MTAR Technologies Ltd (MTARTECH) Q2 FY23 Earnings Concall Transcript

MTAR Technologies Ltd (NSE: MTARTECH) Q2 FY23 Earnings Concall dated Nov. 03, 2022

Corporate Participants:

Irfan Raeen — Investor Relation

P. Srinivas Reddy — Managing Director

Gunneswara Rao Pusarla — Chief Financial Officer

Analysts:

Deepak Krishnan — Macquarie Group — Analyst

Sandeep Tulsiyan — JM Financial — Analyst

Nitin Arora — Axis Mutual Fund — Analyst

Deepesh Agarwal — UTI AMC — Analyst

Renu Bed — IIFL Securities — Analyst

Dhananjay Bagrodia — ASK Investment Managers — Analyst

Kishan Amarchand Toshniwal — Polar Ventures — Analyst

Raj Mohanvi — Individual Investor — Analyst

Deepak Narnolia — Birla Sun Life Insurance — Analyst

Sriram Kapur — Prabhudas Liladar. — Analyst

Amish Kanani — JM Financial Services — Analyst

Akshay Kothari — Envision Capital — Analyst

Vinayak Mohta — Stallion Asset Management — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen, and welcome to the Q2 and H1 FY ‘2023 Financial Results Discussion conference call of MTAR Technologies Limited. [Operator Instructions]

I now hand the conference over to Mr. Irfan Raeen from Orient Capital. Thank you and over to you Sir!

Irfan Raeen — Investor Relation

Thank you, Michel. Good morning, everyone. My salary from Orient Capital. We are an Investor Relations adviser to the company. I hope that all of you and your families are safe and healthy. On behalf of MTAR Technologies Limited, I extend a very warm welcome to all participants on Q2 and H1 FY ’23 Financial Results Discussion Call. Today on the call, we have Mr. Srinivas Reddy, Managing Director and promoter, Mr. Gunneswara Rao, Chief Financial Officer and Ms. Srilekha Jasthi, Manager, Strategy and Operations.

I hope everyone had an opportunity to go through our investor deck and press release that we have uploaded yesterday on exchanges and on company’s website. I would like to give a short disclaimer before we start this call. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, opinion and expectation as of today — these statements are not a guarantee of our future performance and involve unvoted risks and uncertainties. With this, I hand over the call to Srinivas, sir.

Over to you, sir. Thank you.

P. Srinivas Reddy — Managing Director

Thank you, Irfan. Hello, and good morning, everyone. Thank you for taking the time to join us today. Today on the call, I’m joined by Mr. Gunneswara Rao, our Chief Financial Officer; and Mr. Srilekha Jasthi, Senior Manager, Strategy and Operations. — and Orient Capital Investor Relations partners. We have uploaded our updated Investor Day, tales and results highlights on the stock exchanges and company website. I hope everybody had an opportunity to go through the same. I’m pleased to inform you all that H1 FY ’23 has been report half year in the history of MPS with higher server revenue A — the company has clocked a revenue of INR16.3 crores with an EBITDA of INR34.9 crores and a PAT of INR24.7 crores. Further, I would like to give a brief overview on secular performance and outlook.

The company continues to witness a significant growth in clearing segment. We have also introduced a lot of new products in this segment, which is enabling the company to grow even much at much higher levels. We have generated close to about INR99 crores from clean energy, which includes fuel cells and other related sales that we have done in this segment. And also, we have delivered very high number of Units about INR1,034 this quarter and also about 4 of ladies well. Further, we’re also working on the — under the energy hit sectors and also in wind and waste energy projects. We also received orders from new customers. in this segment, and we’re building the first articles for them, and we hopefully would turn out much higher volumes moving forward in the next financial year.

As I mentioned earlier, we have received substantial orders this quarter, which is close to about — I think, about INR650 crores plus, which includes orders from nuclear segment, space, clear energy, all put together. The company continues to strengthen the PNG vertical to power a safe future and is currently in discussion with a lot of new customers that are in hydro fuel cents and hydrogen storage systems. Our closing order book, as I mentioned, as of 30th September has been to tune of INR1,288 crores with an order inflow of INR63.5 crores. And we are exceptionally pleased to receive the kind of orders that we are looking at from various segments, especially in the clean it reset men because of our latest innovations that we have done recently.

We are on track to achieve our given annual guidance of 55% to 60% growth in revenues. — with an EBITDA of 30% plus minus 100 basis points. And as I mentioned earlier, the second half is going to be much stronger than the first half. So the EBITDA levels, we would be able to catch up on that and achieve the guidance what we have been in the past. The company, as I mentioned, is consistently placing efforts to diversify its customer base. And as informed, we have added customers that had also in the tent segment this quarter. We are also in discussion with several customers from not only in Clenergy, but other verticals as well. Our CFO, Mr.Gunneswara Rao be discussing the financial performance for Q2 FY ’23.

And I would like now to hand over to him to take this forward.

Gunneswara Rao Pusarla — Chief Financial Officer

Good one, and a warm welcome to our earnings call. I will take you through the financial and operational highlights, post which we will open the floor for questions and answers. It is very satisfactory quarter for both in terms of yen Q-o-Q and also our highest charter book cover in the history of — so regarding the financials, revenue from operations stood at INR126 crores in quarter 2 FY ’23 as ages INR91.3 crores in Q2 FY ’22 which translates a 38% increase in year-on-year. EBITDA reported at INR34.9 crores in Q2 FY ’23 as compared to INR29.4 crores in FY — Q2 FY ’22, which is 19% increase on a year-on-year basis. Profit before tax stands at INR33 crores in Q2 FY ’23 as guessed to INR27.1 crore in Q2 FY ’22, which is 22% increase on a year-on-year basis. Profit after tax was INR24.7 crores in Q2 FY ’23 has ignited INR19.1 crore in Q2 FY ’22, which is 30% increase on a year-on-year basis.

Our diluted EPS stands at 8.03% for Q2 FY ’23 as anest6.2%fer Q2 FY ’22. Our net working cases as an such as capture 263 days, which inflates INR93 days are due to worsened progress. We have some long project times, lead time projects are there in required to maintain inventory — so the work in progress is inherent in nature in our business. So we need to have this working capital so that we can detonate for future sales. We are also working on existing net working capital base. So our target is 200 days by end of this financial year. And our ramp-up in revenues is expected to reduce our fixed cost and thereby improving our margins are generated by us. As informed by our MD, we are looking to forward to increase our resin profit and maintain EBITDA level around 30%, that’s far minus 100 bps. We are also strengthening our team and our system further to cater the highest growth we are witnessing from now onwards.

And with this, I open the floor for discussions.

Questions and Answers:

 

Operator

Thank you very much. [Operator Instructions]. We will — the first question is from the line of Deepak Krishnan from Macquarie Group. Just probably one question from my end. I wanted to understand the gross margin variation that we saw this quarter versus previous quarters. And similarly, on your other expenses, they seem to be flat Q-on-Q despite the substantial increase in revenue. So just wanted to kind of run through any special one-offs or any factors that have impacted gross margins and as well as did other expenses?

P. Srinivas Reddy — Managing Director

Gunnes, do you want to answer that?

