Cyient Q3FY18 Concall Summary


 Financial Highlights

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  • Q3FY18 has highest-ever quarterly revenue of US $152 million witha strong QOQ growth of 1.3% and a YOY growth of 11.9% in US Dollar terms despite the lower working days
  • For services business, the revenues stood at US $139.9 million, the highest ever with a robust QOQ growth of 4.2% and a YOY of 15.6% in US Dollar terms and a 4.4% in constant currency terms
  • Geography wise, America has grown 10%; Europe, 16% and Asia Pacific 10%
  • Operating margins for Q3FY18 sustained at 14.6% despite the headwinds of higher paydaysand the expansion is 116 basis points YOY
  • Operating profit for the quarter stood at Rs.143.1 Crores, which is also the highest ever, with a QOQ growth of 1.6% and a YOY growth of 16.5%
  • Cyient got a headwind of about 130 basis pointsbecause of mismatch between billdays and the payday
  • In services business the margin is about 16%
  • Net profit for the quarter stood at Rs.87.8 Croreswith a one-off event which led to loss on two grounds
  • Two months of operating losses due to Hurricane in Puerto Rico, and some marginal loss on divestment
  • Adjusting for the one-off, the normalized profit for the quarter would stand at Rs.108.8 Crores, with a YOY growth of 15.5%
  • Cyient’s other income QOQ has moved from 406 to 273
  • Adjusting the impact of unrealized FX loss/gain that moment of 93 to minus 50, which is a swing of about Rs.14 Crores, then Cyient is doing well on realized forward contract as well as on the treasury income
  • The total coverage is set at about $123 million.
  • Cyient declared a second interim dividend of Rs.4 per share, in line with revised dividend policy of payout of 40% from the current payout of 30% barring unusual situations

Cash Generation

  • Cash and cash equivalent stood at Rs.1,077 Crores or US Dollar $168 million, which is again the highest ever
  • Free cash flow generation for the quarter stands at 67% of EBITDA, and that is at Rs.113.6 Crores
  • Adding the proceeds of divestment, the free cash flow stands at Rs.174 Crores for the quarter
  • Cyient has spent money on the dividends that were declared last quarter and another Rs.21 Crores on long-term investments
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  • The divestment of 49% Joint Venture with Pratt & Whitneyhas been consummated in this quarter, exactly in line with what Cyient hassigned off
  • In terms of the financial returns, it has been a very handsome return, with an IRR of more than 50% on this original investment that Cyient made in 2013
  • Cyient got more than $20 million from the original investment of $250,000
  •  Cyient has got on a gross basis about $11 millionand on a net basis, net of tax, $9 million and highest-ever cash of $167 million
  • In terms of the income statement, the overall impact is about $3.5 million


  • Adjusting the reported ETR of 22.4%, because of the tax adjustment on IASI and also the adjustment for the deferred tax because of the US,and excluding one-off number is 27.9
  • It is estimated that ETR in SEZ stage should go down by about 1%, but some of the further impacts are still being studied, and Cyientcontinues to work on the SEZ ramp-ups, which could further reduce the tax rate in coming years

    Awards & Recognition:

    • Cyient obtained the ICRA rating of CGR 2+ for corporate governance practices of the company
    • Cyient won Pratt & Whitney, also called as the America Supplier Innovation Award for the fifth consecutive time
    • Won Productivity Savings Award, second time in the last five years
    • Won Golden Peacock Award 2017 for Risk Management recently in Singapore
    • Confederation of Indian Industries recognized Cyient as one of the most innovative organizations


    • Cyient established aerospace nearshore engineering center in Portishead, in the United Kingdom
    • Inaugurated the Cyient Defense Services offices in West Palm Beach in Florida
    • Expanded the Center of Excellence for a key customer with additional capacity of 75 seats, strengthening business relationship
    • Inaugurated the Global Tower Operation Center, in Hyderabad which is an IoT-enabled TOC provides 24x7 surveillance and remotely monitors all passive assets in cell towers across multiple locations around the world
    • Cyient’s Telstra delivery center in Blacktown, New South Wales got the coveted ISO 27001:2013 certification
    • Won Cyient’s first grid analytics project in collaboration with the recently concluded partnership

