Thank you so much. Good morning everyone.

I welcome you all to Aeroflex Industries Limited Q3 FY26 earnings call. Joining us today are members of our senior management team along with representatives from Strategic Growth Advisors who's our investor relations partner.

I hope that you've had the opportunity to review our financial results and the investor presentation which is available on the stock exchange and also on the company's website. I'm pleased to report that in the last quarter which is Q3 FY26, it was another strong quarter for us which was marked by our highest-ever quarterly revenue, our highest-ever EBITDA and PAT.

This performance was driven by our continued focus on value-added products and our expansion into new and high-growth applications which includes products for data centers and AI infrastructure. Despite the tariff-related headwinds, our quarterly export business grew 30% on a Y-o-Y basis which reflects the strong customer stickiness and our execution capabilities.

Overall, we delivered an EBITDA margin of 23.5% which reflects the scalability of our business and also the benefits from an improved product mix. We added 1 million meters of hose capacity in this month which takes our total installed capacity to 17.5 million meters per annum.

The balance 2.5 million meters will be commissioned in a phased manner and is expected to be completed by Q2 of the next financial year. During the quarter, we achieved several important operational and strategic milestones.

A key strategic highlight for the quarter was our entry into the high-performance liquid cooling solutions for data centers. We completed the first commercial dispatch of the advanced flow control components and skid assemblies for the liquid cooling application.

To support the rising demand that we are witnessing, we are expanding our skid assembly capacity to 15,000 units per annum and the same is expected to be completed by June 2026. This expansion is fully aligned with the growing opportunities that we see in the global data center and the AI infrastructure space.

To strengthen our skid assembly operations, we're also setting up a new plant at Chakan in Pune. This facility will act as a supportive unit to augment the production capacity at our existing plant.

Also, we continue to strengthen the production of our assemblies section and during the quarter we added six new assembly stations, thereby increasing the total number of assembly stations to 46. As part of our ongoing focus towards efficient capital allocation and based on the updated market assessment and the phased demand visibility and also on optimization of our internal resources and capital, we have decided to rationalize the capital expenditure for the miniature metal bellows project from the earlier planned outlay of ₹23 crore to ₹10.5 crore.

Accordingly, the proposed installed capacity for this particular project would be revised from 240,000 pieces per annum to about 60,000 pieces per annum. This would be sufficient to meet the near-term demand for the miniature metal bellows, while it also allows us to scale up in a phased manner as the volume increases.

The lower upfront investment also helps us to reduce the project gestation risk and also enables faster payback. The balance funds will be utilized towards other ongoing expansion projects where we feel we have the demand visibility and also our execution timelines would become stronger.

The ongoing investments in the process automation which includes both robotic and automated welding stations and an annealing plant are progressing as planned and with a targeted completion by the end of this calendar year. These initiatives are aimed at improving the throughput and also enhancing consistency and helping us to penetrate into mission-critical business segments.

Our subsidiary, Hyd-Air, generated revenues of ₹8.5 crore in this quarter as compared to approximately ₹2.9 crore in the same quarter in the previous year. We expect Hyd-Air's contribution to continue scaling over the next few quarters.

Now to talk about our financial performance. In Q3, our total income stood at ₹121 crore, which is a growth of 21% on a Y-o-Y basis.

Our EBITDA stood at ₹28.5 crore, which is 28% on a growth on a Y-o-Y basis and our EBITDA margin stood at 23.6%. Our PAT stood at ₹16.5 crore, which grew at 8% on a Y-o-Y basis with a PAT margin of 13.5%.

Our cash PAT increased to ₹22.75 crore which reflects a strong cash generation and operating performance. For the 9 months, our total income stood at ₹317 crore.

Our EBITDA was 70. ₹70.5 crore with a margin of 22.2%.

Our PAT stood at almost ₹38 crore with a margin of approximately 12%. On a 9-month basis, our contribution of the value-added products which includes assemblies, fittings, bellows and skid assemblies now contribute 54% of our total sales.

The outlook for the remaining quarter of this financial year is very good. We are supported by our healthy order book, strong customer relationships and increasing penetration in global data center and AI infrastructure market.

With a strong cash-generated business model, with our deep engineering capabilities and a high focus on value-added solutions and products, we are poised to sustain our growth momentum and deliver long-term share value to our shareholders. Thank you, everyone, for joining today's earning call, and we will now open the floor up for questions.

Thanks a lot.

Hello, sir. Can you hear me?

Yes, I can hear you.

Sir, congratulation on good set of numbers. I have few questions.

My first question is with respect to the liquid cooling skid systems. As we have a exclusive agreement with a US-based company, I think.

I just want to understand two things. Are we going to pay some royalty to them or is it like a revenue share model between the both of the company?

On the unit economics, if you can explain the unit economics of this liquid cooling skid system, that will be helpful.

