Avalon Technologies Ltd (NSE: AVALON) Q3 2026 Earnings Call dated Feb. 05, 2026
Corporate Participants:
Kunhamed Bicha — Chairman and Managing Director
Suresh Veerappan — Chief Financial Officer
Analysts:
Jignesh Thakur — Analyst
Sumit Sinha — Analyst
Danesh Shah — Analyst
Archit Shah — Analyst
Vipraw Srivastava — Analyst
Santosh — Analyst
Shriram Vijayaraghavan — Analyst
Karan Sanwal — Analyst
Presentation:
operator
Foreign. Ladies and gentlemen, good day and welcome to the Avalon Technologies Limited Q3FY26 earnings conference call. As a reminder, all participant lines will be in a 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 touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Jignesh Thakur from GM Financial. Thank you. And over to you sir.
Jignesh Thakur — Analyst
Good afternoon everyone and a warm welcome to the Q3FY26 earnings call of Avitlan Technologies. To take us through the result today we have with us from the Manager Nathan, Mr. Kunamith Bicha, Chairman and Managing Director, Mr. Bhaskar Srinivasan, President, Mr. Suresh VR Chief Financial Officer Mr. Sriram Vijay Raghavan, Chief Operating Officer and Mr. Venki Venkatesh, Chief Sales Officer. Mr. Bicha will give an overview of the business performance and will be followed up by Mr. Suresh. Remark on the financial performance post which we will open the floor for the Q and A as we move forward.
It is important to bear in mind that any forward looking statement made during the call during this call are subject to potential risk and uncertainties both known and unknown. Now without any further delay, I will hand over the floor to Mr. Bicha for his initial remark. The CMD. Thank you. And over to you sir.
Kunhamed Bicha — Chairman and Managing Director
Thank you, Jignesh. Good evening ladies and gentlemen. On behalf of Avalon Technologies, we extend a very warm welcome to our Q3 FY26 earnings call. We thank our investors for your continued trust and support. Your confidence in Avalon has been an important contributor to our consistent progress in execution, financial performance and operational discipline. Q3 FY26 marks our sixth consecutive quarter of sustained growth. We delivered improved performances but performance across key financial and operational metrics including revenue growth, profitability, order book growth, net working capital days, asset turns, cash flow from operations, net debt to equity and return on capital employed.
We have also made steady progress in new product introductions including semiconductor manufacturing equipment and power systems. The external environment is also supportive of our long term growth. US tariffs have reduced from 50% to 18% benefiting our US export business in India. The government direction towards India’s Semiconductor Mission 2.0 with a focus on semiconductor equipment aligns well with our capabilities and recent business wins. Our efforts to build a meaningful sales presence in Europe over the last few quarters also coincide with the India Europe trade deal. Overall, we believe we are well positioned from both a Company and market perspective Q3FY26 saw our highest ever revenue and profit after tax in the history of the company.
This is supported by well diversified growth across both verticals and geographies. With improved business visibility, a better macro environment and ongoing project ramp ups. We are revising our FY26 revenue growth guidance upward to around 40% from the earlier guidance of 28 to 30%. Moving on to the key financial highlights for nine months FY26 revenue for nine months FY26 was at rupees 1123 crores representing a year on year growth of 48.7%. Our average revenue growth over the last six quarters has been 46%. Our focus on manufacturing complex box bill systems continue to gain traction with box bill contribution improving from 49% in FY25 to 53% in nine months.
FY26. As of 12-31-2025 our order book grew 26.5% year on year to 2016 crores with an average execution period of 14 months. In addition, long term contracts with execution timelines ranging from 15 to 36 months is at Rs.11.83crores. Order book growth remains well balanced and diversified across industry verticals and geographies. Gross margin for nine months FY26 was at 34.6% at the upper end of our guided range of 33 to 35%. EBITDA for nine months FY26 was at rupees 116 crore reflecting a growth of 59.2%. EBITDA margin improved to 11.5% in Q3 FY26 supported by operating leverage.
