Aequs Ltd (AEQUS) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the Q2 FY27 earnings conference call of Aequs 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. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. I now hand the conference over to Mr. Manav Paul from E&Y. Thank you, and over to you, Mr. Manav.
Manav Paul (Ernst & Young): 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 FY27 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. These statements should be viewed together with our business risks, which may lead to actual results and performance differing 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. Aravind Melligeri, 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&A session. With that said, I now hand over the call to Aravind sir.
Aravind Melligeri (Aequs Ltd): Thank you, Manav. Good evening, everyone. Thank you for joining us. At Aequs, we've always believed 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. The first half of '27 has taken that ambition forward with a growing business,
Aravind Melligeri (Aequs Ltd): consumer, and the long-term commitments we are building in Aerospace. Rajeev will take you through our 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 8,046 million. Aerospace grew 42% and consumer segment has more than doubled. Aerospace continue 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 the underlying opportunity. Given these factors, we are recalibrating our path to the consumer EBITDA breakeven, which we had earlier indicated that it would be for Q4 '27. The near-term focus is clear: improve utilization, return the capacity we have already installed into profitable growth. That focus also shapes us how we invest. With much of our consumer capacity already in place, we will phase further investments in line with our ramp with our customer schedules. Turning to aerospace, the most significant development has been the growing depth and duration of our customer commitments. Our order book reached USD 1.1 billion, 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 Safran six Safran entities. They broaden our scope across critical aerospace components, drawing on the capabilities we already built at Belagavi, and they include landing gear contract for our upcoming Hosur ecosystem. First key milestone was undertaken with the groundbreaking kickstart the development of the infrastructure. Hosur takes the integrated model into its next chapter. At Belagavi, we are built an ecosystem centered on aero structures. At Hosur, on a 250-acre SEZ and DTA site, we'll be extending that capabilities to manufacture aeroengine, landing gear components. This is not just a bigger footprint. It widens the work we can take on and the value we can deliver from India end-to-end. We are winning programs faster than we had planned, and those wins need investments ahead of the revenue they generate. So we will keep investing behind the demand in the aerospace, while staying disciplined how we deploy our capital across other businesses. 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're pursuing is clear: deepen our participation in global programs, bring more of the manufacturing value chain to India, and build the operating consistency that turns capability into the lasting customer relationship. I would like also to welcome Reena Joseph, who has joined us as the Chief Financial Officer. Reena brings in nearly 2 decades of experience across the corporate finance, capital markets, M&A and investor relationship. We're glad to have her part of team and her experience will instrumental as we build our next phase of Aequs growth. With that, I will hand over to Rajeev Kaul, the Co-Founder and Managing Director.
Rajeev Kaul (Aequs Ltd): Thank you, Aravind. 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 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 businesses this quarter. Let me start with aerospace. Aerospace portfolio keeps widening. We added 238 parts in the quarter, up 4% sequentially, taking us to 5,978 products. Every new part widens 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. In the quarter, we added nine CNC machines, taking us to 229 machines, 2.12 million 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 add is being put to work. At Hosur, we are building on the Belagavi blueprint and extended it, alongside forging, machining, heat treat and surface treatment plants, and ingot casting, ring rolling, and testing and lab facilities to be developed by Aequs and or joint venture partner.
Rajeev Kaul (Aequs Ltd): road map. The first phase of investment begins with Q4 FY '27, and commercial production in is targeted at FY '29. Let me take let me turn to our consumer business, and to the guidance we gave earlier that consumer would turn EBITDA positive by Q4. First is consumer electronics. The consumer electronics 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 [inaudible]. 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 out while we ramped up our business from Mattel. Okay. Our new key customer. Scaling up with Mattel involved developing 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 certainly 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 a faster learning curve at our new facilities 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're 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 consumer electronics, and the volume ramp-up in Mattel and toys. To be clear, the fundamentals on which we build this business plan, this plan have not changed. What has changed is pace. We remain confident in the directory and we'll keep you updated on progress. 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 Vinakshi, our CFO.
