On exports - looking at the current EU India FTA and the possibility of some big bang deal happening, particularly on Rafale, and there could be some reciprocal element to it. We have made a good foothold in export market with PAR and export revenue is 9.6% in this quarter. What products are we seeing good traction in the export market and how is this EU India FTA going to help us?
The opportunities are fairly large in the world market today. Earlier, India used to be a low-cost country of sourcing for the world market. And what we have done, what we are doing is actually IP-driven products. So, there's a shift in what we do and what typically is imported, especially in the defence scenario. But of rate because the spend in the European market is going to go up due to the geopolitical environment, I think there's an opportunity for us, companies like us who have strong IP-driven product development capabilities to participate and address some of the needs where they will be spending. We need to do a lot more work in the export market, go meet people, talk to them, invite them here. All this has to happen. So, we've already started doing this before the FTA was signed, and there has been some considerable traction with a few companies, and they've shown a lot of interest in what we're doing to see whether this can be deployed or used or modified for their requirements in their avionics and other areas of operation. We've started getting RFPs from them. And hopefully, this will all turn out to contracts going ahead. We have competitive advantages in terms of competencies, which is world-class. Second, our cost of development is far lower than the cost of development in Europe. Third, since everything is done in-house, more than what the large corporates do because they rely on a lot of contracts to do it. We're able to bring an economies of scale and cost to them. Fourth, the time frame which we can deliver, they are just astonished that we can deliver these things in a time frame which they never imagined is possible. On top of that, we are also willing to co-invest in some of the product development, which can be used worldwide. We are also attempting to do some similar things in the US markets. Now the trade agreement in the US is also done. The duty structures have come down. So I think we should be able to get some early wins. We are building a competency skill - about 1,100 engineers, recruiting another 150 this year.
With these orders coming in, we could possibly be looking at an order book of about INR18 billion to INR19 billion. What would be the execution cycle for this order book?
Again, it varies. There are service orders as part of the contract, AMCA, etcetera, which will be done over the many years. The order deliveries itself, some can be delivered next year, some year after next, etcetera. Again, it depends on the contract. There are multiple clutch of contracts, which add up to this INR1,800 crores. So very difficult to say exactly. I've not done the arithmetic to see that. We will be doing it now. But these are not the only orders. We also expect to sign more contracts in the next 2 to 3 months' time, probably another INR500 crores, INR600 crores of contracts, which can get signed. And during the course of next year, we're also looking at a number of single contracts based on what has already been designed and developed, but also is expected. So, the order book is expected to grow, and we are trying to see whether advanced action on design, advanced action on production can happen so that we can scale the business substantively in the next coming years.
On order inflow - we usually mentioned that our order pipeline is close to around INR20 billion to INR30 billion in the next 18 to 24 months. Considering we are looking at strong order wins in fourth quarter, would you like to update on the order inflow guidance going ahead - one is overall order inflow and another is on the recurring side of what kind of recurring orders can we expect going ahead?
I won't comment on the recurring orders, but I can comment on the order pipeline. Products we develop now, we can expect another $2 billion to $3 billion of order pipeline and capability. Matter of fact, in a couple of years, I think it should go much beyond that if what we think won't happen. Of course, we have no control over the market and the timing of when the contracts come because the government, all my business is government. But the products we have developed and how it's been appreciated by the customers and the quality and the reliability of the products and the advanced nature of technology, which is deployed in the products, the requirements which we have quoted against and got the development contracts are all large value contracts going ahead and multiple systems are required across India. So, if this fructifies, our order book situation should scale up multiple X times in the next couple of years or 3 years' time is what we expect. We've been driving the product development activities towards scaling substantive revenues, and we are on track at the present moment. Second is with our initiation into export markets also, we believe that this also should take off and start giving us some - in a repetitive business you talked about, probably another couple of years down the line, both in civil aviation as well as defence equipment. Whatever orders we're getting from UK, it's a predictable business. They give you a long-term order, which is monthly deliveries.
