Cyient Limited (532175) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call to discuss the impact of COVID on the business operations of Cyient. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krishna Bodanapu. Thank you, and over to you, sir.

Thank you. So good evening, everybody, and thank you for joining the call. I know, Friday evening is not the most convenient time to have this call, but I greatly appreciate your time in joining this call. I'll also say, before we start, that we are in a quiet period and dealing with a evolving situation. So our information, in some cases, is limited, both to us and also because of the quiet period in terms of what we can divert -- what we can actually talk about. Having said that and keeping in the spirit of transparency, I will be as transparent as we can in this call. Firstly, I want to quickly introduce Karthik Natarajan, who joined Cyient as the President and COO, about 3 weeks ago. Karthik is also on this call. I hope we had a better opportunity and a more positive context to having this call to introduce Karthik for the first time. But this is the first time that Karthik is joining us on the call. So I wanted to -- or I will welcome him to Cyient, and I hope he will get an opportunity quite soon to meet a lot of you either in person or in various forums. We also have Ajay Aggarwal, who is our President and Chief Financial Officer on the call. So Karthik and Ajay will also be available to field any questions or any observations going forward. Let me lay out the way that we at Cyient have been managing through this crisis. And through that, I'll hope to give you an insight into where things stand and what is happening. With the framework that we came up with in terms of how we can manage the call, I'd say there is -- manage the crisis, sorry, I'd say there's 7 steps to it. First is employee safety, the second is employee enablement, the third is employee engagement, fourth is client connect, fifth is profitability, sixth is the opportunities that have started to emerge or the green shoots and sixth (sic) [ seventh ], of course, is investing for the future and how we plan to look at our business going forward. So on the first point of employee safety, I want to say that is the paramount concern for the organization. So we have -- and it is our first priority. Once WHO declared it as a pandemic, we've been constantly monitoring all sources. We've been monitoring WHO alerts, what the local governments, what the national governments have been giving as advisories, and we have been abiding by all these guidelines to make sure that we have created a safe environment for our associates. What I'm also happy to say is we've not -- we've had a couple of isolation phases, not in India, but outside of India. But we don't -- or we are quite confident that the environment is that even in offices where we still have people working, we have mitigated against any possible transmissions within the office. And I think that is also being reflected in what our employees are telling us and the confidence that they have in terms of their own safety. So first and foremost is employee safety. That's what our focus has been. Now once safety has been taken care of, the second piece is the enablement piece because I think the reality is the mitigation against this situation that we have on hand and the large-scale work-from-home across all geographies. So we've maximized the remote working or work-from-home across all geographies. And also what we have done is only the critical associates are coming into the office. In India, 80% of the employees are enabled to work-from-home. And our objective is to get it to 85% within the next few days. And there's a few things that we need to do, which we are doing to get to 85% enablement. This is from the employee perspective, that is 80% of our employees currently are enabled to work-from-home in India. 98% of the employees are either working from home or have access to a client location in outside of India. So that's almost all our employees, 98% of the employees are enabled to work-from-home outside of India. In terms of client approvals, 93% of our clients have given us approval in India to work-from-home and outside of India, it's close to 100%. There might be one-off individual cases, but we are almost at 100% work-from-home from a client approval perspective. The work-from-home guidelines have been shared with all the associates, and we've created a number of enablements, such as obviously, documents, but also videos. We've created a fairly robust framework on how managers can manage their employees who are working from home. Obviously, there's -- I mean work-from-home has one side is the productivity issues. But the second side is also the engagement and mental well-being of employees because a lot of us are not really mentally tuned to work-from-home for an extended period of time. So we've created a lot of guidelines in terms of how often there are touch points between the employee and managers, some of the conversational guidelines, et cetera. The government in India has also given us some exemptions for our staff to work from the office to ensure continuity. This has only been given after, obviously, the government has made sure that we are capable of and we have created facilities that are safe and secure. About 1% of our staff is working from the office in India. These are basically people who have to create -- to manage the physical infrastructure, the IT infrastructure, the power infrastructure, et cetera, or there are some one-off client cases where the work will not be able to work-from-home like we do work. In the nuclear environment, for example, where it's already quite a tough operating guideline. And therefore, working from home won't be practically possible. In those very small cases, we do have some employees in the office. We've actually worked quite hard and a special kudos to our procurement and IT teams who worked extremely hard to procure, configure, enable computers. We've done laptops, desktops, for remote working. We've received special permissions, in most cases, to have these delivered to our associates' homes. And we've been quite proactive and also while we are now at 80%, that wasn't always the case within the sense that we started off to run about 20%, 25% 10 days ago to get to 80%. So we've also cleverly or prudently prioritized projects so at no point, the customer deliverables were being impacted because even in cases where we didn't have enough capacity, we were prioritizing projects that really had a time line or had an impact. So after employee safety and employee enablement, I'll talk about employee engagement. Like I said, we've created work-from-home guidelines and are training, and we've actually done a lot of work over the last 10 days. This is quite important, given that, especially in a place like India, work-from-home is not very well understood or very well appreciated. And also a number of the employees who