CYIENTNSEQ4 FY23April 20, 2023

Cyient Limited

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Management on call

Krishna Bodanapu

EXECUTIVE VICE

Karthikeyan Natarajan

CHIEF EXECUTIVE

Ajay Aggarwal

CHIEF FINANCIAL OFFICER –

Prabhakar Atla

CHIEF FINANCIAL OFFICER

Key numbers — 40 extracted

213 million

let me take you through the highlights for the quarter. In US dollar terms, we posted revenue of $213 million for the group. This represented a growth of 39.1% year-on-year in constant currency, 35.9% in US

39.1%

In US dollar terms, we posted revenue of $213 million for the group. This represented a growth of 39.1% year-on-year in constant currency, 35.9% in US dollars. This also represented a growth of 6.6% qu

35.9%

$213 million for the group. This represented a growth of 39.1% year-on-year in constant currency, 35.9% in US dollars. This also represented a growth of 6.6% quarter-on- quarter in constant currency, or

6.6%

f 39.1% year-on-year in constant currency, 35.9% in US dollars. This also represented a growth of 6.6% quarter-on- quarter in constant currency, or 8.1% in US dollars. I would like to highlight that wh

8.1%

in US dollars. This also represented a growth of 6.6% quarter-on- quarter in constant currency, or 8.1% in US dollars. I would like to highlight that what is especially impressive is that t

INR 1,751 crore

parison without any inorganic bump that we call. In rupee terms, we posted a quarterly revenue of INR 1,751 crores, which signifies a growth of 48.3% year-on-year and 8.2% quarter-on-quarter. Consolidated servic

48.3%

In rupee terms, we posted a quarterly revenue of INR 1,751 crores, which signifies a growth of 48.3% year-on-year and 8.2% quarter-on-quarter. Consolidated services revenue stood at USD 176.2 millio

8.2%

osted a quarterly revenue of INR 1,751 crores, which signifies a growth of 48.3% year-on-year and 8.2% quarter-on-quarter. Consolidated services revenue stood at USD 176.2 million, which is a growth o

176.2 million

h of 48.3% year-on-year and 8.2% quarter-on-quarter. Consolidated services revenue stood at USD 176.2 million, which is a growth of 38.4% year-on-year in constant currency and 35% in US dollars. This also re

38.4%

uarter-on-quarter. Consolidated services revenue stood at USD 176.2 million, which is a growth of 38.4% year-on-year in constant currency and 35% in US dollars. This also represented a 3.2% quarter-on-

35%

enue stood at USD 176.2 million, which is a growth of 38.4% year-on-year in constant currency and 35% in US dollars. This also represented a 3.2% quarter-on-quarter growth in constant currency. Core

3.2%

growth of 38.4% year-on-year in constant currency and 35% in US dollars. This also represented a 3.2% quarter-on-quarter growth in constant currency. Core services revenue is at 12% year-on-year and

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Guidance — 20 items

Krishna Bodanapu

opening

“This call will be accompanied with an earnings presentation.”

Krishna Bodanapu

opening

“Much of it will be familiar, but we have regrouped a few things, so I want to make sure that we give a clear understanding of what these are.”

Ajay Aggarwal

opening

“And next year I think there is a slight change in the taxation in UK.”

Ajay Aggarwal

opening

“Apart from that, I think trends will be similar and the tax for India.”

Ajay Aggarwal

opening

“The overall thing is to look at 25.1% which is the ordinance rate for the next year in UK.”

Ajay Aggarwal

opening

“Krishna will talk about guidance for the year.”

Karthik Natarajan

opening

“We expect this to come back to growth path during this year, and which is led by predictive, proactive, and personalized patient care and connected devices.”

Karthik Natarajan

opening

“With that, I will pass it on to Krishna for sharing the guidance.”

Krishna Bodanapu

opening

“In FY24, we expect consolidated services revenue growth to be in the range of 15% to 20% year-on-year.”

Krishna Bodanapu

opening

“We also expect the consolidated services normalized EBIT will improve by at least 100 to 200 basis points year-on-year.”

Risks & concerns — 15 flagged

Overall, if you see in terms of the share of the geographies, I would say there is some impact of the acquisition and also I think the revenue has been strong.

— Ajay Aggarwal

In terms of the consolidated services growth at constant currency, 30.2%, yes, there is an impact of acquisition and if you were to exclude that, the core services have grown by 12.1% in constant currency.

