Netweb Technologies India (NSE:NETWEB) Q1 2027 Earnings Call

0:01 Ladies and gentlemen, good day, and welcome to Netweb Technologies Q1 FY 'twenty seven Earnings Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Then zero on your touch tone phone. Please note that this conference is being recorded. I now hand the conference over to mister from ICICI Securities Limited. Thank you, and over to you, ma'am. Thank you. Good afternoon, everyone. On behalf of IT and K security, I welcome everyone to Netweb Technologies q one FY twenty seven earnings call. We have the pleasure of having with us the senior management team of Netweb Technologies led by CMD, mister Sanjay Loda full time director, mister Naveen Loda CFO, mister Ankit Kumar Singhal chief sales and strategy officer, mister Siddharikram and head of Reuters Advisors, the IR adviser for Netweb Technologies, mister Sanjay Sanjay.

1:11 So without further delay, I'd like to hand over the floor to mister Sanjay. Over to you, sir. Thank you, Seema. Good afternoon to all the participants. Before I hand over the call to mister Sanjay Loda for the opening remarks, I would like to draw your attention to the safe harbor statement in the earnings presentation. I request each one of you to go through the disclaimer in that presentation before the Q and A starts, so that you are aware of the same. Thank you and over to you Mr. Loha. Thank you, Seema and Sanjit. Good afternoon and a very warm welcome to all of you to Netweb Technologies Q1 financial year twenty seven earnings call. I'm pleased to share that Netweb Technologies delivered a record quarter achieving its highest ever quarterly revenue from operations and profits.

2:01 Our revenue from operations for the quarter stood at INR 8,197 million, reflecting a strong year on year growth of INR 172.1 percent. Profit after tax stood at $853,000,000, representing a 179.9 percent year on year growth with a FAT margin of 10.3%. The performance reflects sustained demand momentum, coupled with disciplined execution across our business. Our AI segment continues to be key growth driver, contributing 5,105,700,000, being 62% of revenue from operations and growing at a huge number of 484% year on year.

2:47 Our other two core segments, HPC and Private Cloud, maintained robust traction at INR 1,252,940,000 and INR 1,353,460,000, respectively, reinforcing the breadth and resilience of our three core pillars. Our order book stood at 25,069,350,000 as of 06/30/2026, with an L1 position of INR 8,480,470,000 and a pipeline of INR 10,401 million together providing the strong business visibility in the medium term sorry, INR million together providing a strong business visibility in the medium term.

3:39 The world and India, in particular, is witnessing unprecedented AI infrastructure build out anchored by India AI mission GPU compute initiative, indigenous sovereign foundation models and world class demand from new cloud providers and CSPs. Sovereign AI compute is no longer aspirational. It has become a strategic national imperative, creating a deep multiyear demand pipeline for high end computing system designed and manufactured within the country. As NSM 2.0 transitions into build and design in India approach and HPC adoption broadens across enterprises, indigenous design and domestic manufacturing are emerging as decisive qualification criteria. As one of the India's leading Indian origin OEM in the high end computing solutions with fully integrated design, manufacturing and deployment capabilities, we are well positioned to address this opportunity.

4:45 Our leadership across HCS portfolio reinforced by an early mover advantage in AI infrastructure continues to strengthen both our growth trajectory and our opportunity pipeline. Looking ahead, our strategy is anchored in deepening our three core verticals in HPC. We are investing in low footprint architecture, advanced interconnects and direct cooling technologies for our pre exascale and exascale systems. In private cloud and SCI, we are delivering indigenous solutions to co location providers, cloud providers and enterprise. Through Tayron Skylar, our indigenous private cloud platform, we are enabling enterprises to accelerate their hybrid cloud strategies while addressing the growing need for data localization and data sovereignty.

5:32 In AI systems, we continue to innovate across every layer of the stack from dense AI compute to advanced liquid cooling to GPU orchestration, AI workspaces of a cloud software stack, we are also developing precurated sovereign AI appliances to ready to deploy reference architecture for enterprise as well as central and state sovereign AI programs. Beyond our core, we are investing into two emerging opportunities. In physical AI, which is emerging as the next frontier for AI adoption, we are investing in R and D across physical AI and positioning our AI systems, digital twins, in house software and training simulation backbone for India's physical AI developers with a focus on defense, national security and strategic manufacturing.

6:23 In quantum computing, we have commenced R and D for quantum simulators and emulators and have started engaging with institutions, hermit hubs and startups in the ecosystem as technology partners. With sustained investment in innovation and chip agnostic design philosophy, alignment with the major India vision and strong order book and pipeline, we remain confident in our ability to deliver long term sustainable growth and create enduring value for all our stakeholders. I will now request Ankit to take you through the financials in more details. Thank you. Thank you, Mr. Loha. Good afternoon, ladies and gentlemen, and thank you for joining our earnings call. Before we open the floor for Q and A, I will provide a brief overview of the financial performance for the quarter.

