CENTUM - Centum Electronics Ltd Share Price

Centum Electronics Limited's management outlook for FY '26 appears optimistic, underpinned by strong revenue growth expectations across its segments. The company has forecast a consolidated revenue growth rate of 18% to 20%, driven by a robust order book and strategic initiatives, especially in the Build-To-Specification (BTS) and Engineering Manufacturing Services (EMS) sectors.

Key forward-looking highlights from the management include:

1. Order Book Expansion: The total order book stands at Rs. 1,736 crores, with standalone orders reaching Rs. 1,330 crores, a significant increase from Rs. 1,118 crores previously. This growth is primarily attributed to strong demand from defense and space segments.

2. Revenue Growth Expectations: For FY '26, the management expects BTS and EMS segments to grow at a blended rate of 25% to 28%. Specifically, BTS is projected to grow faster due to increased order inflows.

3. Margin Improvement: The management aims for an EBITDA margin of approximately 10% consolidated in FY '26, with goals to potentially reach 11% to 12% in the following years driven by domestic demand in higher-margin BTS.

4. Cost Optimization Initiatives: Actions are underway to address challenges in the Canadian subsidiary, including a strategic review to mitigate losses of EUR 2.8 million from the previous year.

5. Investment Plans: The company plans a CAPEX of around Rs. 40 crores for FY '26, focusing on enhancing capabilities in both BTS and EMS segments.

6. Employee Strength: There are strategic initiatives aimed at talent management and productivity enhancement to support future growth.

Overall, Centum Electronics is poised for a promising year ahead, leveraging robust customer demand with a healthy order pipeline while implementing cost efficiency measures to enhance profitability.

Question: Which programs in the Indian defense ecosystem is Centum Electronics involved in?
Answer: Defense space and aerospace account for over 50% of our revenues, coming from projects in build-to-specification, mainly with public sector units like DRDO and ISRO, and we're also moving to engage more directly with tri-services. In the EMS segment, we're exporting to global OEMs, while in engineering services, we collaborate on various programs. Notably, we've contributed to the VL-SRSAM program and various missile programs for both domestic and global markets.

Question: Can you clarify the Rs. 664 crores BTS standalone order book?
Answer: Yes, it involves prototype creation leading to part numbers for production, some of which are imminent while others are planned over the next two to three years. So, that understanding of the Rs. 664 crores is accurate.

Question: What is the relative gross margin between EMS and BTS?
Answer: At the EBITDA margin level, build-to-spec typically sees around a 20% margin. EMS operates between 10% to 12%. Although specific gross margins vary contractually, EMS generally has around 75% material costs, whereas build-to-spec usually enjoys lower material percentages of about 50%.

Question: What is the growth expectation for the Rs. 175 crores BTS revenue in three to four years?
Answer: Yes, we expect significant growth in the coming three to four years given our order book increases. We're targeting revenue of around Rs. 400 to Rs. 600 crores in this time frame.

Question: Could you elaborate on the EMS growth expectations for FY '26?
Answer: We anticipate strong growth across both EMS and BTS segments, with a blended growth rate forecasted between 25% to 28%. The EMS segment will specifically contribute healthy growth led by recent customer additions and increased volumes.

Question: What caused the decline in the subsidiary's performance?
Answer: The Canadian subsidiary faced substantial losses due to high operational costs and insufficient revenues, resulting in a notable impact on overall performance. Specific corrective actions are underway to address this.

Question: What is Centum's expected Revenue and EBITDA margin for FY '26?
Answer: We are confident about a 20% growth in our revenue and are targeting an EBITDA margin of around 10% for the current fiscal year on a consolidated basis.

Question: Can you share the expected timeline for executing your current order book?
Answer: The BTS order book is typically executable within 2 to 2.5 years, while EMS orders usually have a timeline of under 12 months, reflecting our strategic engagements in both areas.

Question: Can you give insight into your current employee strength?
Answer: Employee strength is crucial. Our current workforce is robust, and we're investing in talent management and training to support growth. Precise numbers aren't disclosed, but we're continuously scaling.

Question: What are the expected contributions from India to sales?
Answer: Currently, domestic contributions are around 29%. We expect this percentage to gradually rise, targeting around 35% in the next three years as we increase our domestic BTS and EMS activities.