Aequs (NSE:AEQUS) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Q2 FY 'twenty seven Earnings Conference Call of Aequs Limited. As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. I now hand the conference over to Mr. Manav Paul from E and Y. Thank you, and over to you, Mr. Manav. Thank you. Good evening to all the participants on the call, and thank you for joining in. We welcome you to the Q2 and H1 FY 'twenty seven earnings call of Aequs Limited. Before we proceed, let me remind you that this discussion may contain certain forward looking statements that may involve known or unknown uncertainties and other factors.

0:52 These statements should be viewed together with our business risks, which may lead to actual results and performance, deferring materially from what is expressed or implied. To take us through the results and answer your questions today, we have the management of Aequs Limited, represented by Mr. Arjun Maligiri, Executive Chairman and CEO Mr. Rajiv Kaul, Co Founder and Managing Director Ms. Reena Joseph, Chief Financial Officer and Mr. Harish Bang, Deputy Chief Financial Officer. We will start the call with a brief overview of the previous quarter and then conduct a Q and A session. With that said, I'll now hand over the call to Arvind sir. Thank you, Mana. Good evening, everyone.

1:38 Thank you for joining us. At AEQUS, we always believed in building manufacturing capability in India means more than adding capacity. It means bringing together the engineering, the processes, the partnerships needed to deliver increasingly complex work for our global customers. First half of twenty twenty seven has taken that ambition forward with a growing business, deeper customer relationships and longer term programs that give us real substance to the platform we are building. Today, I will talk about three things, how the business has performed in the first half, where we stand in the consumer and the long term commitments we are building in aerospace. Raju will take you through the operations and Reena will take you through the financials. Let me start with the numbers. In the first half, consolidated revenue grew by 50% year on year to thousand and 46,000,000.

2:31 Aerospace grew 42%, the consumer revenue has more than doubled. Aerospace continued to deliver strong growth and profitability supported by the healthy demand and program execution. In consumer, our customer programs continue to progress, but Q2 volumes ramp was slower than what we had anticipated. The customer qualifications took longer and supply chain constraints affected our utilization. We see this as a shift in the timing, not a change in underlying opportunity. Given these factors, we are recalibrating our path to the consumer EBITDA breakeven, which we had earlier indicated that it will be for Q4 twenty twenty seven. The near term focus is clear, improved utilization that turn the capacity we have already installed into profitable growth. That focus also shapes us how we invest.

3:18 With much of our consumer capacity already in place, we will face our investments in line with our ramp with our customer schedules. Turning to aerospace. The most significant development has been the growth growing depth and duration of our customer commitments. Our order book reached USD 1,100,000,000, dollars up 9% this quarter, alongside further expansion of our portfolio. That gives us a long term revenue visibility across the long cycle aerospace programs. After the quarter ended, we signed a new long term agreements with and expand the relationship with six Haffron entities. They broaden our scope across critical aerospace components drawing on the capabilities we already built at Bell Bavi and they include landing gear to track for our upcoming Hosor ecosystem.

4:13 First key milestone was undertaken with a groundbreaking kick start, the development of the infrastructure. Hosur takes the integrated model into its next chapter. At Balogavi, we have built an ecosystem centered on aerostructures at Hosur on a two fifty acre SCC and TTS site would be extending their capabilities to manufacture aero engine landing gear components. This is not just a bigger footprint, it widens the work we can take on and value we can deliver from India end to end. We are winning programs faster than we had planned and those wins need investments either of the revenue they generate. So we will keep investing behind the demand in aerospace while staying disciplined how we deploy our capital across other businesses.

5:00 Looking ahead, aerospace remains on track for the year and the focus across the business is converting progress in our customer programs into sustained production and stronger earnings. The direction we are pursuing is clear, deepen our participation in global programs, bring more of the manufacturing value chain to India and build operating consistency that turns capability into the lasting customer relationship. I would like also to welcome Reena Joseph, who has joined us as a Chief Financial Officer. Reena brings in nearly two decades of experience across the corporate finance, capital markets, M and A and investor relationship. We're glad to have her part of team and her experience will be instrumental as we build our next phase of Aequs growth. With that, I will hand over to Raju Kaul, the Co Founder and Managing Director.

5:48 Thank you, Arvind, and good evening, everyone. The strength of our platform lies in how our capabilities come together. Being integrated allows us to take on more complex work and serve a greater share of our customer requirements. Our focus is on turning that capability into consistent delivery. So let me take you through what it looked like in both the business this quarter. Let me start with Aerospace. Our portfolio keeps widening. We added two thirty eight parts in the quarter, up 4% sequentially, taking us to 5,978 products. Every new part items our engagement with the customer. And as these programs move through qualification and into production, the relationship deepens. We are also adding capacity to keep pace with our customer requirements.