In this, there is no royalty that we pay to them. It's the normal buyer-seller transaction.

Although we have signed an agreement with them for exclusivity for the next five years. This is for just the India market.

It does not include the overseas market. That is answer to your first question.

With regards to your second question, in terms of the unit economics, we receive the orders from them and then we accordingly manufacture the products and then supply to them. That's how the entire business model works.

I just want to understand, but now I think the capacity with respect to this is 2,000 cases, and you are expanding it to 15,000 cases

Yeah, and Assemblies,

yeah. Assemblies, yeah.

The capex for this was around ₹100 crore, and you said you can do ₹300 to ₹350 crore of revenue at peak utilization. If my understanding is right, your per piece realization is around ₹3 lakh.

The capex is less than 100 crore, just to clarify that.

Okay. Understood, sir.

When I come to the realization, your realization is around ₹3 lakh per piece at peak utilization. Correct.

Yeah.

Is my understanding correct?

That's assuming an 80% capacity utilization, yeah. Yeah.

That's what.

Yeah. Now I just want to understand let's say there is a data center that needs to be constructed.

Let's say it's ₹100 crore worth of data center project. How much out of that will be your liquid cooling systems skid?

I just want to understand the total addressable market with respect to this particular business.

Obviously it depends a lot on the entire layout of the project, where it is being built, what is the megawatt of the project, how many floors, and how much is the space, because ultimately liquid cooling also depends on how much megawatt is being put on a particular piece of land, if I may say so. Also it varies from operator to operator.

For example, a data center built by X would have a different design for liquid cooling as compared to a data center built by say Y or a data center built by Z, because each one wants to have their own proprietary technology for this particular investment. I can tell you about the global market size for the liquid cooling.

Right now, the global market size as it stands currently, is about almost close to $3 billion, right, and it is growing at an CAGR of about 33% every year. I'm talking about the international market, right?

Now that is poised to increase to about $21 billion over the next 6 to 7 years, right. That is the market size of the total liquid cooling.

Then

you can actually divide that by the data center market, you'll get an idea about how much is the liquid cooling market as compared to the total data center market.

Understood, sir. Sir, with respect to Hyd-Air, what's our current capacity utilization, and are we planning to have any further capex with respect to this?

Yeah. Hyd-Air actually works on our CNC machine.

We are in the process of increasing our capacity in Hyd-Air as well. The same is poised to be announced very soon.

Right now, as per the number of pieces, we are running at about 70-odd percent capacity utilization. Obviously we plan to add a few more machines and a few more new machines which will help us to increase our capacity on our existing machines as well.

With that we expect Hyd-Air to grow over the next year or so. Hyd-Air capex is planned soon.

I'll be able to share the numbers in due course of time. Sir,

initially in previous calls you mentioned that Hyd-Air at the optimum capacity can do ₹45 to ₹50 crore of annual revenue. Is my understanding correct?

Yes, that's correct.

Okay. Sir, my final question is with respect to exports.

What percentage of your total revenue is exports and if you can bifurcate the export, where it comes from, how much is USA, how much is EU, and will the current FTA signing with EU and UK be beneficially for you in terms of growing your exports all over?

Right now, about 74% of our total business comes from exports. Out of that almost 90%, 85% to 90% comes from the EU and the USA.

If I talk about EU and USA combined, they contribute around 85% of our overall exports business. Definitely with the FTA which was announced a couple of days back, definitely we are going to see over the next couple of years higher attraction coming in from the EU sector.

If you see this quarter itself, our total exports have grown by about 30%. Out of that EU was a major contributor in that.

Obviously in the last quarter there was no FTA, but we strongly feel that with this FTA being signed and obviously it'll come into operations in the next few quarters, we definitely feel that it's going to be a big boost for us. Also considering the fact that it will also make our products even more competitive in the EU market, especially in terms of competition from players or manufacturers based out of Turkey who are getting duty-free material to be exported to EU.

That would be very beneficial to us as well. Yes, definitely the EU would be the I would say the strong growth area for us in the near future.

Understood, sir. Sir, just a follow-up, 85% to 90%, can you just give a split with respect to only EU and only USA, if possible?

The EU right now is about 30%, and the USA is about 55%. Thank you, sir.

I'll join back in the queue. Thank you so much.

Good morning, sir. Am I audible?

Yes.

Sir, just my first question was a follow-up on the previous participant. More than the quarterly revenue, I'm interested in the 9-monthly revenue.

Exports has kind of been weak this 9-months financial year ended. Primarily we've seen growth from the domestic market.

Correct me if I'm wrong.

Yeah. Right?

Sir. Please go ahead.

In that, if I look at Europe and America, I feel Europe has been flat. I think it was say ₹59 crore last year versus ₹60 crore this year in terms of 9 months.

