First question is basically, initially Ramesh sir highlighted that we are in the process of taking more steps to address and see that some of these issues don't get reported in or don't recur in the future. So if you can just highlight a few of these things, what are we planning to do to see that some of these things don't recur in the future? Second thing to Jairam sir, will be on the receivable side. If you can sort of break up the entire receivable of close to 11 billion plus 3 billion of older receivable of 14 billion customer wise and how does the sort of smart meter order book change in terms of customers going ahead? If you can sort of talk about some of these things.
Yes, yes. So firstly, we cannot actually give very detailed granular information about customer wise receivables and so on, because this has got business confidentiality linked to it. But however, broadly I can tell you that the Iskraemeco's business, which is smart meter business, has got two types of receivables. One which is sitting in current receivables, which are of the nature of device supply and then received from device supply. The other is the nature of business caught through the contract that we acquired from one of the customers of Iskraemeco. And some portion of those receivables sit under other non-current assets. And we have taken some simple steps in the earnings call also we mentioned to make sure that this is not a recurring portion of receivables, but this is a part of the business that we have actually acquired. So going forward, we will make sure that before this year is over, we get rid of these receivables with appropriate financing so that it's not in our books, because these pertain to almost like the annuity type of payments, which are like home loan payments and similar to that. There is no performance link to these particular receivables, which is sitting under other non-current assets. Now, as of September, I think the total receivables is about - yes, of the total receivables, about INR687 crores pertains to business of smart meters, which includes also the other non-current assets portion. So, we are quite confident that INR240 crores, approximately INR240 crores of such receivables will anyway get discounted and it'll reduce the amount. There will be further billing based on our business plan. And we will endeavor to make sure that these do not cross collection periods of 90 days, etc. As far as the notes to accounts missing is concerned, we have taken note of this particular activity. In future, we will do, for a related party transaction, we are going to use some software to make sure that the contra entries of notes to accounts are fully done.
And sir, in terms of the order book, a smart meter, how big will be the existing customer now within that. And also, in Iskraemeco FY '25 statements, there was a INR45 crores sort of overdue or more than 1 year pending receivable. If you have some more color on why it is pending and by when do you expect to recover or is there any risk of provisions in that?
Yes, so this INR45 crores and the reconciliation will get closed. This is not really material to the business, actually. It's more like a consolidation related activity, which probably will close it before the year end. As far as the specific order number for this, we don't normally publish order book by customer for the sake of confidentiality. We need their consent before we can actually give this. But suffice it to say that the percentage of total business of smart meter as a percentage of total business is trending down for the simple reason that other businesses also showing some strong growth rates in the other verticals. So going forward, the reliance on this particular thing will certainly come down. And then, of course, it's getting replaced by equally good and worthy businesses. And so we hope that this trend continues over the next decade or so.
My first question is about the organic growth rate. Can you provide some clarifications on what's the proposed, what was said in the report about the organic growth rate in the first half? And then can you also kind of look forward and talk about how you plan on growing the business? Obviously, the metering business is probably a fixed revenue contribution every year. How about the other businesses? What are the growth catalysts moving forward?
Thank you, Sameet ji. So, you're right. The metering business is more like a run-rate business. And we know that this is broadly driven by the RDSS program of the government, wherein about 250 million homes will have smart meters, etc. So, it's got a limited cycle of 10 to 12 years' timeframe. And so, we are dealing with it in the same manner. As far as the other verticals are concerned, there is strong growth in automotive, there is strong growth in industrial other than smart meters, there is strong growth in electric vehicles. Also, now the resurgence of strong sectors like railways, electronics, as well as aerospace, outer space and defense, and also in IT field. So, we see a resurgence of growth in most of those areas to more than compensate for any reduction in the composition of business from the smart meter perspective. Now, just a small comment compared to last year to this year. Without disclosing what I am not supposed to disclose, but then the growth rate in other parts of business compared to FY '25 to FY '26 projected plan, the growth rate of other businesses other than Iskraemeco is fairly strong. It's almost a little tad higher than the company's total growth rate.
Any thoughts or possibly as the company is growing big, maybe possibly get some bigger auditors once the current auditor tenure ends?
Yes. So obviously, whatever, see, including additions to the team, strengthening all our resources, etcetera, these are all things which are constantly being discussed. And we have taken note of, it is not because of this particular report that we have to do, but as a part of growing up, we need to strengthen the partners in every age, each and every area. This is a matter which is to be considered by our board and then appropriate decisions will be taken. We'll make sure that on this front, we don't lack, but at the same time, the entire report is based on one small error. So we just want to be mindful of the fact that the confirmation for this is to make sure that we get a software to do the contra entries of notes to accounts for the RPTs, which you have taken into account.
