Step into the boardroom with Outlook Money as we engage in a dialogue with AXISCADES' CFO Mr. Shashidhar SK. Unveiling the financial strides of Q1FY24, exploring India's semiconductor landscape, decoding the defence sector, and mapping out strategic growth blueprints, offering an exclusive peek into AXISCADES' dynamic journey.
Can you provide an overview of the financial performance in Q1FY24, what were the growth drivers and key challenges? What is your outlook for the upcoming quarters?
The company in Q1 FY '24 posted consolidated revenue of INR 214 crores, which grew by 17% from INR183 crores in Q1 of last year. In U.S. dollar terms, the company recorded a revenue of $26.2 million, growing by 11% from $23.6 million recorded in quarter 1 of last year. The company has achieved INR210 crores plus of consistent revenues in the previous three quarters and have increased the monthly revenue run rate by 22% as compared to Q1 of FY’23. Our EBITDA grew by 45% year-on-year from INR23 crores in Q1 of FY '23 to INR33 crores in Q1 of this fiscal year and our EBITDA margin improved by 300 basis points for the same period from 12.4% to 15.4%.
Revenue from automotive vertical doubled, while the energy vertical grew by 25%. Going forward, automotive and energy will constitute significant portions of our revenue. Our Aerospace business has continued its growth momentum and grew by 29% year-on-year. Revenue contribution from this vertical now stands at 30%. It's the highest in the last 8 quarters. As mentioned in our previous earnings call, we have started executing the enlarged scope of business with our strategic customer and we are witnessing good momentum in this sector. The company has concluded the refinancing of the high-cost borrowing for Mistral acquisition, which will reduce our finance costs significantly in coming quarters.
On the operations front, the company is currently implementing project resonance to realign the policies and practices of the parent company and our subsidiaries as one AXISCADES in order to bring about a high-performance culture in the organization. We have also affected certain changes and redeployed a global senior leadership team to prepare us for the next level of growth in the various geographies.
Looking ahead, our outlook for the upcoming quarters remains positive, the company is expected to grow beyond the industry average growth rate. The debt refinancing will amplify our financial flexibility, as we continue executing our growth strategy, we aspire to deliver sustained value to all stakeholders, driven by acquisitions, financial optimizations, and a dedicated team. Our objective and aspiration is to reach the industry best metric of around 18% to 19% in terms of EBITDA margin in the next couple of years.
Given the ongoing US-China chip conflict, do you believe that India has newfound prospects in the semiconductor industry? How do you envision the evolution of India's chip manufacturing ecosystem in the near future? Could you provide insights into your company's presence in the semiconductor sector, your expansion strategy, and how government initiatives will aid your business?
Certainly, the ongoing US-China chip conflict has indeed sparked new prospects for India in the semiconductor industry. The disruptions in the global semiconductor supply chain have underscored the need for diversified and reliable sources of chip manufacturing. India, with its burgeoning technological ecosystem and skilled workforce, is well-positioned to seize this opportunity and play a pivotal role in reshaping the semiconductor landscape.
The evolution of India's chip manufacturing ecosystem is anticipated to be a dynamic journey driven by innovation, collaboration, and strategic investments. As the demand for semiconductor components continues to surge across sectors such as automotive, electronics, and telecommunications, India stands at the cusp of emerging as a vital hub for chip production and innovation.
In the near future, several key trajectories are projected to shape India's semiconductor landscape. Concerted efforts towards establishing semiconductor fabrication facilities, backed by government support and private sector participation, will be instrumental in laying the foundation for a robust chip manufacturing ecosystem. This includes substantial investments in research and development, infrastructure, and technology parks to attract global industry leaders while nurturing domestic capabilities.
India's focus on fostering research and innovation will play a pivotal role. Collaborations between academia, research institutions, and industry leaders are expected to expedite the development of indigenous chip design and fabrication capabilities. This will pave the way for the creation of specialized semiconductor solutions tailored to meet both domestic and global market demands.
Strategic collaborations with international semiconductor giants will further accelerate the growth trajectory. These partnerships will facilitate the transfer of technology and knowledge, fast-tracking the development of cutting-edge manufacturing processes and enhancing India's global competitiveness.
