Aimtron Electronics Limited (AIMTRON) Earnings Call Transcript

Ladies and gentlemen, I welcome you all to the H1 FY '25 Post Earnings Conference Call of Aimtron Electronics Limited. Today on the call from the management team, we have with us Mr. Mukesh Vasani, Chairman, Promoter; Mr. Nirmal Vasani, Senior Technology Director and Promoter; Mr. Sneh Shah, Director of Sales; and Ms. Nikita Shah, Chief Financial Officer. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. I would now request the management to run us through the investor presentation detailing us about the business and performance highlights for the half year that went by, the growth plans and visions for the coming year, post which we will open the floor for Q&A. Over to you, sir.

Good morning, everybody. This is Mukesh Vasani. I'm the Chairman and Non-Executive Director of Aimtron Electronics Limited. We really appreciate your time. I hope everybody is hearing me well, because today we are in Germany. We have an Electronica EMS and SEMICON Expo, just like we had in Delhi, India. It's a huge crowd, and it's international. So today's call will be a little shorter. Thank you so much for your time. We did look at our presentation. So I'm going to flip through very quickly, and we can spend more time in our question-and-answer. So I'm just going to go through skip a couple of pages. I think for new journey today, we are in a very wide variety of industries, starting from industrial, gaming, IoT, medical, AI, power and so many areas we work. And we have a niche market as we spoke last time. We are 2 promoters. I think you know both of us, Mukesh and Nirmal. This is our growth pattern. And we did discuss last time, so I'm not going to go too much in time today in essence of your interest in questions and answer. So on business profile, I think we already talked a little bit manufacturing facilities. Huge expansion is going on in our -- as per our plan. Texas facility, we already registered everything and is getting shaping up. We are here in Germany also. There might be something coming out in future. We have one person already hired here. So manufacturing facility-wise, you've already seen this. Capabilities, I'm going to skip this time. We do complete solution end-to-end from PCB design all the way through Box Build. So you can see in a cable assembly also, we put a cable line. We already have some interest in our sheet metal. So we do like plastic injection molding sheet models with one of the preferred partner right now. Magnetics, we do complete box build, system integrations, plastics, everything we do, including logistics. So on this product portfolio also, we did discuss last time. So I'm going to skip this one. It's more you understand that now EMS is a very hot topic in India and government schemes and everything. So there is -- everybody knows mostly everything. So I'm not going to go too much in detail. But if you have any questions, you can ask those questions in a question-and-answer. Product catalog also, we spoke last time. So I'm going to skip. I know -- I think partnership, you've already seen. We have a DigiKey, Microchip and Texas Instrument. We've been working with them in R&D side. That is something is interested for us in -- for future. We did discuss about competitive strength because most of the businesses has India, and they go expand globally. Our benefit is here, we have a foundation in USA, and we are expanding globally. So that is the difference here. So -- and rest of things, you can see American quality, American way of working. Even though India is a Made in India, Make in India kind of concept, a separate entity, but still the roots coming out from there. So we see that difference to maintain our quality and maintain our profitability. SWOT theory way forward. I think strategy for growth, maybe let me just bring Sneh Shah over here for a couple of minutes. Sneh, you want to put some more light on the [indiscernible] moving forward, what you want...

Sure. Thanks, Mukesh, for the brief. Good morning, everyone. So to what we have committed like 40%, 50% CAGR, I think first half year also, we can reflect that numbers and that can be seen. And second half also, we are committed to in line with that numbers. In terms of sectors, IoT played a major contribution. And down the line, it is going to be there. And to what we committed in terms of defense, we had one international drone player, which Nirmal will brief you up. And we do have one PO coming up from one of the Navratna PSUs as well. So that's a breakthrough that we had in first 2 quarters. Down the line, definitely, that is going to increase. AI, one of the important sectors we have been talking about. Development has already started in that segment. We are on the verge of meeting -- like making plastics and all. And probably, we'll be closing that order soon in the coming quarters. Also, in terms of defense, we are eyeing at India as well as other global players. We did get a chance to visit Tata Airbus project as well because a couple of our U.S. entities are directly, indirectly working with our global defense players. So that's also we are seeing to it how we can have it under Aimtron Electronics or Aimtron India entity that we are trying to analyze something on that front as well. So down the line to what latest technologies are, AI, IoT. IoT this year is going to be the major contributor. And down the line, we have a couple of more sectors that we are going to add on.