Could you give us the breakup of consolidated PAT among subsidiaries for the second quarter and first half, sir?
Yes, it is there in the financials, it's published in the financials standalone for subsidiaries is already and consolidation is also published. If you want, we can reiterate that today. We'll be anyway publishing Q&A there. So, we will put that there. Not a problem. Take a bit of time for the holding subsidiaries.
Some of the data points which were very central to building a chain of seemingly speculative interpretations, like the 28% net margin Iskraemeco in H2 FY '25, the way capitalization amount is calculated by the analyst, including that assets from acquisition, tangible assets from acquisition, borrowing cost of 17% odd that was mentioned, etc., all seem to be factually incorrect. So, did you guys make an attempt to reach out to the concerned analysts and maybe getting an erratum note published?
Yes. So, though the one particular list of things indirectly sent to us by the concerned analyst through some known channels to us, which we answered. Of course, there was a small delay of 5 days, 10 days before we could answer because people were traveling and we needed to verify all the facts, etcetera, but then this was shared well before they published the report. And so, specifically, nobody really asked questions on any of these kinds of things. So, as a part of Q&A, we have answered these actually. Perhaps the analyst felt that he was not satisfied, so he anyway went ahead and published it. But anyway, we have clarified it and today we'll reiterate. See, our job is to make sure that we are more transparent as a company and then we explain exactly what we meant. And in the entire episode, if you really see, there's only one item which has caused this entire flood of speculation. So, we will make sure that next time even that small opportunity is not given.
In 1H FY '26, how much R&D we have spent and how much of that is expense and how much is capitalized?
First half FY '26, sir. We will have to pull out those statements. And we were only prepared for answers to the FY '25 numbers. So, we will pull that out and give it to you, sir. It is not very majorly different from our trend, actually. And there are a lot of ongoing ODM projects, etcetera, wherein, like I said, once the research phase is over and then we get into a targeted development of the product, the solution, then we start capitalizing those. And we will probably come to - we will publish this information, sir. Just give us some time.
On the overall internal control issue, again in March, we had some scrutiny from SEBI on some disclosure of SDD, etcetera. So, how are we? Because we are now a large company with a sizable market cap, sizable top line, much more ambitious growth going ahead. So, do you think there is something that structurally needs to change, one, in the way you manage things, and second, in the way you communicate things?
I fully understand what you are saying. Structurally, we are continuously working and improving, because we started as a small company, and from there we grew up, and then continuously we are growing. Our pace of growth is very high. EMS is a deeply involved type of industry, but world over it is, all are in billions of dollars. So, we also need to scale up. Having said that, structurally, we will take somebody's advice and we'll start working with people to structurally improve, as well as we will also get into our communication a little better. If this has taught us a lesson, we will get there.
What about the first half of FY '26 in terms of revenue and profit?
Yes, we had talked about it, sir. As of end of September, the total receivables, including other non-current assets, INR687. Revenues will be of the order of about INR500-odd crores in the first half. Exact number, I'm not able to disclose that to you. And then, of course, in the second half, we also plan some execution, which will be of the nature of about INR300-odd crores. So, these are the numbers as far as the smart metering business is concerned.
On the H1 FY '25 write-offs that you have already clarified on, you gave a number. But to one of the questions, there are some broader corporate cleanups as well. Could you also quantify that? And secondly, related to this, if I look at Iskraemeco's standalone P&L, all these one-offs are not mentioned in the P&L. I don't see any number as the exceptional items.
Sure. So fundamentally, like I said, this is provision for write-off and not really write-off. And second thing is, I think in the Iskraemeco's books, we are talking about the old receivables of about some INR45 odd crores. That is more a reconciliation with our company, which is happening. Once the reconciliation results are there, then we'll reflect it in the individual standalone as well as consolidated numbers. But we don't expect any major negative impact on a consolidated basis. Yes, that's because we acquired the company. It happened when the company was outside this. So as per accounting standards, we have made all the disclosures required. The inventory write-off will be found in the COGS line, sir. That's why the cost of goods sold has increased and the profits have come down.
And sir, in terms of the order book, a smart meter, how big will be the existing customer now within that.
We are also planning to exit from day one. When we took over this company, we wanted only to become a device manufacturer. So, we will no longer be an AMISP company. We will be only device company to various AMISPs. And our software, we will also sell it to them as a service.
The second question, as it relates to the various plans that you have in place, bill discounting, factoring, all of these, all of these have associated costs with them. Can you give us an idea about how do you counter this cost so that your margins don't suffer?
