India: Cyient, a global provider of engineering, manufacturing, geospatial, network, digital and operations management solutions to global industry leaders, on October 18 reported its consolidated financial results for the second quarter (Q2) of FY 2019 ending September 30, 2018.
- Highest ever PAT Growth; 54% q-o-q & 14% y-o-y
o Overall PAT for the quarter at ₹1,271Mn
- Highest ever quarter on revenue ($168.9 million), Operating profit (₹1,626Mn)
o y-o-y revenue growth of 12.5%, q-o-q at 5.1%
o q-o-q operating profit at 23.5%
- Constant currency revenue growth of 6.5% QoQ and 14.5% YoY
- Service margin expansion of 212 bps q-o-q at 15.3%, led by improved utilization of 78%, up 294 bps; Group margin expansion of 151 bps q-o-q at 13.7%
- Highest ever Services revenue at $146Mn; 8.7% YoY growth; DLM growth: 44.8% YoY
- Cash flow conversion at 72%; H1 at 47%
- Highest ever cash balance of ₹12Bn after payment of final dividend
- DSO at 82 days, 7 days lower q-o-q
- Company declared an interim dividend of ₹6.0/Share – highest ever
Commenting on the results, Krishna Bodanapu, Managing Director and Chief Executive Officer Cyiebt said, “I am delighted to report yet another very strong quarter. We witnessed a strong growth of 14.5% in constant currency driven by growth across Aerospace and Defense, Transportation, Industrial, Energy and Natural Resources (IENR) and Semiconductor, IOT and Analytics (SIA) business units. On a QoQ basis we witnessed a growth of 6.5% in constant currency. The services business witnessed a growth of 3.5% in constant currency while DLM business witnessed a growth of 27%. I am especially happy to report the strong performance in the DLM business, which I am certain is a reflection of the potential for growth and strategic synergy that exists in the business.”
He further said that with focus on driving execution on S3 strategy the company’s rigor on solutions development continues. This quarter, Cyient Systems and Solutions (CSS), our JV with BlueBird Aerosystems, won a bid from an Indian Defence unit to supply SpyLite HAASS systems for high altitude surveillance. As part of this bid CSS will supply two systems through the year. Our New Business Accelerator (NBA) Program focused on technology driven solutions continues to make good progress with all projects on track for commercial development. The NBA is expected to accelerate Cyient’s EPS growth over the next few years.
This quarter the company was recognized as the Top IT/ITES Exporter in the Rs 1,000 crore export category by HYSEA. Our Chairman, Mr. BVR Mohan Reddy was also conferred with a Lifetime Achievement Award by HYSEA. Cyient was also named as one of the Top 20 most promising Aerospace Tech Solutions Providers by CIO Review. We were selected for our ability to illustrate the functionality of services, systems, and solutions, and for being at the forefront of impacting the aerospace market. Cyient was identified as a “Major Contender” in the Everest Group Verification & Validation engineering services Peak Matrix 2018 in the quarter.
The company’s outlook for FY 19 continues to remain strong. Bodanapu said, “We expect a double digit growth in our services business, our DLM business will grow in high double digits. We also expect double digit growth in operating profit through the year. Our operating margin is expected to marginally improve through the year driven by operational improvements and upsides from exchange rates, some of which will be offset by wage hikes and investments we make through the year.”
Commenting on the results, Ajay Aggarwal, President & CFO Cyient said, “I am pleased to share that we saw the highest-ever revenue ($168.9Mn), operating profit (₹1,626Mn), FCF (₹1,585Mn) and PAT (₹1,271Mn) in Q2 FY19 for a quarter. Cyient is progressing well on another year of well-rounded growth in revenue, profit and cash with growth of 23.5% QoQ in operating profit along with the highest ever PAT growth of 54% QoQ (14% YoY). We also saw expansion of 151 bps QoQ in OPM and that of 212 bps QoQ in Services margin. Healthy conversion of Free Cash Flow to EBITDA at 72% has translated into a highest ever cash balance of $12Bn after payment of dividend. DSO is lower by 7 days QoQ at 82 days. We declared a interim dividend of ₹6.0/share compared to ₹5.0/share in Q2 FY18.”
Aggarwal added, “We remain deeply focussed on organic and inorganic strategic investments. We expect the momentum to continue in the next two quarters as well. Cyient will continue to focus on growth, improvement in operating margin, cash generation and thus maximizing the value for our shareholders.”
Business performance and outlook
Aerospace & Defence
Aerospace & Defense (A&D) business unit (BU) achieved a growth of 1.3% QoQ and 6.2% YoY in constant currency led by growth across geographies and key customers. The BU continues to witness moderate growth in large accounts and strong growth in new accounts. The business is expected to face seasonality challenges in Q3, however, the outlook for the year remains positive. The BU is expected to witness a mid to high single digit services revenue growth and double digit growth including DLM through the year driven by new wins in Avionics and DLM.
The Aerospace and Defense (A&D) industry is expected to witness strong growth driven by increase in commercial aircraft order backlog. The defence spending is expected to continue to witness a decline in the year. Overall, the industry is expected to witness a 5% growth, the same as previous year. The focus on innovation would continue with focus on intelligence and cyber security.