Reena Joseph (Aequs Ltd): Thank you, Rajiv, and good evening, everyone. I will take you through our financial performance for Q2 and H1 FY '27, 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%. 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 segments. Aerospace delivered another strong quarter. Q2 grew by 44% year-on-year to 3,514 million and 9% sequentially. Segment EBITDA increased 24% to 783 million, at a margin of approximately 22%. For H1, aerospace revenue grew 42% year-on-year, while segment EBITDA grew 29%. This performance reflects healthy demand across our programs 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 577 million INR, and H1 revenue more than doubled to INR 1,311 million from 632 million last year. Segment EBITDA was a loss of INR 401 million in Q2, compared with a loss of INR 77 million in Q2 FY '26, and a loss of 763 million in H1, compared with 151 million last year. Two factors explain this movement: First, following the commencement of commercial operations, the operating costs of our new consumer capacity are now being expensed, whereas the corresponding costs in the previous year were pre-operative 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
Reena Joseph (Aequs Ltd): cost absorption remain the key levers for the segments profitability. Coming to consolidated profitability, Q2 reported EBITDA stood at rupees 245 million 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've just outlined. And the two periods 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 67 million to 106 million reflecting forex movements. For H1, reported EBITDA was 460 million rupees compared to rupees 841 million last year with a margin of 6% against 16% in H1. Beyond the consumer ramp-up, material consumption increased due to aerospace product mix, employee costs rose with head count 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. Our joint ventures continued to deliver stable margins and cash flows. Including our proportionate JV share, Q2 revenue stood at rupees 4,480 million, up 44% year-on-year with EBITDA of rupees 331 million at a margin of 7%. For H1, including our EBITDA including the share of our JV revenues reached rupees 8,781 million, up 48% with EBITDA of rupees 638 million at a margin of 7%. 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 finding final assembly. At the bottom line, Q2 net loss stood at rupees 522 million, broadly stable compared to rupees 532 million in Q1. H1 net losses was 1,054 million rupees compared with rupees 167 million last year. Besides the lower EBITDA, the year-on-year movement reflects higher depreciation of rupees 347 million due to pre-operative expenses in the previous year on account of a consumer asset, and increase in a tax expenses of rupees 135 million mainly on account of current tax provisions in our profitable aerospace operations in India, and higher finance costs of rupees 37 million driven by interest on term loans. In Q2, finance costs increased versus Q1 mainly on account of forex impact on borrowings. Turning to balance sheet, total assets stood at rupees 27,739 million at the end of H1 compared with rupees 26,905 million rupees in at March end, reflecting a continued investment across our operations. Receivables increased by 341 million and inventory by 1,157 million, both driven by aerospace growth. Net working capital days improved by 15 days to 136 days in H1 FY '27 from 151 days March end, with receivable days reducing from to 68 days from 78 days, inventory days coming down from 155 days from 168 days. This was partly offset by lower payable days of 87 compared to 96. 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 rupees 1,710 million. Borrowing increased by rupees 1,576 million 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 in at March end. H1 capital expenditure was rupees 1,597 million rupees supporting our ongoing manufacturing investments. To support our next phase of growth, the promoter group has committed an investment of rupees 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 Hosur 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
Reena Joseph (Aequs Ltd): preferential amount and much higher than the required minimum 25% limit. And the balance which is actually payable within 18 months is actually going to be paid by end of December next year. This inclusion will complement our internal accruals 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 will 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 grounds 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 the company's development. 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.
Moderator: Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may please press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets and also please limit your questions to two per participant. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Renu Baid from IIFL Capital. Please go ahead.
Renu Baid (IIFL Capital): 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 expectations, 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 '27 for both consumer as well as aerospace with respect to revenue and EBITDA? That's the first question. And second question is given that we had the recent promoter equity infusion which was not initially outlined. So, with this, does it change any external equity fund raise plan which was planned for fiscal '28 or that continues to be on card in addition to the preferential equity infusion from the promoter group that we've seen recently? Thank you.
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