are now working from home are relatively young employees, who don't necessarily have the physical space also at home to have a comfortable productive environment to work-from-home. So we've worked through that quite a bit in many cases. We've proactively procured a lot of safety equipment for offices that are still running. If there is field work, especially we do some field work, as you know, in the U.S. and in Australia. We have procured a significant amount of safety equipment that's gotten out to people in the field. We have connected with families. We have connected with a number of families to assure them that their family members, children, in many cases, are safe and working. Also for people who have been expatriated out of India to a geography, we were connected quite a bit with their family in India to give them an update or an independent update, I'd say, on what's happening with their relations overseas. And we've done -- we continue to do that. There's enhanced perks, including there's a bonus that we are paying for people who still meet their productivity targets, and it's quite a nice bonus because the -- while working from home will also mean there is some productivity will suffer but also what we realized is the commute time of most people is 1 hour each way on an average which means that they also gain about 2 hours a day or about 15% to 20% more time, which can be used towards to mitigate against that productivity of not being able to be in the office. Also, we're dealing with a lot of the on-site transferees very carefully. As you know, this actually turns out to be a little bit of an advantage that there's, in our case, 80% overall of the people outside of India are local hires. But for that 20% where there has been a retrenchment in work or cut in work, we're actually -- we're working on individual cases. Thankfully, there's not a very large number of them. But we're working on them individually to see what is the best way to repatriate the employee because it's not a simple issue of just sort of firing somebody in-country because these are transferees. At the same time, normally, we would have had them come back to India quickly, but that's also not going to happen. So again, it's not a huge number, but the amount of effort that the HR team has been putting in into that has actually gone down quite well. And what we are seeing is that's also become quite a good motivator for a number of the employees. Then coming to the next step, which is the client connect, we have obviously a number of levels of communication that is going on, starting from sort of on-the-ground with the account managers, crew to the BU heads and Karthik and me, also with HR and finance, in some cases, where there is also a connect there. So there's a lot of communication going on. But also, what we -- what I'll say is on our customers, and I'll still say that this is a little bit of an early stage. So things will change, but we still haven't heard of widespread layoffs reported across our customers. There has been significant amount of supply chain disruption. But as you know, factories in China are coming back online, which means that some of the supply chains, including the engineering part of the supply chain is stabilizing. We are -- a number of our customers have clearly articulated that their objective is to conserve cash and reduce discretionary spending. So we are looking at it carefully where we are in the discretionary part of the value chain and where we are in the lights on and nondiscretionary part, because a lot of the upfront engineering, for example, can be considered discretionary, especially where the product life cycle is a very long one. So what I do want to say is before that question comes up and say is that each business is a little bit different. And an overwhelming part of the work that we do is really in the keep the lights on and have a direct bearing on revenue kind of business. Where there isn't the case, we will have a little bit of a larger impact. But in general, a lot of our business is really to keep the lights on, especially if I look at the Aerospace sector, that's where our business has evolved, especially in the last couple of years, given that already, there have been no new programs that have been announced. So a lot of the work that we do supports the MRO, the manufacturing, engineering, et cetera, which we continue to see that, that is continuing for us. A number of our customers have called out a negative impact on their revenues and profits like Collins Aerospace, Marvell Semiconductor, ABB, et cetera. And some of our customers have also withdrawn their guidance for 2020, including Airbus, Verizon AT&T, Rio Tinto, Caterpillar, et cetera, have also withdrawn their guidance. So this is the environment that we're dealing with. Like I said, I'd say it's still evolving, but we believe that we are quite well engaged and we're staying close to it to make sure that we react in the right manner as things evolve. Having said that, perhaps some of you saw the press release also this morning that we've signed a master services agreement and a long-term contract with Hitachi Rail. Hitachi Rail was essentially the largest rail company that we have not -- or that wasn't our customer yet in any meaningful manner. Now Hitachi will also be a customer. We are still hoping to start the ramp-up starting May 1. There is -- this will involve setting up a team in the U.S. and setting up a engineering capability in India. I just want to highlight this as a good example that while there is a lot of challenge within the world, we've been still able to engage well with the customers. We've been able to close the contract, which is a reflection of both the relationships that our team has built and also the value that we provide. And just as a data point, the Hitachi Chief Operating Officer is based in Italy, quarantined for the last 4 weeks. And in spite of that, we personally negotiated many of the terms of the contract. And finally, we shook hands I think on -- it was on Monday. So yes, I mean, there are still some very good positives within the business. The next step is profitability. And obviously, managing profitability becomes that much more important in a situation like this. And the way I look at it is revenue is still a little bit uncertain with where the things are going in the world, but cost is something in our control. So we need to be prudent about cost and be aggressive about what we do. At the same time, obviously, we are in this business for the long term. So I don't want to cut anything that will have a long-term impact on the business or if the recovery is relatively quick, we need to be in a shape where we can also recover in line with what the market does. So just to give you a few insights into what is going on there. We've put a hiring freeze on all resources, both especially nonbillable, billable is only in certain cases. There won't be any salary hikes for FY '21. We will do something for the