Profit after tax for nine months FY26 was at 72 crores, an increase of 83.3% year over year. Profit after tax for Q3 FY26 was rupees 33 crores. India manufacturing operations, which continue to serve both domestic and global Customers accounted for 78% of our total revenue in Q3 FY26, delivering a very healthy profitability with an EBITDA margin of 16.7% and a PAT margin of 11.9%. Revenue from our U.S. manufacturing operations contributed the remaining 22%. Net working capital continued to improve during the third quarter on a quarter on quarter basis, Net working Capital improved by 13 days from September 2025 to December 2025.
Receivables reduced by 8 days sequentially. Inventory declined by 3 days sequentially as programs moved into execution phase. Payables also improved by two days sequentially. Overall the improvement in net working capital supported a positive cash flow from operations of rupees 51 crore in Q3FY26. We continue to follow a capex like model. Asset turns improved from 7.5 times in FY25 to 9.5 times in Q3 FY26. Net debt remained low with a net debt to equity ratio of 0.04. As a result, return on capital employed improved to 18.8% from 11.3% a year ago reflecting continued efficiency in capital utilization.
On the topic of tariffs, the long awaited trade deal has been announced with US tariffs on imports from India reduced from 50% to 18% during this period, we were able to recover 99% of the applicable tariffs from our customers supported by a long standing presence in the us, deep market understanding and a strong customer relationships. More importantly, this period of elevated tariffs helped us accelerate on new set of business opportunities. Alongside wins in the domestic Indian market, we accelerated new program WINS in the U.S. for U.S. manufacturing as customers look to diversify supply chains of reduced risk.
At the same time, we have made progress in expanding exports to Southeast Asia, further broadening our geographic footprint. With the tariff production now in place, another growth lever comes into play. India manufacturing for US customers becomes even more attractive strengthening one of our core competencies. As a result, domestic growth, new regions of export and US focused India manufacturing are coming together giving us confidence in a strong and well balanced growth journey ahead. Now moving on to key growth drivers and an update on major programs, we remain encouraged by progress across our three growth drivers. 1.
Existing business this is driven by long product life cycles, mission critical products and steady recurring revenues. Growth remained well diversified across rail, aerospace, industrial, clean and energy communication. In nine months FY26, the industrial vertical contributed 35% of our revenue and grew 67% year on year. Rail as part of our mobility segment contributed 16% and grew 70% year on year while aerospace contributed 8% and grew 64% year on year. Clean energy accounted for 19% of our revenue and grew 35% year on year. 2. New business wins this is built on sustained effort over the past two years with these programs now translating into fresh orders and production ramps across multiple verticals.
Our dualshore model and the new Chennai export facility have supported the scale up. The energy storage system program is fast growing and ramping in line with our plan. Also we are making steady progress in aerospace cabin sub assemblies. We have successfully completed the first tranche of prototypes for a communication customer where we are manufacturing control units for satellite antenna systems we expect volume orders to commence from FY27. Our prototypes catering to industrial processing sector and power sector have commenced. In the semiconductor equipment, we have completed the project readiness phase for a key customer, marking an important milestone ahead of volume production.
We expect this program to begin contributing meaningfully to revenue during FY27. The government’s ISM 2.0 focus on semiconductor equipment aligns well with our capabilities and recent wins. We are progressing steadily in this space, partnering with global major to deliver Industry 4.0 compliant complex systems. 3. Opportunity Pipeline we continue to see a diverse and expanding set of opportunities progressing towards finalization with encouraging potential in both size and scope. In recent quarters we onboarded new customers across industrial and defence segments. Products include mission critical power inverter platforms, critical components for an integrated battlefield command system. In what could be the first Avalon, we are bidding on exciting opportunities in advanced metal cockpit assemblies and landing gear components in the aerospace segment.