In the realm of semiconductors, our company collaborates extensively with renowned global OEMs, engaging closely to craft advanced software and hardware capabilities. We already have marquee clients in terms of TI, Analog devices and Nvidia among others whom we work with on semiconductor business. Our expertise spans a range of activities, including constructing evaluation models and various other technical undertakings. Additionally, we establish partnerships with numerous product enterprises, contributing our design prowess to the realm of semiconductors. Notably, AXISCADES is now embarking on a new venture by extending our semiconductor capabilities into the automotive sector, marking an exciting new chapter as we broaden our horizons.
Global captive centers are expected to scale up in the country, what do you think drives this global optimism towards India?
The surge in global captive centers (GCCs) scaling up operations in India is fueled by a convergence of compelling factors, establishing the nation as a prime destination for business expansion and innovation. This growing optimism is shaped by a range of drivers that collectively underscore India's appeal as a preferred hub for GCC establishment and growth.
India's abundant talent pool, characterized by highly educated and skilled professionals, is a cornerstone of its allure. This reservoir of expertise empowers GCCs to execute intricate operations, spearhead technological advancements, and drive strategic digital transformations.
India's cost-effectiveness is a pivotal draw. The favorable cost structure, spanning labor and operational expenses, enables GCCs to attain financial efficiencies without compromising quality. This cost advantage amplifies competitiveness on the global stage.
India's well-established reputation as a global technology and IT services hub bolsters its appeal. Years of consistent performance in delivering diverse services, from software development to analytics, underscores India's reliability as a strategic partner.
The supportive regulatory environment and government initiatives play a vital role. Policies fostering ease of business, investment incentives, and flagship initiatives like "Make in India" create an enabling framework for GCCs' seamless establishment and expansion.
The evolving role of GCCs, transitioning from process-driven models to centers of innovation and strategic prowess, is pivotal. As GCC responsibilities expand to encompass design and acceleration of digital transformations, the demand for specialized skills like AI, data science, and IoT becomes pivotal. India's capacity to offer this diverse skill set positions it as an invaluable partner in GCC growth and innovation.
Are there any specific focus areas or investment priorities for the company?
AXISCADES is actively working on expanding its market share within its existing client base in the aerospace and defense sector. Simultaneously, it is strategically diversifying its operations into new verticals, such as automotive and energy. This approach not only reduces the risk associated with customer concentration but also taps into new revenue streams from emerging sectors.
The aerospace and defense verticals have shown remarkable growth, with the aerospace business achieving a noteworthy 29% year-on-year expansion. Building on this momentum, we aim to further expand its offerings within the aerospace sector, leveraging its digital capabilities to provide new-age solutions to clients.
To enhance operational efficiency and competitiveness, AXISCADES is making substantial investments in digital transformation and process automation. These initiatives are expected to not only streamline revenue generation but also optimize cost structures, ultimately improving overall profit margins.
Our growth strategy also includes inorganic expansion through strategic acquisitions. Furthermore, AXISCADES is prioritizing the development of deep domain capabilities in sectors such as automotive, energy, and semiconductor. Partnering with ecosystem players is a key aspect of this strategy, allowing the company to stay relevant and competitive within these emerging domains.
How does the recent acquisition of add solution, GmbH, fit into the long-term objectives of the company?
The acquisition of add solution GmbH strongly aligns with AXISCADES' long-term objectives. add solutions has really good capabilities in wiring harness as well as software testing and these are the areas, which are growing rapidly in the automotive space. Software testing is really the area which is growing because most of the investment in automotive is happening on ADAS, is happening on connectivity, on infotainment. They work with the world's largest R&D automotive player and we are hopeful that the work that they do with this client, we can offshore some of this and therefore grow the pie. They also have supplier code with other big automotive as well as Tier-1 companies in Germany, this will help us to put in a sales effort, build out capability, be more aggressive and grow the business with the other clients as well. We have a new relationships with several automotive OEMs and some of the work that they do in Germany is cutting-edge. So it is relevant across legacy OEMs as well as some of the new-age OEMs, who sort of operate in the EV space. So we are positive that we will be able to take our enlarged automotive capabilities global. This strategic move provides a foothold in the automotive sector, enabling firm contracts with leading automotive OEMs. This also unlocks significant offshoring opportunities and the technology synergy which our partnership will create will allow us to deploy them across customers, verticals and geographies, thereby creating a multiplier effect in this sector