To articulate on your defence piece going forward, your take on your guidance because this quarter has been very strong. Was Pinaka was a part of the execution and are we still confident enough to achieve our guidance of Rs. 3000 crores? And just looking forward because defence proportion in order book is increasing very significantly, beyond expectations - if you can throw some light on how FY27 looks to you?
If you look at our Q3 numbers in defence, (Inaudible) 11.37 and we were expecting that Pinaka should have been part of these Q3 numbers. But (Inaudible) 11.46 are pending before we start the dispatches of Pinaka in Q3. And we are pretty sure now that from Q4, Pinaka will be part of our top (Inaudible) 12.02 towards defence sector. So, once it starts, the number will be much, much better. We are expecting that from Q4, it will be quite (Inaudible) 12.15 moving towards our annual guidance number. Like I said that now Pinaka has started in Q4, the numbers from defence will be much, much better and we are moving towards our annual guidance. We have said in our previous call that the ramping up of defence takes little more time than the other sectors. We have been improving our defence revenue and as we move forward in next quarter or next year, we will see gradual improvements on every quarter basis. So, in FY27, we are likely to perform very good. And the total expectations, we will share at the start of the financial year 2027.
My second question is related to one article in India today where the article spoke about you putting up a facility in US regarding drones and the MALE part, as well as it talked about Solar Industries going into making humanoids involving a lot of scientists from Europe. Can you throw some aspect what are we doing here? What's the tab size?
We have been sharing that we are working a lot on announcing our product especially loitering munitions and then we have started work on the MALE category of drones also and it is going to take some time before we really comment on the total targeted market and what we can get out of that. We need to wait for. As far as our futuristic programs on humanoid robots and all those are concerned, we are very much interested in taking those initiatives forward for our country's security programs. So, once these things fructify, we definitely can share more details on this.
The second question is also on UAV. Currently, where do we stand when it comes to the progress of MALE and HALE UAV?
We are working on these programs, and these programs take longer time to develop. So, we will wait for the final outcome. Let's assume that in a year's time, once anything concrete happens, we will definitely share with our stakeholders.
Some colour on export market?
It is difficult for me to give any colour on export market. But as and when we receive orders, we will definitely discuss because the international market is so huge that it is very difficult to digest the numbers. But like in every country, they have their own players. And if you think that we should be part of those programs, it takes a little more time. We are trying to enter into those markets. And once we start getting orders, we will share with all the people.
Just help me understand if my understanding is correct that the bulk of the international order book is on the HMX side of our business. And out here, the contractual delivery timelines would vary between 3 to 4 years. Is this understanding correct?
You have asked two questions on the product specific for which our company policy is very clear and you are aware of that. As far as conversion of orders are concerned, like I said, whatever orders we have received against each order we have mentioned the timeline. And like I said that we are confident that we can convert these orders into the numbers because our products are well qualified and we have been successfully supplying these products. So, ramping up is not a problem.
What is our defence pipeline looking like this year and next year specifically for the domestic market?
Defence pipeline as of now is around Rs. 18,000 crores and we will be definitely doing lot of sales out of these orders, and we expect more orders to come in as we move forward because we are developing plenty of products for India and international markets. So, we expect a lot of orders to keep coming in our kitty. But as of now, it is very difficult to give a firm number on the product pipeline for the next year.
Last question is on 155 mm shells. If you could just re-highlight what is the capacity, when is it coming on stream and what is the kind of ramp-up or contribution you are looking from that for FY26 or 27?
We have started working on 155 mm shells in last year and we have started production as well. We are waiting for the final round of qualification. Once we finish with that, then we can share more details on this product. But as a policy, we do not share such kind of details on product-wise like you have asked for capacity for 155 mm and all that. But more or less, we believe that we should focus on the overall guidance for defence product as such and the results we are delivering.
Congratulations for Padma Shri Award to the Chairman. My first question, I think earlier we have faced entry restrictions and currency availability issues, especially in African markets. And nearly around 40% of our sales is coming from international markets. Just want to understand how much our business is coming from African markets and how the situation currently is improving and how much is our FOREX exposure in those regions?
