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.