7:13 I trust that by now, you have had the opportunity to review our earnings presentation and press release. While our CMD has already discussed the macro outlook, I will elaborate on the financial performance in more detail. Our revenue from operation for Q1 financial year 'twenty seven stood at INR 8,197 million, a growth of 172.1% on year on year basis. Operating EBITDA for Q1 FY 'twenty seven stood at INR $12.00 5,000,000, a growth of 169% year on year with an operating EBITDA margin of 14.7%. Profit after tax for Q1 FY 'twenty seven stood at INR $853,000,000, a growth of 179.9 year on year with a PAT margin of 10.3%.

8:05 Now I would like to throw some light on key balance sheet ratios. Return on capital employed was 48.2%, while return on equity stood at healthy 44.6. Gross fixed asset turnover ratio stood at 43.9 times as on 06/30/2026. Our cash conversion cycle as of June 30 stood at ninety six days. Receivable days improved from eighty six days in March 2026 to seventy eight days in June 2026, reflecting stronger collections. Inventory days increased from eighty six days in March to one hundred ten days in June, primarily on account of a buildup of raw material stock to secure adequate inventory of key inputs in the light of surging global demand for AI compute infrastructure.

9:01 Net debt as on 06/30/2026 stood at INR $1,999,000,000. Our growth priorities remain on track, supported by high demand for high end computing solutions, a healthy order book and a solid pipeline. We are well positioned to deliver consistent revenue and profitability growth going forward. With this, I now hand over the call back to Seema. Operator, now we can open the floor for q and a. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. The The first question is from the line of Renu Bait from IIFL Capital. Please go ahead.

10:08 Yeah. Hi. Good afternoon, team. So my first question is we have seen a very robust buildup of order book, 35,000,000,000 including l one orders. So if you can share some insights in terms of what has been the mix of orders coming in from the AI customer client, and how have we seen the ticket size of AI orders for us moving up, Average ticket size orders, it can indicate. And what type of customer client applications have you seen these orders? That's the first question. So basically, the... Thank you for your question, actually. You might have seen that basically the it has been a very, very robust quarter for us. And basically, primarily, if you see the order book, it will give you an indication around INR 2,500 crore we have on the order book already. And we have the L1 is that is almost all basically the orders which have been won and not yet received actually.

10:59 That is we call it a quasi order book. That will also around INR 800 odd So approximately, if you add both of them, it's somewhere around maybe INR 3,400 crores approximately. So that's a very, very healthy order book. And basically, as you know, our ordering cycle, our execution cycle is pretty fast actually. So that will give you an indication that basically that can give you some indication of what kind of numbers we can expect actually in this financial year. Okay, that is one. As regards to the order book mix is concerned, it is basically as guided by us, our mix is remaining the same in AI supercomputing as well as primarily on the private cloud side. So basically, it will remain that way. But basically, you can say the order book maybe around 40% to 45% should be around on the AI side of it and balance would be between the other two segments. So all the three pillars are very robust and growing very fast for us and they are very much intact actually.

11:53 So that's exactly I'd like to answer you. And sir, to support this kind of growth, do we think incrementally we might have to invest in assembly facilities or assembly facilities to ramp up capacity, so the current capacity is sufficient enough to drive 50%, 60% CAGR growth? Remi, you know that basically we are primarily not we are a capability basically driven kind of organization, not basically primarily we are driven by capacity, okay. So currently also you know that we don't do any kind of contract manufacturing or anything. The facilities which we have built up as we have told you earlier also was already built up for basically sustaining a huge turnover of INR 3,000 plus crores. So definitely, that is there. So I think at this level, we don't think we need to do any major CapEx, some is light CapEx.

12:46 It will go on and routine CapEx goes on continuously, that will still go on. But basically, I'm not guiding on any new CapEx as such recently. Sure. Sir, secondly, if you look on the working capital side for the smart improvement, which has been seen and clearly reflected from the numbers also that cash has been deployed to source materials and product inventories. So in this context, if you look at the growth expectation, how do we see the growth funding requirement for the company to drive this INR 4,000 crores of revenue and not for the next year? Renu, thanks for this. I'll take that. This is Sanjeet. So I think as you can see, the last quarter, the growth has been very high. And I think for the first time in a very long in many quarters, we've had a positive debt closing figure.

13:38 Reflecting on the growth and obviously, as Sanjay had guided already that not guided really, but L1 and the order book is significantly large for us to drive a very strong growth in the current financial year. So obviously, we will have we will invest in the company will have to invest in the working capital for growth. We do not want a situation where a very large growth looking at the pipeline is available for us to grab and we don't grab it because of the lack of capital. So obviously, we will take calls as to in what form and when we will introduce capital debt equity or any combination. But as of now, we've not found out what trajectory we go.