Further, we are on the cusp of foraying into cable commodity with a major customer in aerospace. Last but not the least, we are witnessing increased interest from aerospace majors in our cable and electronics commodities. These opportunities are long term in nature and we hope to continue our focus on developing the aerospace vertical. We will continue to provide updates as projects evolve. In summary Q3 FY26 reflects a period of sustained execution and disciplined profitable growth for Avalon. We delivered our sixth consecutive quarter of sequential improvement, achieved the highest revenue and profit to date, strengthened margins, improved working capital, generated positive operating cash flow and enhanced return on capital, all while maintaining a CAPEX flight balance sheet.
Our growth remains well diversified across verticals and geographies supported by a healthy expanding order book, steady progress in new programs and multiple growth levers coming together. Recent tariff production, announcement of ISM 2.0, progress in semiconductor equipment and expansion into new export markets further strengthens our long term growth outlooks. With all the three growth drivers gaining momentum, manpower, cost stabilizing and operating leverage beginning to play out, we are well positioned for the next phase of profitable growth. We remain focused on execution and will share our FY27 outlook once our budgeting exercise is completed next quarter. With this, I would like to hand over to our CFO Suresh Veerappan for a detailed overview of our financial performance.
Suresh Veerappan — Chief Financial Officer
Thank you, thank you KB and good afternoon everyone. Thank you for joining the call today. Our growth journey would not have been possible without your continued trust and support. We are delivering strong and sustainable growth supported by improving profitability, cash generation and capital efficiency. Revenue growth was 49% year on year in both Q3 FY26 and 9 month FY26. This performance has been accompanied by improvement in operating cash flows, net working capital and return on capital investment. Over the past few quarters we have seen consistent sequential progress with each quarter building on the previous one. This reflects the strength of our diversified business model and our disciplined approach to execution and capital management.
Growing Domestic demand the government’s ISM 2.0 focus on semiconductor manufacturing equipment and recent trade developments with the US are strengthening the Indian electronics manufacturing ecosystem. Coming to our Q3FY26 performance revenue for Q3FY26 was INR 418 crores up 48.7% year on year from INR 281 crores in Q3FY25 and 9.2% sequentially. For 9th month FY26 revenue from operations was 1123 crores delivering a year on year increase of 48.7% supported by diversified growth across industries and geographies. In Q3FY26 revenue mix was 36% from India and 64% from the U.S. for 9 month FY26 the revenue mix was 38% India and 62% US.
India grew 35% year on year while the U.S. grew 59% year on year. In 9 month FY26 gross margin for Q3 FY26 was INR 143 crores with a margin of 34.2%. For 9 month FY26 gross margin was INR 389 crores with a margin of 34.6% representing a year on year growth of 42.7%. Margins remain within the guided range. During the period of elevated tariffs we were able to pass on over 99% of the tariff impact to customers. As a result, there was no material impact on absolute margins although gross margin percentage was impacted by approximately 100 basis points during this period.
EBITDA for Q3FY26 was INR 48 crores up 38.5% year on year with a margin of 11.5%. For 9th month FY26 EBITDA was INR 116 crores up 59.2% year on year with a margin Of 10.4%. Margin expansion during the quarter is driven by operating leverage as revenues continues to scale. Pact for Q3FY26 was INR33 crores up 35.9% year on year with a margin of 7.1% for 9 months FY26 PAC was INR72 crores, up 83.3%. Year on year profitability continues to strengthen delivering sustained profitable growth on the new Labour Code. Our existing practices are largely aligned with the requirements and we do not anticipate at this stage a material impact on the group’s financials.
The estimated incremental impact of INR 33 lakh has been recognized in the quarter. Financial implications will be further evaluated as relevant rules and clarifications are notified by the government. Moving to the balance sheet Networking capital days improved to 118 days in December 2025 from 150 days in December 2024, a reduction of 32 days. Inventory days improved from 103 days to 97 days while trade receivable days reduced from 94 days to 72 days. Over the same period, trade payable days increased from 46 days to 52 days on a quarter. On quarter basis, Networking Capital days improved by 13 days from 131 days in September 2025 to 118 days in December 2025 Supported by improvement across inventory receivables and payables.