Thank you, Sneh. Nirmal, you want to add right now, or you can add later. If you can add a little bit, yes, drone side.

Yes. So there are some very unique opportunities. There is one in particular that I recently had the opportunity of meeting in the Southern United States and one of our defense and aerospace hubs that the U.S. has. And they are looking for a large-scale provider with very high volumes. And the business, the likelihood of it, Aimtron has a pretty high degree of confidence in because the geopolitical situation in reference to the election results that just happened, the President-elect is going to be highly in favor of these types of projects. So Aimtron is expecting that not only will it be this customer, but also, we should see a significant growth in not just drone and aviation, but also in power and in oil and gas and those types of technologies as well. So there is a lot of opportunities that we're seeing in the Southern American market that we should be contributing to this significant growth for Aimtron Electronics.

Thank you, Nirmal. I think we can start with this. Sneh, you want to say a couple of line on this one. And then maybe Nikita can take the rest.

Sure. So to what 1 SMT line we had talked about in RSP, that's already been received at the facility. Trial productions are underway. And probably this month, it will be up and running with its full production efficiency, 100% down the line. And to what we committed in terms of divergence of routings of customers from U.S., so we created a subsidiary of Aimtron Electronics directly at Texas. And immediately not but down the line, you will see that -- a couple of quarters down the line, you will see that we will be having a lot of customer base coming from Texas facility. And to what Nirmal briefed, we are eyeing at a drone sector as one of the major contributor. We are expecting somewhere around a couple of million dollars' worth of business, which will be executable around next 2 years of time frame. And toward IoT revenue, we stated about first 2 quarters, it jumped almost double fold in terms of percentage, which was 7, which has increased to 18, more than 100% growth just in IoT. And again, next 2 quarters also, next financial years, there is going to be a major contributor. To increase the operational efficiency, we had changed a couple of store activities where like material needs to be stored, where LEAN, 5S, Kaizen, we already are following that. But to improvise on that front, how we increase the efficiency, so we changed the structure of store, and we created a compact-like system. I think we will be having one -- like a factory visit tour as well, where everybody can view that. We'll be planning something on that front. And under Make in India initiative to what we are eyeing at, registration with all the PSUs is completed. A couple of companies have already audited. We would not declare the name as of now. They already approved us. And we already received one order from one of the Navratna PSUs. CDSCO, that's for medical domain, just like we have 13485 for MedTech. So under Make in India, Made in India, we need to have CDSCO as well. So unit in Vadodara, it's CDSCO approved, where like we are making one cancer-detecting device, again, for one of the local internationals peers itself. And down the line, we have initiated working on AS9100, which will help us to enter more significantly into aerospace and defense sector. So probably when we'll have a next call, by that time, AS9100 certification will be up and complete.

Thank you, Sneh. Now your excitement, I would like to invite our CFO to share the results.

Good morning, everyone. It gives me an immense pleasure to display the kind of financial indicators for H1 '25. Aimtron Electronics is now a 0-debt company as on 30th September 2024. The revenue for the half year stood at INR 576.9 million with a rise of 33.90 percentage year-on-year. The EBITDA stood at INR 147 million with a rise of 30.70% year-on-year. And the net profit stood at INR 111.8 million with a rise of 57.40 percentage year-on-year. The net profit margin is 19.40 percentage, adding 289 bps year-on-year. The revenue breakdown...