America was ₹129 crore last year and ₹136 crore this year, approximately a 5% kind of a growth, which is approximately 55%, 60% of our business. If you could just share some highlights in terms of last quarter we spoke that not a single customer has cancelled the orders.

Probably they are deferring them. Are we supposed to be a spillover in Q4?

Is Q4 supposed to be very strong for us or is a lot of more pessimism in the American market for the entire year? Just wanted to understand your thoughts on what's the on-ground situation there.

Okay. Thank you so much for the question.

Just wanted to update to you. If you see our Q1 results, right, we had a very I would say a very bad Q1 numbers.

Because of that you see that our 9-months numbers are still don't appear as good as what they are. It is because of a very I would say a very bad Q1.

That's why if you see the growth, even after 30% of growth in these particular markets, on a 9-month basis, our growth is still in the single digit. Obviously things nowadays change on every quarter to quarter, right.

Now we're seeing that there's strong demand that we're seeing from the export market. Obviously the US market, like I mentioned, we did not have any order cancellations.

Now we are starting to receive repeat orders coming in from our existing customers. The only issue that we are facing in terms of the tariffs is obviously getting new customers and new OEMs on board, which is taking a lot more time because of this tariffs.

Our existing customers are continues to place order to us because right now they don't have any alternate supplier. With regards to the EU, like I mentioned also in a couple of my previous earnings call, we felt that the EU would be a strong market for us in the near future.

That is what we are seeing in the EU market, that over the next I think few quarters, we expect the business from EU to increase. Obviously this FTA, once it is implemented, would definitely be a booster for us in terms of our business to the EU.

Yes, domestic market over the 9 months has grown. The international market has grown lesser than that.

I would say that the kind of disruption that we had in international market was much more as compared to the domestic market where we did not have anything. You also have to see the growth in terms of the challenges that they have been facing.

I would say despite that, I think the last quarter has been extremely good for us. We expect the same to happen in the current quarter which is ongoing and also in the next financial year as well.

Sir,

just a follow-up before I ask my second question. Domestic, as you rightly said, we've been doing well.

Can you highlight a certain areas where we've done well? Are we competing with whom?

What are we doing? Are we gaining new customers?

Are we gaining more wallet share with an existing customer? As earlier, you used to give some kind of an end-user industry mix.

I think for this quarter it's not been given. Just wanted to request that if you could just stay a bit consistent with the disclosures so that it's easier for us to track the performance as well.

If you could just highlight in domestic, where are we doing well in the end-user industry mix? Where are we seeing more traction, more growth?

Because that's been a phenomenal 9 months for us in the domestic market.

Yeah. In the domestic market, we've seen the two major industries where we've seen significant uptick.

One is the steel industry that we have seen good demand coming in. We've seen it from the ports and terminal industry where we're seeing significant uptick in orders from various ports and terminals for our various products.

These are the two industries in the domestic sector. There are smaller industries with regards to construction and food and all, but the most prominent ones are the ports and terminals and steel.

Specifically talking about Hyd-Air, over there we are seeing a very good traction coming in from the railways industry. These are the three major industries where we are seeing strong traction coming in.

Also I asked if we have gained new customers or increased wallet share in existing customers in domestic market.

Both. Like I mentioned, we already had customers in the steel industry and ports and terminals, we have gained more business from them.

Second, we have also entered into new ports where we did not have our presence earlier. In terms of the steel industry, there's no major new customer, but the major new customers have come in in ports and terminals and in the chemical industry.

Got it, sir. My second question is just a bit on the planned pipeline of capex which we've had.

If you could firstly just bifurcate the capex that we've done in this financial year up till date in hoses, in bellows, in the liquid data cooling solutions, and versus the cash we have on the books including the amount that we recently raised. Also, if you could just help me understand the kind of capacity utilization we are on especially in the hose side.

At what level are we seeing this, I think we are very confident on that demand growing strongly. How are we seeing that growth forward in the domestic and the export market?

At whatever capacity utilization we are envisaging to be in the next two quarters for the next financial year. Just the last question would be on the liquid cooling solutions, if I understand correctly, we are using bellows capacity as a feedstock, a skid is a mixture of multiple components, as if I'm correct to understand it.

What kind of margins are we going to see? Because I think bellows was supposed to drive our margins upward, being a niche product.

You've given kind of a ₹3 lakh average revenue per piece. What kind of margins do we see, given the exclusivity we have with the US partner?

Okay. There were a lot of questions,

yeah.

I would like to

I think we'll break it up. You cash, capacity Yeah.

I think I'll just break up. First we'll do on the cash and the capacity front and post that unit economics.

Just to update, we have not yet received the fund from the preferential allotment because we received the in-principle approval from stock exchanges in this week itself. Most likely in the upcoming week, we would be receiving the money and allotting or getting the funds from the preferential allotment.