Yes. So, the supply chain finance, mostly especially, let me take the first one receivable. They are funded by foreign banks with decidedly lower rate of interest than what we actually get from our banks here. So, to that extent, keeping it in our books rather than this thing, maybe there's an improvement. The only thing is the cost line item goes from one below EBITDA to above EBITDA. So earlier, if we were to borrow in India and then pay for it, then it will be shown as an interest. Whereas if I discount it, it goes into the cost. But at the net profit level, I don't see any adverse impact of these steps that we are taking, including the ones which we are trying to do, factoring and these things. We have done the math and it's not significantly altering the financials.
Since now you are open to sell the 20% of the promoter stake, so any plans to reduce the stake for going forward?
At this point in time, we have not been informed by the promoters of any further dilution of the stakes or anything. Promoter stakes today, of course, we have complied with the requirements of RBI, etcetera, when SEBI, etcetera. So, promoter stakes today stand at around 52%, 53%. They continue to remain this over the horizon that we can see and there is also no requirement to do that dilution by even any fundraise of that nature, at least in the near term.
If we see your R&D expense, most of that it is capitalized. So what is that and how you -- which expense you charge in P&L and which you capitalize? And lastly, if we see your bad debt provision, that is 3.5% of sales in H1, why the bad debt has increased and should we expect any increase in bad debts in upcoming times?
I will address the second part of the question first. A bad debt provision does not mean it's a bad debt written off. It's a provision for write off as per the accounting policies and the ECL that we discover. And then obviously, it's also advised by the auditors. Now, fundamentally, our efforts to collect our money continues, even after the provision is made for a particular bill. And whenever we collect that particular relevant invoice, then we can write back that into our P&L. So, provision is not equal to write off. And in our businesses, because it's a custom-built business, the write offs, etcetera are generally very small in nature because we undertake projects and production only on the basis of what the customer wants. As far as research and development is concerned, whenever we do research, that means there is no specific product that is being developed, but the engineers are just experimenting with new concepts and POCs, etcetera. Those are all generally expensed off and they are not capitalized. Only when we identify a particular product with a revenue stream possibility, we take it as development and that is capitalized. And until the time when we start the revenue cycle, the moment revenue cycle comes, then amortization will start.
Firstly, I missed the question by one of the previous participants on the promoter stake sale. So, Jairam, what exactly is it about and the line was not very clear?
No, he asked whether promoter stake will get diluted in the future. There are two ways in which promoter stake is diluted. One, if they sell directly as a block to a third party. Two, if we raise funds into the company, then also promoter stake will get diluted. I said in both cases, there is no plan in the near term that we have contemplated.
From a pure accounting standpoint, I think booking, when an acquisition is done during purchase price allocation, booking something as intangible is a much better way and much more conservative accounting approach than booking goodwill. So, my question is, if you have done a good job in being conservative on accounting in some aspects and in better payable management, so why is your investor relations team not so proactive in terms of clearing out these misinterpretations or misunderstandings?
The point is well taken. And internally also, we were given very little time when we put out our first - so, we have just covered some skeletal information on those six points which were conclusions in the report. So, in future, we will probably take a day and then make sure that the detailed response is given, including those tables, etcetera, so that we can set the speculation at rest quickly. Your point is well taken. We are also internally counseling our people internally to make sure that they take these points more in a detailed fashion, seriously and more factually. And then, where there is a rebuttal required, we should rebut. Where there is clarification required, we should clarify. And where there is an acceptance required and correction, we should do that.
With respect to receivables, Iskraemeco is our 100% subsidiary. So, I don't see a challenge in terms of disclosing what exactly their revenue and the profits were for the first half of FY '26, and how much is the receivable as of 30th September 2025.
Well, we had answered this question. I think the very first question was on this topic. We can tell you, H1 receivables, how much is Iskraemeco and, smart meter. So, the Iskraemeco current receivables plus, there are certain receivables which are beyond, not due within the year, but due after the year, including that is about INR687 crores of the total receivables. Out of which, we had also talked about making sure that this approximately INR240 crores which pertains to these other non-current assets, we'll try and get it discounted off our books. And the remaining one, whatever gets added will get added, and then collection cycle also, we're trying to see to it that from the current slightly elevated numbers, with some efficiency improvements in installations and all that.
Would there be a free cash flow generation out of your EMS business over the next couple of years, given the kind of growth rate that we are talking about, the asset turns, what this EMS business requires? Is it fair to say that most of the cash generated will get consummated for the EMS capex itself?
