Onward Technologies Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

1 Jigar Mehta

Analysts

6 Abhijeet (Paul Asset), Hitaindra Pradhan (Maximal Capital), Madhur Rathi (Counter Cyclical Investments), Rehan Saiyyed (Trinetra Asset Managers), Suresh Burramsetty (Burrams Financials), Vikram (KCP)

Financials & KPIs

Geographic & Segment Commentary

• Mobility / Automotive: Spending remains selective, concentrated in product innovation, software-defined engineering, AI, automation and cost optimisation. Despite European OEM project cancellations and shutdowns, management sees positive momentum with select customers in specialised areas and confirmed positive segment growth for FY27.

• Industrial Equipment & Heavy Machinery: Onward's oldest vertical (15+ years) with client relationships of 10+ years; customers are at record revenues, profits and cash generation. Engagements are expanding from India/GCC into global markets, and Onward captures only 0.5–1% of customer outsourcing budgets, leaving significant headroom for growth.

• Healthcare (HCLS): No client has crossed the $1 million revenue mark yet; the vertical can grow 20–50% YoY, and Q1 was a particularly strong quarter for the team.

• Data Centres & Power Management: Booming demand across North America and Europe driven by data centre capacity and technical capability shortages. The ₹33 crore ODC win is the first of multiple RFPs from the same customer, with significant progress and scale expected over the next three years.

Company-Specific & Strategic Commentary

• Buyback: Completed the first-ever buyback programme in Q1; promoters did not participate, reinforcing confidence in cash generation and long-term growth outlook.

• Infrastructure expansion: Chennai digital/AI lab fully operational with a few hundred staff and some capacity remaining; fourth Pune design centre opens in August, after which Chennai will become the next major growth investment area.

• Client mining & offshore scaling: $1M+ clients grew from 16 to 18; management believes most customers have potential to reach $10M/year. Offshore mix moderated in Q1 but is expected to improve YoY as US/EU customers hire Onward for the offshore advantage.

• Capability building: Continued investment in subject matter experts across mechanical engineering, embedded and digital, plus lab infrastructure, proof-of-concept development, engineering accelerators and reusable IP to win larger, higher-value engagements.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Auto Segment Growth Outlook

• Question: What are growth expectations for automotive projects this year, given mixed industry commentary — European OEMs struggling and green shoots in the US? (Hitaindra Pradhan)
• Answer: Spending remains selective but healthy in product innovation, software-defined engineering, AI, automation and cost optimisation; Onward is seeing positive momentum with select customers in areas of specialisation, and management confirmed positive growth in the auto segment this year. (Jigar Mehta)

Long-Term Strategy & Competitive Confidence

• Question: What gives confidence in winning given strong competition, where even Tier 1s and OEMs are struggling with platform investments? (Hitaindra Pradhan)
• Answer: Onward has 73 live customers, all with MSAs and existing relationships — it is not a sales organisation chasing new customers, which removes unknowns. Management remains confident of delivering robust double-digit revenue and EBITDA growth annually, though not every vertical will grow every quarter. (Jigar Mehta)

Healthcare Vertical Growth

• Question: Are any healthcare clients close to crossing the $1 million revenue mark, and how should contribution evolve over the next 12–18 months? (Rehan Saiyyed)
• Answer: No healthcare client has crossed $1 million yet; the vertical can grow anywhere from 20% to 50% YoY, and Q1 was a very good quarter for the team. (Jigar Mehta)

ODC Deal, Pipeline & Data Centre Opportunity

• Question: How should deal sizes evolve given the recent ODC win and focus on large accounts? Is there a strong pipeline for power/thermal management engineering? (Rehan Saiyyed; Abhijeet)
• Answer: The ₹33 crore ODC deal is only a starting point — it is with an existing customer of 4–5 years; several large multi-year RFQs are underway and the pipeline is broader and of much higher quality than a year ago. Power management demand is very strong due to the data centre boom and shortages of capacity and technical capability; Onward has the manufacturing, engineering and robotics capabilities and is participating in multiple RFPs, with significant scale expected over the next three years. (Jigar Mehta)

