Netweb Technologies India Ltd. Q4 FY24 Earnings Conference Call Insights

Key highlights from Netweb Technologies India Ltd. (NETWEB) Q4 FY24 Earnings Concall

• Financial Performance
  • Achieved highest ever quarterly and annual income and profits.
  • Operating income grew 115.5% Y-o-Y for Q4 and 62.7% for FY24.
  • Operating EBITDA up 166.5% Y-o-Y in Q4, 46.4% in FY24 (INR 404 million in Q4, INR 1,025 million in FY24).
  • Profit after tax increased 181% Y-o-Y for Q4 and 61.7% for FY24.
  • Recommended dividend of INR 2 per share.
  • Operating EBITDA margin 15.2% in Q4, 14.2% in FY24.
  • PAT margin improved from 8.4% in Q4 FY23 to 11% in Q4 FY24.
• AI Business Growth
  • AI system revenue grew 2.6 times Y-o-Y, contributing 11% to total revenue (7% in FY23).
  • Positioned as the third pillar of growth for the company.
  • Strong order book of INR 4,112 million for March 2024 (INR 712 million in March 2023).
• Partnerships
  • Manufacturing partnership with Nvidia for Grace CPU Superchip and GH200 Grace Hopper Superchip.
  • Collaborating to produce over 10 variations of Tyrone range of AI servers.
  • Targets enterprise challenges in building cost-effective AI infrastructure.
  • Added 171 new customers in the fiscal year gone by.
• AI and Growth Opportunities
  • AI Systems emerging as third growth pillar, driven by GPU capabilities and software integration.
  • Opportunities in supercomputing (National Mission), private cloud (data center growth), and AI adoption.
  • Not focused on bare-metal data center servers, aim to bundle with private cloud software stack.
  • AI business currently 11% of revenue, expected to grow to 15-16% next year.
  • Projected to reach 30% of revenue in 4-5 years, matching private cloud and supercomputing segments.
• Revenue and Margin Guidance
  • Targeting 30-35% revenue CAGR going forward, driven by strong order book.
  • Margins sustainable at current levels (around 14-15% EBITDA margin), minor 50 bps fluctuation possible.
  • No significant scope for margin expansion, aiming to maintain competitive pricing.
• Networking Switches Segment
  • Missed INR 200 million sales target for the year as product development was ongoing.
  • Targeting top-of-rack data center switches, not volume segment.
  • Product launched by end of last quarter, expect ramp-up in current year driven by data center growth.
• ORAN and Yotta Projects
  • ORAN solution still under development, not near commercialization.
  • Expected to be ready by Q3 or Q4 of current fiscal year.
  • Yotta announced large Nvidia chip order, but initial implementation smaller.
  • Nvidia chips sourced directly by OEMs like Nvidia, not through Netweb.
• Order Book Execution
  • Order book of INR 4,000 million expected to be executed in 4-5 months.
  • Order cycle is 16-20 weeks on average.
  • Win rate of 60-65% on qualified opportunities in the sales funnel.
• Growth and Margin Outlook
  • Targeting 30-35% revenue CAGR, an aggressive but achievable target.
  • Operating margin expected to improve by a few basis points initially.
  • After 2 years, benefits of new plant to reflect in higher EBITDA and PAT margins.
• Private Cloud Focus
  • Private cloud business contributes 30-35% of revenue, not a new focus area.
  • Focus on solutions over bare-metal servers, aligned with industry shift towards private cloud.
  • Private cloud enables better resource optimization and management compared to bare-metal.
• Revenue Model
  • Target refresh revenue from existing customers after 3-4 years due to technology obsolescence.
  • Provide perpetual licenses with multi-year support, reducing renewal needs.
  • Targeting refresh vs. recurring revenue model as data centers need periodic upgrades.
• Manufacturing Capacity and Capex
  • Capacity utilization not a metric, focus on building manufacturing capabilities.
  • INR 35-40 crore capex planned (some incurred, some upcoming) to support up to INR 1,800-2,000 crore revenue.
  • No major capex expected for next 2-3 years beyond routine 10% of gross profit.
  • Invest in machinery, skills for high-end computing products, not contract manufacturing.
• L1 Orders and Conversion
  • About 100% probability of conversion from L1 to order book.
  • Conversion time ranges from 2 weeks to 3 months maximum.
  • Delay could be due to government approvals/permissions process.
• Rudra Project
  • Not involved in C-DAC’s Rudra supercomputer project.
  • Focused on integrated solutions, not just hardware manufacturing, box pushing.
  • Have good relationship with C-DAC but different approach from Rudra project.