Gunneswara Rao Pusarla — Chief Financial Officer

Yes, yes, I can take this call. See, the gross margins due to the higher export revenue, the little bit gross margin variance is there. And also some of the domestic projects, the quarter and the numbers, quarterly numbers will have a different

Operator

I’m sorry to interrupt, sir, your voice is breaking. Can you please repeat your last line?

Gunneswara Rao Pusarla — Chief Financial Officer

Yes. This is regarding the gross margin, the highest export turnover, whatever we have witnessed in this quarter which is resulted in the gross margin, lower gross margin. And also some of the domestic projects, where we have the gross margin differ from project to project. And this resulted higher gross — lower gross margin, higher the material cost and all. So on an overall basis, by end of the year, we will maintain the gross margin water we were on the average basis, we will maintain on the year-end, year-end basis. So the second question, can you come again, Deepak?

Deepak Krishnan — Macquarie Group — Analyst

Yes, sir, I just wanted to understand the sharp improvement we have seen in lower other expenses this quarter that has really aided our EBITDA margins. Anything that’s more sustainable, do we kind of see this trend continuing?

Gunneswara Rao Pusarla — Chief Financial Officer

So as we know, the growth was we have said is 55% to 60% in terms of revenue growth, we are actually augmenting our manpower requirements for the future requirement that has resulted the operating expenditure as operator expenditure. So there is no issue. By end of the year, we will maintain our margins as we saw it earlier, the higher revenue, the fixed in cost percentage in terms of the revenue will be lower by end of this financial year.

Deepak Krishnan — Macquarie Group — Analyst

Sure, sir and thanks for the answer on that. And maybe just on the order inflow, like we see good order inflow in the clean energy sector. Obviously, you’ve declared the blue model. But other than that, we also see additional INR90 crores order. So could you like show kind of highlight — are these some new customers? Or are they from existing blue motors itself?

P. Srinivas Reddy — Managing Director

We have received orders from any in the case of Bloom Energy to the maximum extent. We’ve also got us from nuclear segment. And also, we have received initial orders from GE Renewable who is our new customer right now in the [Indecipherable] segment. It’s a combination of all this and orders coming in from space as well. So majority of the orders are coming from fuel cell, and we expect a lot more orders coming in the fuel cell segment in this quarter and Q3 and Q4 as well. Because we are introducing new products in the nuclear segment, which we have got qualified recently. So we are expecting a lot more of this going in to the next 2 quarters as well.

Deepak Krishnan — Macquarie Group — Analyst

Sure, sir. That’s encouraging to hear. I’ll just get back on the question queue. Thanks for answering my question.

Operator

Thank you. We have the next question from the line of Sandeep Tulsiyan from JM Financial. Please go ahead.

Sandeep Tulsiyan — JM Financial — Analyst

Yeah, good morning. Firstly, very congratulations on the robot stood that you delivered in the current quarter. Sir, first question is pertaining on to your guidance, this 55% to 60% guidance that you have given the presentation mentioned that you’re expecting INR300 crores of revenue second half. So would you want to revise it to the upper end of this guidance or probably exceed this 50% growth in the current year that you can do in the revenue?

P. Srinivas Reddy — Managing Director

Sandeep, basically, we have given this guidance at the beginning of the year. We always like to under promise and over deliver. So we have been looking at that all the time. Obviously, the way the numbers are moving up and having a very strong second half of the year Obviously, the revenues would be much higher, but I would still like to stick to this guidance. But definitely, we would be doing much better than what we have guided everyone on this subject.

Sandeep Tulsiyan — JM Financial — Analyst

Understood. Fair enough. So just being conservative on that. And secondly, on the order inflows, also, we had guided around INR850-odd crore order inflow because that is what translates into your INR1,000 crore of closing order book for the year-end. But we have achieved that number in the first half itself. So where would you want to take this order inflow guidance for the year? Because I’m sure there will be a second tranche of Bloom energy orders coming in fourth quarter. And also nuclear energy, correct me if I’m wrong, but there is one more order which was pending where we were even to be booked. Has that already come in in this quarter? Or there is some portion which is still left? So what kind of order inflow can we expect for a balanced part of the year? And if you can highlight some major orders that you’re looking forward to?

P. Srinivas Reddy — Managing Director

So as of now, we see the U.K. order has already come in, Sandeep. It’s there in the order book already. We have received that in Q3. That’s about INR62 crores and all. As far as the further orders are concerned, yes, we are expecting a lot more orders coming in, but we’ll not be able to quantify it right now, but since we have got qualified for new products in clean energy and also with other customers, we’re expecting orders flowing in even during this third quarter and the fourth quarter of this financial year. So we’ll have a very strong order book. As I said, closing order book being INR1,000 crores, probably we might exceed that. But I would like to stick to that actually how it goes. But the way things are going and the kind of innovations we are doing, we expect a lot more orders flowing in at this point of time. So let’s see how it goes moving forward.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. Sir, third question is pertaining to your nuclear segment. We have seen a very weak execution in first half, just INR8.5 crores of revenue. Our order book continues to be very strong. It was INR150 crores at the year beginning, now it’s more than almost close to INR220 crores. So where is the main bottleneck? Why detection slow? Is it the delivery time lines as such? How should we look at the annual growth numbers in this segment per se?

P. Srinivas Reddy — Managing Director

So I said, Sandeep, the nuclear orders, a lot of work is being done, and we have the projects of cooling machine and all this working process going on right now. So some of these projects will get executed during the second half of the year, both in terms of pooling channel and SMS and all these new projects that we’re working on for the last 1 year in place. So we’ll be able to catch up on those numbers in the second half of the year. So the cycle time for these projects would take that much time. And there are certain clearances to be given by the department. So it’s happening the way it is. But second half will get you to catch up and improve the numbers of the neutral segment.

Sandeep Tulsiyan — JM Financial — Analyst

Got it. Sir, next question is regarding your volumes for hard boxes. You had guided this year, you should do something around 4,000 boxes next year, about 7,000. If you can guide, is there any change to these numbers that you’re expecting? And also, Bloom Energy’s recently commissioned a 2 gigawatt electrolyzer plant in U.S. So if you can give us some guidance. You said you did 40 units in this quarter. What can be the annual volume run rate this year and next year in electrolysis as well?

P. Srinivas Reddy — Managing Director

Yeah, electrolyzer, we are continuing to do batch production right now. And for next year, the initial orders, which was to release for 200 numbers. And probably that number would go up as and when the time parts imply over the next two quarters. But we are right on track in terms of this 4,000 and 7,000 units. All that is right on track in terms of an execution level, which you must have seen in this quarter as well. And even in the next quarter, the numbers are much higher. So we are right on track in terms of executing these orders and the numbers what you have mentioned earlier.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. And anything on the hydrogen boxes in terms of volumes that we can expect next year?

P. Srinivas Reddy — Managing Director

Ultimately, the electrolyzers and hydrogen that particular products would really do extremely well, they’ll ramp up very high. In fact, I probably looking at a little bit more time, but probably by next year, the ramping up should happen in a big way. Probably by end of FY ’24, we will see a very huge ramp of happening in those verticals, which can be even bigger than the Yuma and [Indecipherable]

Sandeep Tulsiyan — JM Financial — Analyst

All right. One last bookkeeping question from my side. The other income has been coming in quite high, the INR4 crores last quarter, INR5.5 crores this quarter. If you can just or Mr. Gunneswara can just share the breakup of the other income will help.