6:35 In the quarter, we added nine CNC machines taking us to two twenty nine machines and 2,120,000 annualized machining hours. Even with that new capacity, aerospace utilization was 69%, up 8% year on year and 76% in India. So the capacity we had is being put to work. At Hosu, we are building on the Belugave blueprint and extended ingot alongside forging, machining, heat treat and surface treatment plant and ingot to be the processing, ring rolling and testing in lab facilities to be developed by AEQUS and our joint venture partner. On our indicative roadmap, the first phase of investment begins with Q4 FY twenty twenty seven and commercial production starts in FY twenty twenty nine.

7:22 Let me take let me turn to our consumer business and to the guidance we gave that consumer would turn EBITDA positive by Q4. First is consumer electronics. The consumer electronic unit is a new facility that began operating less than a year ago. Our programs are qualified. Our product updates still go through a qualification cycle, although a shorter one. In Q2, that cycle took longer than we expected because it involved process modification and building new capabilities within the facility. That is part of the learning curve for any new facility and cycle times are improving as our process continues. Our focus is on completing this capability, build up and moving into consistent production. Toys. In toys, Q2 was a quarter of the customer transition. Volumes from an existing customer were phasing off by we ramped up our business in metal, our new key customer.

8:14 Scaling up metal involved developing new products to their specification and then ramping up production, which naturally takes time. Volumes in the quarter were also held back by supply chain constraints, mainly certain components of shortages on select products and weather related logistic disruption. Our focus now is on completing the ramp up and scaling the metal business. In summary, when we set the Q4 milestone, we assumed the charter in the quarter at our new facility and faster knowledge transfer as we ramped up new products and customers. The direction has been right, our processes are maturing and our customer relationships are deepening, but the ramp has taken longer than we expected and raw material shortages in toys has slowed it further. We are therefore recalibrating the milestone Rather than give you a new date today, we want to take the time to work through the scenarios, particularly the pace of the learning curve in Kajurla Khan and the volume ramp up in metal and toys. To be clear, the fundamentals on which we build this business plan have not changed. What has changed is the pace. We remain confident in the trajectory and we'll keep you updated on our progress.

9:24 So in aerospace, the job is to take on a greater share of our customer manufacturing requirements. In consumer, it is to move our customer programs into higher volume production. In both, we bring the same engineering led approach, combining capabilities, strengthening partnerships and building for the long term. With that, I hand over to Riva Gulam, our CFO. Thank you, Rajiv, and good evening, everyone. I will take you through our financial performance for Q2 and H1 FY twenty twenty seven, the key drivers of segment and consolidated profitability and our approach to capital allocation as we continue to scale our operations. Starting with revenue, consolidated revenue grew 45% year on year to 4,091 million in Q2 with sequential growth of 3%.

10:11 H1 revenue grew 8,046 million, up 50% year on year. Growth was led by Aerospace, which contributed 86% of our revenue in Q2 and 84% in H1, alongside with continued ramp up of our consumer business. Turning to our segment. Aerospace delivered another strong quarter. Q2 grew by 44% year on year to 3,005 and $14,000,000 and 9% sequentially. Segment EBITDA increased 24% to $783,000,000 at a margin of approximately 22%. For H1, Aerospace revenue grew 42% year on year, while segment EBITDA grew 29%.

10:58 This performance reflects healthy demand across our program and consistent execution. Improving capacity utilization in Aerospace, driven mainly by India operations, continue to support operating leverage as we absorb the capacity we have built. Our consumer business continued to scale. Q2 revenue grew 52% year on year to INR $577,000,000 and H1 revenue more than doubled to INR $1,311,000,000 from INR $632,000,000 last year. Segment EBITDA was a loss of INR $4.00 1,000,000 in Q2 compared with a loss of INR 77,000,000 in Q2 FY 'twenty six and a loss of INR $763,000,000 in H1 compared with $151,000,000 last year.

11:47 Two factors explain this movement. First, following the commencement of commercial operations, the operating cost of our new consumer capacity are now being expensed, whereas the corresponding costs in the previous year were preoperative in nature. Second, the business incurred costs associated with the introduction of new product variants, along with higher headcount to support the ramp up. As volumes build, improving utilization and cost absorption remain the key levers for the segment's profitability. Coming to consolidated profitability, Q2 reported EBITDA stood at INR $245,000,000 with a margin of 6% compared to 16% in Q2 last year. The year on year change is driven by the consumer business for the reasons I just outlined.