lowest bands, but that will only be done either in Q2 or in H2 because these are the people where we are looking at it as our salaries at the lowest band, in some cases, are not very competitive. So we will use this opportunity to see if we can become much more aggressive and competitive in those bands because we can then really improve the quality of fresh college graduates that we are hiring. We're going to rationalize the variable pay quite a bit. There are a number of initiatives that have already been started on how we can rationalize variable pay and also create an upside in case the business operations change significantly. Then the next thing I want to say is on NBA and BU investments. Obviously, NBA was an important initiative. But it was something that we really -- while it is something that we'd like to invest in, I feel that it is something that we also have to be prudent on, both from the NBA, which is the new business accelerator investments, but also in terms of the BU investments because there's a number of those that happen. We will come back on the exact numbers in a few weeks, but we've already started some of the actions. There is utilization improvements, fairly aggressive targets that have been given out. All marketing spend has been frozen. We won't spend at least on events and those kind of things. We will also have a travel freeze. Obviously, this is the easy one because I don't see that there'll be any significant change in the situation at least in Q1, but that's the easy one. But going forward, also, we will look at the travel freeze and being a lot more prudent. We have an initiative on sales optimization. We will -- we also are looking at it as this is a good opportunity for us to improve the quality of sales force and the reach of the sales force. At the same time, we are not looking at this as just a -- just keep the current sales force. Though the spend -- the sales -- the reduction in spend with the sales force will be a lot lower than some of the other areas. But the churn, we are targeting a fairly significant churn because we think that this is a good time to upgrade a lot of the sales force. We'll also reduce a lot of the nonbillable overhead. These are people who are in delivery. These are the people who are in execution, but not billable. We've taken a fairly aggressive target there. The sub -- we are renegotiating with a lot of our subcontractors. As you know, our subcontractor spend is 6% to 7% of our revenue. So just like our customers are negotiating with some of their subcontractors. And on that, I'll say, we still haven't seen any request for reduction on price but -- in situations like this, that has happened in the past. But we also want to proactively renegotiate with our subcontractors, and we'll also reduce the hardware and software spend quite a bit, and there's a few things that we've already initiated. So my summary is, while revenue is a little bit uncertain, and we just need to stay close to the market and make sure that we are gaining in the opportunities, the cost is something that we can manage a little bit more closely. And we'll -- in some ways, we will benefit from the R20 exercise because the base work has been done. And we just need to extend the execution and take some higher targets to keep our margins where they are. We're also looking at opportunities, and we see quite some good opportunities that are starting to come up actually. For example, while I'd say Philips is seeing a reduction in their revenue, that's in the consumer side of Philips, the medical side of Philips is seeing unprecedented demand for their equipment. So we're actually seeing some good opportunities there on some of the things that we support with Philips medical. So that's one example where an opportunity has started to emerge. You might have seen some of the information on medical manufacturing. Some of the devices that we are manufacturing actually directly support the COVID effort that is happening. We're seeing green shoots in telecom. We're seeing green shoots in mining and some opportunities. And we also supported -- have been supporting the local governments with our drone capability on their enforcement of the lockdown. I'll say on this, this is not necessarily a great revenue opportunity, but it has given us some very, very strong goodwill in some of the local communities that we work with. So that -- I'll leave that there and say that we are looking at opportunities. We are looking at immediate opportunities that can mitigate some of the downsides that we will inevitably have and are quite focused on that. Lastly, I'll say the last step of this is invest for the future. We have, as you know, we have a fair amount of cash that's available to invest. We -- the Board, while we will consider things like a buyback, but I think the Board is -- the Board and the management are more excited about the opportunities that this market presents. And on how we can really leverage on the opportunities that are there. So we will invest quite a bit on the digital capabilities. Very candidly, we are a little bit behind the curve on it, but we believe that this is a great opportunity within this disruption. We will come back much -- we will come out much stronger by investing in digital capabilities. We will use this opportunity also to reorg a little bit at an organization level to become more nimble and more market focused. There are a number of other opportunities such as captive takeovers, large-scale transition of work from high-cost countries to low-cost countries, there is M&A opportunities, CV opportunities. And there's a number of those things. Again, I think these are things that once the market stabilizes within the next 4 to 6 weeks, we will be quite bullish on those. And the idea is really to leverage the strength of our cash and balance sheet to come out much stronger. So in summary I'll say, while there's been some impact on the business this quarter as the loss of efficiency because the lockdown was limited to the last 2 weeks of March, we expect the full impact will only be visible in FY '21. We'll mitigate this as much as we can with work-from-home. If there is a prolonged -- sorry, if there's a prolonged lockdown, then obviously, there will be significant challenges. However, I want to say that the business remains strong, the clients remain engaged, employees are motivated, and the management team is committed to the long-term success. So we're looking at the crisis as an opportunity for disruption and that we will do the right things at this point to come out. As things stabilize and we come out of the crisis, our objective is that Cyient will come out as a leader in number of the segments that we operate in. So that's where the situation is. I've tried to be as transparent as I can, considering the evolving situation and also considering that we are in a quiet period from a sensitive information. So with that, I will stop, and I will hand over to the operator for any questions.