Gunneswara Rao Pusarla — Chief Financial Officer

See, the other income is mainly related to staff and other — other than the operating related expenditure these things. So it is negligible, but I will just come back to you the reason for this other income investor. so the ForEx gains, which we received because of the higher dollar rate, where our receivables are very high. So that’s the major ForEx gain has come.

Sandeep Tulsiyan — JM Financial — Analyst

How much was that, sir, in second quarter and in the first half, if you can share this one.

Gunneswara Rao Pusarla — Chief Financial Officer

So, these numbers is INR1.9 crores in the first quarter, second quarter, around INR4.4 crores.

Sandeep Tulsiyan — JM Financial — Analyst

Got it. That’s it on my side, sir. Thank you so much for taking these questions.

Operator

Thank you. We have the next question from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.

Nitin Arora — Axis Mutual Fund — Analyst

This is Nitin here. Thank you for taking my question. Sir, the first question is on your new plan, which you talked about GE Renewables. Can you throw some light how big this can become? What are they ramping up — and eventually, it’s the Yuma boxes only which you are supplying, if you can throw some light on this new client addition?

P. Srinivas Reddy — Managing Director

Renewable is basically on the hybrid sector. So, they’ve given us the initial order the new customer for us for our [Indecipherable] plant for about INR five crores, that’s a starting point. But based on our commissioning of the missioning facilities in Agbara, by end of this year, calendar year, Obviously, this is going to grow bigger and bigger. It’s not only GE Renewable, we are looking at what — we are working with voice as well and mix as well. So, a lot of these companies are approaching us to execute their projects. So, we’re hoping that — this will become a much larger volume moving forward over the next one or two years.

Nitin Arora — Axis Mutual Fund — Analyst

Okay. Okay. That was the previous I thought something would have added in the clean energy part. So, In terms of scalability with respect to the new client in the, let’s say, in the same SOFC, I understand Room is the only company which is doing that rest of other people are in a different technology. But — and you said that if you have made this product, you can eventually do other products as well, which is made by Ballard another one. So, any update on that in terms of new client addition

P. Srinivas Reddy — Managing Director

Yes. We are actually working on that. So, one thing, Nitin, we have to understand is that a lot of these companies, if today analyze this, they have to come to the volume levels of room for us to really address the platform is started coming to India and setting up offices in India is what I had. But all these companies ultimately need to start at outsourcing their requirements. We are looking at — we are talking to various customers as of now. But end of the day, the volumes should be good enough for us to address that in any technology, we need to work on it, but we have a great platform to address all this.

But one significant thing is we are now going to work on the fuel storage systems like flowing energy from U.S. as approach us and we are in advanced discussions with them. that’s going to be a very big cost to the numbers moving forward over the next 1 year or so. So, we are adding on customers which will not only make thanks to MTR in the long run, in terms of revenue growth, but also in terms of our profitability. So that’s what we’re looking at. So, a lot of good customers are approaching us and — it’s a matter of time over the next one, two years, we have not more customer base in fuel cells and fuel storage in as well.

Nitin Arora — Axis Mutual Fund — Analyst

Okay. Just one clarification on the gross margin. So, quarter-on-quarter revenue, which actually led no other change in any other segment, it’s just the clean energy, which is export has increased — but that itself leading to a gross margin decline of 600 basis points. There is a commodity impact as well here, if you can clarify that.

Gunneswara Rao Pusarla — Chief Financial Officer

So regarding the gross margin 600 basis is not purely on the export. The export definitely, the raw material cost is higher, where the fixed cost is gone. But other projects, where we have a raw material versus value additional, there is differences are there. In some cases, maybe 50%, in some cases, 40% pro meter in some cases, maybe 50%, 55% — it depends on the so many other like we have — we are doing a lot of products. But on an average, our gross margin is around 50%. And by end of year, we will be around 50 to 52 percentage.

Nitin Arora — Axis Mutual Fund — Analyst

All right. Thank you very much. I’ll come back in a bit. Thank you

Operator

Thank you. We have the next question from the line of Deepesh Agarwal from UTI AMC. Please go ahead.

Deepak Krishnan — Macquarie Group — Analyst

Good morning, sir. So my first question is in terms of inventory, what is the average inventory in terms of — with respect to production schedule raw material inventory you are stocking in its back to production schedule on a month basis.

Gunneswara Rao Pusarla — Chief Financial Officer

[Speech Overlap]

In terms of the clean energy, we normally maintain a 1 quarter inventory, our maximum of 4 months inventory because of the supply chain disruption, — and on the imported material, we order in advance. So that the one disruption in production. [Indecipherable]. So, getting the raw material in time, on time is very important because a lot of production will act very badly in the company. So, the four months or three months inventory in the clean energy sector we maintain in case of other areas, where we already mentioned our it is fermented for a future production. Almost 93 days of working capital is related to a double only.

So other APIs, we have to get the metro in order in case of the sheet metal enclosures and other areas. And some of the raw material, we also get an advance almost INR41 crores of money, we received an advance from the customers for the raw material whatever we have in the company. So thereby, we don’t want the production disruption. That’s why we maintain enough inventory for the next 6 months, so there won’t be any problem for the company to achieve its target.

Deepesh Agarwal — UTI AMC — Analyst

So sir, is this understanding correct? Typically, you keep 3 to 4 months of inventory right now, you are at 6 months of inventory for clean energy.

Gunneswara Rao Pusarla — Chief Financial Officer

Normally, our target is we wanted to maintain premium say, 1st quarter inventory for the next quarter deliverables in the case of clean energy, but due to long-long lead in case the supply chain issues, what we have, we are maintaining the inventory more than three months. But over a period of time, our objective is to keep the three months inventory in case of clean energy, — in case of domestic projects, we will — because we get an advance from customers, as and when the project starts once our detail is complete, we will buy the raw material and get the advance to the customer. We don’t have any problem as far as the trial customer because we receive advance also from the customer.

Deepesh Agarwal — UTI AMC — Analyst

Understood. Sir, your entire clean energy order book, which is some INR870-odd crores is executable in next one year?

P. Srinivas Reddy — Managing Director

Yes. It’s basically what all orders we have received right now — some of them are excluded in the second half of this year and for the next calendar year. That’s what it is. And we’re also going to receive further orders to be excluded in the next calendar year. So that’s how it’s going

Deepesh Agarwal — UTI AMC — Analyst

Which implies your–

P. Srinivas Reddy — Managing Director

Execution package time is very short for all these orders. So that’s what it is.

Deepesh Agarwal — UTI AMC — Analyst

Okay. So which implies your next 12 months clean energy revenue could itself be more than this order book number.

P. Srinivas Reddy — Managing Director

Yes, that’s right.

Deepesh Agarwal — UTI AMC — Analyst

Okay. Sir, the other question is on the commodity prices settling down. But do you think that we can actually go beyond this 30% band in terms of margins

P. Srinivas Reddy — Managing Director

No, I don’t think so because whatever contracts we have signed for this year already signed — and as I said earlier, it’s a pass-through for us. Any increase in the raw material cost doesn’t really borrow the company. We are never affected by that date. But we think the commodity prices settling down, they’re not yet in terms of specialized sales. Inconel 174, 44 all the specialized materials, are still on the higher side, but still, it is a pass-through for us as the customers cover for us, so it’s not an issue for us. But moving forward, probably, we have to see with if the stability comes into place, then it would be fine. But as I said, basically the second half is going to be much stronger than the first half. So whatever EBITDA levels we have given a forecast earlier, what that will be able to catch up upon and maintain that by end of the year.

