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


    Kellton Tech Q2FY18 Concall Summary

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     Financial Highlights

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    • Total revenue for the quarter stood at Rs. 185.2 crores, which is 5.4% higher than the preceding quarter
    • EBITDA of the company stood at Rs. 28 crores which is growing by 34.6% year-on-year and 9.6% quarter-on-quarter
    • PAT of the company stood at Rs. 14.96 crores which is 2.4% higher than the preceding quarter
    • EPS of the company increased by 62.3% quarter-on-quarter and stood at Rs.3.17
    • Total revenue for six months stood at Rs. 361.07 crores
    • EBITDA for six months stood at Rs. 53.56 crores which is growing at 34.6 YoY
    • Net profit of the company stood at Rs. 29.58 crores which is 8.2% of the total revenue

    Revenue and Future Prospects

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    • Revenue of the firm is expected to grow at 5.5% quarter-on-quarter and a little over 20% YoY
    • Acquisition of Lenmar has helped in attracting BFSI customer
    • IoT technology has helped in increasing the business
    • There would be a reduction in the number of pledge shares
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    • Bank guarantee fees on some contracts of the company has resulted in the escalation of the financial costs
    • Timely renewals of debt limit has also resulted in additional finance costs

    Dividend Policy

    • Dividend payout to the investors would not start before FY2020 because of maintaining a cash reserve for growth prospects


    • Strategy for acquisition would remain the same, i.e., increase capability or expand the customer base
    • Cultural fit has to be taken care of before acquiring any new firm

    Project Information

    •  Almost 80% of the new orders are from repeat customers
    • Majorly the projects time span from six to nine months but they could be multi-year also
    • Kellton take up multi-year projects which is the combination of both building the systems initially and then providing maintenance and support for next few years
    • In one of the projects for the company in oil and gas industry, they can provide real-time data to the company with the help of the sensors installed near the oil wells and with the help of predictive analytics they can predict about the problems and changes that are needed to handle a particular situation
    • It makes IP or Platforms, and because of that they can respond quickly and better to client requirements

    Industry Characteristics

    • Digital transformation industry has a size of more than trillion dollars
    • Nearly 66 % of the total revenue of the Kellton Tech comes from the digital transformation
    • According to Gartner, 20% to 30% of all the companies around the globe have shifted to digital transformation, and by 2020 nearly 70% of the companies would be using this

    Business arena

    • Kellton Tech works with all the industries
    • Highest revenue generating industry for Kellton Tech is Information Services and Technology industry
    • It also works with Media & Entertainment, Manufacturing, Energy & Utilities, Education, BFSI, and Retail
    • Kellton has the capability to completely transform the traditional way of doing business into Digital


    •  Kellton make timely investments in new cutting-edge technologies
    • They claim that by the time large player adopts a technology they move to a new technology


    • Kellton has limited reliance on the H1 visa holders as employees
    • Employees are paid salary according to their experience and at par with US citizens and Green card holders
    • Kellton does not have huge bench strength of employees because it directly places them in projects

    Trade Receivables

    • Kellton claims to have done better than other players in the industry in terms of trade receivables which currently stands at 73 days


