E2E Networks Limited (E2E) Earnings Call Transcript

Ladies and gentlemen, good evening, and welcome to the E2E Networks Limited Q2 FY '27 Earnings Conference. [Operator Instructions] I now hand the conference over to Ms. Vanessa from Investor acetam at Adfactors CR. Thank you, and over to you, Vanessa.

Thank you, Mihail. Good evening, everyone. On behalf of E2E Networks Limited, I would like to welcome you all to the earnings conference call for the second quarter of FY 2027. Today on the call, we have with us from the management, Mr. Taran Dua, Managing Director of E2E Networks; and Mr. Nitin Jain, Chief Financial Officer of E2E Networks. We will begin the call with brief opening remarks from the management, followed by a Q&A session. all participant lines will be in a listen-only mode during the management's remarks and the floor will be open for questions thereafter. Please note that certain statements made during this call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties that could cause actual results or projections particularly from statements. E2E holds no responsibility for any actions taken in such statements and undertakes no obligation to publicly update these forward-looking statements. I now hand over the call to Mr. Tarun Dua for his opening remarks. Over to Tarun.

Hi, everyone. Thanks for joining today. in our second quarter earnings FY '27. This has been another [indiscernible] we have continued egisimilar to use -- and this is still as you can see. And I'd like to make you will brief update on in the previous quarter. So like we find like a nearly INR 1,000 crores deal with a Soverign AI company for the black tester, will start during 2029. So this is something that we see long-term reveal and validate tail transition the deployed capacity from a -- as you will go to a longer-term commitment. So apart from this, basically, this quarter, we have really focused on increasing current density within 3 in terms of execution. So we have a new revenue officer. We have also catered like a team to the founding office. We also have like PTO to kind of like help our customers understand our solutions better. And all of these trends like a lot of net new experience in the industry in the open potentially like the tenant management and leadership team, they are like expenses for the next phase of growth -- now apart from the inside talent within BT, we have also concerned our strategic advisory team -- so this now and we would like to welcome Mr. and as a strategic adviser. So Roy has been like say, part of the tech ecosystem of India for a very, very long time. And essentially, like he brings like a lot of deep-rooted knowledge of being applied into the new ecosystem that is getting. And has the prince and perspectives like would be really valuable in being as identified like very many opportunities. and this will help shape our long-term growth strategy as well. Now we continue to invest very rapidly into our coverage platform, both on the rate of the and on the side of Yandi. And what I believe is that like the platform is the key to our future growth. So we're potentially like that allows us to operate as a clear where we kind like and all parts of the over I think multiple leaders for our customers. and that allows them to use our refute platform with confidence or not just training but also and the upcoming it in titers. And require also to be used by our own team than completely and. And that -- this is something that allows us to kind of like do forward in the future with boldness. So now finally about the future growth, like we have already maintained that -- we will continue to be both aggressive as well as prudential in terms of our CapEx deployment. Now we do not like give a speculative CapEx guidance. And we prefer to kind of inform everyone office, then we have like sufficiently suctified and solidified our deployment plan. So that's when we talk about like -- yes, this is the potential cap upgrades that we are working on. So the 1 up that's when we talk about it. Now I would like to hand over the conversation to our CFO, Nitin Jain who can talk about like the financial-related over the last quarter. Over to Nitin.

Thank you,. Good evening, everyone, and thank you for joining us today. I will walk you through our financial performance for the second quarter and first half of FY 2027. Q2 2027 has been another strong quarter for networks. Revenue for the quarter stand at of INR 2238 million, which is up by 411% in the year and 23% QoQ [indiscernible] INR 1750 million, up 5% quarter-on-quarter with margin expanding to 76.6%. EBITDA margin expanded by 141 basis points compared to Q1 FY '27. Profit before tax clocked at INR 971 million compared to INR 586 million or an increase of 66%. That stood at INR 737 million compared to INR 439 million in Q1, with PAT margin improving to 32.5%, 28%. Diluted EPS stands at 3.48% compared to 2.1% in Q1. The performance is driven by contribution from the Black GPU, better utilization and [indiscernible] . Actual FY '27 [indiscernible] , which is up by 376% year. EBITDA stands at INR 294 million at 2%, which is 2.3x for the full FY '26 EBITDA PBT stands at INR 1558 million compared to a loss of INR 222 million in the FY '26 and PAT stands at INR 1176 million compared to a loss of INR 163 million in Q1 FY '26. Now I would hand it over back to [indiscernible] the answer your questions.