Deepesh Agarwal — UTI AMC — Analyst

Okay. And sir, it’s hardening to see some dispatches for sheet metal, some inflows for actuators — can you help us explain what could be the time lines with respect to the larger or the on-sheet meters, actuators or the screws?

P. Srinivas Reddy — Managing Director

See, we have received that — see already the sheet metal plant is doing really well in terms of shipments happening when of INR12 crores in 11 crores. We have orders for enclosures for about, I think, seven sets where we supply in this year, which we’ll be doing that. That’s about $3 million. Then we have another order, which received 2,450. So purely based on our qualification and quality, the customer has release order in for the next financial year — next calendar year, in fact. So all these things are adding up into moving MTR into a more like a fully integrated system level.

Since as I mentioned earlier, the electronics side also, we have started working on it. We have gone — we are now completing the stage 1 of electronics in terms of cable harnesses that is Stage one, which was going to be qualified for cable harnesses for blue and also for certain aerospace and defense projects as well moving forward. So all these things we are moving in a direction where making them tire fully degraded comp over the next one, two years. So a lot of wallet share is being added within the existing customer base and also with new customers. So that’s where we are moving at.

Deepesh Agarwal — UTI AMC — Analyst

Understood. Thank you, Sir and all the best.

Operator

[Operator Instructions] We have the next question from the line of Renu Bed from IIFL Securities.

Renu Bed — IIFL Securities — Analyst

I just have two questions. First, if you can help us give an update on how have been the new product development proceeding — and by when do we see the commercialization of some of these new products in our order backlog in terms of firm orders? And second, with respect to new client additions on the clean energy, are we looking at other technology partners on PEM side? And if we are, if you can just share any update if any, that we have here?

P. Srinivas Reddy — Managing Director

So basically, the new product development, the first thing is the ASP, the fueling systems in the energy segment, are qualified for that. That’s going to result for the next calendar year and partly for looking at next calendar year, basically, that’s from January to December, we’re looking at close to about INR100 crores plus of revenues coming in from there. So this is purely based on the qualification that we have done. So it’s a great addition that we’ll be doing in terms of revenue in the product portfolio. Roller stores, we have already submitted the first articles and — right now, it’s under clearance with the BDO, hoping that they would give the parents to us at the earliest. So they can put an important bar on that. Right now, they’re reporting it from gold with Sweden, both in space and defense in all these sectors.

So that’s a market which we’re looking at. I’m not going to say that we’re going to get INR70 crores, INR80 crores overnight. But over the next two years or so, we’ll capture that kind of market in this area. — electromechanical actuators were excluding the couple of two orders that have given us, we should be able to complete it this year, where even the roaches go into that, which we are going to use our own bonus goes for that. So the EMA are something which we are doing pretty well. So that would be another good addition to our product portfolio as well. And — we are further working on other products as well, which will debate the due time in terms of manifolds and other things, which we are working on. So we are working on a lot of these products for R&D department. As far as the new customers that center, I spoke about GE Renewable and our customer. We have been very selective.

We’re working with good customers where it can translate into reasonable and good volumes going forward. So GE renewal is one such customer — we’re also working with a customer called Fluid energy from U.S. for Power Store Systems, which is completely a very exciting project for us. which is going to be very innovative. It’s going to give us volumes to the tune of at least about anywhere between INR300 crores to INR500 crores 1 year from now or 1.5 years from now. So we are looking at such good customers working with them. And obviously, the fuel cell segment — some of the companies are doing their prototypes. They’re coming to a level where they start approaching us some discussions are happening. So that probably will take — we are looking at 3 to 6 months’ time, we can look at some of the customers coming in line with entire in terms of their requirements. So that’s where we stand right

Operator

Mr. Tada? Yes. I have an modeling. Can you proceed with your question?

Renu Bed — IIFL Securities — Analyst

Yes.

P. Srinivas Reddy — Managing Director

Sir, our cash flow creation is very weak for the last five, six years that I’m seeing. And the working capital cycle that we operate, every time that we grow 50%, we’ll need external capital, either in the form of debt or equity. So what are we doing to ensure that when we grow the cash flow creation happen? Yes. This is — sir, the major reason for the revenue growth whatever we are witnessing, which requires a higher raw material and working working progress as we explained earlier, our work in progress because in the domestic sector, the projects are more than one year or tw, two years. So I need to carry the inventory value addition until such time it delivered. — nerve have not recognized as revenue on the percentage completion basis, we go about the transfer business conservatively.

We don’t want to book higher revenue and then reduce the work in progress. That is one of the reason for higher working capital. Now given the higher growth in then compared to H1, our target is 200 days. So the working capital days we wanted to maintain 200 days by end of this financial year. So that is one reason. Second is our receivable Out of the total receivables, 91% of receivables are due but not overdue. — are on over to receivables, sir. That is also of the contract whatever we have, some retention money has to be hold by the respect to customer, which we will get in this already out the receivables, INR20 crores we received in the month of October.

So the working capital — inherent nature of business to expire the working capital in case of the domestic customers, I need to carry inventory till such time it is delivered to the customer. And in case of export, the customers, credit period is 45 days after reaching U.S. a — so all these things, we have factored into pricing. If you see our EBITDA margins are around 30% after the working as the cost, working capital and funding. So this business requires higher working capital and where we will like have all the limits in place and also the what you set the tax capital

Operator

Sorry to interrupt, sir, kindly repeat your last line. We couldn’t hear you.

P. Srinivas Reddy — Managing Director

Yes. So the inherent base in the nature of the business request required your working capital. And as we are factoring the cost of working capital funding in the pricing of the product water — so that’s why we are achieving the EBITDA margin of 30% and the PAT of around 19% business requires a higher working capital because of the nature of the business, whatever we are in However, we wanted to maintain our working capital to was around 200 days by end of this financial year. We are already enough measures to improve the credit period of myself receiving docomo wherever possible. So all the best will give the fruitful results by end of the year, I think, 200 days will maintain by end of the financial year. And later, we are change into targets in the coming financial year also.

Renu Bed — IIFL Securities — Analyst

So, what you mentioned on the revenue side, we tend to book our revenues when we deliver the product is what you want to maintain

P. Srinivas Reddy — Managing Director

We are booking the revenue only when the to be delivered product

Operator

Sir, your line is not clear, sir. You are going.

P. Srinivas Reddy — Managing Director

Your voice is breaking. I would request you to use your handset.

Renu Bed — IIFL Securities — Analyst

Yes, I’m using handset only. So, we are actually recognizing revenue as and when we deliver the product to customers. not recognizing percentage completion method, even though the accounting standards allow us to do, but we are not doing that. So the work progress, we need to maintain working progress until such time we delivered the product to the customer. Sir, usually, what is the execution cycle for your manufacturing?

P. Srinivas Reddy — Managing Director

So there is 12 months to two years

Gunneswara Rao Pusarla — Chief Financial Officer

12 months to two years.

P. Srinivas Reddy — Managing Director

Some of the projects, not all under projects. So maybe you can sell 60%, 50% of the domestic customers for projects. It requires 12 months to two years.

