Krishna Bodanapu, Managing Director & CEO, Cyient
PAT at INR 839 Mn; growth of 3% QoQ
HYDERABAD: Cyient (Estd: 1991, NSE: CYIENT), is a global engineering and technology solutions company. They reported its consolidated financial results for the second quarter (Q2) of FY 2021 ending September 30, 2020.
Commenting on the results, Mr. Krishna Bodanapu, Managing Director and Chief Executive Officer, said “Q2 FY21 results are in line with our expectations. We recorded a revenue of $135 Mn which was higher by 1.3% QoQ and lower by 16.3% YoY in constant currency. Growth in Services business across Transportation, Communications, and Portfolio BUs was offset by Aerospace & Defense BU decline. The DLM business grew by 13.3% QoQ. The EBIT margin is higher by 586bps QoQ. We generated a Free Cash Flow of $27.3 Mn in Q2FY21. This quarter we focused on setting up the business back on a growth path. We continued our rigor on efficiency improvement and building a pipeline for the business. We won key projects which set us up for a better H2. We are focused on building a strong pipeline with large opportunities and rigor on account mining across key clients. This quarter we also restructured the organization to realign ourselves to the market opportunities and focus on growth in key industries. The new structure will enable us to function in a more agile and efficient manner. We also made significant investments in strengthening our business through strategic partnerships and M&A. We intend to acquire IG partners, an Australian consulting firm to expand our digital capabilities in the mining sector. The IG Partners transaction, the terms of which are confidential, remains conditional on regulatory approval and will result in Cyient taking full ownership of the company. Our outlook for H2 is positive and we expect growth based on the outlook and pipeline across most sectors. We will see a decline in the aerospace business due to seasonality challenges and a lower number of workdays. For the year we expect a double-digit decline in revenue and margins will be similar to FY 20 margins.”
Commenting on the results, Mr. Ajay Aggarwal, President & CFO, said, “I am pleased to share that during Q2 FY21, we delivered one of our best margin and cash flow in recent past. Our initiatives on increasing efficiency and cost optimization yielded results with an EBIT margin at 11%, an expansion of 586 bps QoQ and our EBIT is flat YOY. Our sustained focus on collections and cash conservation led to a robust FCF to EBITDA conversion of 131.4% and a healthy cash balance of INR 13,509Mn. We generated FCF of ₹ 2,032 Mn for the quarter with DSO at 90 days (Lower QoQ by 10 days). We witnessed a significant improvement in Design Led Manufacturing (DLM) performance, especially on improved margin. Our rigorous initiatives on the collection, discretionary cost control, and automation continue. We expect the full benefits of improved operational efficiency to be visible by end of FY21. We remain deeply focused on organic and inorganic strategic investments. Cyient will continue to reap opportunities for growth, improvement in operating margin, cash generation and thus delivering on the promise of maximizing the value for our shareholders.”
Business performance and outlook
Aerospace & Defense
Aerospace & Defense Aerospace & Defense BU witnessed a de-growth of 10.4% QoQ and 34.8% YoY. The full impact of the COVID crisis was witnessed in this quarter with most customers reducing their spends significantly. We saw growth in our DLM business and are further likely to see strong YoY growth in this area. Cyient also received ‘The Silver Boeing Performance Excellence Award’ which is a testament to Cyient’s dedication and consistent commitment to delivering value to its business partners across the A&D value chain Q3 revenues are expected to see a decline due to business cyclicality. The outlook for the next few quarters remains uncertain driven by poor market demand for passenger travel.
Communications BU witnessed a growth of 7.9% QoQ and 5.8% YoY and has now become our largest vertical. The performance was driven by growth in key accounts. We continue to benefit from the rollout of broadband networks globally to support virtual collaboration (WFH) trends combined with the accelerated rollout of 5G networks, which is now about 11% of our revenue portfolio. We were also selected as a preferred vendor by our key client in NAM for the rollout of their 5G network. The outlook for H2 FY21 remains positive, supported by the favorable industry trends of technology-led network transformation and accelerated deployment of broadband and wireless infrastructure.
Transportation BU witnessed a growth of 21.3% QoQ and a de-growth of 10.2% YoY. Growth in Q2 was driven by a recovery in key accounts and ramp-up of new engagements initiated in 2020. We see early signs of recovery from the pandemic with production facilities reopening. Accelerated adoption of global engineering models is leading to significant ramp-ups in new engagements. The outlook for H2 FY21 remains positive supported by the expectation of a steady recovery in the Rail transportation industry.
Energy and Utilities BU has witnessed a growth of 0.1% QoQ and de-growth of 31.4% YoY due to project deferrals in the utility business and a decline in demand for the manufacturing business. We expect traction in the Energy segment driven by our recent acquisition of IG partners in Mining. We believe that the powerful synergy of Cyient’s digital execution capabilities and IGP’s advisory expertise creates a unique value proposition for the industry.
Medtech and Healthcare
The Medical and Healthcare business unit has grown by 49.4% in QoQ and 68.4 % YoY. We witnessed a strong performance from the DLM side of this business. We added one of the top 3 Med-Tech companies as our client. We continue to look for new business opportunities from new and existing customers across the business lines (Product Design, Lifecycle Management, and DLM)
Portfolio BU witnessed a growth of 5.4% QoQ and a de-growth of 22.3% YoY. Cyient has joined an exclusive list of companies that have attained Esri Gold Partner status globally. This will enable Cyient to develop and implement a wide range of next-generation geospatial services, tools, and solutions across multiple industries, including telecommunications, energy & utilities, mining, transportation, defense, the public sector, and manufacturing in collaboration with Esri. The outlook remains positive as we see opportunities related to new revenue streams in existing customers. We are also seeing more opportunities to proactively bid on horizontal solutions that leverage Portfolio BU capabilities into other verticals and BU’s.
SIA (Semiconductor, Semiconductor, IoT and Analytics)
Semiconductor BU witnessed a de-growth of 2.3% QoQ and 12.0% YoY. De-growth was primarily driven by a decline in one of the top clients. We expect the softness in this vertical to continue in H2FY21.
DLM (Design Led manufacturing)
Design Led manufacturing BU witnessed a growth of 13.3% QoQ and de-growth of 12.3% YoY driven by growth across Segments. Our strong focus on inventory reduction through the quarter resulted in increased cash flow for the business. We expect strong growth through Q3FY21 driven by key clients in the Aerospace & Defense and Medical segment. We will continue to focus on better inventory management and operational excellence to improve our cash position. We continue to focus on leveraging the Additive Manufacturing lines in India and the USA to attract new customers.
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