Yes. Let me just go there to next page. I think -- yes, you can continue. But before that, I think there's one huge -- and this main news is also our order book is getting increased. In this little slowdown period, lot of CM, their order book getting down. But our order book as compared to last year is 1,350 million. So it's getting increased also, which shows good sign for us. Continue, Nikita, continue.

Yes. The revenue breakdown, we have a major generated industry-wise from industrial sector, which is 56.3 percentage. Geographic-wise, the major we have from India itself, which is 51 percentage. And segment-wise, we have the revenue from the major PCBA, that is 77.7 percentage.

We have more interest in a question and answer. So let's go very quick.

Yes. So as on 30th September 2024, we had the closing order book of INR 13.50 million (sic) [ INR 1,350 million ]. And moving to the profit and loss section now. The EBITDA stood margin that is in a 25.5 percentage, and the net profit margin was 19.40 percentage. The earnings per share was 5.48. Now moving to the balance sheet. As I said earlier, there is no long-term borrowings as on 30th September, and short-term borrowings has also reduced to 17 million now. Assets have grown, and even the inventories, we have 14.46 million. So we have a good assets ratio in our books.

All right. I think Vinayji we can jump on the question-and-answer.

[Operator Instructions] Sir, in the chat box, we have the first question from Rohit Ahuja, who is asking if you can share a bit more information about the defense development that you mentioned on Slide #28 with respect to engaging with clients on potential deals worth $10 million?

Let's have Sneh jump on to this because...

Sure. So basically, the customer is based out of U.S. And we already have started development of plastics and a couple of other parts like linear actuators and all. And development is already initiated, and we are expecting closure in coming quarters. As of now, it will be prototype first. Once prototype is done, pilot batch and then from pilot batch, it will go to mass production. So that $10 million worth of split will be over the -- like next 2 years, that is what we are expecting as of now. Plastics, as we already have initiated, we are expecting that closure probably before end of this financial year, where we'll be closing on mass production orders.

Thank you.

The second question in the chat is from Praveen Sahai. Order book of 1.5x FY '24 is a significant improvement. Can you give details from which sector, industry or geographic location these orders are received and more from existing customers? Also, can you -- so we've already spoken about the deal. So he just wants to understand a bit of a breakup about the order book.

Sure. So if you see in the presentation itself, we have mentioned. So industry sector, IoT sector is something that is contributing. And it's a combination of both existing as well as new customers. And probably shifting towards PCBA from -- PCBA, we are shifting more towards box build. So that is something that is increasing our top as well as bottom line.

[Operator Instructions] There's another question from Mr. Suman Kumar. How much revenue can be expected with the current capacity and the work in progress in terms of capacity expansion?

Very, very interesting questions. And I think for one line, INR 100 crore is the thumb rule for EMS industries if you have box build. So we have now 5 lines, you can do the mathematic.

Could you give a ballpark, sir, what revenue can we achieve from this capacity?

So if we run on 3 shifts and the current capacity or in terms of CapEx that we already have invested, we can easily go up to INR 450 crores to INR 500 crores worth of range.

Okay. We take the next question from [ Mr. G. D. Tiwari. ]

Yes, I am interested to know something about technical aspects of environmental and derivative test used for defense equipment. As I understand, Aimtron has completed the first phase in the [ defence ] and aerospace. So my linked question is whether the company is ready with all the climate and derivative test evaluation [indiscernible] for air force and defense industry? So that, I would like to know if it is possible to tell.

Certainly, so that's my default, like rugged testing is something that is required when you go with any aerospace and defense kind of project. So we do have affiliation with a couple of third parties. I'm just giving you a layman language example. So ERDA, that's one of the government body in Gujarat, who does research laboratory testing and all. Just an example, say, UL or you want a CE or something kind of IP or something, IP67 or something. So all that rugged testing and all that, yes, we do it. So we do have a design team like hardware, firmware, mechanical, who help us out along with the test manufacturing team, an engineering team where we can get things done on that basis.