Gunneswara Rao Pusarla — Chief Financial Officer

Okay. And the Max working capital cycle, the lowest working capital cycle that you see is about 200 days as of now.

P. Srinivas Reddy — Managing Director

By end of the financial year, that is our internal target. We are taking enough steps to reduce the working capital by end of the year, 200 days we wanted to maintain. Accordingly, we are taking a lot of measures in terms of the improving the credit period of the supplier and getting the advances from customers and reducing inventory level following up the receivables more vigorously. So, we wanted to achieve this by end of the financial year. And next year, we will take further stringent targets in terms of the working capital reduction.

Renu Bed — IIFL Securities — Analyst

And sir, that execution cycle of 1 year which you mentioned, more than one year, that even in the clean energy business, that kind of execution factor.

P. Srinivas Reddy — Managing Director

No, no. Clean energy is large exact. It is early this year, we are going to do more than 4,000 human boxes. And quarterly, not more than 1,000 boxes we have delivered in the Q2 of this financial year. So clear alert is large line.

Renu Bed — IIFL Securities — Analyst

And what is the execution cycle for clean energy?

P. Srinivas Reddy — Managing Director

It is like this presently, we are actually delivering more than 1,000 fuel cells in the quarter in this 1st quarter.

Renu Bed — IIFL Securities — Analyst

Okay. Okay sir. Thank you very much.

Operator

Thank you. We have the next question from the line of Dhananjay Bagrodia from ASK Investment Managers. Please go ahead. Mr. Bagrodia?

Dhananjay Bagrodia — ASK Investment Managers — Analyst

So what are the margin differentials between the segments?

P. Srinivas Reddy — Managing Director

We are getting, on an average, we are getting equal margins in all the segments, except in case of the fuel cells. So there is no percentage of margin differences are there. That too, we will mitigate with given the higher revenues, whatever we foresee in the coming financial year, and this is H2 also, the margins are more or less same except in case of a space, maybe 2% may be higher. Hello?

Operator

Mr. Bagrodia? I think the line has got disconnected for Mr. Bagrodia. We’ll take the next participant. And the question is from the line of Kishan Amarchand Toshniwal from Polar Ventures LLP. Please go ahead.

Kishan Amarchand Toshniwal — Polar Ventures — Analyst

Good morning. Congratulations, first of all, on a good set of numbers. My first question is basically, did you participate in this about Defense Expo that happen just now? Hello?

P. Srinivas Reddy — Managing Director

No, we have not participated in this different exports.

Kishan Amarchand Toshniwal — Polar Ventures — Analyst

Any reason? Was it not for our company was not having anything related to it or just we are looking for something else?

P. Srinivas Reddy — Managing Director

So we have participated the earlier exhibition, but we are touched with all the various customers, and we’re also doing one of projects, but we didn’t find it to be probably to participate this year probably moving forward, we might do that. But we already have enough on our rate at this point of time, and we are in touch with most of the customers in the different sector as well.

Kishan Amarchand Toshniwal — Polar Ventures — Analyst

Okay. And the second part is everybody has asked just a repeat of it. The working capital cycle that you are saying that you will be trying to get it to 200 days in this year by the end of the year. if I can ask you, what is our long-term target, where we are satisfied that this working capital cycle, if we achieve, we are to if I may ask maybe two years, three years down the line.

P. Srinivas Reddy — Managing Director

See, the working capital number of dates, I say, we should not say as long as we are actually keeping that cost of working capital in my pricing — we don’t see any reason for the number per that is largely only parameter we see ultimately, today, with the various government support and all our interest cost is 5.4% per annum but through interest equalization steel we are opting, so the cost of funding per annum 5.4%, I am keeping this cost in my pricing. And thereby, we are achieving the EBITDA margin of 30%. However, we wanted to reduce our working capital as much as possible. Some of the in case of domestic projects, for example, we don’t have any say on the, as far as the terms are the commercial terms of the contract into consideration because it is all dictated by the tenders.

So even if one line or pulse want to change, I cannot change, I will be out of the the tender rail. So domestic, we don’t have any say. In case of exports, our credit terms is 45 days from the date it is reached to U.S. location. So, it is now it is because of the supply chain disruptions earlier, it used to take 30 days or 25 days to reach USA. Now it is taking almost 60 days. There is almost 35 days of the higher transit times, the working capitals are increasing, the is increasing. I think we are hopeful that maybe next financial year, I think all the supply chain disruptions will settle, and it normally will be there in the future. Then automatically, the 35 days, what our transit time is now we’re taking it will be it will not be there in future.

So that will be one straightaway reduction will come. In case of other things, like we are trying to improve like month months back, we used to pay the, our suppliers low credit period because of the COVID reason, lot of suppliers were asking for the upfront payment because of the cash flow tranches across all the sectors during the COVID period. Now again, we bring it to 60 days now. There some more suppliers, we are working in this H2 also, thereby the next steps, we are taking to reduce to 200. Maybe next after that, I think we don’t have a plan as such because immediately, we are attacking in this H2 of this financial year.

Long run way maybe 150, just because you have asked me how I will work for 150 days, then see how best we can do, so, but what it is a second done, we are actually keeping this cost into the pricing, achieving EBITDA of 30%, that of 18% above. That is the main objective of our company to achieve the profit numbers and revenue top line and bottom line is very important for us. And this is also important, but because of the nature of the business, I need to keep higher work in progress. And second is the domestic customers, the tender is dictating the terms in case of U.S. customers, the credit period is such that we need to have this working capital.

Kishan Amarchand Toshniwal — Polar Ventures — Analyst

Got it. Got it. Thank you very much.

P. Srinivas Reddy — Managing Director

Thank you very much.

Operator

Thank you. We have connected the line of Mr. Thank you. We have connected the line of Mr. Dhananjay Bagrodia, he’s online. Mr. Bagrodia, I will request you to kindly proceed with your question.

Dhananjay Bagrodia — ASK Investment Managers — Analyst

I wanted to ask you, with a lot of the larger players in India conglomerates in India have been speaking about how they’ve been focusing on hydrogen. What is something what would be our addressable market opportunity in such a big segment?

P. Srinivas Reddy — Managing Director

So, the market space is very huge. Normally, we’re not going to look at the market. The market is too big for us to even look at it. I mean the market is not the issue. The issue is with the technology, right? So we’re right up there in terms of technology, and this has to improve over the next four, five years. That’s where we are. We have to start somewhere to end somewhere. So that’s what is happening right now. So market is not the issue. Market is very huge for that right now, and you need to focus more on the technology to make it more viable for everyone. So that’s quality, and that’s the kind of stage we are in today.

Dhananjay Bagrodia — ASK Investment Managers — Analyst

Sir, just to break this down a little more, let’s say, would it be like a large conglomerate would place one order and then only one person would get the whole value chain? Or how would the value should be broken up between companies like us and competitors? I’m just trying to understand where do we have enough opportunity in if our technology you have to correlate to someone else’s technology also? Or how does it work?

P. Srinivas Reddy — Managing Director

See, as I said, the way it works is if you look at different countries, every country, every government has been subsidizing this whole green hydrogen projects in a big way because that’s where the whole world needs to be in the way we are having the climate changes happening all over the field. So that’s the priority. Now that being the case, a lot of companies are focusing on how to build the technology, and how to make it very viable over the next five, six years, that’s what we’re going to see. If you look at electric cars and all that, 10 years back we want to think about it, right now, we’re all talking about it.

