Onward Technologies Q4 FY26 earnings call

Onward Technologies concluded FY26 with its strongest performance to date, achieving a record revenue of INR 550 crores, representing a 10.5% Y-o-Y growth. This was accompanied by a record EBITDA of INR 71.9 crores, with EBITDA and PAT growing 60.9% and 72.3% Y-o-Y respectively. The company is actively transitioning from a mechanical engineering focus to a digital and AI-led engineering services model, aiming for significant growth and margin expansion in the coming years. Over the last four years, the company has delivered a revenue CAGR of 15.3% and an EBITDA CAGR of 35.4%.

The company reported a gross margin of 13.2% for FY26, the highest in its history, and Q4 FY26 EBITDA margins stood at 11.2%. Management expressed confidence in the sustainability and further improvement of these margins, driven by operating leverage, offshore delivery, better utilization, and disciplined cost control. Net cash increased to INR 127.3 crores, marking the highest in the company's history, providing financial flexibility for future investments.

Onward Technologies is making significant investments in strengthening its digital and AI-led capabilities, supported by dedicated budgets. The company is gearing up to set up a digital AI lab in Chennai in the next couple of months to showcase its delivery teams' work. Management anticipates a substantial portion of future revenues and margin expansion to come from digital and AI projects, aiming for a sustainable growth model. They believe AI will create significant value once adopted meaningfully, focusing on reducing hours and improving productivity for customers.

The company's strategy involves focusing on a smaller number of direct, strategic clients, having reduced its customer base from 250 to 75. The top 25 customers now account for 88% of total revenues, indicating strong concentration around strategic clients. Management expects 95% to 98% of FY27 revenue to come from these existing 75 clients, highlighting strong visibility. The company aims for its top 25 clients to contribute 70%, 80%, or 90% of revenue in the next three to five years.

The Board recommended a dividend of INR 8 per share for FY26, marking the 11th consecutive year of dividend payout and the highest dividend ever. This reflects the company's commitment to returning value to shareholders. For capital expenditure, the company plans to spend approximately INR 25 crores over the next two years, primarily for existing clients and setting up labs, indicating a focused investment approach.

Focused trainings, learning, organizational development, and people-based initiatives have successfully reduced attrition to a record low of 14.85% for FY26. The headcount as of March 31, 2026, was 2,485 employees. Revenue per employee has significantly increased to INR 22 lakhs, up from INR 8-9 lakhs four years ago, demonstrating improved productivity and operating leverage.

Onward Technologies is 100% focused on the U.S. and Europe markets, with approximately 70% of revenues from North America and 30% from Europe. The company has no direct customers in India. The revenue mix is currently 50% from mechanical engineering and 50% from software. The transportation and auto segment experienced a 1% de-growth in Q4 FY26 due to strategic exits and slower OEM ramp-up, but management sees potential for 5x to 10x growth in this vertical.