Detailed Narrative
H2 FY25 Performance and Export Headwinds
Sahasra Electronic Solutions experienced a challenging H2 FY25, with revenue and margins dipping to approximately 9% due to global political turmoil, US administration changes, and tariff uncertainties. The company's export mix, which was 80% in FY23-24, reduced to 51% in FY24-25, directly impacting profitability. Management acknowledged that results for the second half of the last fiscal year were below expectations, but emphasized that fundamentals remain strong.
Strategic Pivot to Domestic Market & New Segments
In response to export headwinds, the company strategically pivoted towards the domestic market in H2 FY25, securing new orders. This included foraying into the EV sector with a specific customer for EV chargers and expanding into automotive ancillary sectors like vehicle tracking and GPS systems. These initiatives aim to diversify revenue streams and leverage domestic growth opportunities, with new orders already being secured.
Semiconductor Business Growth and Investment
The semiconductor business saw significant growth, with revenue increasing fourfold from INR2.5 crores in FY23-24 to INR10 crores in FY24-25, achieving an EBITDA margin of about 15%. The company has completed its first round of investment and plans a further INR200 crores investment in Phase 2, supported by INR100 crores in government capital subsidy. This investment is crucial for scaling up the capital-intensive semiconductor operations and achieving breakeven.
Capacity Expansion and R&D Focus
Sahasra bolstered its manufacturing capacity by increasing SMT lines from four to six, raising total capacity to 3.5 million units. A new R&D department has been established, leading to the development of India's first SPI TPM module, which is now ready for commercialization and sampling with customers. These investments are expected to enhance margins and drive future revenue growth, contributing to India's Atmanirbharta goals.
Merger Plans and Shareholding Consolidation
The company plans to initiate a merger with an unlisted EMS company within the current fiscal year, which is expected to add INR100 crores to the overall revenue. This follows the consolidation of shareholding in the semiconductor subsidiary, where the company's stake increased to 72.7%, with plans to reach 85%. The acquisition of the semiconductor entity's shares was done at par from an independent investor, after lengthy negotiations with other large shareholders.
FY26 Outlook and Profitability Targets
For FY26, Sahasra projects a 30-35% standalone revenue growth with profit margins hovering around 15%. On a combined basis (including Sahasra Semiconductors), the company targets INR180 crores in revenue with a 15% gross margin, aiming for break-even in the semiconductor segment. Management expects a 40% H1 and 60% H2 revenue phasing📎 for FY26, driven by recent order bookings and component sourcing lead times.
Addressing Analyst Concerns on Execution and Tariffs
Management addressed analyst concerns regarding past guidance misses and execution, attributing delays to complex shareholder negotiations for the merger and global macro uncertainties impacting export orders. They expressed confidence in current order bookings and strategic shifts to meet future targets, emphasizing judicious investment aligned with capacity utilization. While direct tariffs are not currently applicable, uncertainty about future US tariffs continues to cause customers to defer orders, a risk the company is mitigating through market diversification and value-add solutions.