14:25 Sure. Thank you, sir. I have one more question if I can ask. On the competitive landscape, given that the AI deployment is growing multifold in the domestic Indian market, how have you seen the competitive environment? Has it intensified domestic foreign players or Netweb continues to have a dominant share in the space? And if you have any input on the market share, that would be helpful. Thank you. So basically, on the competition numbers sheet, actually, really speaking, you can see basically how numbers are speaking, basically 62% of revenue came from the AI tier actually. At this point of time, I'm very proud to say we are shipping the highest number of the large GPU deals we are trying to do. But primarily, as you know, we don't target the volume kind of thing. We don't do any box selling. We primarily try to focus on more and more solutions. So basically, the focus will remain intact. And basically, we are very since because of our strategic relationship with our technology providers, we are very well placed so as to handle any competition. We were earlier also placed and now also we are placed. So in this situation, we definitely have a end to end design that since we do the complete hardware, software design and manufacturing.

15:34 So that kind of offering definitely helps us to keep our competitive advantage actually. Thank you. Thank you. The next question is from the line of Divesh Mehta from Inesco India Mutual Fund. Please go ahead. Thanks for taking my question. So can you share... So there's been a new order disclosure that you have shared, which includes the strategic order. So just for comparative fee purpose, can you share either, like, what was this number, the pipeline, l one, and the order book in the last quarter, including the strategic order or perhaps extra strategic orders, are these numbers in Q1 that will help investors in terms of comparability?

16:23 That's the first question. Okay. We'll wait for the second question and then answer together. Okay. And if I'm not wrong, this quarter also has some strategic order execution, yet our margins have increased. So I want to understand what has led to this. Is it the case that because of inventory buildup, you were able to price slightly higher because we had memory chips already bought at a lower price or what drove this? I will take the first one first. So if you look at the order pipeline, which we have released this year, it is upwards of 10,000 crores. Now if last as you know, we had been guiding that we are not guiding for the strategic order and we will take it as it comes.

17:14 That was because if you look go back a year, one years, point this whole AI mission and the AI large AI orders were evolving. But as we reflect and as we have gone through this cycle for the last one year, we believe that this is something which now is as a part of a normal business. So we do not want to segregate both of them. This includes all kind of pipeline that we have with AI, whether it is HPC, etcetera, etcetera. So this is how we're going to report as we go forward. It gives better clarity to the market as to what is the overall business that we are chasing. And that's the reason we have now started to reflect the entire pipeline into our pipeline pool.

18:02 That's how it answers the first question. The second question, I will... Yes, I have one question. Basically, on the margin front, basically, I will try to answer it and then Ankit can add on that. So basically, if you really see the margins are very well within our guidance range actually. We have always been guiding to basically, it has been very stable actually. We have been always been saying that our margins will remain between 13% to 14%. And it will basically some basis point up and down is always possible because it cannot be controlled to that level actually. But still, basically, it's a very, very delighting fact that is still when the turnover and company is growing at 90%, still we are keeping our margins intact. So basically, it's very much within the guiding range. There is no question of some memory pricing or something because basically, we have the pricing power.

18:50 We price as I have been always been mentioning that we price our products very well to our customers, and we want to price our products appropriately so that we show value for money to our customer. It's not that today, if memory is sometimes scarcity is there, we increase the price, something of that nature, that's not the tendency of the company. The company has very clear mandate to basically show value of money to the customers because you see the repeat customer revenue for us is phenomenal. All customers are associated with us for many years altogether. The kind of trust and relationship which we build our customers is really very high. For that, so we have maintained that. So in that line, I will still keep on guiding as I have been guiding. If you see my if you see our reports for the last three, four years, you'll find the memory, the margin in the similar range and it will remain in the similar range.

19:37 Okay, great. So just I think in the first question, I also mentioned, if you can share the comparable number of what was the pipeline and L1 and the order book, including strategic orders in the last quarter. So at least we can compare as the pipeline grown on a like to like basis, as the L1 grown on like to like basis. That's Of course, it has grown, but I don't think we have that number handy at this point in time because we will have to then go back and turn it out. Year's last quarter's date. Last quarter, we have not given the price impact. So what he is asking about is he is saying that so our price of INR 4,400 crores without the strategic, now it is merged. So obviously, there has been growing every it's grown, but we don't have the exact number of the last quarter sitting here.

20:30 Thank you. Okay. Thank you. Thank you. The next question is from the line of Jatem Kalra from Bank of America. Please go ahead. Hi. Thanks for taking my question. Congratulations to the Netweb team. Sanjeev, my first question is around your incremental addition to your pipeline. It would be great to understand breakup of the incremental addition to the pipeline that you reported between government versus private enterprises versus some of these new cloud companies that are your customers. Which of the engine would you think is hiring the most? And is this mainly coming from your existing customers? Or do you expect to onboard any new large customers through your pipeline?