But moving forward seven years hence from now, you’re looking at green hydrogen being a prime source for energy for everyone. So on that to be achieved, we are actually ahead of the game in terms of building with our customers in terms of this technology. And once that happens, then you can see, as I said, this particular vertical is going to be the biggest vertical moving forward, even in case of entire. So that’s exactly where we’re going to be moving forward as well.

Dhananjay Bagrodia — ASK Investment Managers — Analyst

Okay. So would it be fair to assume that there’s enough opportunity for every player. I won’t be just be one place technology, which gets picked by the conglomerates and then the other players lose out as such, right?

P. Srinivas Reddy — Managing Director

There’s nothing like that. There’s nothing like other players do, it all depends on what kind of technology they have, and I have said earlier also that the market is too big for us to really bother about it. So there’s enough to grab from the place whatever is a huge space, which is an for us right now.

Dhananjay Bagrodia — ASK Investment Managers — Analyst

Okay. Thank you. And sir, lastly, just one more question. Are most of our contracts fixed or variable because our gross margin movement?

P. Srinivas Reddy — Managing Director

The current — what you mean by fixed or variable? I mean, we have all the nuclear orders we have a fixed kind of pricing for that. But we have a price [Indecipherable] for them to 20% is our valuation. And other projects like space, it’s the raw material is the issue for us. So that’s not an issue at all. In the case of energy, it’s a pass-through for any increase in raw material the customers [Indecipherable].

Dhananjay Bagrodia — ASK Investment Managers — Analyst

Okay, sir. Thank you.

Operator

Thank you. We have the next question from the line of Raj Mohanvi and Individual Investor. Please go ahead.

Raj Mohanvi — Individual Investor — Analyst

Yes. Thank you for the opportunity. Congratulations on the results and a phenomenal order backing. Questions largely on clean energy. Broadly, Bloom is looking at a 30% to 35% growth over the next 10 years, aided by growth in SOFC as well as electrolyzers. Considering the various levers that NPA has in terms of increased wallet share or increasing wallet share and constantly driving higher product efficiencies. Doesn’t it arithmetically translate to us growing higher than this 35% CH year for Bloom. Thus, the entire management have any internal assessments to share of the growth prospects of the Bloom business over the next 10 years, whether it be 40%, 45%, 50%. Thanks.

P. Srinivas Reddy — Managing Director

No, it’s — we don’t look at 10 years, but what’s most important is two assets here. How have we been doing in the last one year? How are you doing the next year or next three to five years from now. Yes, there has been a phenomenal growth in terms of what we have been doing for the customer. And secondly, also the various increase in wallet share through renovation for them the product were importing from Japan or from U.S., the banks in U.S., we are able to get qualified for such products for R&D to supply sites or wallet share. So this also enables us to — that’s what is happening right now. We have a great platform where there is any other customers moving forward as we I was very entering, that’s what I said, you need to be at that kind of volumes for impact really address their needs.

So we’re looking at customers to build their prototypes and probably might address their requirements as well as moving forward. Yes, the growth of Bloom has been very engaging. We have a clear forecast even for the next 3, 5 years, a way things are going right now. And that’s why we are proactively ensuring that we have enough capacity, enough development activities that we are doing to ensure that we are right up there in terms of deliverables for Bloom as year-on-year basis.

Raj Mohanvi — Individual Investor — Analyst

I understand. But Bloom generally is supposed to be, as you yourself have indicated and Bloom themselves have much more efficient in their products, 20%, 30% more efficiencies in their products than competitors. So when Bloom itself says, it will grow at 35% per year. Arithmetically, I was looking at you growing faster with higher wallet share in this. Anyway, and that is something which we should take in our estimate times. As we finish half year this year, do we have visibility to guide on FY ’24 revenues, especially based on Blooms budgets?

Like we have orders worth INR868 crores in clean energy, which we have indicated to executing 80% in calendar ’23. And over that, we would get new orders also. And looking at number of hard boxes guidance, you have stated to it increasing from 4,000 to 7,000 which sells to the 75% growth. So I see us doing a lot better than the robust 55% to 60% growth you have indicated to this year. And I get a number of around INR700 crores of revenues from clean energy easily possible next year. Is that the right estimate?

P. Srinivas Reddy — Managing Director

Yes. I think you know how to do the calculations, right? So I don’t want to say that — obviously, the way things are going, how strong the order book is the revenue growth is going to be very robust moving forward second half as well as next financial year. So we don’t want to give a guidance were ahead of time right now for FY ’24. But we are very excited the way we are growing right now and also innovating a lot of things in different segments. Yes, you are right. But we would like to stick to what we have said in the beginning of the year. And as I said, you under promise and over deliver. So — but you — technically, if you calculate everything you know what it is. So I leave that up to you.

Raj Mohanvi — Individual Investor — Analyst

One final question on margin improvement. With higher efficiency products, higher wallet share economies of scale kicking in, would we see discernible improvement from, say, next year, resulting in structural yearly improvements in margins even beyond the 30%. And we have indicated to the CFO indicated to in the call the clean energy segment also heading towards the company margins of 30%, though it is 100, 200 basis points below that. So then all that happens from next year, do we see a structural possibility of improvement beyond the 30%?

P. Srinivas Reddy — Managing Director

The first 30% EBITDA level [Indecipherable] good margin level to beginning with, right? So as a company would always try to work hard towards improving our margins better than better. So that’s something which we have to see. But yes, you’re right, once the operating leverage is very good in the case of clean energy, it makes sense. But that’s the end of a from our side to try to improve margins as much as possible wherever to reduce costs. That’s the constant endeavor for the company and obviously, things could improve moving forward, but let’s see how it goes.

Raj Mohanvi — Individual Investor — Analyst

Thank you. One final question, if I can squeeze in was effective tax rate–

Operator

[Indecipherable] sorry to interrupt, I would request you to kindly rejoin the cue. There are many other participants are waiting. Thank you. We have the next question from the line of Deepak Narnolia from Birla Sun Life Insurance.

Deepak Narnolia — Birla Sun Life Insurance — Analyst

Hello. Am I audible?

Operator

Yes.

Deepak Narnolia — Birla Sun Life Insurance — Analyst

Yes. Sir, the previous participant asked a similar question, actually. I just wanted to estimate your revenues. So — and the mix of the revenue — so basically, what I see that this year, that this particular quarter, your non-clean energy business has done really — it’s very muted. It has done some only INR24 crores of revenue. And you have outperformed in your clean energy dealers. So what the mix guidance you had given in the initial year is it at risk like you had expected for the 40% to 45% growth in your non-Korean Nagy business also?

So as far as the revenue is concerned, the growth numbers you are maintaining it. Do you see that this job mix will probably change, and you will outperform on the key energy business — because this quarter, you have done INR100 crores of win in the second quarter, and that is a significant ramp-up from INR70 crores in the first quarter, and you have a very robust order book in the clean business also. So I wanted to understand that. And sir, how many boxes we have delivered in this quarter and how many boxes you would deliver in this year?