12:36 And the two figures are therefore not directly comparable. Sequentially, EBITDA rose 14% and margins improved to 6% from 5% in Q1, partly supported by other income, which increased from INR 67,000,000 to INR 106,000,000, reflecting ForEx movement. For H1, reported EBITDA was INR $460,000,000 compared to INR $841,000,000 last year, with the margin of 6%, again 16% in H1. Beyond the consumer ramp up, materials consumption increased due to aerospace product mix, employee cost rose with headcount additions in consumer and other expenses increased on account of higher subcontracted labor and consumables. Other income was also lower year on year, reflecting ForEx movements again.

13:25 Our joint ventures continue to deliver stable margins and cash flows. Including a proportionate JV share, Q2 revenue stood at INR 4,480 million, up 44% year on year, with EBITDA of INR $331,000,000 at a margin of 7%. For H1, including our EBITDA including the share of our JV revenues reached INR 8,781 million, up 48% with EBITDA of INR $638,000,000 at a margin of seven percent. The JV EBITDA contribution grew 47% year on year in H1. The JVs are central to our integrated ecosystem, which allows us to manage the full value chain from forging and processing to machining and final assembly.

14:14 At the bottom line, Q2 net loss stood at Rs. $522,000,000, broadly stable compared to INR $532,000,000 in Q1. H1 net losses was $1,054,000,000 compared with INR 167,000,000 last year. Besides the lower EBITDA, the year on year movement reflects higher depreciation of INR $347,000,000 due to preoperative expenses in the previous year on account of our consumer assets and increase in our tax expenses of INR 135,000,000, mainly on account of current tax provisions in our profitable aerospace operations in India and higher finance cost of INR 37,000,000, driven by interest on term loans. In Q2, finance cost increased versus Q1, mainly on account of ForEx impact on borrowings.

15:05 Turning to balance sheet. Total assets stood at INR 27,007 and 39,000,000 at the end of H1 compared with INR 26,905 million at March end, reflecting a continued investment across our operations. Receivables increased by INR $341,000,000 in inventory by INR $1,157,000,000, both driven by aerospace growth. Net working capital days improved by fifteen days to one hundred and thirty six days in H1 FY twenty twenty seven from one hundred fifty one days March end. With receivable days reducing from sixty eight days from seventy eight days, inventory days coming down from one hundred fifty five days from one hundred sixty eight days.

15:51 This was partly offset by lower payable days of eighty seven compared to ninety six. However, working absolute working capital requirements increased to support the growing aerospace program and the ongoing consumer scale up. This is also reflected in our cash flows. However, we closed the year with a cash balance of INR $1,710,000,000. Borrowings increased by INR $1,576,000,000 to fund capacity expansion and capability enhancement across aerospace and consumer. As a result, net debt to equity stood at 0.5x compared to 0.2x at March end. H1 capital expenditure was INR $1,597,000,000, supporting our ongoing manufacturing investments.

16:42 To support our next phase of growth, the promoter group has committed an investment of Rs. 6,500 million through preferential warrants, reflecting the strong confidence in Aequs' growth plans and continued commitment to the business. The investment is intended to support our capital requirements, including development of the Bursur Aerospace ecosystem, capacity expansion, strategic joint venture investments and working capital requirements. With Rupees 3,250 million payable upfront upon allotment, which is 50% of the total preferential amount and much higher than the required minimum 25% limit. And the balance, which is actually payable within eighteen months is actually going to be paid by end of December next year.

17:28 This infusion will complement our internal approvals and debt financing, strengthening our equity base and providing greater financial flexibility. This is an important step in supporting expansion plans while maintaining a balanced capital structure and a disciplined approach to capital deployment. I would also like to briefly update you on the proposed amalgamation of three wholly owned subsidiaries into Aequs Limited. The objective remains to simplify our group structure and improve operating efficiency. The scheme was not approved under the fast track route on technical ground, and we are evaluating the appropriate next steps. This is an internal restructuring matter and has no material impact on ongoing business operations. To conclude, our financial priorities remain closely aligned with the next phase of company's development.

18:15 As we continue to expand our manufacturing capabilities, the emphasis remains on improving operating efficiencies, strengthening cash conversion and maintaining a prudent approach to capital allocation. Our focus is on ensuring that the investments we make are aligned with business requirements and support sustainable financial performance over the long term. Thank you. I will now hand back to the moderator for questions. Thank you very much. We will now begin the question question and Participants are requested to use handsets, and also please limit your questions to two per participant.

19:00 Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Renu Bait from IFL Capital. Please go ahead. Yeah. Hi. Good evening, team. The two questions from my side. First is given that the consumer business ramp up is still sub par or below the initial expectation, Can you share update where are we in terms of the ATP portfolio yield ramp up? What's the current failure rate? And given the context of the current first half results, what is the revised guidance for the full year financial 'twenty seven for both consumer as well as aerospace with respect to revenue and EBITDA?