21:22 The second part to that question is, in the past, you've generally indicated that you expect to convert about 55%, 60% of your pipeline in a span of about eighteen to twenty four months. Does the current pipeline also fit in that plan? I have another one, yes, I'll first. Yes. So basically, I'd like to tell you one thing. Avoid basically because pipeline is something very, very confidential to the company because these are prospective orders, okay? And basically for competitive advantage, just do not like to disclose too much actually. That's very clear. So we should keep you should basically respect the confidentiality of the company because it serves our business interest. So basically, I will not like to disclose too much details about the pipeline because the pipeline is still a pipeline. As regards to your second question, I would like to give you very good comfort.

22:13 Basically, the factor which have been obvious in guiding that 60% conversion ratio, still I will keep on guiding that. Once you see the pipeline growing so much, still I'd like to guide you that basically 60% of this pipeline is expected to get converted. The dynamics of our own having basically in case into the pipeline remains the same actually. So I think that answers your question. Understood. Great. That very well answers it. My second question, Sanjay, is some of your existing market customers on the private cloud side, like let's say, for an example, in HCL, they have recently announced that they will also be setting up AI data centers, you know, with CapEx planned on their own books. And we have obviously, you know, heard some of these more examples coming from these larger conglomerates.

23:04 So the ecosystem in that manner appears to be expanding. Would love to hear your views on what's your go to market strategy for some of this work? Do you think they will prefer the OEM route more? Or they also have the option to go to box sellers with their own design? Where do you think they will build more is essentially what would really help us gauge that demand? You so much. So basically on specific deals I would not like to talk about, but primarily I'd like to tell you all this is very interesting times actually really speaking. You see and that has been reflected from last two quarters of the growth which my AI segment is showing actually. At this point of time, the completely in house design and basically, there was software stack and everything is adding lot of advantages.

23:51 So definitely, we have a competitive advantage while we are facing in front of a customer, and customers are recognizing that and customers are really adopting our solutions more what they were doing earlier even. So that is there. So market is basically, you know the worldwide demand of AI compute is phenomenal actually at this point of time. And as it looks like that basically for at least for next one point five to two years, it will remain the same. And basically, the most important thing which we should not ignore and which we should look into is the India demand for AI. Basically, is happening is the whole world is looking for data centers to India today. You see all the large cloud providers, everybody wants to come and set up data centers in India actually for doing their AI workload and different kind of workloads. All that works very positively for the country. And if you really see more than the compute, the data center equipment is under shortage actually. Data center equipment means the rack, the chillers and all those things, the mechanical things are getting into shortage.

24:49 So that itself is a great indicator of how this industry is growing. So basically, I think we have a very robust pipeline and all these are really good opportunities which you mentioned. Definitely, we will have our share in them. Understood. That's really helpful. Thank you so much and congratulations once again. Thank you. Thank you. The next question is from the line of Sandeep Shah from Equira Securities. Please go ahead. Yes. Thanks for the opportunity and congratulations to the whole team. So the first question, you answered that in terms of conversion of pipeline, even with the strategic order included would be closer to 60%. But whether the timeline to convert gets further extended because strategic order could be bulky deals and the decision making could be slightly slower versus normal deals?

25:47 Thank you, Satish. Basically, your question is very relevant. The tenure basically normally we used to say eighteen months, but basically it will remain eighteen to twenty four months, but not beyond that. Okay. Okay. And sir, even in this year with the robust increase in the order book, you believe 1H would still contribute 35%, 40% of the whole year revenue? Or do you believe the ratio could be more or less similar in 1H and 2H? I think yes, you answered it. Sandeep, slightly difficult to say because we're exiting some of the large orders. And you know that the difference between something falling in one quarter to the next quarter is a day. I mean, if you're trying to ask me to project on a day's decision is very difficult, but you've seen the pipeline and you've seen the L1 you've seen the L1 in order book, so I think you can decipher the full year, and I think that should be more important.

26:49 Okay. Okay. And sir, looking at the raw material prices and the memory prices, the GPU, CPU prices and the supply chain management issues because of geopolitical issues, you believe there still these things normalize, we may need to have one hundred, one hundred and ten days of inventory on a going forward basis. So, Sandeep, on the inventory days, the inventory led approach has actually acting as a hedge, not a risk, first of all. So maintaining the inventory days is actually helpful to cater the strong order book, what we have. And as far as the memory prices are concerned, so we do not see a softening in next couple of quarter or maybe year or so. So Sandeep, just to answer your question, if we obviously, it has kept us in good stead that we have been able to stock up and there is a very strong pipeline.