[Operator Instructions] We have the first question from the line of Keshav.

Congratulations on a great quarter, like like 2 questions like when are we expected to side basically go right with our next 200 that we landside we can expect the revenue to be target from that?

Yes. So the next part of 2that we have already announced, is expected to go live this quarter. So hopefully, and like them at those lines, obviously, will keep everything informed.

Can you hear us, Keshav. We move to the next question. We have the next question from the line of Bharat Gulati from Data Mercer.

Just a question on the older contract. -- how much the contribution of the INR 1,000 crores per contract. And you mentioned that the D200 have been contributor contracted for the order. So is this the existing D200 or is it going to be both the batche of D200.

This is the existing B200, which got converted from pay as you go to like a multiyear contract. Now exact contribution would vary based on the usage. But like obviously, it's easy to calculate like low enough by looking at the INR 1,000 crores under the time period.

So the entire -- I mean is the completely based on from the INR 1,000 crore contract right now? Or is there some incremental MRR to come?

I don't know how to answer that question. So typically, you'll make your in question about like a future that I cannot let.

Got that Okay. And just on the gross margin, sir, we've been calling out that 85% gross margin is where we'll be, but we significantly return that this quarter. So how sustainable is the 20% margin. And just on the operating cost also, I understand the net investment in people, but where do we see absolute operating costs moving going forward, this quarter, so if you can just throw some light on that?

About the 85% number mine we tinkered this as a 70% to with 70% like an EBITDA margin business. So essentially, that's what we feel will be medium term and the long term.

Got it. Got it, sir. And just if I can squeeze 1 last question. In terms of guidance, any exit guidance in terms of MRR you want to give here.

we don't give any guidance say that look back at what we have done than giving a future guidance.

We have the next question from the line of Keshav from Nivesh.

Yes. I Yes. SP1 When should we expect the pricing to show up in the revenue? I mean, from the past 6 months, we have seen globally that that prices have been increased. So like when should we expect that to be reflected in MRR, I mean, when the contract was still new.

See, as we talk, obviously, we have multiple goals, which have to draw a balance between like a like quarter 2 quarter performance and also the long term. Now from the point of view of long term, like obviously, had a very good relationship with all of our customers and which also means that we and our commitment to our customers that are contracted or whether verbal, so in terms of like what they expect from us. And second part is that like we are heavily investing into our platform. Now on our platform, of course, like the increase in talent density both on the engineering and nonengineering side health. And apart from that like, obviously, a big part of like build-out of the platform also requires that like we'd be able to reuse our for our own product development and not just be like a tail pillar of all the capacity that we have, so obviously, we want to heavily invest into R&D or helping in build-out of our platform. And any kind of R&D effort today obviously involves like necessarily. So that's also an investment into the future. Now that being said, like, again, like we don't want to ever give make a future guidance even if it -- whether it is far into the future or whether it is for the next quarter. But as we kind of go forward, obviously, our uncontracted or short-term contracted bets expect the lies to grow from the same assets that we do.

Got it. And sir, just last question for tinier you seeing the in terms demand to be doing platform and be contributing to revenue?

You're talking about that contribution of like...

Inference, yes.

See, we look at the real set of services as a overall role rather than taking through functionally at like revenue government price or railing or for or CPU relevance. We will continue to look at like the overall picture as opposed to kind of like breaking down things into numbers. because quarter-on-quarter, all the numbers are subject to like potentially mention changes any center to make sure that like that is actually attractive and which is more like very airline in time, that fact will lead in terms of building into analysis around.