On order flow - last quarter you mentioned about INR550 crores worth of orders negotiated but yet to be received. This quarter, our order flow was about INR240 crores. You've also mentioned you have about INR1,100 crores worth of orders negotiated and completed. So INR300 crores from last quarter's number has spilled over and as part of the negotiated orders? And on timelines - INR1,100 crores in next 1-2 months plus another INR500 crores - are we expecting around INR1,600 crores worth of orders this quarter itself?
Actually, I've not done this calculation the way you're asking. Maybe you can write to Go India and we can write back to you. I'll do the - let me look at the order what I told last quarter and this quarter and see whether there's an overlap or already it's been received. Let me do this exercise and get back to you. It should happen this quarter.
On industry-wide shipbuilding capex happening over the next few years - how does management assess the addressable opportunity? Are any of our product categories falling into that opportunity? And on exports - currently 9-10% of revenue, over the years how much percentage of exports do you expect to the overall topline?
We've not actually addressed the shipbuilding as such. We work on equipment, and we've not done any development on the platform management system or things like that bridge management system. So many other things on the ship. They've been - traditionally, they have been importing and there are companies who actually focused on it for many years. We've been actually working on sensors quite a lot. and we've not done so many work on that. What we are trying to do is almost upgrades for Navy. We're trying to offer our electronic offer suites, some of the radars, etcetera, and see whether those opportunities can be addressed. Presently, we are engaged in this kind of line of things. We have not actually looked at new shipbuildings. We have, of course, made some offers, but we've not got the contracts though we're lower scored, for example, in TACAN and something which goes into ships, tactical air navigation systems. On exports - very difficult to answer this question presently. What's happening is our Indian revenue model is increasing year-to-year, and there going to be substantial increase is going to happen in the next 2, 3 years' time. So, I don't think the export will keep in pace with that kind of increased revenue in the domestic markets. The focus is in Indian domestic markets. But we do, over a period of time, maybe 3 years down the line, we will have to build an export business, which is sizable. Then we can talk about numbers, which is meaningful. We're also working with some foreign companies to see whether we can do Indian content for modernization of gun control, radars, IRST, that is, infrared search and track, etcetera, which are modern sensors and fighting equipment necessary and our ships have got old equipment and the requirement to modernize these kinds of ships.
You did mention the TAM of about INR15,000 crores to INR20,000 crores. What is the serviceable addressable market from that? And where do you see those orders flow in terms of timelines?
I didn't understand the first part. The second part, time lines is probably another three to five years. When I say addressable market, TAM is addressable market INR15,000 crores to INR20,000 crores or much beyond that. If you take variants of what we develop for other programs outside India, it will probably go more than INR20,000 crores. So that's the reason we're putting deep money and the larger development cycles seems that we address the market with a product which is not available in India.
On the civilian side, especially with news coming in from HAL - now apart from fighter aircraft, they are now considering on the civilian side of the aircraft. What kind of opportunities do you see in terms of some electronic products? And what is the kind of addressable market do you see in coming 2 to 3 years?
It's very early stage, Jayakanth. We can't comment on it now. We're exploring opportunities and trying to work with one or two OEMs to see whether we can do some products for them. It will take some more time, maybe a 1 or 2 years or 3 years, 4 years before a predictable revenue model can be told to the market and investors. These are all exploratory kind of business that you're doing. The intent is to get into civil markets because volumes are much, much larger than defence, and it's a month-on-month capability. And once we bring in the requirements, scaling can happen quite quickly in a very large scale because the numbers are very, very large. And also cash flows are very different. So, as part of business initiative, it is necessarily a mandatory to see that we scale in these areas. So, we are doing some exploratory work in this, but not to give you any data at the present moment.
On AMCA - we've been shortlisted for the next round. Any timelines to watch in terms of what happens next and how far are we from the prototyping stage? And related question - should one completely ignore the scope of HAL to this program as of now?
This is what is published I'm talking about. I'm as knowledgeable as you are because they have not told us anything. Maybe Bharat Forge will know a bit more than us. But regarding HAL participant, I think they've not been selected, down selected to the three to receive RFP what I hear. Regarding time lines, what ADA is saying is 3 to 6 months, the contract will get placed. We have to go by what they say. I have no inside information to say anything different. And then the program is on, whoever gets the contract, program is on. The details of the program, the RFP details is not yet published. So, we are not at liberty to say anything as a present, even if they are published, we'll be signing an NDA, so I won't be able to talk about it.
