Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cyient Ltd (BOM:532175, Financial) has set up a wholly-owned subsidiary to focus on turnkey ASIC design and chip sales, indicating a strategic move towards innovation in the semiconductor sector.
- The company has a strong order book with double-digit growth in order backlog, providing confidence for a robust recovery starting Q2.
- Cyient Ltd (BOM:532175) has added new clients in the last couple of quarters, enhancing its customer base.
- The company has over 600 intellectual properties, giving it a strategic edge in the market.
- Cyient Ltd (BOM:532175) has made significant progress in Generative AI, winning 15-plus projects in the last quarter, covering various elements of product data management and customer support.
Negative Points
- The company faced significant operational challenges in Q1 FY25, resulting in a deeper than expected performance decline.
- Q1 FY25 dollar revenue for the DET segment saw a quarter-on-quarter degrowth of 5% and a year-on-year degrowth of 3.6% in constant currency.
- The Q1 FY25 DET EBIT margin stood at 13.5%, down by 256 basis points quarter-on-quarter.
- Group revenue for Q1 FY25 showed a degrowth of 0.6% year-on-year, with an EBITDA degrowth of 281 basis points year-on-year.
- The group FCF for the quarter stood at minus INR 15 crores, primarily due to the cash consumption cycle in the DLM business.
Q & A Highlights
Q: What has surprised us negatively in Q1 versus what you were expecting at the beginning of the first quarter?
A: We expected a soft Q1, but project ramp-ups and deal closures were delayed by about 6 weeks, impacting revenue recognition. We anticipated some softness in the rail business, but the delays in other projects were unexpected.
Q: Does this mean that Q2 should normalize and the issues are just a one-quarter blip?
A: Yes, we expect recovery to begin in Q2, with sequential growth for the next few quarters.
Q: What gives you confidence in delivering the guidance despite the weak Q1?
A: Based on the order backlog, top 10 customer growth, and deals signed in Q1, we expect a strong recovery in Q2 and a better H2 compared to H1.
Q: Are the steps to align supply to demand relevant to Aerospace or the company in general?
A: This is specific to Aerospace, where demand is shifting to on-site across geographies. We are building the necessary supply to meet this demand.
Q: Have the learnings from Q1 been incorporated into the new guidance of flattish revenues?
A: Yes, we have refined our forecasting process and applied learnings from the past six months to improve accuracy.
Q: What kind of macro challenges are you referring to, and are there sales execution challenges?
A: The challenges are mainly in project-based businesses where project delays create gaps. We are strengthening these segments to bring better predictability.
Q: Why was the order intake for Q1 weak, and how do you expect it to pan out for the rest of the year?
A: Strong order intake was seen in Connectivity and New Growth Areas. We expect order intake to normalize during the year, converting into a double-digit order backlog.
Q: What can bring upside to the current guidance?
A: Upside could come from customers opening their budgets and reducing decision-making gaps. We are confident about growth for the next three quarters.
Q: What are the timelines and investment requirements for the semiconductor business?
A: We aim to execute towards the end of the financial year. We are still working on funding requirements and sources.
Q: Is there any structural change in outsourcing in the Aerospace sector?
A: No structural changes are seen. Demand remains robust, and customers need help with engineering, manufacturing, and aftermarket services.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
