Analyst Meet / AGM     12-Jul-18
Conference Call
Cyient
Many one-offs affect the show
Cyient held its conference call on 12 July 2018 to discuss results for the quarter June 2018.

B.V.R. Mohan Reddy - Executive Chairman, Krishna Bodanapu - Managing Director and Chief Executive Officer and Ajay Aggarwal - President & Chief Financial Officer addressed the call.

Highlights of the call:

Q1 2019 yoy sales grew 19% to Rs 1080 crore. qoq growth was 2%.

Q1 2019 yoy net profit fell 30% to Rs 92.50 crore. qoq fall was 6%.

Q1 performance was in line with annual plan despite skew including expected seasonality in DLM.

Q1 saw strong yoy sales growth due to strong growth in Aerospace, Defense, Transportation, Semiconductor, IOT and Analytics business units. Acquisition of AnSem added $1.7M for two months of the quarter; in line with the annual plan.

The services business witnessed a growth of 1.1% qoq in constant currency, while DLM business witnessed a de-growth due to cyclicality in the business.

Top customer revenue grew 6.4%YoY.

Aerospace and Defense business grew by 15.4% yoy which reflects that the momentum is back after a few tepid years.

Yoy $ services growth of 10.9% was highest ever at $142.8 Mn.

Qoq services growth in CC is 1.1%.

DLM grew 52.1% yoy. , QoQ de-growth is due to seasonality. DLM OPM was at 4.6%

Cash & cash equivalent were at Rs 1100 crore.

Cash balance is at Rs 1100 crore

The company acquired Belgium based semiconductor company. AnSem N.V. which is a leading fabless, custom analog and mixed-signal application-specific integrated circuits (ASICs) design company.

Through this acquisition, Cyient can help its clients develop smart analog sensors to capture data, while leveraging its loT and analytics solutions to provide actionable insight.

The global Semiconductor industry growth will be driven by expansion in the memory sector.

The company also acquired a small manufacturing facility in North America to strengthen manufacturing capabilities in line with its strategy.

It also signed a definitive agreement to acquire 100% ownership of Cyient Insights Private Limited (Cyient Insights), a data science company whose 51% stake was acquired in 2014.

Q1 Services margin was 13.2%.

Overall OPM fell from 13.4% to 12.1%. There was some one off which impacted OPM by 200 basis points on yoy basis and and 120 bps on qoq basis.

Lower offshore mix and utilization impacted by 120 bps and wage hike impacted 70 bps.

Forex upside movement impacted by a positive 60 bps which was negated by one off expenses including M&A (40 bps) and SG&A absorption (30bps).

Should not be concerned about the operational performance of the company.

Other income is lower mainly due to one-offs on subsidies and interest on government refunds and other non operating items from Q4 FY18 of Rs 11.5 crore.

The company incurred losses on forward contracts and forex restatement (Rs 13.5 crore).

Volatility in movement of all currencies especially rupee depreciation adversely impacted the realised and unrealized forex losses. This also impacted other income.

Tax rate was higher due to adverse shift in profit mix.

The company continues to adhere to a consistent forex policy of hedging around 70% for next 12 months for major currencies.

As on Jun 2018, on the current forward contracts at spot rate, the company has outstanding Forward Contract worth around $125 Mn.

If the spot rate remains at same level as 30 Jun'18 (Rs 68.8), forex gains on current forward contracts could be ~$1.9 Mn, $0.5Mn for next 9 months

DSO grew from 80 to 88 days qoq but fell from 84 days yoy. DSO for the quarter without one-offs is 6 days lower.

The increase in DSO is not driven by increase in potential risks on receivables days.

Free cash flow the first six months will be in line with past at around 40% and in line with the annual plan.

It expects double digit growth in the Services business in FY 2019.

DLM business expected to grow by around 20%

DLM growth expected to be around 35% including B&F in FY 2019.

OP will grow in double digit in FY 2019.

OPM will be flat. There will be operational improvement and the company will benefit to some extent on exchange rate but can't say how much as of now. These benefits will be offset by investments.

Tax rate will be around 23% in FY 2019.

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