On the Brahmos seeker - every year we hear we make about 100-odd missiles and we increase the capacity to 150. Assuming we are increasing the capacity, the seeker requirement would also be 150. What is our sense of the share of wallet that we get? Do we think we can get all of the 150 to make? And what is the kind of capacity you are currently working with that you want to add?
I'm not - first, I don't have knowledge on how many of the missile actually get fitted with seekers. That based on the contract from customer to Brahmos. And we are not privy to such information. What I can say is the inquiry comes to us, what the order comes to us, we can only talk about it. And here, say on the scale. What I hear is that the requirements are large because it's successful missile and they are planning to buy more of them and some more are being exported also. So, we need to go with whatever they say, and I have to go with what RFP I get and contract I get. I can't talk about work share between us and somebody else because I don't have any idea really what it is. We will be able to tell you what we get orders. And what we hear is that the requirements are large. That's the present extent of my knowledge.
Going back to the EBITDA margin - 46.5% is a number that no other radar electronics company has achieved in the world. While you highlighted in the prepared remarks that it is on the account of favourable execution mix, what we see in the execution mix is avionics, EW system - it's all about our core platforms coming to fore that seems to be sustainable. So what kind of EBITDA margins do we expect given that these are your focus areas in the future as well?
See, EBITDA margins is a composite addition of various contracts executed during the quarter or the year. So, it will depend on the competitive scenario plus what products we are really doing and how much of it is designed by us and how much bought out is going to be there. What you see when the EBITDA margins are higher or the gross margin more importantly than EBITDA margin will be in products, which is completely designed in-house. Why is that higher? Because the building blocks, which some of the companies import, even including large corporates outside India, then they build the overall system based on the building blocks which is imported or brought out. Whereas we actually design the building blocks work on our raw material cost and write-off the revenue expenses on the year of development as part of our P&L. So, when this adds up and we use our own kind of building blocks into end systems, the gross margin goes up. But you need to keep in mind that we have done all the development and there's a cost attached to it. It's actually been written off. If we were to not do that, then the EBITDA margins will probably be much lower. And then generally, we try and address markets based on our strength of products rather than compete in every area where we buy and sell or trade or integrate alone. We do not participate in such contracts. We participate to build IP and those contracts where there are a lot of DP content, that is where we participate. So, largely, the EBITDA margin should be similar to what we've been presenting till date. Of course, there will be changes because some of the systems, there has to be integrated - integration happens and like trucks that we brought in and things like that on a system level. In those contracts, the EBITDA margins or the gross margin comes down. And consequently, the EBITDA margin comes down.
On inflows - the PPT and press release mentioned that orders negotiated, which are not awarded as on date, stands at about INR11 billion. By when do you expect these orders to be received? And what could be the broader mix between development and production within this? Any large orders you'd like to highlight?
I think these contracts should happen in the next 1 to 2 months' time because these are only document work which has to be done in time. So, I think next 1 to 2 months' time, we should get converted into contracts. This consists of a large portfolio of products. some in the development area. But again, like I said in an earlier question, we have taken a contract, which is in the core competency area of Data Patterns. So, it is more of redesigning what has already been designed for a different application, airborne application. That is one of the larger orders we have got, which is - which we should getting a signing. And it's in line with our competencies. That's all I can say at this point. I don't want to get into the exact nature of the contract. I think once the contract comes, we'll be able to discuss more in detail.
On the working capital cycle - you mentioned in opening remarks that it's been fairly contained. Could you put a number on that? And our cash on hand is at the lowest in the last eight to nine quarters. Could you also delve into what kind of receivable cycles you're looking at?