P. Srinivas Reddy — Managing Director

Okay. To answer your first question, I said this earlier, we domestic revenues, where we are looking on some long-cyclic projects, whether it’s nuclear or some space to remember they are looking at semi product that we’re going to release kind of this year — all these projects are being excluded by the second half of the year. So whatever we have guided in terms of the domestic number, we would ship to that. It’s not an issue. So that’s on track. So normally, in domestic projects we have to look at not a quarter-to-quarter basis, you need to look at on an annual basis. So as we mentioned on an annual basis, we will stick to those guidances with what we have given in terms of the domestic projects that we’re working on in space business and our nuclear projects, right? So that’s not an issue at all. That’s why I said our second half is will be more robust in the first half.

Deepak Narnolia — Birla Sun Life Insurance — Analyst

So what is the kind of revenue you if you can guide something — what is the kind of revenue you do nonfuel business?

P. Srinivas Reddy — Managing Director

I can’t give you the exact breakup, but whatever we have said earlier, the way we have the monitoring system, we are on track with that. Whatever numbers you have, whatever we have given, I won’t have the exact reasons right now. But — we are on track with those projects being excluded in the second half of the year for sure, right? So that’s not an issue at all. Now as far as cleaning is concerned, obviously, we have done more than 1,000 units of UMA boxes this quarter itself. In the coming quarters, we are looking at about 1,600 plus. So we are right on track with the kind of numbers, the rates going. So clearance is galloping — it’s going extremely well to

Gunneswara Rao Pusarla — Chief Financial Officer

About 600 in 1st quarter.

P. Srinivas Reddy — Managing Director

Yes, that’s what we’re aiming for this quarter. SO for the third quarter. So that way it’s sad. So in fact, we’re adding other products as well, which will come into play in Q4 in clean. As I said the flixeproducts which we’re adding, which will add that semi product itself would add about INR100 crores, INR110 crores in the next calendar year. So we’re adding a lot of new products. So what I’m trying to say is I is doing extremely well, but the absolute numbers of our domestic, which are in very niche area, what we are working on, those active numbers are also growing year-on-year basis. don’t look at percentage basis with respect to print, right? If you look at the absolute numbers, it makes a lot of sense. So it’s not that the other segments are definitely on track, and there’s nothing to — we are really working towards building that more and more. The order book is also very robust for us in the metal business as well. So that will improve as absolute numbers keep going higher and higher year-on-year basis.

Deepak Narnolia — Birla Sun Life Insurance — Analyst

And sir, as far as your working capital is concerned, under

Operator

I would request you to please rejoin the queue. There are many other participants who are waiting for. A reminder to all the participants to limit their questions to two per participant. We have the next question from the line of Sriram Kapur from Prabhudas Liladar.

Sriram Kapur — Prabhudas Liladar. — Analyst

I just wanted to get the management’s view on your defense segment and how you see this shaping up going forward over the next couple of years? I know it currently contributes about to the business, but do you see this number growing? Or do you see it sort of staying at a similar level?

P. Srinivas Reddy — Managing Director

So I said even in the past, like I’m not looking at the percentage number in domestic because our 3G numbers are really growing very high. So we should talk more about the absolute numbers in terms of how we are growing year-on-year basis in terms of absolute numbers. So yes, moving forward as well, we are working on a number of projects right now. So it will definitely improve year-on-year basis. We have a lot of projects that we are looking at. We’ve got — we have the order book also for in this particular segment. So — but we do mostly — we work on lot of R&D projects primarily for the DRDO in developing a lot of systems for them and products for them. So that’s what we are doing. So obviously, some of the products that we are working at orders and all of them will help — so moving forward, yes, you’ll see improvement coming in this area as well.

Sriram Kapur — Prabhudas Liladar. — Analyst

Okay. And just another question to understand your domestic versus export split. So is clean energy given — so just to understand is most of the non-clean energy or domestic focused domestic focused business and clean energies, mainly export focus. Is that understanding correct?

P. Srinivas Reddy — Managing Director

Can you repeat that question?

Sriram Kapur — Prabhudas Liladar. — Analyst

Just to understand your domestic versus export revenues is — so is majority of the non-clean energy business primarily in your suing the domestic market? Or is there an export a large export opportunity in that as well?

P. Srinivas Reddy — Managing Director

No, it’s primarily the domestic market because nuclear space basically, it’s in the domestic market as well. But we are still exporting to companies like Rafal elite companies like that bet. So we have export customers as well in the aerospace division and different sectors. So we are doing that as well.

Operator

We have the next question from the line of Amish Kanani from JM Financial Services.

Amish Kanani — JM Financial Services — Analyst

From PMS. Sir, you mentioned about establishing the EMS fully fledged facility. So if you can give us some sense of what is the plan, what are the investments if possible? And second question, sir, is on the Semicangine site space side. We have talked about delivering in Q4 on product. if you can give us some sense there of — and we are talking about SSL as a new product? I understand there will be a long early time in terms of R&D. — but if you can give us some sense of what should be the Phase 1 of that — how long will be the time line in terms of developing that product?

P. Srinivas Reddy — Managing Director

So basically, the EMS, as I said earlier, we are moving into the electronic vision to make a tire a fully integrated company. We are doing a lot of equipment where we are doing a fully integrated system that even today. but we would like to really ensure that we have this division within MA to make sure that we — not only — a lot of our existing customers are asking for it, and we can increase our wallet share with them. So we have already started the first stage of stable harness business that will get implemented by end of December. And then we do it in three different stages. So over the next one, 1.5 years, we would say that we would have implemented the entire capability of electronics into Empire.

That’s what we’re looking at right now. As far as Sentio is concerned, that’s probably by end of Q4, we’ll be able to launched that engine with this room. That’s the target plan right now. It’s a new engine. It’s a developmental product, which we are working on it with a much higher payload, even so is working with us to ensure that it’s done by end of this year. So that’s what we’re planning to launch at the end of this year. SSB is a project which is very exciting for us. We started working on the design of it Also, the MOU from its space is expected to be signed sometime in the month of November.

So that’s a three-year kind of a program in terms of design development for this project. because as we all are aware, the government has given enough support is going to give enough support in terms of developmental activity and also on the operational slides in terms of avionics and the launch pad at cost is what they’re going to give it to us. So this is a project which will take MTA to a completely different level in the Space division. So our entire focus is on this. The best part is we have enough facilities to manufacture this with an entire – because we have already been working with the Space division. So this is about a three-year timeline – is what we have right now, it might extend over another six months-it’s what we…

Amish Kanani — JM Financial Services — Analyst

Okay. And sir, any idea of the market opportunity – addressable market opportunity in engine versus [Indecipherable] value? I know the numbers could be very initial and very…

P. Srinivas Reddy — Managing Director

[Indecipherable] but it’s going to be- the numbers are going to be very large. But look, the 80% of the world market is on the small tactic launch rate. So that’s what we’re looking at. So that’s the reason why we have taken up this project. And it will be – it is something which our entire R&D and the entire team is working on this. So this is something which we’re going to see the approach of this in the three, three and a half years from now, but a lot of work is going on in this particular project that is [Indecipherable].

Amish Kanani — JM Financial Services — Analyst

So this will be a JV or some consortium is what I think we are thinking on, right sir, or it will be in demand [Phonetic]?