— Ajay Aggarwal

We have got some price hikes, we have seen the environment, we are able to take for some customers price increases, volume impact of SG&A and of course we continue to spend on some investments whether it is technology or other things that are required.

— Ajay Aggarwal

To move forward to give a larger business outlook, while the challenges continue, dominated by geopolitical issues, wage inflation, interest rates, and also potential signs of economic slowdown.

— Karthik Natarajan

And also with energy transition, which is likely to put significant pressure on the utility companies to move away from being distribution network operators to distribution system operators.

— Karthik Natarajan

I understand that it is a bit of a wide range, but we are being cautious given what is happening in the market.

— Krishna Bodanapu

We have been transparent about our performance, our risk and our opportunities and we have provided you with information you need to make informed investment decisions.

— Ajay Aggarwal

The first one is with respect to the guidance range that is there of 15 to 20% on services business, I just wanted to understand very qualitatively what are the areas where you would be more cautious through the year, which are baked into the guidance and through the last quarter or maybe in the first 20 days of this particular quarter, have you seen any instances of project ramp downs or client cancellations from the clients?

— Sulabh Govila

But I'll say, I think generally there is cautiousness in the market, especially in some of the industries like semiconductor, where we are seeing a bit of slowdown in a macro perspective.

— Krishna Bodanapu

And we're just being cautious and that's why we still kept the higher end of the range also because we are still not seeing a significant impact on our business or an appreciable impact on our business.

— Krishna Bodanapu

But we believe that the macro will impact everybody at some point and that's why we're being cautious.

— Krishna Bodanapu

One is the semiconductor, the second is medical and the third is there's also a bit of a slowdown in some of the elements of sustainability.

— Krishna Bodanapu

And we are also cautious of the fact that there could be potential issues on some specific projects and programs that we don't have visibility yet, which may get impacted or which may get pushed to the right or which may get delayed to begin.

— Karthik Natarajan

But all these businesses are run in an integrated manner and it would be very difficult for us to separate it beyond Q4.

— Karthik Natarajan

I also talked about the talent shortages globally as a major concern.

— Karthik Natarajan

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Q&A — 9 exchanges

First of all, I wanted to thank Ajay for all his help all through these years and I wish you the best for your future and your retirement. I have a couple of questions on the results. So one is that, first of all, congrats on a good set of results. The first one is with respect to the guidance range that is there of 15 to 20% on services business, I just wanted to understand very qualitatively what are the areas where you would be more cautious through the year, which are baked into the guidance and through the last quarter or maybe in the first 20 days of this particular quarter, have you see

Krishna Bodanapu

So I can answer the first question and then request Karthik for his views on that. But I'll say, I think generally there is cautiousness in the market, especially in some of the industries like semiconductor, where we are seeing a bit of slowdown in a macro perspective. And we're just being cautious and that's why we still kept the higher end of the range also because we are still not seeing a significant impact on our business or an appreciable impact on our business. But we believe that the macro will impact everybody at some point and that's why we're being cautious. So I think I'll say a c

Yes, thanks for the opportunity and congrats once again on good execution. All the best, Ajay, for your retirement life, as well as congratulations to Shrini and Prabhakar for the new role. The first question in terms of FY24 guidance, where we have said the consolidated services growth of 15 to 20%. What could be the core services growth? Can it be higher than what we have witnessed, 12% growth in FY23, or you believe it could be lower versus FY23 because of the macro issues as a whole?

Karthik Natarajan

Yes, I think, Sandeep, we are not breaking down by core or consolidated. This was essentially provided to just get a color from Q3 to Q4. But all these businesses are run in an integrated manner and it would be very difficult for us to separate it beyond Q4. So our view is keeping all of them in play and is how we have arrived at this 15 to 20% range. I know it's a broad range and as we learn more about how things happen during the year, we'll try to narrow this range as well. And just to follow-up, what could be the outlook for the railways? Do you believe it's on a Q- on-Q growth recovery an

Hello, sir. One is on the pricing. So there was a steep increase, which you have shown in EBIT margin bridge. And also I saw this increase in on-site presence during the quarter. So when you say pricing, is it the blended rate, or are you referring to like-to-like price hikes?