I'll answer the second part of the question. Venkata will answer the first part. The debtor situation has been extended, but we are expecting all the cash to come in the next 3 to 4 months' time. And that will again take care of the cash on hand situation you talked about. There are some large development contracts we have taken in the last year and year before last, and they are in the final stage of acceptance to the customers on integration. And once that is done, we expect the money to come in. These are large value money, which will be coming in, which will recharge our cash battery. So that is going to happen in the next 2, 3 months' time, a maximum of 4 months' time, I think we collect all the money. Venkata Subramanian: Yes. See, working capital, it was around 428 days in March. It has come down to - we have not published the balance sheet numbers for December. But internally, it has come down to 340 days. And we expect it will be remaining at the same level by March end also. But going forward, once all the collections happen, it will improve. And as we have been mentioning in our earlier calls also, over next probably some three to five years' time, it will gradually come down to 270 to maybe 300 days. That is the working capital cycle that we are expecting. Collections on development contracts is getting delayed, but the production contracts, we are able to collect it faster. So, we expect maybe around 270 to 300 days of working capital cycle going forward, sir. S. Rangarajan: And we also get advance against all these contracts help us. So, the net borrowing from banks is actually zero. We only work on bank guarantees. Non-fund limits is what we're working on.
On the Brahmos side - in this year also, major order received, we are looking at missiles from Brahmos. Is it like a new product? And any update on the seeker trials that were ongoing from Brahmos?
We've completed the seeker trials. We've got a development contract with marginal differences, which go into production orders. We'll be delivering it in the next 1 or 2 months' time ahead of schedule. And I think we've done a good job in the product development. It's a reliable product. Once that is done, we expect Brahmos to give us - start getting the production orders. We've also gone ahead and ordered the equipment for production testing. So that will be arriving in the next 3, 4 months. So, we can set up a line for series production with month-to-month deliveries will happen starting '26, '27. And this is one area we have done. Second is on other than Brahmos, we've also done a missile-to-missile higher band seeker. That is also in the advanced stage of delivery, development and delivery. We expect some repeat contracts there. We want to focus on this kind of seeker capabilities with other OEMs to see whether we can use this for other OEMs or modify it for other requirements also. So, seeker should start - we can't put a time line. But what we hear is it should start by this year onwards, this calendar year, that is financial year '26-27, we should start getting production orders.
On the sudden increase in your revenue - any specific orders that have been delivered? And what is the status on fire control radars - do you expect any orders coming through in the next couple of quarters?
Answer your first question, it's not sudden orders. There have been delays in getting the orders. It's got delayed very badly. We expect it to happen much earlier because of some process, which got delayed, launched up now. So, we - it's not nothing sudden. It all started work 2 years back for all these contracts. We suddenly we don't get orders like this because it's - so this is not sudden. Second is the flight control radars are still in development stage. It's going to take some time before this can realize order potential. So, we've taken money for QIP money to invest in large development activities, which can give business of around INR15,000 crores to INR20,000 crores of potential revenue. One is the flight control radar. Second is the modern EW suite, which includes the jammers PODs and the radar warning receiver and other subsystems. All of this are considerably designed by us. Matter of fact, as we speak, the users are in our office actually testing some of the products, we're demonstrating the products, which has already been designed. So, these are all on track, but it will take time. But what happens is, when we're talking about order book, which requirements more than INR10,000 crores. That is why the development cycles are also going to be long, but we have to certify it in the air, putting it in a Sukhoi-30 etc., etc. So, this will all happen over the next 2, 3 years' time.
Looking ahead, how do you decide when growth through new orders should be at the top of the list or when execution discipline or margin protection becomes more important? What is the thought process behind shifting focus as conditions change?
We are very clear about contracts which we pursue. We want to build a profitable company. We are not going to be going after revenue business. It has to be a bottom line-driven business. We're very, very clear about it. We've always been doing that. It has to be IP driven. It has to differentiate, and it has to allow us to build more products because without bottom line, we won't have the money to build additional product and scale the company. Yes, it's a longer, harder work. There is no easy way to it. But over the past 30-odd years, we've been doing that. And now that the foundations are built and deep skills and product capability has been built within the company and infrastructure built, we don't see why we should change this to suddenly go into revenue business model and see that growth happens for revenue business at the cost of bottom line. We think that is not the right thing to do, especially for the DNA of our company. Second is the opportunity in India is scaling up substantively. And that scale-up is happening and looking at Make in India as a mandatory requirement. So how do I scale the business? It is going to be only bottom line. We quote or invest in products where there is large market available and the gaps are there. We try to address those gaps and try to replace those gaps with Indian products at a much lower cost and also see that we have it customized to the customer requirements much faster ahead of time.