In the previous call we had guided networking capital days in the range of 120 to 130 by March 2026 and we are currently below this range. As of December 2025, cash flow from operations was positive at INR 51 crores in Q3 FY26 supported by improved working capital management and profitable growth. As of December 31, total debt was INR 143.2 crores with cash equivalents and investments of INR 130 crores resulting in a net debt of INR 29.8 crores. Capex for Q3 FY26 and 9 months FY26 was INR 10.7 crores and INR 35.1 crore respectively. We continue to operate a capex flight model with Assad turns at 9.5 times.
Return on capital employed improved to 18.8% compared to 11.3% a year ago. Avalon’s dual presence in India and the US provides strategic flexibility. Our India operations offer a cost efficient and scalable manufacturing base while our US facilities support localization and tariff management. This positions us well to support customers amid evolving trade dynamics with improved business visibility. We have revised our FY26 revenue growth guidance upward to around 40% from the earlier guidance of 20 to 30%. To summarize, Q3 FY26 delivered strong operating and financial performance supported by broad based growth across segments and geographies. We continue to see growing demand from Indian customers and increasing program activity across other geographies including the US and Southeast Asia.
With our established track record, dualshore operating model and expanding capabilities, Avalon is well positioned to capitalize on the opportunities ahead and support customers through the next phase of growth. Thank you. We request a moderator to open the floor for questions.
operator
Thank you very much sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on their touchstone telephone. If you wish to remove yourself from the question queue you may press STAR and two participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Sumit Sneha with Macquarie. Please go ahead.
Sumit Sinha — Analyst
Yes, thank you very much. A couple of questions. So first, congratulations on a good quarter. Secondly, talking about the guidance implication 40%, that’s obviously very strong but that implies like fourth quarter revenue growth of about 2021%. Is that your continued conservatism or are you thinking about it from a high base perspective? Last year fourth quarter was also very strong. Secondly, you obviously went through a series of investments to increase your operational capacity. Are those investments done? And secondly, we’re talking about your growth being much higher than probably expected, at least externally. What sort of these high asset turns? When do you need to probably reinvest to kind of continue to grow at at a high pace in fiscal 27 because that seems like several new customers coming on board, large customers coming on board fiscal 27th.
Thank you.
Kunhamed Bicha — Chairman and Managing Director
Thank you Sumit for your kind words as well as the question. I’ll try to answer all of them. If I miss something, just ask me. We’ve always maintained that we’ll do assert turns between 7 to 10 times and we’ll continue to do so. We still believe there’s enough capacity looking for apart from the two new facilities coming up for space. So we still think that our capex is around 50 crores a year which is lower this year but will be around 50 crores a year for next couple of years at least. And in the next two or three years we may look for a larger facility or duplicating what we have in Avalon, but not in the near term or midterm.
And again on the first part of your question is that yes, we are conservative because the different programs cut in at different times for us and and this last nine months has been tariffs, no tariffs. What tariff? You know what percentage. So we were really reluctant to come out with a specific number because we didn’t know, we didn’t know what the tariffs are going to do to our business. And very happy to say the team has managed this very well. And you’ve seen this growth in spite of the tariffs coming in both in India as well as in our geographies and saying that we are expanding to other geographies also so that we’ll never be in this situation again where the parents destroy our future.
So we will have it diversified, but our focus will also be on export, just not India. And India is very key to our larger growth. Did I answer everything Sumit, or is there something else I missed?
Sumit Sinha — Analyst
I think there was one question about your operational investments that you started at the beginning of the year and you had said that end by the third quarter. So has that all those investments made? Maybe it was headcount, maybe it was systems and operations. Are those done?