That is to clarify on one point. Second point with regards to the total capex that we have done across the entire spectrum in this 9 months which is in the current financial year is approximately ₹36 crore.

That is spread across various the hose business, the liquid cooling. Obviously the major investment in the liquid cooling would start now, because initially what we did, like you mentioned, is we utilized some of the machines from the bellows plant and then we bought some of the other machines to kickstart the project in the first phase.

Now since we're expanding or planning a bigger expansion in capacity, we are going to now invest significantly in the liquid cooling space. That was that.

In terms of obviously anything else that I'm missed out from your question? Sir,

what is our cash in hand right now as on date?

As of 31st of December, it was approximately about ₹20 crore as cash in bank. Okay.

Sir,

in your presentation you've written assemblies, you've added some six assembly stations. I think you said for 9 months you've spent around ₹36 crore.

Can you bifurcate into hoses, bellows, assemblies, and cooling solutions?

Okay. In terms of assemblies is part of the hoses because that's just one part of the project.

I'll just give you the broad numbers. Approximately till 31st of December, we have invested approximately ₹9 crore for the liquid cooling.

These all data are as of 31st of December. For the bellows, it is around ₹5 crore.

This is for the 9 months I'm talking about. For the hoses and for assemblies and for assembly stations and the welding, all of that is about ₹22 crore.

This is for the 9 months.

Right. For the next months, what was the planned capex amount?

First, obviously the remaining capex to be done for the hoses division. Then as we had announced in last month that we are going to increase capacity for skid assemblies.

The capex would go into that. The third one would be for the annealing plant along with the automated and robotic assemblies that is required along with the annealing plant for a specific projects that we have from a couple of our customers.

What would be the amounts?

Those amounts have already been given in the last board meeting. I would suggest you could refer to that, because the overall capex including working capital and all that we have planned is around 90 ₹97 crore.

That includes working capital and capex. Right.

Sir, I'm aware of that number.

Just wanted to understand what would be a peak debt with all the capex being done next year.

Peak debt?

I'm assuming that we are taking part of

There is no debt. We have not taken any debt.

No, sir. As on date, I know.

I'm saying that right now we have raised the money to fund our capex. Post that, we will be taking a little bit of internal accruals and some part of debt to the second line of capex for the liquid data cooling solutions.

Just want to understand what would be our debt number at that

As of now, we don't plan to raise any debt as of now. In case we require in the future for any short-term, I think that would be decided at that time.

As of now, we don't plan to take on any debt.

Got it. Sir, this last question, in terms of the unit economics for that liquid data cooling solutions, what would be the margin profile for this?

I think I mentioned this probably in my last earnings call as well. Since right now we have a exclusive contract with this US customer, it would not be possible for me to give a specific number of margin on this business obviously due to confidentiality reasons.

Along with this particular business, I think we expect our overall margins to remain as expected or, as we have mentioned in the range of 23% to 25% over the next couple of years. Because right now this particular business is dedicated for one customer.

I hope you understand that it's not possible for me to openly share the margins on a public forum.

Sure, sir. Thank you so much.

I have a few more questions. I'll get back in queue.

Thank you so much.

No worries.

Yeah. Hi.

Just from a slightly longer-horizon perspective, now at what sales level is your metal bellow quarterly sales level or annual sales level in FY26 and utilization? For the capacity that you've put, in which year do you see the peak utilization and the peak revenue on the current capacity?

Same way on the skid, the liquid skid assembly side, this 15,000 unit and this ₹350 crore of revenue, which is the year or the quarter when we start seeing the peak utilization of this piece?

Okay. The metal bellows right now is at an annual run rate of ₹12 crore as of now.

We expect this to increase to about ₹36 crore the run rate in the next few quarters. Obviously, being very honest, it is a little behind our schedule.

We expected it to be much faster. I think I just mentioned before a couple of questions back in terms of the US market, right?

We expected a big business to come of metal bellows from the US market, but because of this tariff the timelines have slightly gone up. We also participated in an exhibition recently and we saw a very good lead generation from that.

We expect the bellows business to achieve a run rate of ₹36 crore over the next few quarters. With regards to the peak utilization, I think we expect the bellows plant to achieve the peak utilization in about two 2 years' time from now.

Which is ₹100 crore, right?

Yeah, ₹100 crore.

Peak,

actually 85 ₹85 ₹85 to ₹90 crore.

So 2 years, which means it will go in FY28 or FY29 basically. FY FY20

I think it'll be by the end of FY28 and start of FY29. I'm

writing FY29 for safety purpose, metal bellow. Then the liquid cooling?

Liquid cooling, with the capex that we have planned and we should expect the liquid cooling peak utilization should be achieved in I would say 2 and a 1/2 years, 2 to 2 and a 1/2 years.

Peak of about ₹350 crore

Yeah.

in FY29 again.

Yeah, '29.

