Netweb Technologies India Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Record quarter, rapid order book churn: Revenue hit a highest-ever ₹334 crore and PAT ₹30.3 crore, while ~₹250 crore of the prior order book was executed and replaced, keeping the headline book at ~₹360 crore but effectively doubling its turnover.
• Medium-term growth guide held at 30-35%: Management declined to give near-term guidance but reaffirmed a long-term perspective of 30-35% average growth, with AI, supercomputing, and private cloud all contributing.
• AI mission participation is a design-and-supply story, not a tender win yet: Netweb is advising the government on the 10,000 GPU cloud design, building on its AIRAWAT POC, but the actual RFP is expected only in mid-2025; the current tender is an interim empanelment exercise.
• Margins steady, not expanding: EBITDA margin improved YoY to 13.7% and management is confident of maintaining ~14%, with AI mix providing only a slight upward nudge over time.
• What to watch next quarter: Whether the GB200 platform rolls out on schedule within ~4 months, the pace of export revenue build toward the 10-11% target, and any visibility on the India AI Mission RFP.

Revenue & Order Book Dynamics

• Highest-ever quarterly income: Operating income reached ₹334 crore, up 60.3% YoY for 9M FY25, with PAT at ₹30.3 crore.
• Order book churn is the real story: The order book appears constant at ~₹360 crore but ~₹250 crore of the prior quarter's ₹370 crore book was executed and replaced with new orders; only 20-30% of old orders remain in the current book.
• Execution cycle is short: The average execution cycle of the current ₹360 crore order book is ~12-14 weeks, with a range of 8-16 weeks, meaning the book turns over roughly 3-4 times a year.
• L1 position adds near-term visibility: The company is L1 for ~₹340 crore worth of orders, providing a pipeline of likely conversions.
• Second-half skew may not repeat: Earlier expectations that 2/3 of business comes from the second half may not hold this year because Q1, Q2, and Q3 were all strong; the pattern is not guaranteed.

Sanjay Lodha: "So basically, if you really see out of the INR334 crores, that basically is around INR225-odd crores would have got built on the order book itself. So the current order book is INR360 crores. So what happens is that order book has just doubled actually in real terms because INR225 crores went out of it and more got added."

AI & GPU Systems

• NVIDIA endorsement and co-development: At the NVIDIA AI Summit 2024, Jensen Huang personally endorsed Netweb's AI GPU systems; the company is now working with NVIDIA on GB200 architecture, with platforms expected to roll out within ~4 months.
• Grace Hopper launched, demand building: Grace Hopper GPU systems have been launched and are getting good responses; the company is working on large requirements that will get added to the order book.
• AI revenue mix to inch up: AI is expected to remain around 15% of revenue mix by year-end, and may grow by 2-3% further next year as a share of total revenue.
• India AI Mission: advisor now, bidder later: Netweb built AIRAWAT as a POC for the government's 10,000 GPU cloud; AIRAWAT is currently full with a queue of more than six months. The government is seeking Netweb's advice on design. The current tender where 19 companies bid is an interim empanelment (RFE), not the RFP. The actual RFP is expected mid-2025, and Netweb will participate directly or through SI partners.
• GPU supply chain risk dismissed: Management sees no challenge from US GPU export restrictions, arguing those target negative countries, not India for government/enterprise AI use.

Sanjay Lodha: "Basically, we had already built AIRAWAT, which was a POC for that purpose. And today, basically, AIRAWAT is basically full with the queue for more than six months people have been waiting."

Margins & Profitability

• YoY margin improvement, QoQ dip explained: Operating EBITDA margin improved YoY from 13.6% to 13.7%; the sequential dip is attributed to execution of large orders, which can cause quarterly fluctuations. Management advises looking at YoY rather than QoQ.
• 14% EBITDA guide held: Management is confident of maintaining 14% EBITDA, within the previously guided 13-14% range, and does not expect significant expansion.
• AI mix provides only a slight margin nudge: As AI business grows, it may push margins a few basis points up, but the overall margin profile will remain the same.
• Export pricing strategy prioritizes long-term relationships: Management says it could command more margin on exports but chooses not to, keeping pricing consistent across domestic and export markets to build long-term customer relationships.
• Cash conversion improving: The cash conversion cycle improved to 88 days from 100 days in September '24; Q4 is expected to bring further improvement as government collections typically come in the last quarter.

Sanjay Lodha: "I have been telling it again and again. And, once we are executing some large orders, it can be some bits up and down. That can always happen. But still I'm very confident of maintaining a 14% EBITDA, which I have always guided 13% to 14% I have been guiding."

Exports & International Expansion

• Exports at ~7.9% of 9M revenue: Export contribution reflects efforts to expand international presence, with a target of 10-11% of topline in the next one year.
• Export orders now in the order book: Export orders are present in the current order book, marking a shift from aspiration to execution.
• Private cloud and HCI lead exports: Most export revenue is coming from private cloud and HCI, with major contributions from the Middle East, U.S., and Europe; in the U.S., the vertical is technology/IT.
• Geopolitical risk dismissed: Management does not see any business impact from the change in U.S. administration, arguing that the president was there earlier and is back again, supported by business houses, so business will grow.

Sanjay Lodha: "I can definitely command more margin. I think maybe one quarter if I want to expand my margin, I can do that. But the customer will not feel good about it. And basically, what happens is that I see it as a long-term strategy, wherein customer needs a new solution, he comes to me because he knows that I start my product at a very, very appropriate margin."

Product Segments & New Initiatives

• HPC and private cloud still ~70% of revenue: Both segments are growing at almost a similar rate as the company (~35% CAGR), with absolute headroom available; AI is seeing more momentous growth.
• GB200 development on track: Netweb started working on GB200 architecture with NVIDIA in November; time to market will align with the worldwide launch, with platforms rolling out within ~4 months and huge traction in demand.
• Switching business grows slowly by design: The company targets only the high-end part of switching and does not want to make it a box product; growth will accelerate as high-end solutions get more productized and adoption increases.
• 5G ORAN still 1-2 quarters from product readiness: The R&D team is still working on making the product ready; target markets are private 5G users like hospitals, factories, and manufacturing, not telcos. Regulatory clarifications with the government are pending.
• Enterprise compute costs rising: On the enterprise side, products are becoming costlier with each generation passing; democratization of technology is happening, but technology cost is increasing.
• HPC diversification underway: The company is expanding parallel computation/supercomputing into new verticals like oil and gas (efforts over several quarters) and high-frequency trading.

Sanjay Lodha: "We never wanted to make the switching completed a box product actually, and we have been targeting only in the high-end part of it, okay? So basically, that's the reason the switching growth you are seeing is slower actually."

Balance Sheet & Capex

• Net debt negative: Net debt stands at negative ₹73.7 crore (excluding unutilized IPO proceeds), improved from negative ₹66.4 crore in September '24.
• IPO capex nearly complete: SMT line capex is almost all done, with around ₹10 crore pending; most capitalization will happen in the current financial year.
• IPO proceeds unutilized: ₹4.7 crore remaining for construction work and ₹14.5 crore for equipment, totaling ~₹21 crore unutilized; the company will stick to its stated objects.
• Borrowings explained: Borrowings of ₹10 crore were taken to maintain CC limits with the bank; the amount gets refunded in the same quarter.
• New plant capacity: The new plant setup can sustain the company up to ₹2,000 crore in revenue; beyond that, a strategy is in progress. Management declined to guide on when ₹2,000 crore will be reached, asking analysts to do their own math based on the 30-35% growth guidance.

Guidance & Commitments

Key Metrics