Sahasra Electronic Solutions Limited – H1FY25 concall summary
1) Guidance
a) Overall Topline Growth projected in FY25: 20%
b) H2FY25 topline projected: ~Rs. 70 Crore (Rs. 46.54 Crore in H1FY25 – Consolidated) with OPM:
~20%
c) Sahasra's management projects doubling revenue in FY26 compared to FY25.
d) Overall Projected FY27 topline: Rs. 500 Crore
e) For the semiconductor business specifically, it projects an EBITDA margin of 22-24% and a net margin
of 16-18%.
f) On a query that net profit margin will include the benefit it will receive from the production linked incentive
(PLI) scheme; the Management clarified that it will include the PLI benefit in the profit margin
calculation, but will not include the capital expenditure (CAPEX) benefit.
2) Factors contributing to Company’s Lower than expected H1FY25 result
- The Management stated that growth was flat in the first half of the year and cites two primary factors
contributing to this result:
a) Excess Inventory:
- The Company had accumulated excess inventory because its customers held back on placing
orders.
- This was due to trends in the semiconductor industry; in previous years, there had been a
semiconductor shortage, and customers had been willing to pay higher prices for products.
- Cost of material consumed went up in H1FY25 led by high cost inventory which affected H1FY25
OPM
- The Company was able to meet customer needs during this time, but as the market stabilized, customers
opted to wait before placing new orders.
b) Increased Investment in R&D:
- The Company has begun investing in R&D in an effort to develop its capabilities and contribute to the “Make
in India” initiative.
- While this is a long-term investment that is expected to yield benefits in the future, it has increased costs
in the short term, contributing to lower margins.
- It is important to note that the company's margins are still better than the industry average.
- The Management optimism that the company is well-positioned for growth in the second half of the year,
projecting at least 20% growth over the previous year (H2FY25 topline projected at ~Rs. 70 Crore
VGSPL Proprietary Research Nov. 27, 2024
3) Reason for not giving cashflow statement
- The Company’statutory auditor was of the belief that cash flow statement is not required.
- The Management clarified that the issue had been resolved.
- There was some discussion between NSE officials and statutory auditor
- The Company’s statutory auditor has issued the certificate as per the requirement of NSE.
4) Revenue Split between Business Segments
The Management stated that the ratio of its legacy EMS and IT hardware business to the
semiconductor business will be 2:1.
5) Semiconductor Industry
a) Semiconductor demand worldwide will double in the next six years
b) It is expected to move from the current demand of about $500 billion to over $1 trillion.
6) Semiconductor business
a) The Company’s subsidiary, Sahasra Semiconductors Private Limited, has been operational since September
2023.
b) The company has been testing and submitting samples to various players in the LED lighting market.
c) Sahasra plans to begin large-scale manufacturing in December 2024, with expectations for
growth in the first quarter of the 2025 fiscal year.
d) Semiconductor business is expected to ramp up production in FY26..
e) Within the semiconductor business, Sahasra projects revenues of approximately Rs. 100 crores in
FY26.
f) Currently, Sahasra Semiconductors focuses primarily on legacy packaging, which involves simpler
processes and produces lower margins.
g) In the next 9–15 months, the company will begin transitioning to more advanced packaging
processes, such as BGA and eMMC packaging, which are used in a wide range of applications, including
mobile phones.
h) BGA packaging is a more complex and specialized technology than legacy packaging, allowing
Sahasra to command higher prices and achieve better margins
i) By investing in these advanced capabilities, it will be able to differentiate itself from competitors and
capture a larger share of the growing market for high-end semiconductor products.
j) On a query that LED driver ICs are 100% imported to India, the Management confirmed that they will
be the only domestic provider of this product and expects to sign contracts with clients for
millions of units.
VGSPL Proprietary Research Nov. 27, 2024
7) Potential Peak Revenue from Semiconductor Business
a) The Management expects semiconductor revenue to be about 100 crores in the next fiscal year, this
is subject to change depending on new solutions or contracts.
b) The director notes that the semiconductor segment has a longer gestation period because of the
approval cycles required
c) Peak revenue potential from the semiconductor business in the next 3-5 years.