Kunhamed Bicha — Chairman and Managing Director
Yeah, you can see that in our numbers itself it’s been flat quarter to quarter. There’ll be some swings as you grow at this pace. But I would say for the existing programs we are well covered. But our hope is that we get much larger programs in the future. So we’ll have to focus on basically people based investments to get the right person on board. So as of in the short term, I think it is going to be flat or plus or minus a few points.
Sumit Sinha — Analyst
Sure.
Kunhamed Bicha — Chairman and Managing Director
You want to add something to that?
Suresh Veerappan — Chief Financial Officer
I think I’ve covered it.
Kunhamed Bicha — Chairman and Managing Director
Yeah, sorry, go ahead.
Suresh Veerappan — Chief Financial Officer
So there’ll be a combination of existing programs which continue to ramp up from pilot phase to ramp up phase and then there will always be new programs will come in parallel as well. So I think with the kind of pilot programs that are expected to ramp up in the near term, we are covered in terms of investments, but it’s going to be a combination of both.
Sumit Sinha — Analyst
Got it. And one final question. In terms of this 99% recovery of tariffs, is there a rupee number that you can give us? Like what was the leakage? I’m just trying to understand if that goes away, that doesn’t become a headwind, how much your margins could expand next year.
Suresh Veerappan — Chief Financial Officer
So typically we do not share a tariff absolute number over there. But just to give you a heads. Up on that, let’s say without tariff our gross margin percentage would have been better by 100bps.
Sumit Sinha — Analyst
That’s perfect. Okay, thank you very much. Congratulations once again.
Kunhamed Bicha — Chairman and Managing Director
Thank you sir.
operator
The next question comes from the line of Danesha with DAM Capital. Please go Ahead.
Danesh Shah — Analyst
Hi sir, good afternoon and congratulations on a great set of numbers. And so just wanted to confirm the numbers as we spoke in the open. In the opening commentary we said that revenues from us this time was around 64%, is that right for the third quarter?
Suresh Veerappan — Chief Financial Officer
That’s correct.
Danesh Shah — Analyst
6,436. Right. And manufacturing was, manufacturing was around 7. Could you just repeat the manufacturing number for me please?
Suresh Veerappan — Chief Financial Officer
Sure. So in FY26, US manufacturing is 22% and India manufacturing is 78%.
Danesh Shah — Analyst
Perfect, perfect, perfect. Thanks, thanks for confirming that. Now secondly, right, in terms of areas of growth, while we’re obviously seeing a lot of broad based growth across applications, you know, segment, could you potentially highlight what are the particular clients that you’re sort of working for? Not in terms of names but rather applications and going forward, how do we expect that? So we just spoke about how the existing base is obviously going to grow. So if you could just highlight some color on that and further the incremental growth which is going to come through. What are those applications that you’re kind of looking at?
Kunhamed Bicha — Chairman and Managing Director
So that’s a tough one to answer when you’re chasing broad based growth. So we would have a time when certain parts of industrial will be split into different vertical, let’s say when there’s meaningful growth in the semiconductor equipment, we will split that out from the industrial vertical. But what we are seeing is growth in a lot of our segments where we are focused and we’re going to go deeper into the segments because some of the customers we have are Fortune 100 type customers where there’s enough room to grow apart from the new customers. So whether it’s a commodity or a capability, we are going to target that.
Did I answer that question for you, Sunny?
Danesh Shah — Analyst
Sure, sure, sure. So and obviously the Indian margins have been, the Indian operation margins have been extremely strong. Right. And I think we’re scaling up out there quarter on quarter. But you know, would you sort of give some update on how we’re looking to improve, you know, the US burn which we’re kind of seeing right now, quarter on quarter? I mean obviously we’re ramping up manufacturing out there, but any direction which you would sort of give in terms of the US margin profile?