27:55 And obviously, we would like to maintain the inventory levels. And plus, basically, please, as I have been always been mentioning, we are our business is very predictable. Please understand that. We are not into box business. Basically, I know what's going to come. So we don't basically depend on basically, we are not reactive on our orders, okay? So we are able to advance plan very well actually. That really helps us to keep our margins intact. And these basically, these price disturbances, definitely, I will not like to say that this doesn't impact us, but we are able to handle them much more better. Fair enough. And just a last question. Globally, enterprises are also evaluating the Chinese open source models to optimize their token cost.

28:41 I do agree it is too early to predict this for the Indian enterprises, but could that lead to delaying decision making for enterprises to order AI led server? Because they may be evaluating which kind of a black belt chips to be ordering and optimizing the token cost. So any color on a medium to longer term in terms of any delay in decision making? Sandeep, just answer the question. So basically, I'll tell you that emergence of Chinese foundation players or, let's say, the other U. S. Players, I mean, the emergence is only widening the horizon of Indian foundation model landscape in the country. And there is ultimately or eventually driving the growth in the country in terms of AI systems or AI adoption. So I would say that this whole exercise, I mean, which is going on across the world, this is helping sovereign models to, first of all, build as part of the regulatory actions by the country, which is ultimately leading towards the adoption of more AI systems. So I think this is only emerging as an opportunity for us. It is nowhere acting as a threat to us. So I think we were welcoming the whatever is happening worldwide. So we are welcoming all this. And I think this is going to have a very good reflection on the Indian market as well.

30:03 Okay. Okay. And the last question, if I can squeeze. In terms of the AI, it's over in demand tailwind. We were earlier mentioning it has two legs. One, the demand coming from cloud service provider, which we have started witnessing some traction through order bills. And the second leg coming from government as a order as a customer. So whether that's a second leg also started forming part of the deal pipeline and the order I think as of now, we can only say that the pipeline that we have is a very strong pipeline. And definitely, the thing you have mentioned that the on prem procurement activities by the government. So that has already been taken care of by us in our pipeline. So answer to your question is yes.

30:56 And I think we are very well placed for both the streams of business. So whether it is coming through CSPs or for the on prem part. So I think we have taken care of it very well. So we are fully prepared to prepare for it. The next question is from the line of Vinay from Monarch Capital. Please go ahead. Yes, sir. Hi. Thank you for the opportunity, and congratulations on a great set of numbers. Just a couple of things. One is, in terms of A1 plus ARPU, the number is about 3,400 odd crores. Now typically, you have always mentioned you have given this over eight to twelve weeks. Is that the correct understanding even for now? So basically, eight to twelve weeks for the year, now we are measuring basically sixteen to twenty weeks.

31:48 So that's the kind of guidance we would like to give, but it can stretch a little bit or can be early, actually. Okay. Okay. That is very helpful. And with R and D, you have mentioned on physical AI and quantum computing, obviously, are much larger opportunities. What kind of expenditure could go here in terms of percentage of revenue? What kind of quantum are we looking at from this first question? We are not guiding on revenue at all. These are the new opportunities which we are talking about, and Hibda will answer the question. So basically, your primary question was this only that when do we see the revenue or what percentage we see coming from these two verticals. So we are very clear that we are right now not liking to basically guide about it. So I think we have entered into these two verticals with a clear thought process because these products are quite relatable and we have got some offerings, which are going to make us fit into these segments. So that means we are gearing up and we are prepared for entering into these two verticals. So that much we can disclose at this moment.

32:50 Okay. Okay. And my question is what about what kind of costs are we putting into R and D? And like if any quantum or anything which you can mention, which is anything in guidance on what kind of money is going into it, I think that will be helpful. So basically, we are not quantifying it actually, Vinayji. The thing is that, that basically, primarily, we have a huge R and D team now. Basically, around 125 people are there into the R and D team, very easily focused. So basically, these are logical extensions for product work we are trying to do actually. Physical AI is also basically very, very relevant what we are doing. So it's a logical extension. So slowly, you will see the results also and investments we cannot quantify at this point of time. Okay. And one last thing is, are you working with any Indian companies on the element side because with Chinese models coming up, do we kind of anticipate Indian model maybe in the next three, six months? And are we working with any of them on those kind of projects?

33:49 So the good part is that some of the largest players in the country, they happen to use our systems at the back end. So that much we can disclose, and we take pride in that, that we are able to build the AI backbone of the country using which these kind of players on which India is also driving their AI journey. So they are ultimately using our infra at the back end. So that much we can share with you. And I think that's how we are serving them. And in future also, we have plans to serve them in many ways. Okay. Thank you so much. Thank you for taking all the best. Thank you. Thank you. The next question is from the line of Rohit from CLSA. Please go ahead. Hi. Thank you, sir. I actually had a couple of questions.

