Arun Krishnamurthi, MD :- CEO, Axiscades Technologies

11 Nov 2022 , 12:46 PM

The company has posted a good set of results for the September 2022 quarter. What explains the huge surge in the company’s EBITDA and PAT?

The EBITDA we have registered during this quarter is 19.3%, in this our immediate subsidiary which is AXISCADES Aerospace & Technology, there was a very big chunk of service revenue, which has a very large gross margin as a result of which our margin for Q2 stands at 19.3%. That would be our H1 FY23 EBITDA margin is 15%. The normalised margin for Q2, if you take away the impact and normalised it, is also around 15%. Our adjusted PAT during the quarter has improved by 660% that was driven by improvement in EBITDA margin Q-o-Q and benefit of operating leverage.

You also announced the acquisition of a 100% stake in a Germany-based company, add solution, GMBH. What is the rationale for this acquisition? By when do you expect the acquisition to start adding to revenue/profits?

Board Considered and approved the 100% acquisition, in a phased manner, of add solution, GMBH, Germany, specialising in Automotive Solutions to Global OEMs. The proposed acquisition will provide a strategic foothold to AXISCADES in the Automotive space, besides firm contract with marquee automotive OEMs.  The proposed acquisition will provide a strategic foothold to AXISCADES in the Automotive space, besides firm contracts with marquee automotive OEMs. This will lead to significant offshoring opportunities and enhanced business for AXISCADES in the automotive space, both in India and globally. Phase I-51% – March 2023 Phase II-76%- March 2024 Phase III-100%- March 2025. This is Subject to completion of all regulatory compliances.

Help us understand the revenue model of your company.

The company offers design, manufacturing and in-service support across various verticals that comprises mechanical engineering, embedded software and hardware, system integration, digitization, manufacturing and aftermarket solutions.

• Aerospace: Involved in the design and analysis of primary structures, secondary structures and interiors, MSI and ESI, Electrical harness, manufacturing engineering and in-service support such as repairs.

• Heavy Engineering: Involved in designing of structures, cabin, engine, powertrain, electrical system, lube and hydraulic system and digital manufacturing.

• Energy: Design and analysis of tower, generator, hub, spinner, nacelle, yaw and blade. Also providing mechanical and electrical routing, wind resource analysis and advanced Finite Element (FE) simulators.
• Defence and Homeland Security: Design and manufacturing of avionics, radar/EW, C412, simulators, UAVs and ground equipment (GSE/GHE)  and providing system integration facilities and offset management.

• Automation: Involved in designing and analysis of systems such as self-pierce riveting solutions for vehicle lightweight (BIW/CIW), interiors and exteriors, engine and powertrain. Also taking care of cost optimization and localization.

• Medical and Healthcare: Designing and manufacturing of healthcare monitoring devices, providing infusion pumps and insulin delivery and taking care of product sustenance and regulatory compliance.

AXISCADES is a technology company that focuses on product engineering solutions and is a strategic partner to global OEMs for Innovative, Sustainable and Smarter products.

Share with us insights into the demand trends seen across key verticals, namely, aerospace, heavy engineering, energy, defence & homeland security, automotive, and medical & healthcare.

The demand in each of the areas is looking good and that is reflected in our revenue. Vertical wise demand trends are below

Aerospace

The Aerospace vertical grew by 44.2% Y-o-Y. The resurgence of the aviation industry, new client wins, and newer areas of business has enabled the increase of wallet share from existing clients.

Heavy Engineering (HEG)

In Q2 FY23 HEG grew 16.2% over the previous year. While the outlook for this sector continues to be positive, the business may face some challenges due to inflationary pressure and a slowdown in capex investments. The macroeconomic headwinds may bear upon the sector and growth can be muted going forward.

AIP & Energy

Automotive vertical witnessed the growth of 27.4% Y-o-Y.  This is the company’s focused area where the company is making an investment for future growth. During the quarter we have added another Tier-1 Automotive company and this is the company’s second win in the vertical in the last 6 months. This is a focus vertical for us and we will be looking at more traction in this space. Leveraging the new skills and capabilities will put us in a favorable position for further client addition in this space.

The Energy Vertical registered a 58.5% growth Y-o-Y. We are investing in this vertical to acquire new talents with requisite skills to cater future growth opportunities.

Product & Solutions

Revenue from Product and Solutions has resumed growth trajectory to deliver 129.5% growth. This was driven by the traction in a recently won contract for the supply of Anti-drone systems to Indian defence. The pipeline in this vertical looks strong and we expect additional order during the years

How are the large deals shaping up? What is the company’s deal pipeline?

The pipeline is growing Q-o-Q however we would not like to disclose the value of pipeline

Run us through the company’s growth strategy.

Historically, we were focused on Aerospace and Heavy engineering verticals and derived the majority of our revenue from some of the biggest global clientele in this space, who have been our valued clients for over a decade. While these verticals continue to sustain and expand, registering double digit growth, we are currently on a business transformation, with 3 strategic focus areas, namely, vertical diversification, customer diversification and digital first, in order to diversify our revenue streams and expand our client base. We are seeing good traction with respect to new verticals and new logos, such as in Energy, Automotive, Payment Solutions and Medical. We are continuously enhancing our competencies and growing our team size to deliver to cater to existing business and new businesses. One of the highlights from this shift is the exciting prospect of the automotive industry. This is our new focus area and we are positioning ourselves to be a preferred partner in the space. In this regard, I am happy to announce that we have signed a long-term deal with a Tier-1 global automotive major in Q2. This is in addition to an existing global major who is also our client. We plan to strategically build domain expertise within the automobile industry and enable our clients to leverage the fast-paced technological evolutions which are developing in this sector. As vehicles get increasingly feature-rich, there is a long runway for growth and a massive opportunity to be exploited. We are also growing our relationship with Global Majors in the Energy Space and Payment Solutions Space and hope to be strategic vendors to each of our customers in the coming periods

What are the key margin levers for the company? Where do you expect margins to be in FY23?

We are now at a level where operating leverage will start to kick in. For us any incremental revenue beyond INR 550 Cr, where every incremental INR revenue will add close to 25% in terms of EBITDA. This year, we are in the journey of transformations, and we are looking how we can have quick win, make the company more efficient but going forward we are banking lot on digital initiatives, all the work we do for customers, we are looking at setting up the teams which will look at more automation so that we can become more productive.  We will focus on quick win and looking for making business more efficient and transforming the business. We are also focusing on scalable and profitable growth, digital transformation and selling high value business and more effective account mining etc. . Our endeavour to improve the EBITDA margin by 600 bps by 2025, starting from this Financial year. We would not like to add any guidance on the margin front.