[Operator Instructions]

So while we wait, can I hand over the floor to Karthik for a minute to just say a few words as this is the first call, and this is his first month in Cyient.

Sure. Thanks, Krishna. Good evening, everyone. This is a great opportunity for me to join Cyient and be part of some of the business continuity plans. And I can tell you that we have really put in lot of efforts in get the business back on track. And as Krishna said, our focus has been around the employee safety, client communication and moving towards the operational efficiency. That is what we are focused on, how we think we can improve the productivity and utilization levels. And for this month, my focus would be to see how do we make sure we're able to address the customer deliverables without losing much on productivity, and ensuring that we are able to maximize on the availability part. Thanks, Krishna.

[Operator Instructions] We'll take the first question from the line of Mohit Jain from Anand Rathi.

Sir, I missed your remark on NBA. So we are putting it on pause or will you be investing in FY '21?

We will be investing in FY '21, but at a much lower level than what we've invested in the past.

So any quantification? Is it possible? What have you planned for this year?

I think it's too early for that because we are coming to a reasonable number and a realistic number. So what I would also say is that, as you know that the investor -- sorry, the Q4 results. So the Q1 Board meeting typically would be held towards the end of April or I think the third week of April would have been typical time, and that's what we were scheduled on. But we are quite confident that our numbers will be ready by -- in the middle of April. But the auditors have advised us that based on various things that are going on, et cetera, that they will not be able to sign off on the books in April. They need a little bit more time because things like physical checks, travel, et cetera, is not going to be possible. Therefore, they have advised us that we will need some more time. So the Board meeting will be in May. Hopefully, we are still quite keen to do it as quickly as practically possible. And when we do that, at that point in time, we'll give you a much better color because, A is, we need to work through these things and, B is, we also need to communicate internally on what we're doing.