    Persistent Systems Q2FY18 Concall Summary

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    Financial Highlights

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    • During the quarter the revenue was $118.10 million, which was a 4.5% QoQ growth and a 12.3% YoY growth
    • In Indian rupee terms the revenue was Rs. 7,612 million with a 4.6% QoQ growth and 8.1% YoY growth
    • The PAT was Rs. 826 million which is a 10% QoQ growth and a 12.4% yearly growth
    • On half yearly basis, revenue for first half is Rs. 231.07 million and in rupee terms is Rs. 14,892.67 million and PAT is Rs. 1,577.12 million
    • The steady growth is supported by strong demand in data, digital and IoT, specifically in healthcare and financial services
    • The revenue of Rs. 118.10 million includes $1.9 miilion from PARX
    • The linear revenue grew by 6.2% QoQ mainly with a volume increase of 5.4% and increase in billing rate by 0.8%
    • The onsite linear revenue grew by 11.4% QoQ mainly with a volume increase of 11.5% and decrease in billing rate by 0.1%
    • The offsite linear revenue grew by 2.7% QoQ mainly with a volume increase of 4.2% and decrease in billing rate by 1.5%
    • EBITDA margin was 15.2% against 14.3% in the previous quarter due to improved operational efficiency
    • Utilization for this quarter was 78.6% against 77.2% in the previous quarter
    • Growth in EBITDA was 10.9% QoQ and 4.5% YoY; YoY growth was mainly impacted by exchange rate movement
    • Depreciation and Amortization was 5% against 5.4% earlier and EBIT was 10.2% against 9% in the previous quarter
    • Treasury income decreased to Rs. 133 million from Rs. 183 million in the previous quarter
    • Gain on foreign exchange was Rs. 203 million against Rs. 184 million in the previous quarter
    • Subcontracting costs is increasing every quarter and is presently 18% of salary cost
    • The company is seeing steady QoQ improvements in two new products Sentient and ShareInsights
    • In FY2017, the company capitalized Rs. 217 crores in intangible assets and the range of amortization is three to six years
    • PBT was Rs. 1,115 million at a margin of 14.6% against 14% earlier
    • Growth in PBT was 9.3% QoQ and 13.2% YoY and ETR was 25.9% for the quarter
    • PAT was Rs. 826 million at 10.9% against 10.3% in the previous quarter and growth in PAT was 10% QoQ and 12.4% YoY
    • The operational CAPEX for the quarter was Rs. 46 million
    • Cash and current investments amounted to RS. 9,992 million at September end against Rs. 8,745 million at the end of June
    • Forward contracts outstanding at quarter end were $100 million with an average forward rate of 67.99
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    Business Updates

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    • The company also launched Smart India Hackathon 2018
    • The services business for the company has grown by 2.7%
    • The digital OU grew to 24.67 million, a growth of 21% QoQ and 60% YoY
    •  There is a difference of few hundred basis points between alliance number and the top client number
    • The customer is now looking at custom built development on the newer technology, and that is where the company is winning
    • The Enterprise business is expanding but the ISV business is shrinking
    •  There is a decline in the headcount of the IP led business as the personnel allocated is lower due to optimization
    • Excluding PARX, the sequential growth in Europe has been good due to a nice deal the company closed as a part of the Accelerite portfolio
    • Alliance shows weakness in current quarter as IBM’s numbers are better in Q4 compared to Q3
    • Service margin fell as onsite numbers have gone up compared to previous year and currency fluctuations also contributed partly
    • The mix of the company is more in favour of solutions side rather than implementation side when it comes to the partners Salesforce, Appian and Oracle
    • The company received Rs. 4 crore more than expected from an insurance claim on an IP infringement case and thus a reversal of RS. 4 crores is done in the release
    • The company is operating at 77% utilization in India and hopes to improve it
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    New Initiatives – PARX & NEURO

    • The company acquired PARX, platinum partner for Salesforce in DACH region in Europe and would be ramping up its business in Europe
    •  In Europe and others parts of the world as well, the company hopes to add more digital enterprise clients
    • There is huge addition of clients due to the 100+ customers added from the PARX portfolio
    • PARX contribution was 0 in this quarter but should come back to 10% by next quarter
    • The company bagged a technology in its deal with USAA about launching risk based solutions and has now built NEURO, and also had first few customers including major names in the financial world
    • The first version of NEURO was released in May end and the price point could be anywhere from 100k to 250k

      Future Guidance

    • Applications based on the build out of the open source platform with Partners Healthcare would soon be out
    • The company hopes CE/CLM business to be lower double digits this year
    • The company expects the digital business to be half a million dollars and expects the growth rate to be near to 50% for the year  
    • The company has opportunities with healthcare providers with use of Ai in drug design, IoT for innovative solutions, blockchain for universal EMR, etc.
    • During Q2 the company added 19 new Enterprise customers of which it expects to convert at least half into multi million dollars accounts in the coming quarters
    • The company expects wage headwinds and has announced wage hikes of 6%-8% for junior category people in Q4, comprising about 75% of staff and would result in 1.5%-2% extra costs
    • Services business is a business with lots of headwinds and would be flattish in the times to come
    • IP led revenue has been flattish for six quarters, close to 30 million but would improve in Q4
    • The company hopes offshore utilization of 80+% and onsite utilization of 90+%
    • The company gave a margin guidance of 200 bps at the start of the year
    • The company would release the CE/CLM product in December quarter and has a six month cycle for product releases