On the current competitive landscape, particularly on our product category, I am seeing many players are now speaking about radar and EW space spending on the R&D and the product development. I agree that we are ahead in this journey. But going ahead, if the competitive intensity drives and ultimately, it is a tender-driven business. So how do you see in the terms of protecting our margins in the medium to long-term?
We need to differentiate ourselves from competition. That's the only way we will get differential treatment. That's one. Second is though there are a number of companies talking radars and EW and all that. We are not developing all the portions of the radars. There still has to be a collaboration or a number of companies have to do these parts to build a system. That also makes it more complex to build a complete system and offer as a system without contract. It has to be more as to tender driven and component or subsystem driven where they become lowest quote in each of the subsystems and then try to get the parts. That doesn't give you a flavour and a competency to build the entire system. We went through this exercise about 15, 18 years back and decided that this is not going to scale the business. So, we need to build IP and build all parts of the system. Yes, competition is nimble and capable and they will catch up or we will probably be even better than us. But we need to see what the landscape is. But we want to get the early buy-ins. Once early buy-ins come, a number of years, the contract is protected. So, we will look at opportunities like this, get an early buy-in and see how we remain ahead of the game. So, coming on to the bottom line, the bottom line is the last portion which I look at today because I can compete in almost all contracts in DRDO today. We can do everything in electronics what DRDO wants. So, we don't do this because for the exact reason what you said, there are a number of other competitors and subsystem vendors who want to go for their business to get a handle in those areas. We don't want to prove ourselves again. I'd rather focus on bandwidth and build end products can scale substantively going ahead.
On the seeker side - when we talk about INR1,500 Crore kind of order expected in next quarter, we are not including the seeker production orders, right? And on the production line - you talked about other than Brahmos, we are looking at other seekers. Are we setting up like maybe 15, 20 seekers a month line? And on Sukhoi upgrade - given we are doing pods and other things, is it safe to assume including everything, it's like maybe a INR300 crores per plane opportunity?
The seeker business production order is not included in the next few months order book. So that is not included point - question number one. Question number two is there is no requirement for 20 seeker a month on the recent contracts. We won't put infrastructure to do that. We have infrastructure plan to address customer requirements and deliver ahead. But as and when the requirements go up, we can scale up our infrastructure quite quickly since everything is designed by us, even the test equipment is designed by us, we can have - anything can be scaled up quite quickly. And we have the infrastructure done. We're also putting up additional factory, which is going to come up in the next one to 2 years' time with a large space available for production as well as design. The second part you talked about is Sukhoi-30 upgrades. I don't think at the present moment, we're looking at INR300 crores because see, these are upgrade programs and there's no contracts. We're actually going - building the products, going to certifications and immediately directly on 100 kind of seekers, 250 seeker, 250 Sukhoi-30s. I don't expect government to place orders for all of them one shot at INR300 crores per aircraft to an organization like ours. So, initial contracts, which has come to HAL is about 84 aircraft and the value is anyway published. We're trying to see whether some part of it can be done with pods and what you talked about. Other than that, pods, separate inquiries are going to come for 100 pods, etcetera, sets. So that is separately also happening other than the 84 is cleared for HAL. Present moment, it's definitely not INR300 crores.
This is regarding the Uttam AESA radar, which is developed by LRDE. Does this Uttam AESA radar have data pattern's role to play in it? And is it a competing product or a complementary one to our existing product line?
At the present moment, what Uttam you're talking about, we don't have a role to play in that. So, it's a very similar product we have designed. And we're looking at partnership with DRDO or LRDE to see whether we work with our radar as against working only Uttam as a second alternative. We don't know how it goes. If it doesn't happen, we go alone and try to build the radar directly for airports. Both options are open. It depends on how the alignments take place. But presently, we don't do anything in Uttam.