34:37 The first on the component inflation that we are seeing in memory and other components that are going on in AI. And how does that how has that played a role in revenue acceleration for this quarter? And how has that affected both margins and working capital? So basically, as regards I cannot say that these deals doesn't impact us. But telling you very clearly, as I've been mentioning very clearly from day one that we are not reactive players. We are basically we it's a very predictable kind of company, what business we do. So we take our time basically to close the orders and all those kind of things are there. We know what is going to happen. So accordingly, we are able to plan better. Plus the direct technology relationships, which we have our technology providers, that also helps us to enter into long term contracts and to basically secure our pricing and all.

35:36 And in case any new order, which is being talked about, the pass over for the pricing definitely happens. So basically, there is very minimal impact, which company tries to take from these price increases and all those kinds of things as that is there. The second part of the And along with this, there is also a shortage shocks, which is going through the industry. So for that, we need to have definitely have to have the inventory in hand because this actually helps to do the delivery execution on the right timing. So that is why the inventory days have been deliberately been taken as a decision, not it's not a drift of increasing the inventory days. Right. So quick clarification with respect to given how memory prices have increased over the last few months, when you all would have taken a particular contract, has it kind of been a price through or you all would already have that as a back to back arrangement before you all kind of sign on a contract in order to deliver any of the offerings that you all have?

36:49 Rohit, I think we've answered this a couple of times. I don't know when you joined this call. We clearly said that this is a predictable business and the planning of what order we achieved happened long back. And for the existing orders, we already have orders in place. So there is no question of a significant change in the costing on what we are what we've got order on and what we are billing. For future, obviously, we when we bid, we bid on the basis of the current prices. So I think this is a very well established situation, and we answered this in one of the previous questions. Hope this clarifies. And plus, basically, you might have seen that our margins are not impacted actually. Had our margins got impacted, then we put the question of whether memory pricing has impacted us. So you have the testimony in front of you actually, really speaking. So that's actually very commendable because it actually shows it's not actually a simple pass through, right? Because if you're actually getting a margin, it's either kind of either constant or actually increasing despite the price increases, that's commendable and which is what I kind of got the question as to how are you able to make that happen?

37:55 Yes. But basically, I would like to again clarify that we are not overcharging our customers. We are pricing our products very, appropriately. We are not taking advantage of the situation and trying to overcharge our customer. If anybody has that intuition, kindly clear that there is nothing of that nature. Yes, yes. Because every order, every quarter's margin cannot be exactly the same. And this is not a consumer product, right? So there will be differential in margins. But what is more important is that we build our cost where we predict our business and accordingly we plan our supply chain. That's very, very important. Right. And maybe another question in terms of just the availability of some of the components, especially on the AI leg. Do you all see any risk on execution, if at all?

38:45 Have you all seen any of that in maybe not in the last quarter because you have done so well, but is that something that is a risk for the forthcoming quarters? Actually, people have got used to this scarcity actually, really speaking. The world is the scarcity is not a new thing now. We are seeing this for basically for we have been seeing it for a couple of years now. Recently, since last few quarters, the scarcity is increasing, but definitely better. That has made us much more basically, I think, much more matured so as to plan better. So if we are planning better, I think and since we have direct relationships with our technology providers, and we basically, we do manufacturing ourselves. So we are in a better supply situation than others. Hence, we are able to sustain this and sales through well.

39:34 Got it. Thanks a lot. That's all that I had and wish you guys all the best. Thank you. Thank you. The next question is from the line of Akshay from AK Investments. Please go ahead. Hi, sir. First of all, congratulations on the great set of number. Sir, my first question is, recently, we had the expense billing of 1,200 crore of QIP. So what is the rationale for 1,200 crore of QIP? No. I I don't know where you want this news for the QIP. I haven't seen anything like that. There was an enabling resolution which we took to raise capital if need be. It has a validity of twelve months. So having said that, for the growth, if at some stage we think we need to raise capital, we'll look at it.

40:23 Okay. Understood. Fair enough. And sir, my second question is about the future growth areas as for the presentation. So what are we developing in the physical AI and quantum computing? And over the when can we see some meaningful development on that front going forward? So see, thanks for the question first. So as we have clearly mentioned that these are the two areas of the product lines we are entering into. So at this point of time, we can we are at the liberty to disclose this much only. But yes, as you've seen in case of the other product lines also, so we have always been very serious and consistent about our efforts with respect to each product line. So same goes with this case also for Quantum and Physical AI. So we have started putting in our efforts, our R and D efforts and all. So I think in coming quarters, you'll start seeing the results coming. So for now, this much information can be shared with you.

41:27 The next question is from the line of Manjee Mer Singh Sethi from Sethi Capitals. Please go ahead., please go ahead. Hello. Yeah. Hi,. Yeah,. Hello, sir. So in... For last... In May of phone call, there was 600 per order strategic order as mentioned in the PPT. Can you please tell me how much of that INR 600 crore of strategic order was consumed in Q1 this year? So out of that 1,600 crore strategy order, close to INR $4.30 crore was executed in this June quarter.

