenue Decline

    Revenue declined 12.6% QoQ due to churn and downscaling of bursty training deployments from large customers, concentrated in Q3, and muted demand in December. — Management acknowledged

    medium

    Underutilization of H100/H200 GPUs

    The H100 and H200 GPUs are currently underutilized, impacting immediate revenue generation from new capacity. — Management acknowledged

    medium

    Longer Sales Cycles

    Sales cycles have grown, contributing to the difficulty in quickly recovering unutilized infrastructure to higher utilization rates. — Management acknowledged

    medium

    ARPU Reduction

    ARPU has reduced due to some larger customers on the training side having churned or downscaled their deployments. — Management acknowledged

    medium

    Impact of US GPU Export Rules

    Management believes the impact of new US GPU rules would be assessed over a two-year timeframe rather than immediately, as current volumes are not hitting limits and exceptions exist. — Analyst downplayed

    low

    Areas of Evasion(1)

    • Share price commentary

    Q&A highlights

    3

    “We currently have a fairly small scale and compared to that, some of our larger customers, their deployments were quite large. Now, training workloads by their very nature are bursty... all of these got concentrated during the Q3. And we have also seen somewhat muted demand for the end of this quarter, December typically is a slow month.”

    Reveals the impact of bursty workloads from large customers and seasonal demand slowdown on the company's relatively small scale.

    asked by Aastha

    2 min read6 chapters

    Detailed Narrative

    01

    Q3 FY25 Financial Performance Overview

    E2E Networks reported a mixed Q3 FY25, with strong year-on-year growth but a notable quarter-on-quarter decline. Revenue grew 73.7% YoY to INR 41.6 crores, but fell 12.6% QoQ from INR 47.6 crores. EBITDA increased 119% YoY to INR 24.6 crores, achieving a 59% margin, but was down from INR 31.4 crores in the previous quarter. PAT also saw a 108% YoY increase to INR 11.6 crores, with a 27.8% margin, despite a 4.3% QoQ decline. Diluted EPS stood at 7.03, up 86.5% YoY.

    02

    Strategic Partnerships and Infrastructure Expansion

    The company deepened its strategic partnership with L&T, aiming to leverage L&T's data center expertise and E2E's AI compute infrastructure to offer scalable solutions to enterprises and government. This collaboration is expected to open new revenue streams and drive growth in high-demand AI services. E2E is also expanding its data center capacity from 4.2 megawatts to nearly 10.2 megawatts, supported by recent fundraising, and is establishing a second facility near Chennai, expected to be operational in Q4 FY25.

    03

    GPU Deployments and Utilization

    E2E Networks has significantly expanded its GPU infrastructure, with cumulative deployments reaching nearly 700 H100 GPUs, 256 H200 GPUs, and around 700 non-H100/H200 GPUs. However, management acknowledged that the H100 and H200 GPUs are currently underutilized. The QoQ revenue decline was partly attributed to the bursty nature of large customer training workloads and muted demand in December, which led to underutilization of this capacity.

    04

    AI/ML Workload Dynamics and Revenue Mix

    The company's AI/ML platform, TIR, is designed to streamline AI/ML workloads, offering a superior price-to-performance ratio. Management stated that the major concentration of revenue is currently from training workloads, which are inherently bursty. While difficult to classify precisely, the long-term outlook for the training-to-inference revenue ratio is projected to normalize to 50:50 or 60:40 in favor of training, as the AI market matures.

    05

    CAPEX Strategy and Funding

    E2E Networks raised INR 1484.9 crores through equity shares in 2024, utilizing INR 150.8 crores till Q3 FY25, leaving a balance of INR 1334.9 crores. The CAPEX deployment strategy is described as 'agile' and 'just-in-time,' reacting to demand rather than being predictive, to avoid building inventory of rapidly evolving high-tech equipment like GPUs. The company intends to build significant capacity on the upcoming Blackwell range of GPUs as they become available, with reactive CAPEX also possible for the Hopper range.

    06

    IndiaAI Mission and Market Outlook

    The company views the IndiaAI Mission as a net positive for the entire AI industry in India, expecting it to expand the overall market regardless of specific beneficiaries. E2E has qualified in the technical evaluation for a government AI project tender and is awaiting the financial bid results. Management maintains a very positive outlook for compute infrastructure and AI services in India, believing the market will continue to grow over the medium to long term.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.