What are the margins in liquid cooling and margins in bellow, GP and the operating margin?

I just spoke regarding the margins for liquid cooling. I mentioned that not possible for me to share because

we

are right now dealing with this one customer. On a public forum, I cannot share the exact margins.

Okay. Directionally are they better or inferior to the existing margins that you have in hoses?

No, in terms of the hoses, they are better than the margin in the hoses. They are almost in line with the margins that we have of assemblies.

Margins are better than hoses and in line with assemblies. Okay.

Yeah.

Okay. Done, sir.

Lastly on the hoses side now, you have a capacity on ground, and then you had these challenges. I don't think that the international challenges have rectified in terms of the tariff and etc.

How do you see the growth in the hose side?

When I talk about hoses, I, I, we have to talk about both hoses and hose assemblies because

Correct. Hose, yeah, yeah.

Correct. Hose and hose assembly.

If you see this the last quarter was, we had very good sales in the international market, and if you see over a 9 months, yes, over a 9 months, the sales might be the growth might be in single digit, but obviously there were the Q1 like I mentioned was, very modest for us and hence the overall numbers look not as strong as, what they actually are. In terms of the outlook, I think with the with this FTA, I think I think you'll see increased business coming in from the EU because over the last three 3 years almost, I think we had more or less, flat sales or or, very minimum, growth in sales from the EU from the EU region.

I think over the next 1 year, I think, and hopefully with this FTA, being implemented very soon, we'll see a higher business coming in from the EU market. US market from the existing customer, point is strong.

Obviously, like I mentioned, with the new customers, there are still some challenges with especially with regards to this tariffs. Hoping that, if the tariffs also get resolved soon, we'll see a significant uptick also, coming in from the US market, which continues to remain our biggest market, still.

Okay. Thank you very much, sir.

Thank you so much.

Hello, sir. Am I audible?

Yes, you're audible.

Sir, I have two questions, both regarding our liquid cooling secondary fluid network solutions. One, if our SFN systems are not available, would customers need to redesign their entire cooling system or can they substitute components without major changes?

The second question is, can the SFN liquid cooling solutions and technologies be adapted beyond data centers? For example, electric vehicle engine cooling or semiconductor direct chip cooling, etc.

Something like that, sir.

If I have understood your question correctly, first question is, if SFN components are not there, then will the liquid cooling work? Is that correct, the first question?

No, sir. If our systems are not available, can the customer have to redesign their entire cooling system or simply can they substitute our components with the competitor's products?

As of now, we are one of the first movers in this space in India in terms of the components. As of now, if we are not providing the system or there is delay from our end, the only option available to the customers would be to import it.

As of now, the customer does not have much option. What was the second question that you said?

Sir, can these technologies, SFN, be adapted beyond data centers? For example, to electric vehicle engine cooling or semiconductor direct chip coolings, some other applications, sir?

What we are providing is basically a cooling or a flow solution. Ultimately it is used for cooling.

Right now, it is used for cooling data centers, but actually it can be used for cooling any other kind of system or any other kind of application, because ultimately it's a flow control. You can actually change the design of the flow control and instead of, say, cooling data centers, you can cool tomorrow, say, a large machinery or, say, a semiconductor plant.

Specifically the machines that we have that we have already installed and are also in the pipeline to install, they are not specifically meant for just for data centers. I'm just saying tomorrow if just for any reason the entire data center industry collapses, we can still use our machines to manufacture the flow control for other HVAC industries.

Okay. Fine, sir.

Thank you so much.

Thank you so much. Thank you.

Hi, thank you for the opportunity. Just I wanted to go through the peak revenues for each division.

We have the current four to five divisions, right? First is the hose and assembly business, then there's metal bellows, there's miniature metal bellows, liquid cooling, and then there's Hyd-Air.

Peak revenues for each of the divisions, if you could give me the numbers.

Okay. With regards to the liquid cooling, I think already just a couple of questions back, ₹300, yeah, ₹300 to ₹350 crore at the peak utilization.

In terms of the hose and the hose assemblies business, at the peak utilization of a capacity of 20 million, we would reach, and considering if 70% of the sales comes from the assemblies, we're expecting a turnover of between ₹650 to ₹675. In terms of the bellows, as I said already, around ₹85 crore as peak utilization.

Hyd-Air as of the capacity right now is about ₹45 crore based on the current capacity.

Okay. Metal bellows is for both, miniature as well, right?

Yeah. Miniature, so as I mentioned in my speech, we are redeploying some of the capital from miniature metal bellows to the other project.

Miniature metal bellows right now, yeah, the peak utilization would be about ₹8-9 crore.

Okay. All right.

That's

Overall, if you see, it would be somewhere about close to, I think more than ₹1,000 crore over the next 3 years that we expect to generate.

Right. Yeah.

That was helpful. Yeah.

Thank you, sir.