Suresh Veerappan — Chief Financial Officer
Sure. So with respect to US manufacturing which constituted 22% of our business for this quarter, the pack losses are at around -7 crores. If you look at the last couple of quarters, it was Approximately at around -9 crore. Each quarter we have been talking about possible operating leverage opportunity in US manufacturing as well alongside India Manufacturing, the beginning of that is what we see this quarter. We believe the next year with the growth in energy storage systems and some of the new businesses that we have won in US can help in that direction. So we are trending towards a direction of better profitable profile in the US manufacturing as well.
Kunhamed Bicha — Chairman and Managing Director
And you also will have to recognize that in the last nine months that was the best thing that we could have had where having a US manufacturing. So some of the programs are getting started, prototyping there and hopefully in the next six months to a year we may start moving some of it to India manufacturing. So it’s just not a factory to factory. It is also the future of export business in India is tied to, tied to that factory.
Danesh Shah — Analyst
Perfect sir, perfect. Thank you so much for answering my questions and wishing you all the very best. Thank you.
Kunhamed Bicha — Chairman and Managing Director
Thank you.
operator
The next question comes from the line of Archit Shah with BNK Securities. Please go ahead.
Archit Shah — Analyst
Thank you for the opportunity and congratulations sir for a very good set of numbers. So first question is regarding tariff. Now earlier because of 50 tariff, you know we were planning to increase our U S manufacturing for some sensitive lines, you know. So now what is the outlook on clients especially on the stickiness and their comfort level after being better off in terms of geography versus our other Asian peers, do we still stick to increasing US manufacturing or are we keeping it, keeping it at 20% around?
Kunhamed Bicha — Chairman and Managing Director
Thank you Archit. The ideal goal for us is, you know, 80, 20. We’ve always kind of said that, I mean, but today we have a set of customers who have come to us. Some of them want to stay in the US do not want to take a risk for a couple of years with all these things changing on a daily basis. So they have decided to the next two years they’re going to make it there and the other half is going to move when things settle down. Because some of these programs take six months to a year at least to get going.
We have started on these programs so we will not change the prototyping from our US location when the time comes. Of course cost does matter to the customer. He will make the choice when to move. But in the short term we don’t expect any knee jerk reaction because these are large customers, they have made their policy decision or I would say strategic decision to do one year in the US and then, but they have the option to do that and once things settle down, these tariffs status also is very relative, right? It’s one thing today and then, you know, things could change in two months.
Okay, so we just but the good thing is business is coming from all sides. Okay, answer your question.
Archit Shah — Analyst
Yeah, kind of. But just one thing I didn’t understand was since you’re recovering 99% of tariffs, how do it impact your gross margin still by 100bps? You know when you said that if there were non tariffs then you could have, your gross margin would have been better by 100 bits. Okay.
Suresh Veerappan — Chief Financial Officer
So absolute gross margin doesn’t get impacted, but the gross margin is a percentage because we incur tariff and then we pass it on to the customer. So both the numerator and denominator gets expanded to that extent. So as a percentage optically it could have been 100bps better.
Archit Shah — Analyst
Okay, okay, okay, got it. So my second question is regarding our manufacturing margins. So firstly, you know, despite our US manufacturing base increasing to 192 crores, our EBITDA margins being at negative 7% only yet, which was the same that earlier at 40 crores also. So are we still investing over there and what kind of scale do we need to achieve to, you know, start seeing the declining trend? And secondly on India margin 16.7% are very strong. So are those sustainable numbers or is it just quarterly bips and on annual basis we should expect around 30 and a half or 14% of sustainable.
Suresh Veerappan — Chief Financial Officer
Sure, Archit. So first things first, most of our business, if not all of our business are recurring type of nature long term businesses. So there is nothing one time or one quarter from a business perspective. These are all long standing customers for us. That is our key strength. With that said, our India manufacturing revenues which constitute 78% of our business delivered 16.7% EBITDA and 12.2%. So this significant number is something that we have been talking in the previous quarters as well where operating leverage can come and help once the revenue scales. That is what probably we are seeing in the India manufacturing side with respect to the US manufacturing, the energy storage system business as well as some of the other new businesses started kicking in.