    Aerospace & Defence Industry:

    •  While there are challenges, on the commercial aerospace, the defense is starting to pick up
    • Cyient inaugurated the office in West Palm Beach, Florida, which does a lot of work for defense-related projects with 150 people
    • From a commercial aerospace perspective, design in commercial aerospace has been coming down for the last few years and it is stabilized, but it would not increase at least for the foreseeable future

    Communication Industry:

    • The Communication Industry cuts across a number of industries in the sense that it is an enabler for a lot of disruption that is happening across multiple industries
    • Cyient is seeing some good opportunities around fibre deployment, which essentially helps high-speed broadband connections and, communications is one of star performers at Cyient
    • The business is not going to grow at the same pace as what it has grown

    Utilities & Geospatial Industry:

    • There are some very good opportunities in this industry because there are new technologies like advanced metering, smart meters, etc., while the sort of the historic skills around transmission and distribution and network design are stable
    • There are some very good growth opportunities in the areas like software and analytics
    • From a commercial perspective the TomTom algorithm and the data is significantly more accurate than google maps
    • For FedEx or UPS whether the business depends on the quality of data it is quite a value add that TomTom provides like, accuracy of data, the accuracy of traffic and the algorithm to get from point A to point B including driver scheduling, how did they go up from address A to B to C
    • The second aspect is, maps historically happened to be two dimensional relatively accurate information whereas today with things like autonomous driving, they cannot just be two dimensional they have to be three dimensional

    Rail Transportation:

    • Cyient signed up with another new OEM, which is one of the largest OEMs in the world
    • With this, all the five large OEMs in rail are Cyient’s customers and not just tactical customers, but quite strategic in nature

    Industrial Energy and Natural Resources:

    •  Capex still tends to be at a premium, and the growth is muted for this year

    Semiconductor Industry:

    •  Between the last two years, growth has almost been 25%, which is a significant pickup compared to what it was a few years ago
    • The demand for memory chips, analog chips are looking quite appealing at this point and thedegrowth in this business in Q3, but that is just down to seasonality

    Medical devices industry: 

    • Cyient expects a CAGR of about 5% going forward and the major drivers of these are increasing healthcare expenditure, awareness, aging population, application of technology, etc
    • There was a small de-growth because of seasonality, but Cyient has started a number of relationships and some quite strategic with the top 10 medtech players

    Design Led Manufacturing Companies:

    • From volume perspective, the growth rate of DLM for year is going to be 20%
    • The reported revenue will look little bit lower because of adjustments done for GST
    • The manufacturing capability that Cyient have in Mysore can deliver about $25 million to $28 million of product in any given quarter
    • The margin will expand by about 50 basis pointsand the operational improvements gave 350 BPs, utilization mix, better onsite margin and actually that was a very important aspect because a significant portion of business is onsite
    • The wage hike took away 150 basis points
    • Cyient made about 100 basis points of investments and obviously these are quite strategic in nature be it through the new business accelerator or intellectual property investments, etc
    • There has also been a little bit of pricing pressure in various spaces, but that took away about 50 basis points, and that is where DLM will also end up with a low single-digit number for the year
    • Q4 growth is expected to primarily come from aerospace and defence that is why the order backlog is
    • It takes some time to get the design through to manufacturers
    • First product that Cyient designed has gotten EASA 1st approval, which is the European design authority or certification authority for aerospace
    • The second EASA approval will also happen imminently, and the volume in design is starting to build up
    • DLM has achieved break even at operating profit level, in this quarter and resulted in a positive cashflow


    • The smart way that Cyient can get price increases is really by packaging it as a project where it hasend-to-end responsibility or more comprehensive responsibility

    Make In India:

    • Due to Make in India, now that the first airlines also launched so there will be clear spending in the avionics within India as well
    • Cyient would not counter shake hands before the rooster hatch and nothing has hatched so far
    • Cyient is being very careful on how much it invests at the same time  is not expecting some huge numbers to come in immediately


    •  Cyient continues to support 25 government schools, supporting the education for the underprivileged children
    • As a part of initiative to increase IT literacy, Cyient has also added one more Cyient Digital Center, taking the total to 56
    • Cyient Foundation launched two smart classes, which is the first of such government school in the Telangana State