Thank you so much. Thank you.

Yeah. Thanks for the opportunity.

Am I audible?

Yes, you're audible. My

first question is on the liquid cooling adoption. Given that many US data centers still use air cooling, what makes you confident that liquid cooling will scale immediately despite being more expensive upfront?

What are the key triggers that will drive this shift? That's my first question.

Sorry, if I've heard you correctly, you're saying that what makes the shift from air cooling to liquid cooling. Am I right?

Correct.

Correct. Okay.

A lot of the old data centers or the data centers which are up and running for many years, right, they were in the traditional air cooling system. Now the reason for them being on the air cooling is because the capacity of those data centers were actually very small and liquid cooling as a technology was not developed, I would say, 4-5 years back.

Now because liquid cooling and also with the chip capacities increasing, we have the chips we can compute much more power. If the chips are using much more power, they need much more cooling and at a faster pace.

Hence, if you do through air cooling, the running and the recurring cost of air cooling is huge. Obviously for any data center, especially at a large scale to be viable, the recurring costs has to be lesser.

Hence, obviously the technology of liquid cooling has evolved or was invented. Now for all the new data centers that are coming up, 99% of them are coming up with liquid cooling only in some form or the other.

The reason is because the liquid cooling, the initial investment is higher, but the recurring cost is significantly lower.

Okay.

Hope I was able to answer your question.

Yeah. On the similar lines, for the next question, what is the typical lifespan of this liquid cooling solution when it is deployed in a data center, and what would drive the replacement demand?

Obviously, in terms of the lifecycle, I think it can stay for at least minimum 4 to 5 years without much repairs. Obviously if there are some component or some part of the system which gets damaged or which needs to be changed, I think that can be changed easily with the current liquid cooling systems that we're developing.

Say for example if a part of the line there is some damage, we have built the system in such a way that we can actually bypass that particular line for a short period of time, replace the part and then again bring it on the line. We have designed it in a way that the replacement becomes very quick.

Okay. The replacement demand will be driven by wear and

Yes.

Okay. Just wanted to follow up on this.

That whether it was wear and tear or

technological upgrade? I'm actually not able to hear you, I'm sorry.

You said?

I said key the replacement demand will be driven by wear and tear or technological upgrade? That's just last question.

I'm so sorry. I think there's some noise in the back.

I'm really sorry. I'm not able to hear you, I'm sorry.

Okay.

We can take the next one, yeah.

Hi. Thank you for the opportunity, and congrats on good set of numbers.

I was just going through the investor presentation of last quarter versus current quarter. If I look at our capacity addition plans, there's a delay across all our categories like hoses, assemblies, as well as bellows.

Specifically for bellows, if I look at metal bellows, the capacity addition plan was 120,000 to 3 lakh units. For miniature bellows, it was 240,000 units.

Now that has been curtailed significantly to 60,000 units. For metal bellows, it's 120,000 units.

Just wanted to understand this significant curtailment it looks like. Just wanted to wrap my head around this.

What's the particular reason behind this?

Yeah. To clarify on a few points, first is the expansion of metal bellows from 120,000 to 3 lakh was part of the phase two.

If you see in the last presentation, the phase two was as informed in my previous calls also, that we would only start work on phase two once phase one is up to an optimum capacity utilization. That was anyways planned for a later time, first of all, that.

Second of all, as I mentioned in my speech as well, we have reduced our capital expenditure in miniature metal bellows from about ₹23.5 crore to about from ₹23 crore to about ₹10.5 crore. Obviously with that reduction, there will obviously be reduction in the capacity.

The reason is that as per the demand that we're seeing from the international market for miniature metal bellows, we feel that the first phase, it's better for us to deploy lesser capital, get the ball rolling, and then over a period of time, as we see demand picking up, then putting in more capital. The idea of for us is that we want to deploy our capital, we've seen over the past 3 to 4 months that we want to deploy now our capital to the area where we feel that we are seeing a significant demand coming in.

We want to redeploy our capital to those areas where we're seeing the demand as of right now as compared to investing in capital where we see demand coming in maybe 1 or 2 years down the line. That is the strategy that we have.

It also helps us to in a faster payback. It also helps us to make money faster.

That's the business call that we have taken.

Understood. That's really helpful.

Thank you and all the very best.

Thank you. Thank you so much.

Hi, sir. Hi.

Thanks for the opportunity. Sir, I just wanted to ask your liquid cooling skid solutions In the previous call you mentioned that they are part of your domestic revenue and not export revenue.

Yes.

Yeah. Just wanted to ask Are we exporting these skid assemblies mostly to your customer and then they are bringing in back assembling all the stuff and then bringing it back or are you just providing them in the country itself?

No, no. We are not exporting any skid assemblies.

All the skid assemblies that we are manufacturing or the orders that we have received for the skid assembly is for the India market only. Right now, as of now, there is no export, and it is just for the India market as I speak right now.