Okay. And one related question. So you are not planning to have your own facility in near future? You will be always dependent on that higher capacity?

So I think there's 2 answers to this question. One is to develop full test lab is a huge setup, but we are...

Yes. [indiscernible]

Yes. So we are UL approved shop now. We just recently got UL approval. All the examination documentation is done, and we are waiting for the certification. And that's why we didn't blast today in this message. But we, Aimtron Electronics India facilities, UL approved. We do see marking every day. But some of the tests we can do in-house, but we need to accredit by ourselves. So that's why we have to go through different agencies.

Yes. One more related question. All the exported -- export you are doing to the U.S. or European market, so those equipments are also tested in our Indian facility or they themselves are doing the testing?

So what we do, we don't do -- we do not do a full IP or end user equipment. So we do not have -- that our responsibility. We do a part of that equipment. Let's say MRI machine, they make a company. So we make just a control box for them. So that's why we don't need a complete full agency approval for that.

We'll take the next question from Nikhil Chandak.

Yes. So 2 questions actually. So one is in the last meeting, I remember you had explained about there also being a promoter entity or a group entity in the U.S. So what I wanted to understand is that out of your total order book of INR 130-odd crores, how much order book is from your U.S. entity, which is -- which I understand is not part of the listed entity. But how much order inflow legally or from an order-wise comes from the U.S. entity? And second, I understand there is a longer-term plan of gradually shifting the business from the U.S. entity directly to the Indian entities. How far are we in that journey? So these are...

Thank you, Nikhil. Yes, you remember last questions and last answer. So I don't have to explain too much. You can see our result. Also this time, we are even 51% just a local. And we are bringing more and more local business. That's the number one. Number two, we are bringing a lot of out of Aimtron business over here. And there is the reason your -- part of your second question is Sneh already mentioned that we opened an entity. This contract is sometimes 2 years, sometimes is 3 years. It's not easy to move to say, guys, give me order now in India otherwise, I'm going to go somewhere else. That's not going to happen. Is that correct? So -- and also in America, that gives us a credibility. So we cannot say that, hey, we are an Indian company now, and you give me order in India. But we created a company in Texas. And that company, we are looking at small M&A under the Texas company. And so that's a more and more business we are moving towards that company. So this drone business is going to come definitely in the Texas Aimtron Electronics LLC. So that is we are creating right now. So all the blanket orders takes -- see, we have only 6 months we finished. This is the first 6 months we finished. And we haven't finished 6 months yet though. Our -- after listing, we finished 6 months in 6th. So it takes 1-year to 2 years to just move all the contract to a new company or a new entity. Other than that, intercompany, we are trying to minimize. And our goal is to get at least 10%. That's our goal, and goal is 10%. But you won't see this much also business in this. If you look at the -- in detail, we don't have intercompany business. We tried to -- started explaining the customer, hey, why you go -- going to go 2 different entities. Just go directly in Aimtron Electronics.

So to be sure, 10% is the orders which the U.S. entity is giving to the Indian entity right now. Is that the right way to understand?

Approximately. Yes, approximately.

Approximately, okay. Yes. And what would be the roughly size of the U.S. entity? Say, which theoretically eventually can move to India, what would be the size?

Maybe we can take on another call, but a little bit in general. In general, it's a -- we are about INR 900 crore worth of total because we have 6, 7 different companies. So -- but definitely, that's our end goal is correct. That's where we have more buckets, correct? India and Indian customers, Indian entity, Make in India, there's a lot of benefit in India. So that is end goal. But right now, it's too early to say.

We'll take the next question from [ Anik Mitra ].

Am I audible?

Yes.

Yes.

Sir, taking the [indiscernible] from the previous participants' questions, but I just wanted to understand what is the future of the unlisted U.S. entity? Means, are you going to take over this particular entity going forward? Or what will be the future of that particular entity?