Karthik Natarajan

Yes, Mohit, it is a like-to-like price hike. And when we talked about it, we have been able to see a strong intent from customers to support on the wage inflation. And this is something which is a critical part. I also talked about the talent shortages globally as a major concern. And they are supporting us with appropriate price hikes in geographies that we operate in. So 4Q is the new base for us from a price perspective? That is right. Yes. Okay. And, sir, last question is, if you could help me understand the breakup, because I think there is some reclassification. You mentioned about it in

Congratulations on another good quarter. I have a question on Aerospace and Defense. We have seen many consecutive quarters of good performance out there. Is it more of widespread performance across client buckets or is it one or two clients that is driving growth in this vertical for us? And how do you look at Aerospace going into FY24, given a very good exit in 4Q that we have delivered?

Karthik Natarajan

I think the recovery of Aerospace continues and we are also seeing the interest from customers to improve their manufacturing productivity and their ability to service the customers. And the aftermarket growth is strong. And we are helping them with some of our digital and technology solutions in this segment to help them to improve their productivity and ability to address their customer segments. We do expect it to continue the growth in double digits for this year. But we do expect this segment also is due for a platform upgrade, which is expected to be announced any time in the next three

Thanks for giving the opportunity and congratulations on a great set of numbers. I mean, first of all, thanks to Ajay for all the support that he has given to us. So thanks for that. And wish him good luck ahead. Largely wanted to understand, you know, the aero side of the business. I mean, we have seen good growth over the last two quarters specifically. So wanted to understand fundamentally, how long are the cycles generally. And you mentioned about some upgrade coming in the next 2 to 3 years. If you could throw some more light around that, what kind of upgrade

Ajay Aggarwal

I'm sorry, the voice is not coming very clearly. So largely, I wanted to understand the aero side of the business. You mentioned as to which areas are driving their growth. I wanted to understand how long that sometimes your cycles on the aero side of the piece, I mean should we see good spend there for the next 2 to 3 years at least. And you mentioned about some big upgrades coming on the new product side, which could happen in the next two to three years. So if you could throw some light around and what kind of upgrades are you talking about? That was one question on Aero. Second question wa

Yes, thank you for taking my question. First of all, congratulations on a good set of numbers. Would want to understand what kind of headcount addition you're looking in FY24, and then I have a bookkeeping question

Karthik Natarajan

Sure, yes, I think I'll try to answer that Nitin. I think you'd have seen that we have added about 509 heads in Q4. And we do have our current plan to fill in what is needed for the next six months. We are continuing to play both on contingency as well as permanent hiring based on what makes sense. How do you think we really see demand panning out? And we are definitely looking at a headcount addition similar to what we have done last year, and which is again, based on how the demand is shaping up. And if you'd have seen, we have dropped about 4.5% on utilization, and we also added about 500 p

Yes, thank you for the opportunity. I just have one question on the order intake. First, going ahead over the next 3 or 4 quarters, do we have all the investments in place to sustain the order book? And the second question is for the quarter reported in the order book, is the acquisition order book, I mean, how do we plan to club it or is it part of it? If that can be clarified, I missed it in the presentation, so if you can help me with that, thank you. Karthikeyan Natarajan: Yes, no, Abhishek, good that you asked the second question, I'll answer that. And current order book or order intake d

Abhishek Shindadkar

Yes, my apologies. The question was about the investment in the current order book momentum. Do we have everything in place or would there be some investment going forward? I hope I understand your question, Abhishek. I think your question is do we have enough capabilities required to deliver for the order book. I would say we are more or less there and wherever we see some gaps, we keep filling them as and when needed. And like we spoke about in the last two years, we have been investing heavily on our technology and digital roadmap. I think that's starting to yield fruits for us in terms of

Yes, thank you. And thanks for taking my question. Congrats on a good set of numbers. I just wanted to confirm that last quarter we had said that aerospace we expect 10% growth quarter- on-quarter. So has that been achieved because the reporting structure has been changed? So just wanted to confirm that.

Krishna Bodanapu

Yes, Pratap. Okay, we've achieved that. Now, I just wanted to look at in the past year, in FY22, we had said that digital and embedded software, that's where a lot of our growth is coming. And perhaps that's one area where maybe you were slightly late to the party. So, and I think the management had called out that we're giving up maybe 100 to 200 basis points of growth every quarter. So what is our progress here? And maybe could you call out some wins in these areas and relevant deal sizes just to understand if we've actually made up on the lost ground here? Yes, I'll just repeat the question