42:21 Okay. And my second question is with regard to the our funding. We are fundraising 1,200 crores. Right? So will there be such more fundings going on after that? No. So first of all, we haven't raised. So there's no question of furthermore, we've taken an enabling resolution. We have a very strong growth pipeline. So if and when we need to raise capital, we'll raise capital just enabling resolution, which will which is valid for twelve months. I I think beyond this, I don't have anything to say at this point in time. Okay. Okay. Thank you, sir. That's all from my end. Thank you. The next question is from the line of Punkar from Shri Investments.

43:10 Please go ahead. So just one one clarification. First question, you said that you don't have anything to say on the enabling enabling resolution which you have taken, but at least you can tell us, like, oh, at first place why did you take that call and what it is for exactly? Yes. So I told that I gave the answer. Are if you've seen the pipeline and the order book that we have, it is possible that in order to pursue that growth, we may at some stage need capital, which form of capital, whether it will be debt or equity, we have not decided. But at that point in time, we cannot suddenly raise the resolution and take the capital. So we have taken an enabling resolution for this. At this point in time, Yes. We all Please do it. Yeah. That's it.

44:02 Yeah. But is it for additional capacity expansions? Because you have already said that it is not certain for something which you are currently doing. Then there must be some purpose for taking the enabling resolution It is for the Yes. So this is for growth capital for we will need working capital for growth. It is if any capital will raised, it be for that only, for working capital. So this is for working capital, right, if you raise anything? If we raise anything, it will be for working capital. You're right. And not for any m and a or something like that? No, no, no. Not at all. Not at all. Absolutely no. So this is only for working capital if and only if you decide to do it. Right? Yes. We will largely for working capital, no M and A, absolutely.

44:50 Okay. And like for the next... I I mean, it's too early to ask about this, but, like, whenever this strategic orders, they start to fade away, like, how do you see the... Realistically, your growth numbers? Don't think it's too early to ask or they are coming. I don't think we have guided any strategic orders separately. So I think we must have the current So there is no strategic order. Now all orders are normal orders, The strategic is a new normal. And like for how much period do you think that will be like a normal thing? We don't know. We don't know that. That's a very different question. I mean we can tell you that this order pipeline and the order book is going to serve us for two years as we said. And I mean it's very difficult beyond that sitting today to address. Obviously, we would continue to grow. We confident to be very confident on growing. Yes, absolutely. So the business discourse is also taking its own shape now. So based on that only, we have started disclosing this way.

45:56 So this strategic orders, you are saying they are the new normal ones? You already... Whatever we have to say, we have already said that. No. I'm asking just that You're asking what you already answered. Right? You're asking you're asking what you already answered. Okay. And given the governments also focus on this, how do you see this sector in the coming years? I know the huge potential, but if you can contribute something to this, it will be helpful. I think we have put up that's why we put up the industry slide and you can see the kind of growth that some of these sectors are looking at. I mean, at a very conservative level, I would say that they're talking about 38% at the national level, which is huge, which for the next three years, business four years, next four years. So there's a huge amount of headroom.

46:53 It's the market is for people to capture. Now we'll have to standardize to capture it as much as we can. This 38% CAGR for next four years, you're saying is for like the entire category you are saying? It's for the AI. For the product line. Only for the Oh, for the product line. AI. Okay. For the product lines also, the headroom is... I mean, there is a huge headroom available for the team. So we have clearly showed the figures for that as well. Just fine... Finally, if you can answer, like, currently, everything is looking... Everything is looking for only Just a small question. Sorry to interrupt. May we request that you return to the question queue for follow-up questions?

47:45 The next question is from the line of Jatin Kalra from Bank of America. Please go ahead. Hi. Thanks for the follow-up. This one is more on the bookkeeping lines to Ankit. Ankit, it does seem like that the R and D effort that you've been putting in is generally expensed in our P and L. Just wanted to understand what's the typical consideration that goes behind expensing it versus capitalizing it? Because do understand that software for us is definitely our mode. So why not capitalize it versus expensing it? Just your thoughts on the consideration. Yes. So Jatin, as you know that we have always maintained this policy of not capitalizing it because we do not want the balance sheet to have any kind of fictitious assets. So because the R and D has been expensed off since day one of the company. And this there are a lot of factors which goes in R and D. We cannot quantify it properly. But yes, there is a team of 125 people in the R and D. They continuously work on that area. Along with that, we are testing labs. There are a lot of equipment which goes into the R and D.