So our main goal is to grow Aimtron Electronics India. That is the business and there is the business because we all are investors, correct? I'm also indirectly an investor, correct? So we all are -- see the big value in India. So that is our end goal. And for that end goal, we are finding out all the [indiscernible] all the options and from all the experts. So as I said earlier also, we -- what the easiest option is create a company in Texas. There is a tax-free state, and that's where we funnel to business over there. We -- whatever customer because right now to acquire under Aimtron Electronics to intercompany also, we don't have enough funds. And it's too early to dilute something or do something and get the bigger company under a small company. So main goal as Sneh said, let's get this revenue to INR 500 crores. We have a lot of capacity over here. We established a world-class facility. When you come to Vadodara, you will love it. And let's do this first, and then we start adding one another to the group also. But at least at the end, before I retire, maybe 5, 7, 10 years, I would like to bring everything under Aimtron Electronics India umbrella. I hope I answered your question, [ Anik ].

Yes, yes. Great. Great.

Thank you, [ Anik ].

Yes. One more regarding your new SMT line, have you installed that particular line in Vadodara or in Bengaluru?

Yes. We've been waiting for this blasting news to the EMS company. But yes, [Foreign Language].

Okay. So is it -- I didn't get it. I mean is it in Vadodara or...

It's in Vadodara.

Okay. Okay. That was from my side.

Appreciate it. You all need to come out and visit our facility. I think you will see the difference.

Yes. I'll be very happy to be a part of that.

We've got quite a few questions on the chat. Before that, we'll take the question from [ Pratik Choudhary ].

Sir, there was this the news on one of the articles, which said that you may be looking to purchase some land in Bengaluru aerospace region, some sort of an SEZ over there. So are we going ahead with that?

So we are looking both [ options ], correct? So we are a small company. We are not like a big, giant people ready. One day here and there, move other day. We are looking to see where is the infrastructure going to be built up. Where is the -- we are also thinking about where we have a semicon hub or EMS hub or something. So that's why we're looking at some options in Gujarat also. And in a couple of big contracts, we are also working on this. So just let's stay tuned. Give us maybe 6 more months. Within 6 months, we accomplish good, our team did wonderful job. Hopefully, in a couple more months, you will see something.

Okay. And in your presentation, you've spoken about backward integration and expansion. And there, you were mentioning about possible further expansion in the SMT capacity as well. So this expansion, are you talking about the current line, which is being put up, which is under trial production or something more than this also?

Sneh, you want to take this question?

Sure. So as of now, currently to what we stated, it's specific to SMT that we have put it up. So -- and yes, long-term, as we already have stated, we may look forward for forward as well as backward integration. So that's a long-term visibility that we are working on it. But as of now, we can state it that what we stated was specific to SMT lines to what we have as of now, which is a recent install.

Yes. Just final question on -- in -- again, from the presentation in your market expansion strategy. If you could touch upon what you have written under the industrial sector and the automotive -- automobile sector, like under the industrial -- written about exploiting opportunities in India's electronic space supported by PLI schemes and global investments and something on the automobile side as well. Since we already spoke about drone and defense, if you can touch upon these areas, industrial and automobile, what are our plans here?

Sure. So automobile, like we are already serving into that sector. This time, we got a breakthrough for one of the Tier 1 companies. I would not name it. But Tier 1 companies, we've got a breakthrough. And we have started working on their battery management systems and specific to EV sector. And industrial, we have like -- if I bifurcate that, we have like myriad of segments under industrial as well. So just an example, it's Industry 4.0 or something related to their maintenance equipment or oil and gas-related something equipment on that front. So there are several like things that are affiliated with industrial sector as well.

Okay. This automotive company that you were speaking about, is this an Indian company or a global one?

Indian company with global routes.

Okay. And what -- we will be sort of doing the whole box build and assembly of BMS for them?