We have the next from the line of Harsha from Seven Rivers Holding.

Sir, my first question is on the second tranche of 200 is going through the balance sheet and couldn't spot any advances that we might have said. So is there any delay out there and I want to understand what would be the rate at which these would be deployed? I believe the deployment is already committed. So would it be at a similar rate at which we have deployed the INR 1,000 crore first time D100? Or would it be higher or lower, if you can give some indication here?

Certainly, our whole pole to make a somewhat higher amount of money. But like I said, let's see, the long-term strategy of the company is not dependent on, oh, can we make it a few sense more or a few percentage points growth from same set of GUPs. The long-term strategy is to kind of like make an by building more technology and then the store is like a real over and also in the customer adoption of our technology. So we start it from the other side, where like the asset growth that is be kind of like growth of assets of our technology events. I'm able to point to the right direction over this.

Yes, to an extent.

What I'm saying is that simply look at like the #2 in terms of looking at GPUs as rated car like assets like open to make like somewhat more intel from the essentially the area to enable. Essentially, the idea here is to get like one, of course, the domestic market to an technology and second look pose to get our technology take at a global scale. So the idea is not to kind of like run after short-term high hourly number from the GPU by the numbers like would be a result of like when our technology gets more adoption and not be everywhere.

Sure, sure. And sir, in Q2, how much revenue came from India AI mission? And are we expecting any as from those contracts to be happening at the spot rate in going forward?

So we continue to engage with India AI mission, where like essentially, the goal is through builder side of who will icily continue to work with us beyond the remit of India AI emission as well. And regarding like numbers in the previous quarter related to indication, I guess, like Nitin can give very better approximate on revenue being earn from India AI mission with record services.

Yes. So for the quarter, the revenue from India AI customer is roughly around 13% to 15%.

Okay. Lastly for FY '28 and FY '29 -- just a follow-up, just a follow-up to previous one. So for FY '28 and FY '28, how does the allotment visibility look for maybe next lot of D300s or [indiscernible]?

See, hard to predict future we will take the future at this time.

Sure. I mean, can we take 2,000 GPUs per annum as a least case for next 3 years?

See, we never make any forward-looking predictions. So actually, let's wait for us to kind of our plans and then inform like everyone at the same time, that like what's the plan going forward with regard to the increased CapEx and deployment, et cetera.

We have the next question from the line of Bhavya Gandhi from Bajaj Alterative Investments.

First question is regarding what sort of debt levels you're comfortable with? And anything on the INR 1,500 crore enabling resolution for the fund raise that you've taken? And second question is regarding what is the international revenue mix? And what is the contracted revenue as a percentage of overall revenue, yes? Those are the 2 questions.

I think like from a capital deployment perspective, like, obviously, we'll keep elements informed in case like there is any future equity real. So regarding basically like I think it's also a function of like our own ability to repay the debt more than anything else. So there is no mantlimit of like what can be the debt. Of course, there are like a covenant from lenders with regards to like what you can do take this point of time or not. Now there was another question related to -- can you repeat the third question that you had?

Sure, if you can -- yes, yes. Perfect. But what levels you'll be comfortable as a business like?

We are very comfortable with debt as we have the ability to repay like an upper limit defined rotate like we can't go beyond this on debt or anything like that. So as long as antitax flow support if we are profitable there.

Right. I was asking you about the international revenue mix and how much is the contracted revenue in the overall revenue pie.

I'd like Nitin answer the numbers related questions.

Yes. Tarun, 1 more question regarding the asset-light model, if at you are evaluating? And if you can highlight what is your view on that before we go to basically - yes.

This is where AI like this would be a like master amount of build-out -- now in AI, we do play, make essentially, we are not able to like any kind of like capital deployment that can essentially helped us at our technology adoption forward.

Sure, sure, sure. Okay. And if you can then - Nitin can answer the balance questions, yes.