19:47 That's the first question. And second question is, given that we had the recent promoter equity inclusion, which was not initially outlined. So with this, does it change any external equity fund raise plan, which was planned for fiscal twenty eight, or that continues to be on card in addition to the preferential equity infusion from the promoter group that you've seen recently? Thank you. Thanks,. This is Reena here. With regards to your first question with regards to the consumer business, right, on yield and I think as mentioned, the trajectory is right. There are various factors which Rajiv outlined in his call, right, which we said that are impacting the scale up and ramp up.

20:38 Some are internal, some are external, some are just the learning curve, and there are conversations ongoing, and we will... We are recalibrating that plan. Right? Taking that into consideration, let's put it in two parts. Right? Aerospace pretty much well on track in terms of the growth plans and trajectory. And there's interesting as you can see, we have already signed two agreements during the year, which are very much in line in terms of the growth potential. With regards to the consumer business, there's a recalibration happening. So I think so give us some time and we will come back to you with regards to where we land for the year end. As I mentioned, the consumer business is where the recalibration is happening. Aerospace is pretty much on track.

21:25 With regards to your question number two, on the fundraise, Well, you rightly mentioned that, yes, we have done IPO. The IPO was done with the specific proceeds. And subsequently, I think so we have all at the same time, we have set ourselves a track trajectory, right, where we've said that there'll be capital deployment till FY 'thirty one for various requirements. And as you know, there is lot of initiatives happening, strategic initiatives happening on the aerospace side and the consumer and the entire business is growing. Taking those factors into consideration over the next twelve to eighteen months, that's where we thought it is prudent to raise capital, which is aligned with the requirement, and that's where the current fund raise comes into play.

22:15 Hope that answers your question. So just a clarification. So what I was seeking for is initially management had guided that there would be an external equity fund raise in fiscal twenty eight. Given that we have had this fund raise within a matter of six months, do you think that the '28 fund raise plan is still on track, or is that not required? And I clearly understand that in consumer business loss, funding requirements have gone up. So funding is both for aerospace as well as the consumer part of the business. So should we still anticipate Renu, this is Arvind. We see the significant capital requirement is going to be there still for our growth, what we have seen laid out in Aerospace itself.

23:04 And so because we have given overall guidance of four to 6x growth in the 2031. So that does require capital requirement. Question is that four to six times growth is going to come only with the capital requirement, whether it's consumer or aerospace. We are not deterring away from the or four to 6x the guidance of 2031. So that means that capital will be required. And as we said earlier, our aerospace is accelerating faster than what we anticipated. So we are already moving our capital towards aerospace within this year for that matter. So our '28, we still see the potential capital raise that may be required to support our overall requirement for 2031.

23:52 Sure. Got it. Thanks much team. I'll get back in the queue with follow-up. Thank you. Best wishes. Thank you. The next question is from the line of Deepa Krishnan from Kotak Institutional Equities. Maybe just on first question, just wanted to check, given that you're not giving numbers, but any what are the different scenarios that you indicated were possible for consumer? And say by the year end, what is the utilization number that you're sort of targeting? If you could highlight both of those facts as well. And maybe CapEx done in consumer to date? And do you still intend to spend that INR 500 crores given that you're going slightly slower right now? See, first is coming to the consumer utilization, we're not targeting 40% to 50%.

24:42 So that still remains there. And with respect to your Sorry. Could you repeat that? I just... I could not... Can you repeat that? I could not hear it. Sorry. Yeah. With respect to the consumer utilization, we still guide towards around 50%, the utilization of Q4. Okay. Sure. And with regards to your CapEx question, right, I think we've... We are... We're recalibrating the profitability trajectory, we're also recalibrating the CapEx deployment. Alright? And as Arjun mentioned, a larger portion of the capital outlay will be towards aerospace. There'll be some deployment towards consumer, but that is towards more enhancement of capabilities. But a larger portion will be towards aerospace for the time being.

25:32 Sure. Maybe, Rajiv, you could just highlight on the various scenarios that you were indicating for consumer and maybe just, you know, just on that, on your CapEx question, maybe you could just sort of indicate overall CapEx spend this year. And then we can take a proportion between aero and consumer. And just the aero guidance, the previous question, what is the aero revenue and EBITDA guidance you have for the year? Yes. Harish, Deepak. Your first question, of course, the overall CapEx, right? So if you see first half of the year, we have done about INR160 crores of CapEx, again, predominantly towards aerospace. And second half, we would see that the CapEx deployment would be most equal. So our initial guidance, what we had given, INR $6.60 crores, we may end up doing much lesser than that, okay? And the proportion would be equal in terms of aerospace and consumer.