And we have been discussing about this in our calls over the last four or five calls as well. So overall the PAT has reduced from minus 9 crores in Q1, Q2 the last two quarters to approximately minus 7 crores now. But like you rightly said, the EBITDA is slightly higher than the previous two. EBITDA losses are slightly higher than the previous two quarters primarily because of product mix. If you look at from a full year basis, let’s say give it another quarter or two from a full year basis, I think it should get better. As well.
So in a summary I think US manufacturing also within later part of next fiscal year can get much better than where it is today.
Archit Shah — Analyst
Okay. Okay, sure. That’s it. From my side. Thank you so much sir.
Suresh Veerappan — Chief Financial Officer
Thank you.
Kunhamed Bicha — Chairman and Managing Director
Thank you Archit.
operator
The next question comes from the line of Vipro Srivastava with Philip Kaplan. Please go ahead.
Vipraw Srivastava — Analyst
Good afternoon. Just quickly, so on the order book side we have seen 25% growth on the order book side whereas revenue has grown by more than that. So any reason why this slowdown or. We are expecting a pickup in quarter four.
Kunhamed Bicha — Chairman and Managing Director
Thank you for the question Vipro. For me we believe the order book has done really well in the last quarter quarter. So it’s grown 26% look at on a year basis. The business is growing faster. But the key is, you know we’re not tying all the orders. We’re giving you a 14 month number, okay. Which is at 2000 crores and we are giving you a number which is you know for 14 months or 36 months which is 1083 crores or so. 11, 1183. So totally we have 3199. If you look at that for a three year period we’ve got orders from three years to 15 years after that.
We are not counting all that in.
Suresh Veerappan — Chief Financial Officer
The order book just to add to that KB. So VIPRO, if you look at our FY25 revenues it was approximately 1000 crores. Today we have an order book of 2016 crores. Just to put that in perspective. Secondly for many of the new programs we will be probably having prototype orders right now getting referred in the order book. So once it ramps up the volume pivots can come and get added in the can come and get added in the later quarters.
Vipraw Srivastava — Analyst
Sure, sure sir, that makes sense. And lastly sir, on the ism, since you mentioned ISM in your introductory introduction so just quickly is the company planning to go for any of these incentives in terms of goods, capital, in terms of manufacturing, you are just optimistic that as semicond manufacturer semicolons come to India you will benefit out of, you will benefiting as a manufacturer or you directly want to enter this ISM scheme.
Kunhamed Bicha — Chairman and Managing Director
So to answer your question, proceed. There’s been the OSAT piece then there’s the FAB piece. Now we don’t know the full details yet but the ISM 2.0 talks about semiconductor equipment. This is exactly where we are foray. Okay. And we believe, let the details come out and we believe there’ll be something for us to finally use some PLA scheme, ISM scheme to get going. It’s one of the industries of focus for us. Right. And also remember, we have just got into one customer. There’s a few hundred customers out there. Okay, so put that into.
Vipraw Srivastava — Analyst
Thanks a lot. Thank you.
operator
Thank you. The next question comes from the line of Santosh Ashadvi with Avendra Spark. Please go ahead.
Santosh — Analyst
Yeah, hi. Thanks for the opportunity. So just wanted to ask first question on this ISM 2.0. So what is the sort of revenue opportunity and camp size that you’re talking about with respect to. To your capital equipment manufacturing? That’s my question number one. And is there any import substitution algo that you know, that you’re seeing here or is it mostly an export market?