- The Management reiterates its plan to apply for incentives under the Indian Semiconductor Mission
(ISM) 2.0 scheme, noting that it is aiming for an investment of 200 crores, with a potential 100
crore subsidy from the government.
- The company is confident it can achieve 300-500 crores in revenue and possibly even more.
8) New hiring – Jerry Rogers
a) The company recently hired Jerry Rogers from the Philippines. Rogers brings 18 years of experience
in semiconductor packaging from companies like Texas Instruments and On Semiconductor.
b) His primary responsibility will be stabilizing the subsidiary’s manufacturing processes as it
scales up production of LED driver ICs and micro SD cards.
c) He will support Sahasra Semiconductor’s transition to large-scale commercial production
9) EMS business
a) Capacity Utilization: ~55%. The company attributes this partly to the softness in export demand in
recent months. The company attributes this partly to the softness in export demand in recent months.
b) Limited competition: Sahasra faces limited competition domestically and that its margins are higher than
the industry average.
c) Expansion plans: The Company is investing Rs. 65 crores in expanding its EMS capacity. This
expansion will primarily take place at the company’s new facility in Bhiwadi, Rajasthan, which is specifically
designed for high-volume manufacturing.
d) On the EMS side, the Management said that few sectors were very strong for the company and will
yield results in time to come
e) That is the medical sector, marine and it is also targeting the automotive space (Longer duration in
terms of the order winning and the growth thereafter)
10) Partnership with French Electronics major Thomson Computing (METAVISIO) via MII – (Make in
India Initiative) for designing & marketing of laptops, tablets, & other IT Hardware.
a) The Company ‘s partnership with Thompson did not yield the desired results
b) At the launch of Thompson's laptops in India, Thompson indicated that it expected to sell more than a
million units per year, which, at the time, translated to 10,000 crores in revenue
VGSPL Proprietary Research Nov. 27, 2024
c) However, Thompson was ultimately unable to meet its commitments. While the company placed firm
orders with Sahasra, the adoption rate was slower than anticipated
d) Sahasra Electronic Solutions Limited is also looking to sign contract agreements with other potential partners
both domestically and overseas
e) Work is underway on these accounts and announcements will be made as and when things are
crystallized further to what has been discussed.
11) Company’s plans for growth given impending import restrictions from the Indian government
a) The Management this as a positive development because it will incentivize brands to sign deals with
domestic manufacturers.
b) The company has seen heightened activity in the industry and is in active discussions that it expects will
soon result in new deals.
12) Impact of change in leadership in US
a) The Management believes that US policy changes, which are focused on imposing tariffs on Chinese imports,
will have a positive impact on the company.
13) Diversification in other geographies
a) Other geographies like the European Union, UK, Middle east and South East Asia are being explored
to ensure a stronger pipeline of orders.
b) Two sizable contracts, one in Taiwan and the other in Dubai have been signed.
c) The company is also focusing on R&D to ensure that it goes on to become an ODM supplier.
14) Research & Development
a) It is in the process of designing a motherboard around the Intel chipset and expects to bring a
product to market in the second or third quarter of the next calendar year.
b) The company will be the first in India to have designed such a product and intends to offer it
under the “Make in India” scheme.
c) The company stated that its initial focus will be on IT hardware, and will also diversify into chip
design.
d) The company plans to spend between 1% and 1.5% of revenue on R&D.
a) Use of IPO proceeds (Proceeds of the IPO being deployed in this year will get it
benefits in the next year)
b) Rs. 40 Crores has been utilized for increasing its stake in its subsidiary Sahasra Semiconductors
Private Limited
c) Before the IPO, Sahasra held a 54.7% stake in Sahasra Semiconductors Private Limited. After investing 40
crores of the IPO proceeds, the company increased its stake to 72.7%
d) The company has also used some of the proceeds to reduce its working capital requirements and purchase
equipment
VGSPL Proprietary Research Nov. 27, 2024
e) The remaining amount, which includes a fixed deposit of 100 crores, is being held for use according
to the plan outlined in the IPO prospectus.
VGSPL Proprietary Research Nov. 27, 2024