As far as the FOREX exposure is concerned, it is basically normal expense for our business, which is the routine expense which is incurred because we are operating in multiple currencies in multiple geographies. So, this is one which is a very normal cost of the business and approximately it is in the range which we expect. So, it's approximately around Rs. 20 crores odd which is very, very normal cost.
We have guided nearly Rs. 2,500 crore kind of CAPEX, as of 9 months, how much we have achieved and what percentage of allocation goes to defence capacity expansion versus international army business pipeline?
We can share the total CAPEX update on the Q4 numbers, please.
When you view next five years, what are in your mind, key strategic challenges and key strategic priorities for you?
For us, looking at these kinds of opportunities, our key priority is to focus on the new technologies which we should be able to adapt and keep on developing the products for our security solutions or providing security solutions not only for our country, but outside the country as well. As we are expanding in defence in various zones or areas, it will be a challenge for us to maintain the relationship and strong connect with all our stakeholders. So that is, I believe, is a key priority or challenge as well. And as far as the focus is concerned, like I said that adopting new technologies, developing new products is our focus.
As per some reports, EU have been in deep shortage of 155 mm shells. And I think in Q4, we are also starting commercial production of 155 mm. After this FTA, are we planning to cater such a demand or are we getting any inquiry from their side?
Like I said in the previous quarterly call that we are planning to start manufacturing of 155 mm calibre ammunition. So, we're still working on that. And commercial production definitely should start in the Q4.
We were already supplying 30 mm shells to Indian Navy. And now Defence Minister has inaugurated the medium carbine shell factory. And you spoke about 155 mm. So, just from an industry perspective, how you are seeing the demand shaping up? We have been reading that there is a very firm demand for next 6-7 years based on replenishment. How do you see this demand for exports as well as within the country?
Definitely, it was a big achievement on the part of our company to develop these products like 23 mm, 30 mm, and for which the inauguration has been there in the last month. And the demand for this product is quite good. And we have participated in the long-term RFP from Indian Ministry of Defence, and we are expecting orders to come out because we are still participating in the final trials where they will do the technical analysis and once those rounds are over, then it will enter into the commercial stage. It is going to take some more time. But in this coming year, we should see the orders coming for 23 mm and 30 mm programs. So, definitely, that will help us to ramp up the production. At the moment, we are only manufacturing for naval requirement. And once the army requirement starts, this can become a good portion of our total defence order book or defence revenue.
The second question is essentially on international non-defence business. We have seen revenue picking up sharply and for the first time, we have achieved Rs. (+1000) crores in revenue. Just wanted to get a little bit of colour on which geographies actually contributed to this kind of growth and whether we have ramped up operations in some of the newly started subsidiaries or what kind of, you are seeing more exploration essentially in mining business, particularly because of the high base metal prices that we are seeing.
You are very right on the observation that we are doing quite good in international business. And like I have shared in my press note that across the world we have seen that there is a good demand, demand for commodities like gold, copper and related industrial metals. And those are helping us to increase our international business. In last 7 to 10 years, we were trying to set up the facilities across the world, and we have seen that business from international market is going up year-on-year. There were some turbulent years in between while we were setting up those things, but now things are shaping up quite well. And in this quarter, like I said, we have crossed 1000 crores which is a growth of almost 35%. Specifically on your question on which geography. So definitely demand in African market is quite good. We are getting good traction in some of the South East Asian market also. We are doing quite good in Turkey and nearby market also. So by and large, most of our geographies, wherever we are present is doing quite well and we expect the momentum to continue. So, business as a whole, we still believe that growing at 15% should not be a big problem for a company like Solar.
If I were to break the defence order book into the domestic and international, can you help us with more colour on the international piece of the defence order book? What it is currently? What's the kind of projects that are there in the defence order book on the international side? And what's the gestation of the execution for these projects?
If you look at our total order book from defence, it's around 18,000 crores. And out of that, around Rs. 6,500 crores to Rs. 7,000 crores is from Indian market. And balance which is around, say, Rs. 11,000 crores is from the international market. As far as gestation time is concerned, we are continuously ramping up our facilities. Products are already well qualified. So, we don't see much challenge on converting these orders into the numbers. And you can see that from Q3, we have improved our defence business significantly, although Pinaka is not part of the Q3 numbers. And once Pinaka will also start in Q4, defence will grow up. And these international orders will also keep converting at a larger level. So, from Q4 onwards, I think you can see better numbers from India as well as overseas markets.