26:27 Basically, will be higher aerospace as our consumer bottom line. Because our utilization was supposed to ramp up to the level, and we have no reason to deploy capital unless our utilization goes up beyond to the level where it needs capital infusion. And with respect to your question on the various scenarios you're looking for, That is what we want to take some time to come back and stop telling you these are the scenarios because we want to really evaluate all the possible scenarios and come back to what is the scenario which will go. Sure. And maybe just the Aero revenue and EBITDA guidance for the year, if that's the last question mark my end. We're on target. Sure.

27:14 Okay. Cool. Thank you. I'll get back on the queue. The next question is from the line of Aequs Singli from ICICI Securities. Sir, just first question, I would like to know that if you look at the aerospace, our revenue jump had been much higher than the EBITDA. So is the mix basically is peculiar this quarter, the mix is a little bit on the lower side? Or how should we look at it? And secondly, the $1,100,000,000 order book, the execution time line, if you could say, it would be more of a front ended or majority of it is back ended after 2930?

28:01 This would help us. Hi, Aequs. So your first question on Aerospace revenue and EBITDA. So yes, revenue grew higher and EBITDA was kind of lower than the growth of Aerospace revenue. Predominantly two things. One is the higher other income share, right, in the previous year was higher. And also this year, we have added SGA cost for our revenue growth. So again, it's more of a timing rather than any underlying change in the trajectory. And also our to a certain extent, our titanium content is increasing as a business. So whenever you do contain titanium content, typically, because material side increases.

28:48 So that also kind of contributes to a certain extent, but that's sometimes it's quarter to quarter variation that happens. Noted, sir. And on the order book execution cycle? Order book execution cycle typically, as we always keep telling, is five to seven years. There's like $1,000,000,000 whatever $1,100,000,000 whatever is it, five to seven years. There are exceptions to that. I mean, signed a fifteen year contract, but typically is a five to seven year range majority. So what exactly I wanted to know that the pick out period is on the latter half of the decade or could be next two to three years since our aerospace execution that had been higher than what we anticipated?

29:37 These are all dependent on the program ramps and customer demand. So that's how it is built. It's not later half of first half. But typically as customer forecast come ramp and also the ramp of the new product when we are introducing the new product introductions, we possibly want, the scaling up on that. Got it. And sir, just one question on the consumer segment. I know you are recalibrating your approach, but given the capacities are already in place, at what utilization levels do you think that you would be able to breakeven? We communicated about 50% is where our EBITDA breakeven point is for the business.

30:25 Actually, I wanted more on the fact side because that is where we are actually we are targeting previously, right, at the end of this year. Look, we already guided it is going to be FY 'thirty is when our bad positive from consumer is going to be. It's a longer duration because there is a significant commitment that exists already. So we need to get into... Get through that. No, sir. No, sir. That's all from my side, and all the best for future. Thank you. Participants are requested to please limit your questions to two per participant. The next question is from the line of Gaurav Nagori from Aevenders Bank. Please go ahead. Yes, thanks. Thanks for the opportunity.

31:13 The first question, again, the consumer electronics. First of all, given the utilizations have gone down in this quarter from 22% to 17%. So in your last ten months of running this plant and the experience from that, what is the real bottleneck because of which you are not able to take the utilization to be around 25 to 30%? If you can be more qualitative in terms of any processes where which is a real bottleneck or it's the changes from the customer on the version or the qualification from thereof or any other reason if you can be more specific on that? That's number one. And number two, would there be any pressure, let's say, the OEM who would want you to ramp up this capacity sooner? And if you are not able to leading to, let's say, any material business impact if you are not able to take up the utilizations to beyond 50% in a certain timeline?

32:19 Let me you let me split it with two parts. First part is based on the utilization coming down. So utilization coming down for the consumer has to impact on the two. One is consumer electronics, as I mentioned. There's a product update happening, which also has to go through the product qualification cycle. We assumed shorter timeframe, but it took longer timeframe. And also it was coupled with the we had also bring some in house capability in house. So that was the first part on consumer electronics. Second is we faced a disruption in the supply chain in the toys segment. Certain product components which are supposed to come got delayed from the supply chain constraint. And along with it, there was a weather logistic disruption due to the weather in which material got delayed. So these are the two impacts, basically, which resulted in the lower utilization than what we did in the previous quarter.

33:16 With respect to your second question now, whether the customer requirements customer demands are still there, okay? And customer is currently working with us to improve the overall utilization and everything. So I do not see currently any impact resulting from whether it's getting delayed has impact from the customer right now moving out and all those things from the demand perspective. So they are still working with us continuously to get increase of utilization. Does it answer your question? Yes, understood. Thanks for that. And secondly, on the Aerospace segment, the recent orders that you have got from Safran, I'm assuming that you need to work on the qualification for those new programs.

