Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Black Box Ltd (BOM:500463, Financial) reported a 28% year-on-year growth in EBITDA, reaching INR115 crore in Q1 FY25.
- EBITDA margins increased by 240 basis points year-on-year to 8.1% in Q1 FY25.
- The company secured significant funding of INR410 crore to drive growth in key focus areas within the infrastructure sector.
- Black Box Ltd (BOM:500463) has a robust backlog of $475 million as of June 30, 2024, indicating strong future revenue potential.
- The company reported a 55% year-on-year growth in profit after tax, reaching INR37 crore in Q1 FY25.
Negative Points
- Revenue for the quarter was lower by 9% year-on-year, standing at INR1423 crore in Q1 FY25.
- The strategic exit from low-value non-accretive customers caused a temporary dip in revenue.
- Higher severance costs of INR15 crore impacted the financials during the quarter.
- There were delays in decision-making and project execution, leading to muted demand from some federal partners.
- The company faces continued higher interest costs, which have impacted profitability.
Q & A Highlights
Q: Deepak ji, one question about the severance cost. It has been much higher compared to last year. So should we expect it to stay at that level for the rest of the year?
A: So we have -- we are obviously taking some actions in the current quarter and that is why the cost was a little higher. I'm expecting that to be hovering at between, let's say, INR10 crore to INR12 crore in quarter 2 also.
Q: And in H2, are we expecting any more severance costs?
A: There will be some severance costs while we are improving and working on our productivity and all those things. It will be some severance costs depending on the geographies where we are taking some actions to improve productivity it will be there. In H2 also some will be there. But I think it will not be to the extent which is in H1.
Q: Could you give us a little bit more detail about the funds that you're raising and where would it be deployed exactly?
A: We are going to use a large part of the fund for growth. We are making significant investments in our go-to-market expansion, both verticalizing and creating horizontal solutions, hiring high-end expertise in industry verticals. We see a massive change in the environment for technology, both in the data center and mobile infrastructure, including 5G. We will be investing money to make sure that we have the requisite capabilities and solutions crafted in these areas.
Q: This quarter you had a degrowth of around 10%. Can you please quantify what part of that degrowth was business or does that is willingly walked away because of the customers?
A: We have made a strategic decision to exit low-value long-tail customers. Black Box has been serving a few thousand customers over the last many years. We have executed our strategic program to assess our customer base. 90% of our business comes from our top 250 customers who are large multinationals. We see a lot of scope when we talk to them going wider with a long tail. So we have made a program to see that we are ready to exit where we don't see long-term value from our customers.
Q: How long do you expect this exercise to last for?
A: We expect that fiscal '24 to '25 will continue to exist and assess our long-tail customers.
Q: When you talk about delays in decision making, is it on your end or the clients' end? And also how long will this last?
A: Specifically for our products business, there have been some delays with respect to our federal customers. 50% of our business is our product technology product business. We do long-term projects with large customers. Oftentimes this is linked to their site being ready. If it's not if, it's when. And those sometimes take a little bit more time than planned. And that's what happened in Q1.
Q: Approximately 75% of the revenue comes from the North American region. How different is India's data center ecosystem and potential for growth when you compare it to a more mature market like the US?
A: From a maturity perspective, clearly, America's maturity curve is higher and the demands are maybe different. India is also a high project market. Over the last couple of months, the total number of projects in India and the ground for data from especially was about 1,300 megawatts that is now forecasted to double more than the 3000 megawatts. A larger part of the environment is largely based on the cost and pricing of the 12 megawatt build. Our development in India is much lower, largely on the back of lower labor costs.
Q: Do you have any sort of seasonality in your business, like how much do H1 and H2 usually contribute to a full year's revenue?
A: From our perspective, we expect that H2 to be higher than H1. There is an element of seasonality to the extent that there is a budget and if it's severe NAM, India, largely the fiscal year ends in March. So therefore, we are in the business, we will not utilize IT budgets in Jan, Feb, March, and March period. Subsidiaries are doing adapting the work. And if you're starting that you want to use it at your budget. Similarly, in the Americas, there is a calendar year. So in the fourth quarter, customers or some customers that are digestible, we will do that.
Q: What gives us the confidence of meeting our guidance been constantly investment on our top line?
A: We have made a strategic call after assessing as well want to go and how we want to get there to make sure that we are getting good profitable growth. We instituted our assessment of a go to market sometime last quarter of the last fiscal year and made a decision to transform the business, especially in North America with the way we go to market build verticals going deeper in verticals, industry verticals and horizontals, taking an assessment of our large base of customers over 3,000 indicating what is the value that we create for us in terms of operating margins and we made a call saying you focus on of a customers to go deeper.
Q: How confident are you a company to be a $4 billion company by FY28 or FY29?
A: We have put ourselves into an aspirational goal of getting to $2 billion -- $3 billion business in the next four years' time. We are currently at about $800 million. We are expecting organically to take this business to $1.21 billion $0.3 billion with double-digit growth going forward for the next several years and yet we will be looking at to be able to we will have some negative organic growth. That is part of our strategy. We will be looking at equity growth through. But the most levered economics as we get into some of the assets that we believe are valuable, will be that the first thing first, we are focused on going into organic growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