Yes. So, from EMS business, we don't contemplate that there'll be any free cash flow, operating cash flow for sure. Then there'll be investing activities, which will basically lead to assets adding. So, part of the efficiency improvement we will do by adding, I know, improving our asset turns in the EMS business itself by debottlenecking and by starting off clients which are already onboarded and client-specific assets which have been made. In addition to that, we'll also add, because we slated for a fairly reasonable amount of growth. If you take last several 4 years CAGR, the next few years CAGR also will be thereabouts. So, that would, at some point in time, by the next year or so, we'll have to add the assets. And that will come from our EMS business itself. So, OCF positive, yes. FCF, I'm not sure in the near-term that will happen because we'll have to reinvest for growth.
In Iskraemeco, overall fiscal '25, which is a gross margin, looked fairly elevated or soft because of the impairment that has taken. So, can you quantify what was the impairment done by the erstwhile management before the acquisition was closed, which has deflated the gross margins for full year to just about 10% in Iskraemeco? Also, from a general investor concern on growth in core EMS, can you highlight that after 42 billion kind of revenue guidance that we have seen in second half, which other segments in EMS do you expect ramp up? And on OSAT, can you give us a milestone update in terms of while we have done the investment from our end, how is the capital subsidy from central government expected over the next 12 months?
Thank you, Renuji. So, firstly, the Iskraemeco's first half last year, we had instructed them to take a write-off of inventory which are not usable in the new generation of products, etcetera. They had done a lot of experimentation over 3-4 years' timeframe, so that led to about INR44 crores of write-off of inventory on their books. And these are not pertaining to current businesses, but these are pertaining to items which they have acquired to do different types of design. And of course, there was a small quantum about other expenses, roughly about INR6 crores. So this put together was about INR50 crores, whereas they did business of about INR85 crores. So in that business, they actually made a turn that profit of two, but then this was minus 50 plus two, so it became minus 48. The second half, obviously, without this burden, the company could turn around a good profit, I think around INR530-odd crores of the sale after consolidation, revenues after consolidation. And then we did turn around about INR49-odd crores of profits in that. The second thing is the relative impact of, let's say, in the short run of any particular vertical. Out of the remaining amount that we are going to do, guidance, Iskraemeco is not going to be significantly higher. In fact, in terms of percentage, it will keep coming lower. In terms of EMS segment growth - there is a good growth in automotive. There's good growth in other industrial, other than smart meter. There is good growth in electric vehicles too. A few marquee customers have been acquired. Then there is a major resurgence of railways. 4 years ago, railway used to be about 30% of our business. We now have developed probably the country's one of the most comprehensive coverage programs. So, we have got approval and orders, etcetera. And then, of course, the last one is aerospace, which we have acquired a sizable amount of orders from one of the OEMs abroad. Now, as far as the question on OSAT is concerned, we have acquired three clients. They all of them have themselves come out and given press statements, actually. These are Alpha Omega Semiconductor, Infineon, and the Larsen and Toubro's business takeover of one portion of Fujitsu General's Semiconductor business. All three of them, one of them, we were the first in the country to actually ship out the chipsets. And so, the samples have been shipped out, so in some sense, technically, the commercial production has started. We are focusing on trying to get the sample approval from all of these customers before we do a significant amount of business. This year, while we did put a small target on us for revenues, but I'm not very sure whether we'll be pursuing the target more than pursuing approval from these three customers, because the approval from these three customers will help us to do good revenues, starting from FY '27 onwards. As far as the flow of subsidy is concerned, whatever little we have spent, and wherever there was dues from the government have been fulfilled within one week's time. Like, for instance, we got the land related discount subsidies within one week of approval from the central government. So, from the central government side, there is absolutely no delay.
At least from your end, because of a likely lag in the delay of capital subsidy from central government, there would be no bloat on the working capital, or no bloat on the leverage on books, or delay of the project. It will be managed within the given timeline?
Yes, yes, yes. And also, see, one of the things that we must note is that in the DPR, we normally don't take too much of credit terms from suppliers, but most of the capex suppliers do give credit. So, we will manage that judiciously to make sure that we not fall short of money, and there'll be no, let's say, reliance on our parent entity for doing the OSAT project. Other than the fact that, of course, the corporate related activities, other than that, money-wise, I think they are self-sufficient.
When have you moved from AMISP to completely providing product as a solution?
Sir, we have already an existing contract with PGCIL. Bulk of it has been already done. Close to about 60-70% of that is completed. There is a small portion remaining. This is contractual in nature. We cannot get away from it. But all the other ones are all based on our EMS type of model wherein there is a definitive period for payment. It is not extended beyond one year. So other than PGCIL contract, all other contracts are all non-AMISP, which you can say that after we have taken over many new orders that have come in all from non-PGCIL book direction is all non-AMISP type of.