34:06 It's not part of the order book. Is that understanding Some of the qualifications we have, some of them are new capabilities, what we need to be building and several of them are going to be built in Hosul. So they're more of a starting, I would say, commercialization in FY 2029. So it's a journey, what we call as we have worked Understood. On And secondly, a question on this Hosur facility. Is it land constrained in the Bilga because of which you thought of keeping this capacity in Hosur? And because you have the two joint venture partners for forging and surface treatment respectively in Belgaon. So would they also be putting up those capacities in the Khosur? How would that work?

34:56 Yes. Currently, our goal is basically replicate what we have here, more focused in Hasur, including our joint venture partnership and expanded capabilities to support the engine and landing gear. Understood. Understood. Got it. Thanks for that. Thank you. Thank you. The next question is from the line of Aequs from Nohama Institutional Equities. Please go ahead. Thanks for the opportunity. Just one on the the toys piece. While we said in the opening remarks that the ramp for the older customer is southward, and we are ramping up production and utilization for the newer customer. What would be the inflection point wherein the old customer goes down to zero, and we offset that with the ramp northwards from the newer customer. So just wanted to get a sense of how Troy's business will look like when it's at its the only customer that would matter in terms of utilization going forward?

36:10 Based on the current decision of the existing customer, we expect within this quarter, coming quarter phasing out and we're completing all the deliveries at this point. Those are the discussions. And also at the same time, the metal is also going to increase in this quarter itself, but it will also start scaling up and increasing this quarter. Basically, third quarter onwards, we will largely see matters revenues completely in toys space, right? Fourth quarter almost completely. Fourth quarter. Got it. Got it. Understood. That's it for me. Thank you. Thanks. Thank you. The next question is from the line of Priyankar Biswas from GM Financial. Please go ahead.

37:00 Thanks, sir, for the opportunity. My first question is, again, on the consumer side of things. So what I want to understand is at what consumer sales level, let's say, in rupee million terms, that you can probably achieve, let's say, an EBITDA breakeven. So I am trying to more understand the unit economics. Like, what is the extent of fixed or semi fixed costs that are there in the cost mix? So like ballpark what level of sales we should target to get to EBITDA breakeven? We need to I mean, because consumer is a combination of our toys and a couple of products few products we have in our consumer electronics side, we look at more of each of these pieces separately.

37:56 And on a consolidated basis, the revenue, we don't really have not evaluated that. Maybe we'll have to come back to separately on that. Maybe we should connect with Harish to get that one. Okay. That's understood. So if differently, let's say, for the consumer losses today, how much would you attribute, let's say, percentage number would also work, let's say. How much would it attribute to, let's say, the ATP and how much would you, let's say, attribute to twice? Just try to work that around. From the scale of investment perspective, this majority is attributable to the ATP. Okay. I'll suggest another thing like there is some inventory buildup that has happened both in 1Q and 2Q. So I understand some of it is due to the disruptions that are taking place due to the West Asia crisis and otherwise.

38:54 So when can we expect this large inventory levels to unwind? So is there some timeline that we should be looking at? If you really look at it, we said last quarter because of we have been more careful in bringing in the material earlier, especially on the aerospace, we had done that. And typically, when we do this, we place order for typically for three to four quarters out. And anything which we have to unwind, it is it's always like a six months to nine months affair for us. So we should see somewhere Q1 of next year time frame more normalizing.

39:41 But also at the same time, we are growing at 50%. So more FAIs, our first article. So we'll have to bring in. So I think we'll end up maintaining as we guided about one hundred and twenty days is what we want to shoot at, and that's where we ought to be around in and around that number. So sir, just harping on this issue. So I remember that earlier there were issues regarding air freight like availability of debit card where those which has impacted us. So is there is those issues largely sorted like availability of mean, that new normal has come up. That's what I would say. The increased period of the logistics and everything?

40:26 There is some cost increases and all those have happened, but new norm has come. That's what I would say more than anything else. Okay. That's broadly from my side. Thank you. The next question is from the line of Sanitya from Unicorn Assets. Please go ahead. Hi. So first question on the consumer business. So am audible? Yes. Yeah. Good evening,. So first, on the consumer segment. So just want you to understand that how are we taking it the best set, like, were indicating in last con calls as well. And even to the previous participants, you have said that we are taking up time to get ahead in the learning curve with and actually exploring up ways how to actually improve the utilization level.