P. Srinivas Reddy — Managing Director

No, it’s not a JV. It’s independent of what I think can — it’s the only thing we will have the right support from — so in terms of economics and the launch back and things like that. So we’re launching the vehicle trial and that probably the supported with fuel testing facilities as well. We have to see that, but it’s a completely independent producer [Phonetic].

Amish Kanani — JM Financial Services — Analyst

Sure. That’s exciting. And all the best, sir.

Operator

Thank you. We have the next question from the line of Akshay Kothari from Envision Capital. Please go ahead.Mr. Kothari, we have unmuted your line. Kindly proceed with your question.

Akshay Kothari — Envision Capital — Analyst

Yes, am I audible?

Operator

Yes, please proceed-

P. Srinivas Reddy — Managing Director

Yes, you are, Akshay.

Akshay Kothari — Envision Capital — Analyst

Sir, my question is, do we undertake any development with DRDO? Since you have mentioned DRDO is one of your customers.

P. Srinivas Reddy — Managing Director

Yes, we have been doing that for the last 40, 45 50 years. We have a lot of R&D work with them, and we continue to do that.

Akshay Kothari — Envision Capital — Analyst

So we do get revenues of R&D from them as well because developmental revenues also we would be getting, right?

P. Srinivas Reddy — Managing Director

We will be getting the revenues. It’s not done, We, of course, development revenues we’ll be getting.

Akshay Kothari — Envision Capital — Analyst

Okay. And sir, I think CFO, sir, mentioned about we do have an option as per accounting standards to go as per the percentage of completion method. So is there any specific reason why we are not opting for that method?

P. Srinivas Reddy — Managing Director

We have not-

Gunneswara Rao Pusarla — Chief Financial Officer

[Indecipherable] – or you want to answer that?

P. Srinivas Reddy — Managing Director

Yes. Go ahead.

Gunneswara Rao Pusarla — Chief Financial Officer

Yes. See, because that [Indecipherable]..So the reason for is we wanted to conservatively, we wanted to work and we want to book revenue as and when we want to deliver — but in case of new projects, which are — which we will see in the future because these are all the projects I think last one year, it is continuing in this package. We wanted to continue the same until such time it delivered to customer — but in case any future orders, which is having over time, the concept is there, that we will see in the future. But without any like, taking any benefit out of it, we just want to go fairly and book the revenue. That is the main reason for us to ask earlier industry.

Akshay Kothari — Envision Capital — Analyst

Okay. And sir, Elbit Systems and [Indecipherable] opportunities are offset [Indecipherable] or, other than offset?

P. Srinivas Reddy — Managing Director

It’s a combination of both the inventories that we’re working on in for whatever. It’s a combination of what they required there and what offsite core that they have there. But offset is technically out of the window more now right now, because it’s all about Make in India. So the government is pushing for all these companies to actually manufacture in India under joint venture. So that’s the future in what we do.

Akshay Kothari — Envision Capital — Analyst

But they must have offset- pending offset obligations, which we need to fulfill the next five to seven years. So-

P. Srinivas Reddy — Managing Director

Yes, that will be done for sure. But I’m saying moving forward, it’s more of making India than offsets. — and on with the new projects.

Akshay Kothari — Envision Capital — Analyst

I’m just asking that do we foresee for next five years, also any bigger offset opportunity from these customers, as well because they have huge offset obligations.

Gunneswara Rao Pusarla — Chief Financial Officer

Yes, they have a lot of offset obligations. Yes, there will be obligations coming over the next four, five years as well, that will continue. Apart from that, the all — for all the new projects is more of a make kind of a concept that they have to do a joint venture with any qualified event company to take the product forward.

Akshay Kothari — Envision Capital — Analyst

Okay, thanks a lot.

Operator

Thank you. We have a follow-up question from the line of Deepak Krishnan from Macquarie Group.

Deepak Krishnan — Macquarie Group — Analyst

Thank you for the opportunity. Just probably one question from my end. I wanted to understand how are we in terms of raw material procurement, especially from Europe. Is there any disruption that we kind of foresee that could impact us? Or — we think we’re very well covered in respect to what is current situation in the European geography?

P. Srinivas Reddy — Managing Director

We are totally covered, Deepak. That’s why we have been maintaining our inventory levels at a higher level right now. Yes, there are some delays, but that’s the reason why we have ensured that we maintain enough inventory levels so that we don’t face a line-down situation. The way I look at it, they are completely covered. So we don’t- I don’t see any issues with that.

Deepak Krishnan — Macquarie Group — Analyst

Sure, sir. And any incremental capex that we would acquire from a clean energy perspective as we cross the 7,000, 8,000 box levels? How are we kind of looking at it from say FY ’24, FY ’25 perspective?

P. Srinivas Reddy — Managing Director

Yes. See, as of FY ’24, we have capacity for 9,000 units. So we are fine with that. But the way it is growing probably for FY ’25, we need to proactively see how we can increase even beyond that. For how the electrolyzes vertical really perform, which is going to really [Indecipherable] much bigger and all the new products that we are launching for next calendar year. So we have to evaluate all that. And that reason will be taken by end of this calendar year.

Deepak Krishnan — Macquarie Group — Analyst

Sure, sir. And just maybe one clarification. So largely the domestic projects where you’re saying that you don’t book revenue and a lot of it is inventory. Is it largely in the nuclear segment? Or do we see similar impact in the space segment as well?

P. Srinivas Reddy — Managing Director

It’s mostly in the new player and also for some projects like space like [Indecipherable] for example, right, they are in advanced stage of the — but primarily, it’s in the U.K. segment.

Deepak Krishnan — Macquarie Group — Analyst

But once we deliver the product, so there shouldn’t be any problem on the receivables and because that [Indecipherable] back to [Indecipherable]?

P. Srinivas Reddy — Managing Director

Absolutely, we never had any issues with receivables at any of these organizations still there. So there’s never been that situation at all.

Deepak Krishnan — Macquarie Group — Analyst

Sure, sir. Sure, sir. Those are my questions.

Operator

Thank you. We have the next question from the line of Vinayak Mohta from Stallion Asset Management.

Vinayak Mohta — Stallion Asset Management — Analyst

Yes, thank you. My questions have been answered in.

Operator

Thank you. Ladies and gentlemen, due to time constraint, that was the last question that the management could answer. I would now like to hand the conference over to Mr. Srinivas Reddy for closing comments.

P. Srinivas Reddy — Managing Director

So I would like to thank everyone for joining us today. It’s been a very good quarter for us. And even moving forward, as I mentioned, the second half is going to be very exciting for us. And even for the next year as well and moving forward for the future years. We’re doing a lot of work in terms of innovation, in terms of adding the various customers, increasing the wallet share within the customers and adding new capabilities. We’ll try to work more towards these areas.

And obviously, people talk about the working capital number of days, but that’s something which we are working on. But- it’s more on an external factor than an internal factor for the company, in terms of the delays in transit times to U.S., both transitions there, still the things are remaining the same. Hopefully, by end of this year to come down. And we will also bring down inventory levels as much as possible until the supply chain settles down.

And as the CFO said, we’re targeting for 200 days and probably moving forward for next year, we’ll have even more aggressive target. So we are on top of it. I want to tell this to all of you. And that’s not be any issue for the company even going forward as well. Thank you so much for all your time and hopefully, we’ll see you next time in the next earnings call end of Q2. Thank you.

Operator

[Operator Closing Remarks]