Offshore Mix, EBITDA & PAT Margin Trajectory

• Question: Offshore mix moderated this quarter — when does offshore leverage resume, what EBITDA margins are expected over the next 2–4 quarters, and will PAT margins improve? (Rehan Saiyyed; Suresh Burramsetty)
• Answer: Offshore mix is about timing — several customers will increase onsite and several offshore; YoY improvement is expected as US/EU companies hire Onward for the offshore advantage. EBITDA will remain double-digit and improve QoQ and YoY; PAT grew 16.9% QoQ with 113 bps margin expansion, and the focus is on profitable growth. (Jigar Mehta)

Revenue per Employee & Margin Expansion Levers

• Question: When will revenue per employee reach ₹30–40 lakhs (implying ₹750–1,000 crores on ~2,500 employees), and what will it take to reach mid-to-high teens EBITDA? (Madhur Rathi)
• Answer: There is no timeline for the revenue-per-person aspiration — it is about moving up the technology value chain; the clear commitment is double-digit revenue and bottom-line growth. Margin expansion comes from more offshore and mining existing accounts — with top 25 customers at 87% of revenue, scaling clients from $1M to $3M/$5M/$10M per year expands margins while fixed costs per client remain flat. (Jigar Mehta)

Industrial Segment R&D Trends & Customer Potential

• Question: How have R&D budgets, outsourcing shifts and Onward's share moved for top industrial customers over the past three years? (Madhur Rathi)
• Answer: Industrial Equipment/Heavy Machinery is Onward's oldest vertical (15+ years) with 10+ year relationships; pre-pandemic focus was India/GCC only, now expanding into global markets. Customers are at record revenues, profits and cash generation; Onward accounts for only 0.5–1% of their outsourcing budgets. The ₹33 crore deal followed 4.5 years of pilots and small opportunities to prove capabilities, and the customer has already invited Onward for several new RFQs. (Jigar Mehta)

Subcontracting Cost Increase

• Question: Subcontracting costs rose 36% YoY to ₹34 crores from ₹25 crores — is this a productivity issue? (Madhur Rathi)
• Answer: On a combined basis, subcontracting plus employee cost as a ratio declined in FY26 vs FY25; the increase is due to Middle East travel constraints preventing movement into US/Europe positions, so Onward hired locally in those markets as a short-term measure. These roles will be backfilled with Onward's own team members as the year progresses. (Jigar Mehta)

AI Impact on Time & Material Contracts

• Question: Have there been discussions with customers about T&M contracts becoming less relevant with AI models? (Madhur Rathi)
• Answer: There have been no conversations about T&M going away; T&M actually increased in Q1 with similar momentum in Q2. "AI is affecting IT companies and Onward Technologies is not an IT company — we are a product-engineering company." (Jigar Mehta)

Infrastructure Expansion & Investment Timing

• Question: What is the update on the Chennai digital AI lab, and when does the investment phase slow down and convert to profitability? (Abhijeet; Vikram)
• Answer: Chennai is fully operational with a few hundred people and some additional capacity left; the current focus is the fourth Pune design centre opening in August, after which Chennai will again become a big growth investment area. Returns are already visible — EBITDA went from 9% to 13% last year and revenue jumped this quarter; no hockey-stick is expected in a services business, but consistent quarter-on-quarter discipline and sustainable growth are the priorities. (Jigar Mehta)

Key Takeaway

Onward Technologies delivered a record Q1 FY27 with revenue of ₹151.2 crores (+11.5% YoY, +8.7% QoQ), EBITDA of ₹18.4 crores (+20% QoQ), EBITDA margin expanding 113 bps QoQ to 12.3%, and PAT up 16.9% sequentially to ₹11.2 crores. Growth was broad-based: $1M+ revenue clients increased from 16 to 18, a ₹33 crore ODC contract was won with a North American power management company, and the FY27 order book (ACV) has crossed FY26 revenue. Strategy centres on mining 73 existing MSA clients (top 25 contribute 87% of revenue), scaling offshore delivery, and investing in digital engineering, AI labs (Chennai operational; fourth Pune centre opening August) and reusable IP, with the first buyback completed without promoter participation. Management commits to double-digit revenue growth and double-digit EBITDA margins annually, with ODC revenue ramping from Q2. Key watch points include subcontracting cost inflation (+36% YoY) from travel constraints, European automotive OEM weakness, and offshore mix timing, as the company positions for the data centre and AI-driven engineering opportunity across North America and Europe.