41:19 So if I see on the cycle part that you were saying of the new approvals which are shorter in time, but they have to be taken whenever there's a change in the product line or something. So isn't that something that would happen regularly on... As in when the original... I mean, our plan to... When we are supplying to will change its product categories or specifications. Isn't that something that will happen time to time, and shouldn't it have already been known to us, and we should have been calibrated afterwards accordingly? Yeah. That would be the first one. See...

42:04 Yeah. The first one, typically what happens is as you keep building the manufacturing as you're getting into the learning curve, this cycle basically gets shortened over a period of time and everything. And we assume shorter period of learning curve in this one. At the same time, we have to bring one more in house capability along with it. So both combined had an impact in this one. So it was over this one that we'll be able to achieve that shorter period of time. But over a period, basically as we go, as you said, you also said rightly, products will keep going new products will keep coming in. It keeps improving. The knowledge keeps improving, learning curve keeps improving. We get used to that learning curve and everything.

42:52 That's the part of the cycle. That is why we told that we want to recalibrate at this point in time and come back to you with the full assessment how we will take it for this various values after evaluating all the scenarios. Okay. That helps. More elaborately, if I will... I want to discuss on the consumer business only. So if my understanding is right, then the original OEM wants us to be using the... Or rather they want to be slowly progressing towards the additive technology or the three d printing part. How do we see ourselves based on that? And is that the one technique in in house technique that you're describing earlier? Look.

43:39 With the customers, we kind of define the scope of what are we going to do. If that certain capabilities we have defined that we will do, we'll end up doing that. And within there, we'll... There is a learning curve, we'll do that. A new capability has a different activity. Something which we are not doing today, if we are to do again, it's a different business case for us. You know, every time we add a new capability, it's a business case that has to be passing through. Otherwise, we we don't get into that. You know? Yeah. But... Sorry. But I I was looking for answer towards the additive technology part. Are we looking to get into that? And I think that is the major portion and... Or that is where the our customer is slowly progressing and ultimately shifting the entire portfolio that we have right now with us.

44:26 Do you look at that? Yeah. We don't believe so. I mean, we we we we are comfortable with what we are, where we are. We are not looking to add three d printing capabilities, and that is not something which is we are focused on. And also, could you share that the material that we are using for the consumer electronics, is it more towards aluminum or is it more towards titanium? I can't talk about that at this stage. No worries. Thank you. Thank you. The next question is from the line of Jotig Gupta from Ashika Group. Please go ahead. Good evening, sir. My question is, correct me if I'm wrong, that typically, A320neo titanium pyelone program, which involves machining, requires approximately one twenty tons of titanium annually.

45:19 What is the current annual titanium procurement and consumption run rate? How much of this would relate to the A320, A320neo program versus other Airbus and Boeing programs? And what incremental titanium demand should we expect as aircraft production rates ramp up? Also, if I understand... If my understanding is correct, the recently announced Safran contracts include super alloy machining, so which should not be confused with, you know, titanium consumption. That is part one. And part two of my question is that, you know, the aerospace EBITDA grow... Has grown material... Has grown materially slower than revenue.

46:05 How much does this reflect as an unfavorable program mix, new facility ramp up, lower absorption of pricing pressure? I know you've answered that in many ways, but I still feel that... I mean, it... It's still not answered because 86% of your revenue is actually aerospace. So, ideally, any, you know, setback from consumer electronics should not have a material impact on your EBITDA, but it's actually reflecting on the numbers. So could you clarify these two questions, please? I will take up the aerospace titanium. Look, I mean, we have, I would say, more than 1,000 parts, most probably we do the titanium, if not more.

46:54 I don't know, like, that segregation. So whatever we do, pile on components is one set of parts, know, a few 100 of that. So total, I can't disclose the total titanium buyers. I would say, most probably we are one of the largest titanium buyers in the country, that much I can say. And we continue to add the material or the the parts with the titanium into the programs. It's not just three twenty neo. It's it's every program, you know, whether it be a 787 or Airbus programs, we have the name components in there. Regards to super alloy machining, Inconel, predominantly it's Inconel and some other super alloys and several of the products that we have signed up, we already do the Inconel machining here in the current location.

47:52 But facility is going to be more focused on the titanium and super alloys and steels, what we call hard metal classification, which are more focused on the engines and landing gears. That's what is the focus going to be because the surface treatment of that is going to be quite different than what we do here in Balsami. So that's the distinction I want to give you. And regarding the profitability impact of the consumer in the overall EBITDA, the percentage of revenue versus capital, it goes back to the capital deployment or capital deployment in consumer today is as much as our aerospace. So that reflects on the resources and because of the scale what we are looking to do in consumer is a deployment. That is what is reflected in the EBITDA loss more than anything else.

