Great H2 FY2026 numbers! However, what’s your view on the operating cash flow? Its negative with significant increase in the trade receivables…
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Inventory concerns me a bit less than receivables. Higher inventory is a good sign that business is picking up. This years receivables outflow is lesser than last years which is a step in the right direction.
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H2 FY26 Con-call and Results Analysis
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On Global DRAM and Semi-Conductor Shortage: The mgmt stated that “We currently have locked-in pricing for materials, so we do not have a direct pricing impact. We communicate with our customers to transfer costs to them. Yes, there are semiconductor shortages, but no pricing impact on our margins at this point.“ They also mentioned that even during covid-19 disruption they didn’t face an issue so that is not going to be a challenge.
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On Top-line Growth and Margin Guidance: This is the most important update they shared on the call I feel and have made me even more bullish on the company. The management stated that “they will be growing the top-line at a CAGR of 40-50% over the next 3-5 years. and will maintain an EBITDA and PAT margins of 20% and 15% respectively.
My View on this: I feel that the management is being overly conservative in the guidance when they mention that they will do a topline of ~450Cr for FY27. I feel that the actual number on a very conservative basis will be closer to 550Cr and on a slightly bullish case between 550-600Cr. The reason for such numbers is:
They stated that they will do a revenue of ~$17 Million from the accquired company ICS (renamed as Aimtron International Controls) which is ~ INR 150Cr in itself and then the growth from it’s organic business will also come.
Mr. Mukesh mentioned “We absolutely expect strong organic growth.” and "We guide 40-50% organically and expect to reach 450 to 550 crores by the end of the year. We don’t want to over-commit due to geopolitical uncertainties. "
So I feel that a topline North of 550Cr is possible with a bottomline of >85Cr (15% of 550Cr). -
On Working Capital and Cash-flows: The operating cashflow is -ve by roughly ~40Cr. But out of this under the WC changes, there’s a loans and advances entry of ~16.8Cr for which the management stated “The 16.8 crores you see in the consolidated cash flow was given to Aimtron Electronics LLC (The WOS of Aimtron Electronics India which owns AIC as a step-down subsidiary) in Texas as part of the payment for our acquisition of Aimtron International Controls (AIC).“
So effectively the OCF became -ve 23Cr which is not a very big number.
Also since the business is growing very rapidly north of 70-80% the WC needs will be high and the Cash-flows might not look that great.When asked about by when will be they Cash Flow +ve?
The management responded “We are in an aggressive 40-50% growth trajectory right now. Once we reach our stable phase at 1,000 crores, we will see stabilization and generate positive cash flows.“ Which I feel is atleast 2-2.5 years later.When asked about the drop in gross margins from 31% to 28% the mgmt replied “As we scale towards 1,000 crores, some ratios will fluctuate quarter-to-quarter, but you will see a solid year-over-year result.“ and I agree to it to some point.
When asked about the 240Cr stuck in Inventory and Trade Receivables, the management responded “Our ODM business grew 2x compared to last year, which inherently requires higher component inventory. We are also proactively stocking critical components to avoid supply chain disruptions. Regarding receivables, 30-40% has already been received since March 31st.“
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On Order Book and Revenue Visibility: According to the concall and Investor Presentation, the current orderbook is around ~600Cr which is roughly 2x the FY26 revenue. Also the order pipeline is roughly $70-$80 Million, which ensures that revenue visibility is there.
The current orderbook execution timeline is 12-18 months. -
On Capacity Expansion, Acquisition and CAPEX Plans: The company currently has 9 SMT lines which takes the peak revenue potential to ~800-900Cr (~90-100Cr/SMT line) without any additional CAPEX.
As discussed in previous concalls, “We created a subsidiary, Aimtron Mechatronics, which is a greenfield project in Vadodara for injection moulding and sheet metal.“ That facility will eventually have 6 SMT lines first starting in Q4FY27 (or latest by Q1FY28) with just 2 Lines.
They mentioned “Aside from minor tool upgrades of 5-10 crores, no major capex is needed.“
On potential acqusition targets the mgmt mentioned “They are on hold right now due to current geopolitical vulnerabilities. Later on, we are looking at a couple of design companies in North America and Europe.“ -
On Integration of ICS (AIC): The name of ICS(International Control Systems) was changed to AIC (Aimtron International Controls) and they are integrating ICS quite well.