48:59 So all these considering that fact, we do not capitalize because the R and D evolution is very fast, and that is what we had been maintaining. So just I would just like to add here, Justin, you understand that there is a huge amount of technology upgrade, which happens every time and we continuously invest in R and D. If you start capitalizing it, the balance sheet will become bloated and at some stage, some of these R and D will convert into monetizable business, some will not. I think it's a great thing that we are not capitalizing it. Believe me, the investors love it. Everybody loves it and we want to be conservative as we are on our guidance as well. Perfect. That is really clear. Thank you so much. Thank you. The next question is from the line of Jayalakshmi Gupta from The Wealth Company.

49:52 Please go ahead. Hi, sir. Thank you for taking my question, and congratulations on good set of numbers. So I noticed that certain balance sheet numbers for your prior period has been restated. So could you explain the nature of these changes, whether they are due to accounting change policy, especially if you see net debt? And secondly, also could you help me understand the expected conversion time line of INR 104,000,000,000, the INR 1,000,000,000 pipeline, specifically what portion of that do you expect or that you expect to be converted in FY 2027 and FY 2028? On the first question regarding the balance sheet, there was a reinstatement on account of the inventory policy.

50:42 So we shifted our inventory valuation from FIFO to the moving weighted average method that is to actually get in line the proper policy of maintaining the inventory going forward. So that is there. So second part, yes? Second part, I will answer. The second part is basically I already answered that question. Whatever funnel you are seeing total, that the conversion ratio, conversion cycle for that will be around 18 to 24 And so basically, we have already given you the order book, which you can which will get converted as indicated. But we cannot guide what portion of the funnel will get converted this year and all that. That is basically but the guidance which we would like to give is, the funnel will basically conversion rate will be around 60% and the conversion time will be around eighteen to twenty four months.

51:40 Sir, and lastly, can you give a broad breakup of the of your funnel across AI system, HPC and cloud business. I basically wanted to understand that AI system share of pipeline has increased materially over the past few quarters or how is it? That's all. You're saying is right, but basically since our all of our customers are very, very integrated and all our solutions are very well integrated, so it's very difficult at this point of time to give segment wise panel. Thank you. Thank you so much. Thank you. The next question is from the line of Anuj Kashyap from A3 Capital. Please go ahead. Good afternoon, sir. Thank you for the opportunity.

52:28 Sir, my question is with the caveat. It's a little bit of forward looking in nature. Like, sir, what we are reading in detail is that that companies... First of all, it was state who was worried about their data sovereignty. Now the individual companies are also worried about their data and the legacy data which we are carrying on their systems. So then, like, now, the market is talking about small small language models or maybe something of that type. So don't you think that, like, our order book is going to go through the roof? Like, what... I'm not, like, like, putting nothing into it, but, like, future is all about, like, lot of lot of lot of of data will also increase. So don't you think, sir, like, future is all us in because I want to know from you because you are in you are in the position, like, you are in the market, so that is why.

53:19 So what we are seeing is music to our ears. No doubt about that. And more than that, I would not like to comment anything more. And sir, last time, you told that like exports are like 4% to 5% of your book of your contribution these days. And sir, what is the future, sir? Are we looking for it or our hands are quite full now? The domestic demand is phenomenal actually. Okay. And so first, the idea is to service the Indian customer. So we have that. So we'll definitely do that first. Then when we look at exports, you are seeing the growth you are seeing basically, we whatever we are guiding, we are over performing from that. So basically, you can see the market is growing in the worldwide. India needs the AI systems, Indian service providers, Indian LLM providers, Indian SLF providers, all of them needs that, okay? At this point of time, hence, basically, I think exports is we are not focusing on exports actually.

54:14 Thank you, sir. That's okay for the future. You. Thank you. The next question is from the line of Saurabh Sadhwani from Sahasir Capital. Mister, please go ahead. Hello. I'm sorry. I was speaking on mute. Good afternoon, everyone. I was looking at the it... Ethernet switch portfolio of the company, and there are two switches right now based on the Broadcom platform that have a maximum port bandwidth of 100 gigabits.

55:02 So the first question I wanted to understand was how is the demand for the switches in India, basically, for for maybe higher bandwidth and maybe the NVIDIA spectrum ASIC? And secondly, what is our product development pipeline for these switches now? So basically, as as you know, the company's objective is not to sell boxes. So basically, we have stopped our focus on selling switches independently. So switches definitely, we are in line with the market actually in the current high bandwidth switches, but we are trying to use it in our own solution. Hence, we are not disclosing it as a separate basically product SKU on our basically, whatever product details are available.

55:51 But definitely, you are right, the switching is an important component. And basically, we are clearly know that and all the solutions which we are selling like DB 300, B 300 and all, all are based on the latest architecture. And primarily, the switching is very important, and we are already selling those switches in our solutions. Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to Mr. Sanjeev Sanjeev for closing comments. Please go ahead. Thanks a lot, everybody, for taking out time for this call. Really appreciate and wish you all the best. Thank you to ICIC also, for ICIC Securities also, for organizing this call so well. Thank you, Simaji. Thank you.

56:49 On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.