48:46 And aerospace continue to perform. We are long term contract, there is no pricing pressure because it's a long term contract. Our materials are passed through. So we don't see that as an issue. And as Harish mentioned earlier, Rina mentioned in our briefing, we're investing in SG and A because we are scaling. Look, there are not many companies out there at our base growing 5040%, 50% in aerospace growth. So that means there is a front end investment, SG and A investment, program management, all those needs to be strengthened. At the same time, we are adding more capabilities. So they all come with the expense. So but we're able to manage the growth, and that's why you see that impact. And that's what it is. Believe it's the right investment for the long.

49:34 Is this the titanium that you're using, is it sponge or recycled titanium? I mean, just It's not a sponge. Every titanium is done through the sponge. It's a process. The sponge is taken and processed and it's mostly titanium, aerospace grade titanium, different grades of aerospace grade titanium, whether be the engine, be it the it's a 6A or 4U most of the time. That's what it is. Okay. So obviously, you expect any further increase in consumption because would be a pass through and should not impact your margins? No, it should not. Next question is from the line of Suraj Malu from Catmirhan.

50:25 Hello, sir. Can you help me understand like what are the steps that are taken to expedite the qualification in consumer electronics segment? I think it's not a qualification issue. Qualification has happened. I mean, the products keeps changing So every we are to qualify every time. Cycles we are shortening the cycles. So if it takes longer, we lose some ability to ship to the customers. That's what happens. So is every year we end up qualifying product because products come every year new, some variation of it. So the current product qualification that we have gone through the proposed the current upgrade, do we see that ramping up? Or is there a possibility of like again after a quarter or two, we see more updates coming on? No, typically one year process. We run one year and next qualification happens. Sometimes it runs two years.

51:25 Products are qualified, there is no issue of qualification. Okay. Thank you. Thank you. The next question is from the line of Amitajit Yadav from KJMC Capital Market Services. Please please go ahead. Good evening. Thank you for the opportunity. I have a two part question. The first is on consumer business. Is it a delay or structural profitability issue? Revenue has declined sequentially, while EBITDA loss has actually widened to INR 40.1 crores. How much of this loss actually reflects the temporary qualification and supply constraints? Was it how much of that is from recurring operating cost?

52:11 And what will be the quarterly revenue and utilization required for a breakeven? And how much additional cash will this segment consume before reaching that? My second part is on is on aerospace. With the aerospace order book being at US $1,100,000,000 and the Safran agreement signed, how much do you think the revenue is expected over FY 'twenty seven and 'twenty nine? And how much of the $6.50 crores funding that has been allocated will go towards the capacity and working capital need to execute these kinds of orders? So I'll take the first one. With respect to consumer loss widening from INR $361,000,000 to INR $4.00 1,000,000.

52:59 So the INR 40,000,000 increase in the loss came on INR 151,000,000 fall in consumer revenue, right? So revenue from INR $734,000,000 to $577,000,000 from quarter one to quarter two. Most of the consumer cost base including depreciation, plant overheads and workforce, etcetera, is already in place. So it's fixed in the short term. Volumes dropped and losses, think that's the important thing what to address here. Because other things are like temporary. I mean, those are more timing, supply chain reception, qualification cycles and stuff like that. And what about the aerospace order book, so can you give more clarity on that? Aerospace order book, actually, as I explained earlier, this $1,100,000,000 the timeline is around five to seven years.

53:52 So that is our but again it comes on the base from the customer demands and everything. So each year that's how it progresses. But typical life of this $1,100,000,000 is averaging five to seven years. So can you just give a ballpark number for revenue expected over twenty seven to twenty nine FY? We have guided 2031, That's we stand by that. Okay. Thank you so much. And INR $6.50 crore funding? Sorry, what was the question? So the INR $6.50 crore funding, how much of that will be allocated towards the capacity and working capital need or to execute the INR 1,100,000,000 orders?

54:45 Sure. So see, in terms of overall utilization, about INR $2.89 crores would be allocated towards the capital expenditure, which will include existing aerospace, Bellagawi, Hosur as well as some bid to consumer as well. In terms of working capital, we are allocating about 100 crores towards working capital. And then there will be another 100 crores towards JV investments and new strategic initiatives, including Belgaum as well as Khosur. Balance would be general corporate purpose. And just to clarify that we are leveraging this, this is a contribution towards the term loans. We are going to do over INR 800 crore term loans to support this for all CapEx requirements. Okay. Thank you so much, sir. I'll join back the queue.

55:32 Thank you. Ladies and gentlemen, we will take that as the last question. I now hand the conference over to management for closing comments. Thank you. Thank you for being with us today, and look forward to seeing you in next call. Thank you. Thank you. On behalf of Aequs Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.