Steps Taken by Management to Integrate the Company Management has swiftly integrated AIC by slashing US overhead costs and leveraging Indian backend talent, such as reducing the US purchasing team from four staff members to just one. They have successfully upgraded the operational infrastructure by installing a new ERP system and internet network. Aimtron’s increased combined purchasing power is already generating an extra 2-3% savings on raw material costs.
Revenue and Margin Targets For FY27, management expects AIC to generate approximately $17 million in revenue, with peak revenue potential of $25-$30 Million.
This year the focus will be majorly on improving the margins than chasing growth.
At the time of acquisition, AIC was operating at an early double-digit EBITDA margin of around 11% to 12%. Thanks to immediate cost rationalization and integration efforts, margins have already jumped to the mid-double digits (around 15%). Management is highly confident in raising these margins to 18% to 20% by the end of the current year, with an ultimate goal of matching Aimtron’s overall consolidated EBITDA margins.
My Views and Two Cents
Although the Working Capital of the business looks stretched and also the OCF is -ve, but still the business is able to earn a very respectable RoCE of ~24% which is a good sign. The company did dilute some equity during the year, but that is not a very big issue unless management screws up capital allocation. Which I feel they are doing a really good job at. And anyways all the companies growing at rates much higher than the RoCE needs to raise external capital in terms of debt or equity to fund the differential. And as long as a company can raise capital and deploy them at rates of return (RoCE) higher than the cost of capital (15%) it creates wealth for the shareholders. But atleast for this company the growth is value accretive.
| Particulars (in Cr) | FY23 | FY24 | FY25 | FY26 | Avg |
|---|---|---|---|---|---|
| Revenue From Operations | 84 | 93 | 159 | 301 | |
| (% growth) | 11% | 71% | 89% | ||
| PAT | 12 | 14 | 26 | 46 | |
| (% growth) | 17% | 86% | 77% | ||
| Days Receivables | 15 | 65 | 200 | 165 | 111 |
| Days Inventory | 323 | 227 | 110 | 177 | 209 |
| Days Payable | 42 | 36 | 147 | 86 | 78 |
| WC Days | 296 | 256 | 163 | 255 | 243 |
| ROCE | 43% | 30% | 25% | 24% | 24% |
| Total Asset Turns | 0.88 | 1 | 0.69 | 0.72 | 0.82 |
| PATM% | 14% | 15% | 16% | 15% | 15% |
| ROE | 34% | 26% | 17% | 20% | 20% |
And for the growth guidance I feel that the guidance is quite conservative. Plus if FY27 PAT is ~85Cr (15% of 550Cr Top-line). The current MCap being ~2400Cr brings the 1yr Forward P/E to ~28x for a 40-50% CAGR growth business over the next 3-4 years, which I feel is still a very attractive deal. Also the sector is in great tailwinds and the management is clearly walking the talk but yes one needs to have patience and a long term view in this name (3-4 years). They are also planning to list the company for main-board IPO by next year which will help increase some transparency and also reduce the effective cost of capital for the business.
Will keep you guys updated further as results and updates come up!
I am attaching the link to the concall YT Video and the Concall Transcript I generated using NotebookLM from that YT Video. I’ve both watched and read it, and would recommend you guys to do the same.
YT Link: https://www.youtube.com/watch?v=yh_I1oNRQ8U
Document:
H2 FY26 Concall Transcript.docx (24.2 KB)
Disclosure: This is not an investment advice. One should do their due diligence properly before investing their hard earned money. I was already invested in the company well before the result and increased my holding further after yesterday’s results so my views could be biased.
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I have few questions, anyone with the knowledge, please help me out with these,
- What is the last 3 years revenue and margins of Aimtron Corporation USA? What is the rationale behind merging all the promoter entities into Indian listed company (apart from getting higher India level multiples for US business)?
- For the margins front, Is it possible that margins will reduce as and when there is increase in the size of business? (I believe that large orders will have lower margins as compared to smaller orders - hence margins will not stay same - even when management claims that they are more focused on margins)
- Can anyone please explain what exactly is company doing in design front? Almost every other EMS player also claims that they provide designing services as well but their margins are not as superior as Aimtron’s (Again, probably because of their size or anything else)
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