Onward Technologies LtdQ2 FY23IT - Services

Onward Technologies Ltd

Q2 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 2

Fundraise

N/A

Order

N/A

Capex

Yes

1 of 3 growth signals are positive — mixed outlook.

Revenue guidance

Category 3

→The company aims to reach USD 100 million in revenue by FY 2025, with equal contribution (50%-50%) from ER&D services (mechanical and embedded engineering) and digital engineering.
→Revenue growth is expected mainly through organic growth by deepening relationships with existing clients and mining the current client base rather than aggressively acquiring new customers.
→The top 25 clients currently contribute about 80%-85% of revenue, and there are internal targets to scale clients to USD 3-5 million revenue brackets.
→Digital segment contribution has grown significantly, now at 37%, with plans to increase it up to 50% by 2026.
→Employee additions will continue to support growth, particularly transitioning trained personnel from the India BU to global export revenue.
→The company expects balanced growth with a focus on execution, aiming for double-digit EBITDA margins alongside revenue scale-up.

Category 2

→Company targets reaching USD 100 million revenue by FY 2025-26 with a balanced mix: 50% ER&D services and 50% digital engineering.
→EBITDA margin expected to improve through growth in international business and value addition in both India and global business units.
→Focus on execution and strong client engagement to drive top-line and bottom-line growth.
→Digital segment expected to grow faster, potentially reaching up to 50% of revenues by 2026.
→EBITDA margin was 12.1% in Q1 FY24, with an aim to maintain and improve double-digit margins sustainably.
→Margin expansion will benefit from a shift away from lower-margin ITS business and efforts on higher-value engineering services.
→Company is open to both organic and inorganic growth strategies to achieve financial targets.
→Employee rationalization and transition to higher-value projects expected to improve revenue and margin per employee, positively impacting profitability and EPS.

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→The company raised equity about 18 months ago from Convergent to strengthen financial resources.
→This equity raise was to support the ability to ramp up delivery teams globally.
→There is no specific mention of any current or planned new fundraising through debt or equity.
→Management mentioned being open to inorganic opportunities if the right company aligns with their strategy but did not detail raising new funds.
→Overall, the company emphasizes organic growth with financial flexibility from previous fundraising rather than new imminent fundraises.

→The company emphasizes a strong deal pipeline primarily through mining existing customers rather than acquiring new ones.
→There is "amazing visibility" from a large number of existing suppliers who are ramping up capacity and offshoring more, providing a positive outlook on future orders.
→Majority of demand is seen in digital engineering, followed by embedded electronics and mechanical verticals.
→They have won multi-year deals and expect to sign more such contracts.
→Focus remains on execution and building better client engagement models with 93 live clients where they are preferred suppliers.
→No specific numeric order book or pending orders disclosed, but the management expresses confidence in current pipeline and execution strategies to meet growth targets.

Yes

→Onward Technologies is investing in setting up new centers and ramping up capacity and capability globally, including plans for a local team in Germany, though it requires multi-million-euro upfront investment.
→The company plans to invest in the high-tech and semiconductor vertical by FY 2025, viewing it as a growth opportunity leveraging cross-utilized capabilities.
→Continuous investment in hiring and training through the Talent Acceleration Program (TAP), with about INR 10 crores spent last year and similar or higher spend expected this year.
→Focus on building offices close to clients' R&D centers in the US and Europe to deepen engagement.
→Open to both organic growth and inorganic opportunities (acquisitions) to hit the $100 million revenue target by FY 2025-26.
→Investments also include capability building in embedded electronics (ADAS, Autosar) and new focus areas like rail transportation.

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