Maybe 6 months down the line, we may start with exports. As of now, there is nothing as in there is no export of skid assemblies.

Okay. You're supplying your customer domestically and not

domestically, yeah. Domestically, yeah.

Yeah. Sir,

what is the current visibility in the liquid cooling space, for the next 1 year, 2 years, if you could give an idea about that?

The next 1-2 years is obviously we are doing the capex for the skid assemblies based on what visibility that we have been given by our partner, and accordingly, we are deploying the capex for that. If you talk about the immediate business, right now we have a pipeline of about ₹45 crore that we already have, which is planned for dispatches as per the schedule given by our partner.

That is the immediate plan that we have. Yes, our entire capex for the skid assembly is based on the projections and the discussions that we've had with our partner.

We are actually doing the capex based on the demand forecast that has been given by our partner.

Sir, the ₹350 crore number and the peak utilization, when do you expect that to be done?

'29. FY29, like I mentioned earlier.

Sure. Thank you.

Thank you so much.

Hello? Hello?

Hello.

Can you just speak up a bit? Am I audible now?

Little bit, but you can go ahead with your question. I'll let you know if I'm not able to hear you.

Okay.

For now, I have got my all answers which has been raised by the other companies. For now, my question is so are there any plans to expand into new global markets beyond the US and current export destinations where we can diversify our demand and also I had one question Sorry,

you're saying diversify beyond the US. Is that correct?

Beyond the US. That we could diversify our demand for the product.

Okay. Okay.

Yeah. Also my second question is Yeah.

Go ahead with your second question, and then I'll answer.

Yeah. My second question is with stainless steel as a key raw material, how are you managing raw material price volatility and its impact on margins?

Because it's quite high, right?

Okay. All right.

To answer your first question, diversifying the risk beyond US, if you see this financial year specifically, we have focused a lot on the domestic market, and that we have also seen in terms of the numbers. Also if you see the skid assemblies, right, right now the entire plan is for the sales in the India market.

That also kind of de-risks ourselves from the risk of USA. Saying that despite I think USA is right now our biggest market as of today.

It continues to be so. We are focusing on Europe also, because Europe especially now with this FTA being announced and it would soon come into force as well, I think we'll see a lot of business coming in from the EU as well.

That is one part of de-risking ourselves from USA. With regards to raw material, specifically in case of our orders, we do back-to-back raw material planning.

We do long-term contracts with our suppliers, specifically for our major raw materials, which is the thing in terms of the hoses, it's the stainless steel wire and the stainless steel coil. We do back-to-back.

Obviously if there is significant volatility in the raw material prices, then it affects the margins slightly. I think right now we've not seen it as yet.

The volatility was there a couple of years back when there was significant uptick and then obviously a significant downward trend in the raw material prices. Over the last couple of years, I think it's more or less stable with minor fluctuations.

Yeah.

With the tension of orders from the US sir, clearly we have the tension that we are not getting new orders from there. Will that impact our margin in FY25 or in future after 25, because still our penetration is high in the US?

Sorry, I didn't get your question. Can you just repeat your question again?

My question is we have seen that we are not getting new orders from the US, but still our retention is good, right?

I mentioned that we are getting the repeat business from our existing customers. The new customers, yes, we're facing some delays in onboarding new customers obviously because of the situation of the tariffs, because

Sir, I got that. We are getting repeat orders.

That is fine. Still our market share is high in US.

For next quarter or for next year, will our revenue get impacted because we are not getting new orders? I understand we have a retention of the older customers.

I was not able to hear you, the question,

There is some disturbance at your backend. Because of that we are not able to hear your question correctly.

That's why.

Hi, thank you for this opportunity and amazing results. Given the fact that we have a tariff of 50% and we took a price hit of 8%, how do you see in this backdrop our margins for the next one or two quarters like Q4 and Q1 of next year?

I would still maintain that we look at our margins from a long-term perspective, right. A couple of years back our margin was around 21 20% to 21%.

Our aim is over the next couple of years to have our margins at up to 25%, right. Obviously some quarters would be good, some quarters might not be good.

As you would have seen from our Q1 was not so good and Q3 is I would still say Q3 is good, not say very good, but I think Q3 is good. We expect the margins to continue to grow in the next quarters and in the next year.

The target would be to achieve a margin, an EBITDA margin of 25% over the next couple of years.

No, I'm just a little curious here and I would appreciate if you elaborate this more. Even with the tariff impact, you're saying that we would still maintain a margin of 22% to 23% and with a 8% price hit, am I hearing it right?

Yeah. What happened is when we gave a discount to our customers, right, we also worked internally with our engineering team, with our production team, with our R&D team and to also optimize on our costs.

