This article first appeared on GuruFocus.

Total Income: Rs 250 crore, up 41% year-on-year.

EBITDA: Rs 44 crore, up 27% year-on-year.

Profit Before Tax (PBT): Rs 36 crore, up 26% year-on-year.

Profit After Tax (PAT): Rs 26 crore, up 26% year-on-year.

EBITDA Margin: 17.5%.

Core Engineering Business Revenue Guidance: Expected to grow 40-50% this year, reaching around Rs 1,200 crore.

AI Data Center Business (Gscale) Revenue Guidance: Expected to bring in around Rs 250 crore this year.

Release Date: August 06, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Record Q1 FY27 results with total income up 41% YoY and PAT up 26% YoY, demonstrating strong core business growth.

Strategic entry into AI data center infrastructure via GScale Energy acquisition (up to 51% stake), targeting ?250 crore revenue in FY27 with strong client interest from global MNCs and Indian players.

Partnership with JLACO Japan (19% stake, option to increase to 51%) provides access to unique glass lining technologies (conductivity glass, low-leaching semiconductor-grade) with no direct competitors in India or globally.

Core engineering business expected to grow 40-50% in FY27, reaching ~?1,200 crore revenue, supported by a robust order book of ?1,400 crore.

GScale’s innovative prefabricated skid-mounted solutions can reduce data center project timelines from 24-36 months to 15-18 months, offering significant value to customers.

Management expects EBITDA margins to improve to 17-18% for core business and 23-25% for GScale, driven by operating leverage and new high-margin products.

Working capital days are expected to reduce to below 200 days in FY27 due to better inventory management and increased customer advances.

Expansion into new markets (Europe, US) for glass-lined heat exchangers and reactors, leveraging Japanese technology with Indian manufacturing cost advantages.

Strong growth drivers: CDMO sector contributing ~50% of order book, with industry-wide CapEx investments in pharma and chemical sectors.

Management is committed to disciplined capital allocation, with GScale investments expected to generate over 20% ROE.

Negative Points

Exports were only 2-3% of revenue in Q1 FY27 due to global market uncertainty and a 4x increase in shipping costs, impacting international growth.

EBITDA margin declined to 17.5% due to increased employee and other operating expenses, partly from investments in new businesses.

GScale revenue guidance of ?250 crore for FY27 is dependent on successful conversion of advanced LOIs and timely factory ramp-up by November 2026.

The company has not provided clear margin guidance for new businesses (GScale and JLACO products), creating uncertainty for investors.

Working capital cycle remains high (220-240 days) in the core business, though expected to improve, still poses liquidity risks.

The JLACO partnership involves technology secrecy concerns, with critical components manufactured in Japan, limiting local value addition and potential technology transfer.

GScale’s business model relies on partnerships with global OEMs (e.g., Schneider, ABB) for key components, which may limit pricing power and expose to supply chain risks.

Management has not provided detailed financial projections for FY28 or beyond, leaving investors without clear long-term visibility.

The data center market is highly competitive, and the company’s ability to secure large turnkey projects is unproven, with no confirmed orders yet.

The acquisition of JLACO stake (?71 crore) and GScale investments (?500 crore) increase financial leverage and execution risk, especially if revenue targets are missed.

Q & A Highlights

Q: Can you elaborate on the G-scale business, what kind of data center work you will be doing, what margins to expect, and when will inquiries convert into revenue? A: Kasu Brahma Reddy, Managing Director of GScale Energy, explained that G-scale targets the gigawatt-scale data center market, which is expected to grow 6x in India from 1.8 GW to 10.5 GW by 2030. The company is addressing supply chain gaps by manufacturing power products, cooling products, and modular skid-mounted systems. They are actively working with five data center customers (three global MNCs and two Indian players) and are aiming for INR 250 crore in revenue by the end of this fiscal year.

Q: What specific products will be delivered under the JLACO partnership, and how do they differ from your current glass lining business? A: Nageswara Rao Kandula, MD, detailed three unique technologies from JLACO: Shell and tube glass heat exchangers (a unique product with no manufacturing in India, priced 50% lower than current imports), conductivity glass (which allows spark testing for safety, unlike competitors), and low-leaching, high-corrosion-resistant glass for semiconductor-grade chemicals. The strategy is to manufacture critical components in Japan to protect IP while assembling and fabricating in India, offering Japanese quality at Indian manufacturing costs.

Q: How are you building the capability for G-scale, and how are data center clients reacting to a new Indian player? A: Kasu Brahma Reddy clarified that G-scale is not just an assembler but a manufacturer and system integrator. They partner with global OEMs like Schneider and ABB for components but design, fabricate, and manufacture products like PDUs, switchgear panels, and secondary fluid networks in-house. The key value proposition is delivering pre-fabricated, skid-mounted solutions that reduce data center construction timelines from 24-36 months down to 15-18 months, which has generated strong interest from clients.

Q: What is the current unexecuted order book for the core business, and what is the capacity of the new G-scale plant? A: Nageswara Rao Kandula stated the core business order book stands at INR 1,400 crores. Kasu Brahma Reddy added that G-scale has acquired 400,000 sq ft of factory space, with 200,000 sq ft becoming operational by November to support the INR 250 crore revenue target. The remaining 200,000 sq ft will be added by December to support future growth.

Q: What is the rationale for entering the AI data center business, and how does it fit with your existing operations? A: Nageswara Rao Kandula explained that the data center business requires similar high-precision engineering componentscooling systems, heat exchangers, power systems, and skidsthat SETL already manufactures for the pharma and chemical industries. This synergy allows them to leverage existing capabilities. Kasu Brahma Reddy added that data centers evolved from telecom and pharma clean-room technologies, making SETL’s precision engineering expertise highly relevant.

Q: What are the margin expectations for the G-scale business and the overall company? A: Kasu Brahma Reddy indicated that G-scale products and services are expected to deliver EBITDA margins of 23-25%, which is higher than the current consolidated margin. Nageswara Rao Kandula added that the company expects to maintain overall EBITDA margins of 17-18% while investing in new growth engines, with margins expected to improve as the higher-margin G-scale and JLACO businesses scale up.

Q: Can you provide more details on the working capital cycle and how it will evolve with the new businesses? A: Nageswara Rao Kandula explained that working capital days have been high (around 320 days) due to the serial manufacturing of 180 different parts. However, they are controlling inventory and improving collections, expecting working capital days to fall below 200 days by September. The G-scale business is expected to have a much better cycle of below 150 days due to faster project deliveries and customer advances.

Q: What is the revenue guidance for FY27, and can we expect similar growth in FY28? A: Nageswara Rao Kandula confirmed the FY27 guidance of INR 1,200 crores for the core business and INR 250 crores from G-scale, totaling INR 1,450 crores. For FY28, he indicated a minimum growth of 25-30% for the core business, though he noted that current opportunities and order visibility are strong, and they will provide more specific guidance soon.

Q: What is the EBITDA margin outlook given the recent decline, and is it temporary or structural? A: The management clarified that the margin decline is temporary and due to mechanization in two units, which has reduced consumable consumption. Kasu Brahma Reddy confirmed that the company expects to maintain EBITDA margins of 17-18% going forward, with G-scale expected to contribute at higher margins of 23-25%, providing a positive mix shift.

Q: What is the split of the order book between CDMO and other pharma/chemical segments? A: Nageswara Rao Kandula stated that approximately 50% of the current order book comes from the CDMO (Contract Development and Manufacturing Organization) segment, with the balance coming from other pharma and chemical customers. He noted that the CDMO area is growing very fast, with major customers investing heavily in CapEx.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.