The Communications BU achieved a growth of 4.3% QoQ and 15.2% YoY in constant currency. The NAM and APAC exhibited reasonable growth as the BU continues to support various programs around fixed line and wireless networks. The BU is expected to witness a double digit growth through the year with good momentum across all geographies and programs especially wireless networks around small cell design and deployment and fibre roll out in NAM.
The communications industry continues to be a critical force for growth, innovation, and disruption across multiple industries. The Revenue growth for carriers is of critical importance in 2018. Revenue yield on data services (revenue per bit consumed) continues to decline as consumers use more and more data, with static or declining monthly bills. Hence it is critical to identify rapid investment opportunities across the telecom portfolio – including 5G, IoT, and cross-industry partnerships (such as mHealth and mPayments), as well as a host of other growth opportunities.
Utilities & Geospatial
Utilities and Geospatial BU delivered a growth of 4.3% QoQ and a de- growth of 1.4% YoY in constant currency. The BU witnessed an improved utilization and a favourable shift towards offshore business, a trend that is expected to continue through the year. The Business unit expects a strong growth over the next quarter backed by a strong pipeline and continued interest in solutions across all geographies. The focus on automation, IoT and analytics continues. Overall, the BU expects to be flat through the year.
The utility industry is witnessing significant growth due to an increase in distributed and renewable power generation projects and regulatory requirements. Utility companies continue to make large investments in grid modernization, distributed generation, field force automation, and Advanced Metering Infrastructure (AMI) to support their operations. The global Geospatial market also continues to expand as location data is becoming critical for many diverse businesses and applications. There is an increasing focus on mobile solutions, as well as AR/VR, 3D, and indoor-mapping.
Transportation BU delivered a growth of 2.3% QoQ and 16.0% YoY in constant currency supported by momentum in various key engagements and new project wins. The BU continues to make significant progress in efforts to leverage the opportunities presented by the rapidly evolving industry trends, especially around digitalization, consolidation and standardization. At Innotrans Berlin, this year the BU unveiled Cycero, a product for rail cab audio alarm notification along with a number of solutions leveraging technology to address emerging industry trends such as Augmented Reality and Smart Asset Maintenance, which are well received by our key clients and endorsed by industry experts . The outlook for the year continues to remain positive with demand from key clients expected to drive growth. The BU is expected to witness double digit growth through the year.
The rail transportation industry is expected to witness strong growth driven by growth in rolling stock and signaling. The industry focus on consolidation continues. The focus on digitization and standardization is expected to continue throughout the year.
Industrial, Energy and natural resources (IE&NR)
The I&ENR BU witnessed a growth of 5.2% QoQ and 10.5% YoY in constant currency. The growth in the business was predominantly driven by strong performance in Off Highway Equipment segment. The BU continues to see strong pipeline in connected equipments and asset health monitoring solutions with new opportunities in both existing and new clients. The BU is expected to witness low double digit growth in US dollar terms for this financial year.
The oil & gas industry continues to recover from last few years of weak prices, enforced capital discipline, portfolio realignments, and productivity efficiencies. The outlook for mining sector is positive with rising commodity prices. The sector is experiencing strong outlook of future orders and reduced operational costs. The investment in the sector is expected to improve with a significant number of large projects and expansions to go live from 2020.
Semiconductor, Internet of Things & Analytics (SI&A)
Semiconductor BU which includes acquisition of Ansem witnessed a growth of 8.8% QoQ and 54.7% YoY in constant currency The BU has gained traction with new automotive customers and ramp up with existing semiconductor customers. In addition to the current ASIC services business, The BU will be adding a Full Chip Solution providing turnkey custom ASIC’s. The BU is also increasing focus on post silicon verification and validation services. The AnSem acquisition is further expected to scale service offerings and customer base. The BU expects high double digit growth for the year.
The semiconductor industry grew by 4.4 percent in the second quarter of 2018. The growth occurred in all application markets and world regions. The growth was predominantly driven by growth in enterprise and storage segments. Overall, the demand for Artificial Intelligence (AI), Internet of Things (IoT), Level 3 autonomous vehicles, and high-throughput technologies such as 5G and Augmented/Virtual Reality (AR/VR) are driving increased demand across the semiconductor segment, particularly for processors, sensors and analog ICs.
Medical Technology and Healthcare
The Medical Technology and Healthcare (MT&H) BU delivered a growth of 9.7% QoQ and a de-growth of 2.9% YoY in constant currency due to gain in momentum and market share across the global medical device industry. Our focus on providing end-to-end product development services to strategic segments is resulting in improved results and forward indicators of growth. The BU expects a high single digit growth in services and high double digit growth including DLM through the year backed by strong sales pipeline and order intake.
The medical device industry is poised for steady growth, with the industry expected to grow at a rate of ~5% during the year. The growth is driven by increased demand for digital health solutions such as Artificial Intelligence (AI), Internet of Medical Things (IoMT), Big Data Analytics, and Robotics. Further economic development across emerging markets is helping drive growth in the industry.
Design Led Manufacturing
DLM BU (including acquisition of B&F) witnessed a strong growth of 28.5% QoQ and 47.0% YoY in Q2 FY19. The growth was driven by growth in A&D, MT&H and I&ENR segment while communications witnessed a de-growth. This is a strong indicator of the potential existing in the business and the potential for synergy business. Backed by strong order book, momentum in recent acquisition and large deals in pipeline, we expect a double digit growth through the year.