Because the reason is that in terms of when we gave out the discount to our customers, we also need to work internally how to ensure that this discount directly does not impact our bottom line immediately. We worked internally with our teams to optimize our costs.

We also worked with our vendors, right, to ask them to bear also some of the costs or some of the price that we had passed on, right. It was a joint effort from the entire team and also from our supply chain partners to help us to reduce the impact of the discount that we had given.

Hopefully the tariffs would go away soon and then our margins would be much better. The reduction in the price sometimes actually makes you more agile, right, because then you work doubly hard to optimize your cost and to optimize your supply chain as well.

This is fantastic, because what I can infer from this is that when things get normalized and we hope they get very soon, we could actually see a 400-500 basis points increase of margins, right? In that case, because one, we have done internal engineering to make ourselves more efficient and two, we have an external environment support.

Yeah. I would not be able to give you the exact number, but yes, definitely if the tariffs go away, our margins would be much higher than what it is right now.

Okay.

Not able to give a specific number, obviously, yeah.

No, I appreciate it. I totally get the sensitivity of it.

Just from a different angle, because we are an exclusive player to one of the biggest US multinational company and I'm sure they have a huge Asia APAC segment in which they are functioning. How big would India be in the whole APAC for them?

Just to understand how big the size could be?

You are talking about specifically for the liquid cooling or for their entire business?

For the liquid cooling. For the liquid cooling, I'm assuming this kind of an effort by this multinational company is made across APAC.

How big is India for them in the liquid cooling in the whole APAC?

Right. It's difficult for me to answer on their behalf because I don't know their APAC numbers, I don't know their exact India numbers.

How big is liquid cooling as compared to their APAC, difficult to give you a number. What I can say is that their India team is working as literally day and night with us to obviously it was first to start the first dispatches and now to increase the capacity.

I think they want to make India as the second hub for their worldwide supply. Right now the Indian team is obviously focused on the supplies in India, but whatever discussion that we have had, their ultimate long-term goal is to make the India entity as a global supplier for skid assemblies over the next, I would say 3 to 4 years' time.

Specifically on numbers I would not have, because this company is a multibillion-dollar company. I don't know their APAC numbers and obviously they are into a huge number of businesses.

Liquid cooling is a part of their overall business. They're into multiple, multiple different businesses.

Exact numbers, I'm afraid I would not have it.

No, true. I totally get that part.

One last question from my end, it could be very specific question. If you see the breakup, there's a significant traction in your assembly segment for the 9 months.

We have crossed close to 52%. How do you see this traction going forward?

I think this traction is only going to increase. I think the assemblies as part of our overall sales is only going to increase, because the entire focus of the company for us, for the entire team, is to increase the sales of assemblies because that's the future that we see.

When I talk about assemblies, right, when I talk about assemblies, I'm just leaving the skid assemblies aside for the time being. In assemblies, the main raw material is basically hose and braid.

For us, if we increase the sales of assemblies, we are actually increasing our production of hose braid also, because ultimately hose braid is a part of the assembly. The focus for the entire team is to increase the sales of the assemblies.

Wow. If I can just squeeze one last question.

You said that what you've done for the liquid coolants can be also used in other sectors, which I'm trying to say that it is a change in design in a hose, and if I understand it very superficially. What stops other players to come into it if it is just a change of a design?

Or is there something which makes us more stickier to the client?

Whatever the design of the skid assemblies that we have developed jointly with our partner. Our partner has worked with us and we have worked with them to jointly develop this entire system, right.

The expertise lie in the design, in the R&D, and in the engineering. Then obviously on the shop floor level, the expertise lies in conversion of the design into an actual finished product which will be utilized at the customer's end.

See, I would say anyone can start any business at any time, right. That never stops anybody, right.

The thing is, first of all, you need to have the expertise to do that. Second of all, you need to have that kind of a customer also, say for example if tomorrow, say, I'm just giving example randomly, say if Amazon is having data center or if some other company is setting up its data center, right, you need to have those kind of customers also with you so that you can actually give them that solution.

Your access to those customers is also very important. We have built this engineering and the skills of the entire flow control over a period of the last 15-20 years.

We know what exactly are the issues that you'll face when you are controlling the flow of any kind of a liquid in an entire cooling system. Because we have a few proprietary software that we work with where the simulation actually shows that in case of the flow being increased at this particular level, you'll actually have a breakage or damage in this particular area.

These kind of expertise and skills, they are developed over a period of time. It is difficult for anyone to replicate in a very short period of time.

That's why you'll see that that's the moat that we have in this business right now.

Thank you so much everyone for your questions. I think there were a couple of people who I was not able to hear their questions, I would request them to probably send their questions to the SGA team and we'll arrange to reply to you at the earliest.

If I'm not able to answer anyone else's question as well, just request you to get in touch with SGA and we could answer your queries or we could schedule a meeting as well. Thank you so much, everyone.

Thank you.