The incremental margins that we have seen over the last couple of years, would you attribute to the change in the mix towards the defence where the underlying investments which was dragging down the margins is now actually bearing the fruit where the margins that we are seeing currently could be sustained over at least the next 3-4 year period?
Two factors which were definitely impacting our EBITDA margin in say a couple of years back, one was international and second was defence. Since international has started performing quite well and we are expanding in more geographies and expanding the capacities in those markets, so definitely up and down will keep going. It is a part of business, but defence has been shaping quite well because of all the geopolitical tensions and vacuum across the world for these products. So, we are confident that we should be able to maintain the EBITDA margins around 27%-28 % as we move forward also.
My question was on the Pinaka rockets. Is there any seasonality associated with delivery of these rockets? Maybe in FY27 because FY26 was just a part here. In FY27 onwards?
I think from Q4 we will start supplying Pinaka rockets and as we move forward things will be better and better. And the programs are of long 7 to 10 years. We will see that every year we will keep supplying the product consistently. And like you might have read that there will be new variants of Pinaka and once those will also become part of our overall basket of Pinaka series products, so, we will see more business from this product.
On the gross margin expansion we have seen in the standalone side, what could be the main drivers?
Main drivers are basically increasing defence business and increasing international business which is well supported by exporting out of the country. And there are various initiatives which we have taken to improve the efficiencies across the facilities that is helping us.
Lastly, the non-defence and export business has not contributed much in terms of growth in the first 9 months. What outlook do you have for the next 2 years? Do you expect a rebound in terms of growth for the other segments?
If you look at India business definitely in the first 9 months, the demand was greatly impacted due to heavy monsoon and some slowdown in the economy. And we can correlate these sentiments with the fact that demand from coal and overburden which is mainly Coal India, Singareni Collieries and private coal mines, there has been practically no growth in this financial year. And if we look at the demand for electricity which is also quite flat. But these are the dull periods and in every economy we can see such kind of periods. But we are a firm believer that the demand for these things or the mining products and related products for generating electricity should keep growing at 6% to 7% on annualized basis. And we should grow at around 10% to 12% on volume terms and which will help us to grow our business even in India on 15% on annualized basis. There can be up and down on some quarter or a year but if you look at a long term trajectory, we are quite confident of growing the business around 15%.
The Pinaka execution from Q4, so you said that it is delayed because some trials are pending. So, is that complete or there could be some further delays to the execution of Pinaka from Q4 to Q1? Has the trial been complete?
No, I do not see any more delay in this side. Like I said, you will see the numbers from Q4 for Pinaka rocket. So let us stick to that.
On a long-term basis, say 3-5 years, clearly our defence as well as international business will continue to drive growth rate ahead of our domestic CIL or non-CIL or infra business. If that is the case, what kind of, I am aware that you mentioned during discussion just now, (+15%) growth rate. But I would assume that given the fact that domestic business, you just now mentioned about 18% growth rate, 11-12 volume and 18% value. And if defence and international business will continue to deliver given the healthy order book and opportunity at a much higher rate, would we say over the next 3 to 5 years, our earlier picture of (+20%) kind of a compounded growth over the 5-year period is a realistic assumption?
Basically, if you look at my update, I have said that on volume terms, we should grow at 10% to 12% per annum and that will help us to grow our business especially in mining side by around 15% per annum. We believe that this is very much possible to grow at around 15% on annualized basis. And if you look at the defence potential, like I have shared, that we are getting a lot of orders and we are participating in many of the long-term defence programs like MPATGM and Kusha program apart from the Pinaka series of products. Potential is quite good and we are getting a lot of orders as well. If you combine the mining and defence together, definitely growing at (+20%) is not at all difficult for solar at this stage for next 3-5 years down the line.
Presumably, given the fact that defence is a higher margin business, so is international in exports, our margins have a reason to be protected or improved over a period of time.
Like we have demonstrated that since international business has not much baggage left over which will impact the margin improvements or sustaining the margin, as defence keep growing, definitely margin should keep improving. But as a prudent practice or conservative policy of our company, we try to maintain at a subdued level. And based on those things, I expect that getting 27% on next 3-5 years should not be a big problem for us.