Kunhamed Bicha — Chairman and Managing Director
So you talk. I missed the first part. You’re talking of semiconductor equipment or. Yes, yeah, yeah. So this is primarily for the export market. So it’ll come back to India. It’s just not for the. So that’s why we are very much excited that approvals. Most of it is done and with production starting, this is the first set of equipment we are making. I mean, these parts of larger machines, we anticipate to see more parts come through as we go forward. So it’s not only for India, it’s primarily for the. For the global market.
Santosh — Analyst
Thank you. And on the second part of the question, is there any way to size this market opportunity in India and globally?
Kunhamed Bicha — Chairman and Managing Director
We don’t want to go there since it’s, you know, we have our own calculation of where we need to be. But let us get the approvals, the production going, you know, and then we’ll probably comment on that when we move this into a separate vertical in the near future.
Santosh — Analyst
Thank you. And just one last question on this, on the India US Treaty, can you quantify the impact of this proposed tariff reductions? You know, if you could give some color on the duty advantage that you have versus Mexico or other Southeast Asian. Countries, that would be great.
Kunhamed Bicha — Chairman and Managing Director
So we’ve been in the US for the last 25 to 30 years, so we understand the market well. In the last seven, eight months, there have been a lot of customers, you know, on the fence because I can’t say I can make it India faster, better, cheaper, but you pay 50%. Okay. So a lot of people are just put a hole through. But today with the 18% number, you’re better than a lot of the Southeast inside economy is better than China. So I think overall India stands to gain across the board. I’m just not talking about Avalon now, but across the Board and with the combination of having the US front ending and India back ending over the future.
That is, I think the dual model we have is where customers are confident as well as they know is just not set in stone on the status. Right. Somebody changes their mind every few months like what happened with South Korea recently. So you know, it is being in the two locations helps us quite a bit because customer is, you know, not as concerned as just taking it out and having one country specific.
Santosh — Analyst
Thank you. Yeah, that does. Thank you. Maybe if I may just ask one more question on this impact of commodity price increase in your business. I understand that it’s a pass through for most of the EMS companies but can you discuss if there is any lag in the pass through and how should we think about the impact of you know, commodity price increase on gross margins?
Shriram Vijayaraghavan — Analyst
Yeah, hi, Satosh Sriram here. Yeah, recently we have seen some commodity price fluctuations. We’ve, you know, like how we do with the tariffs. We’re very active in terms of working with our customers to recoup possible obviously a lot of this there are puts and takes here based on, you know, different customers, different materials and scenarios. So we’re actively working through that and we ensure to the best of our ability these things are covered. And you’re trying to collect in the same quarter? Yeah, and within the same quarter, usually.
Suresh Veerappan — Chief Financial Officer
Just to add to that we were able to maintain our gross margins within the guided range of 33 to 35. Sometimes slightly more over the last five, six years. So that is something that we’ve been. Doing in the past.
Santosh — Analyst
So that should continue, right?
Shriram Vijayaraghavan — Analyst
That should in all always should. Yes.
Santosh — Analyst
Thank you very much.
Shriram Vijayaraghavan — Analyst
Thank you. Santosh.
operator
The next question comes from the line of Karan Sanwal with Nivesha. Please go ahead.
Karan Sanwal — Analyst
Thank you for the opportunity. So I have a couple of questions regarding our semiconductor business. So if you could, you know, broadly highlight how big is the opportunity that we are anticipating in the semiconductor space and what exactly.
Kunhamed Bicha — Chairman and Managing Director
Hello, can you just repeat the question? We just lost you for some time. Can you repeat the question, Karan?
Karan Sanwal — Analyst
Yeah, so we wanted to understand like how big is the opportunity in the semiconductor space and what products exactly are we targeting in the. A particular semiconductor space? And from the customer that you have already onboarded, do we have any confirmed order book or is it in, you know, in a prototype stage only?
Kunhamed Bicha — Chairman and Managing Director
So the first customer is one of the top customers in the world. But we have prototyping, we have orders, proto orders and things going on. And then there’s the production ramp which is what we’re waiting for, for the orders to come in.