Thank you very much. And I just want to thank everybody for your support. As you see, we've delivered a good set of numbers. We're also very confident of the momentum that they put for the business. Even some of the work that was a challenge in the past, like rail transportation has turned the corner and quarter-on-quarter we had good growth. As Karthik confirmed, aerospace is growing in double digits, even a shade over 10%. So we feel very confident and I want to use this opportunity to thank you for the support and for the very good questions that have come up in the call today. With that, f

Management

Speaking time

Karthik Natarajan

Moderator

Krishna Bodanapu

Sandeep Shah

Mohit Jain

Ajay Aggarwal

Shradha Agrawal

Nitin Sharma

Mihir Manohar

Abhishek Shindadkar

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Opening remarks

Krishna Bodanapu

Thank you very much and good evening, ladies and gentlemen. Welcome to Cyient Limited's earnings call for the fourth quarter of financial year 2023. I am Krishna Bodanapu, the Executive Vice Chairman and Managing Director of Cyient. Present with me on this call are Mr. Karthik Natarajan, the Chief Executive Officer and Executive Director, Mr. Ajay Aggarwal, the just retired Chief Financial Officer and Mr. Prabhakar Atla, the new Chief Financial Officer for the company. Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in our investor update, which has been emailed to you and is also posted on our corporate website. This call will be accompanied with an earnings presentation. The details of the same have also been shared with you. Before I begin with the highlights, let me explain some of the terminologies that are used

Ajay Aggarwal

Thank you, Krishna. I will also present two segments. One is Q4 and one is the full year. If you look at the Group revenue, Krishna already talked about the number of $213 million. How we have done compared to the last quarter and how we have done, from where we were about a year back at about $156.7 million, this means in constant currency, 39.1% growth year-on-year. And quarter-on-quarter, we are looking at 6.6% constant currency growth. In terms of the breakup of that, you will see that in the current quarter, we have done about 3.2% growth from services and we have got about 28% growth that has come from DLM. Overall, if you see in terms of the share of the geographies, I would say there is some impact of the acquisition and also I think the revenue has been strong. That's what is shown in the trend when you look at the bottom of the chart. For the full year, as Krishna said, we crossed INR 6,000 crores, $746 million for the full year. As against $608 million, and we all were very

Karthik Natarajan

Thank you, Ajay. Good evening, everyone. I want to start off by saying that it's been an all- around performance across the sales, delivery, and the operational performance. I am happy to report that our core services have shown eight successive quarters of growth. And if you really look at it based on the business units that we operate, transportation has shown the growth of 12.9% in terms of quarter-on-quarter in constant currency and 13.1% year-on-year. And we kind of guided that we will have double-digit growth. I think that's definitely panned out. And in connectivity, there is a dip of 3.3% quarter-on-quarter in constant currency, while year- on-year it reported growth of 27.7% constant currency. Sustainability business, which comprises of mining, energy, and utility, has shown a growth of 3.1% constant currency quarter-on-quarter growth and 125.1% year-on-year, with Citec being included as part of this group. And new growth areas, which includes automotive, high-tech, medical de

Krishna Bodanapu

Thank you very much, Karthik. The outlook for the year is as follows. In FY24, we expect consolidated services revenue growth to be in the range of 15% to 20% year-on-year. I understand that it is a bit of a wide range, but we are being cautious given what is happening in the market. We still have a very good line of sight within this range, but we want to make sure that we give a wider range, but we will of course narrow it down through the year. But I just want to say there is a bit of uncertainty in the market, and while we are positioned in some very good industries and we have a very balanced portfolio with the four pillars that we will talk about of transportation, connectivity, sustainability, and new growth areas, I think it is just prudent to be conservative at this point. And that is why we are using a wider range, which we will continue to refine through the course of the year. We also expect the consolidated services normalized EBIT will improve by at least 100 to 200 basis

Ajay Aggarwal

Thank you very much, Krishna. I just would take two seconds for every quarter, so that makes it about 90 seconds. I have a statement to say. I am honored to have the opportunity to serve as the CFO. I would say your CFO to the people on the call. I want to take a moment to reflect the progress that we have made together. During my tenure, we have focused on building a very strong financial function, incorporating feedback from our investors. And this has been the best part, if you ask me. And thereby implementing best-in-class governance practices. We are also committed to transparency and disclosure, ensuring that you have the information you need to make informed investment decisions. In the last 12 years, we have generated excellent returns for investors. Our market cap has gone up by 6x, our PAT and free cash flow has increased by 4x and 13x respectively. We are leading our mid-cap peers in terms of dividend payout over the last three-four years. As a company, we have always focuse

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