So in terms of the international revenue, which ranges from roughly around 20% to 25% of the revenue for the quarter is coming from the international customer.

And contracted revenue as a percentage of the overall revenue?

I think mix of long term versus the short term. Currently, our size is small to sharing up point-in-time information. And these numbers will change dramatically

That also applies to international numbers. So on percentage numbers we are looking at in the previous quarter, like or quarter-on-quarter numbers, like essentially are not like really trackable metrics like they are subject to like within is what I would like as is.

Got it. But just as a 100 if 100 is the total revenue, what would be the contracted revenue that you'll be targeting just to get a flavor of annuity business.

There is no specific target in our mind. I think it's more of a tactical question, which needs to be answered in multiple steps, which we kind of make changing. So there are just so many decisions on what the -- so where you can't like really say that like whether you will target like a particular pricing as it impacted revenue. So that's not an FX number in mind today.

We have the next question from the line of Tushar Donde from Sanghi Family Office.

Congratulations on the good execution. Two questions. I guess first question was answered partially that was on pricing. The other of the second question -- first question was on the utilization. What sort of utilization levels we are in and what sort utilization we plan to target, that's first. And second one on the TR platform that we have, I wanted to understand how is the customer engagement we are having in the TR platform? And what sort of competitive intensity are we seeing in this particular space? Like are there global cloud operators having similar of things, and we compete with them or we have a good product offering, which is easily adaptable to the customer.

Okay. So that's a lot of questions. So I wasn't remember the last one. So from platform I would like to think that might be signal like whatever we are building over here in India is like world-class and can be globally adopted. That's like I would like to think. Now the proof of the pudding is in eating. So basically like the platform, obviously, the success of the platform shows up over a period of time, like over the medium term. So very, very hard to kind of like say that, oh, this is like better than next mile today. It's a moving target, right? So as the field of AI advances very rapidly, we need to like keeping up business technology and keep improvement things like whatever is the latest thinking in terms of like how our customers are going to the -- and I think that not lead to the eventual platform as a product success. So I think that the jury for that should held like the medium term, that's what I would like to think. Again, from a utilization standpoint, I think it's a point in time number, shouldn't really matter. Like what really matters is that at an aggregate level would be realization on the entire set of assets. rather than like slicing and dicing and looking at like, okay, this has produced exclusively produced by and so on. So like the of revenue within like an overall platform and widely very between 1 customer to another customer. So some customers will pay for some will value or they would pay for it. So essentially, like what I believe is that like utilization while it is a good metric to track assets which can produce very consistent set of average revenue. In case of the technology product, I think the variation is too high to say that like utilization is the right metric. So somewhere, we feel that the better metric over there is the overall realization across the entire fleet rather than looking at like the utilization metrics in terms of either the hours Porselecross the fleet or what number of GPUs were like items and so on. Like I mean Sure. We are using like our GP for like a lot of what is more immediate revenue requirement, but that was required for needing of our products. I hope I'm able to get this across.

We have our next question from the line of Hitesh from Nuvam Research.

I have 2 questions. So sir, how do you see it to be evolving in the next 18 months in terms of product offering and service offerings? And second question is, are you seeing any demand from global system integrators who are looking after our products for influence because their clients must be demanding for enterprise transformation. They must be demanding the GP services, right?

Okay. So 1 way to answer that question is that, look, we are very small. So we do see like all sorts of us, but like today, it's not really possible to client set of customers we have because, again, very very point in time, wherever we want based of the DPUs that we have, -- so like are we talking to GSI I'm not sure that like that part of like our overall sales coverage where there beneath team obviously sticking to the side. So what can we say about is over 18 months. I think that's a long time. So basically, like, I think, like the strategy is flexible in terms of that, like keep building technology that people want to adopt and keep pushing the envelope in terms of like efficiency of our technologies, which lowers the overall cost of ownership for our end customers and kind of like keep building things that people value, so that's the overall strategy over there and keep having like a great team that can kind of like implement the strategy. So that's as simple as that.