Okay. And second thing is on historically what we have done, this is specific to last year, but we were running also at a higher CapEx level going by the fact that we are investing for the future. And now demand outlook seems to be little on the weaker side. Second on SG&A. So CapEx and SG&A, if you could help me understand there, what kind of churn you're expecting? And SG&A also, I think we historically used to maintain let's say investing approximately 2% extra to generate growth. So what is your thought there?

Ajay, do you want to answer the question on CapEx?

Yes. So I would say that, Mohit, in terms of CapEx, we definitely have the calibration. So we would calibrate that if we expect revised revenue scenarios. So I would say that while absolute numbers, assuming that this year is financial year '21 or, let me say, H1 of financial year '21 is not as good as we would have anticipated, the CapEx would also be proportionally going down. So I would say, we will continue to be at 2.5% to 3% of the absolute revenues. In terms of SG&A, as Krishna said, we are -- actually, we had finalized the plan. And now in the last 2, 3 weeks, the world has changed and we are trying to work hard to make sure that there is a lot of focus on cost cutting, while we don't want to compromise on anything on long-term, but we have decided that we will calibrate our cost. As such, also, I think we were looking at that our SG&A in absolute terms should not be higher compared to the last year. So there are a lot of initiatives. But I would say that your comment about we were investing 2% in -- normally in the SG&A, I would say that may not be there in this particular year. The NBA number is going to be much lower. And the new investments, as Krishna said, we have put a freeze on hiring. So I think any augmentation we will only do once the normal time comes.

So sir, by doing all these initiatives, the aspiration for you would be to maintain your margin levels, is it? And if there is something extra, let's say, recovery in second half, then you would restart the investments. Is that the thought process behind this?

You need to give us the time for the most probable time line of May. I think we can talk about these specifics in May because the scenarios are changing every day, and we can do a lot of modeling in the Excel. But right now, I think there are a lot of things that are moving. So it will not be fair for me to say that we are working on margin sustaining. Obviously, we are trying to calibrate the cost as much as possible on revenue. That really depends on how much is the final impact of revenue. And those scenarios are still not very clear.

And sir, lastly, on your sectoral commentary, any sectors you would specifically like to highlight, which are seeing -- or which have so far not seen any renegotiation in ramp-ups or any delay from clients? Like Aerospace, you highlighted in your remarks, but any other sector that you'd like to highlight?

Sure. Karthik, do you want to take that?

Yes. I think we are confident on 2 sectors. One is the telecom and second is on the mining part we spoke about. And telecom as we have understood globally, there is about 20% increased traffic in the last 2 weeks as reported by some of the major telecom operators. So we believe that telecom would also accelerate the rollout of 5G, and we are trying to assess our customer stance and how do we think we can support them. And we are seeing that this could be a green shoot that we would look out for in the second half of fiscal '21 and how the customers want to spend the first half, depending on some of the work that need to be done on the field and travel restrictions will all play a role. But we feel that telecom would be a good sector for us to focus on for growth in fiscal '21. And similarly, on the mining part, as the economy of China trying to reboot and we believe there is a rigorous growth that is expected from the mining industry, and we are seeing a lot of cost reduction opportunities on the mining, and we are looking at how do we expand our portfolio of offerings in the mining industry.

And the worst hits would be like semicon or...?

That's a very small part of our business.

No, I'm just guessing which sectors are like hit in your business?

See, semicon would be the worst hit possibly because the semiconductor cycle was also coming up for a down cycle. And typically, these trigger points actually have a big bearing. So semiconductor would definitely be one risk area. And the other one I would say is -- all said and done, is the aerospace sector because ultimately, there is a bloodbath that's going to happen in the end customer, which is the airlines. While I think there is a lot of -- we are not in that bad as a situation because we don't do the airlines or a lot of our work is coming from the -- sorry, the sustenance part of their business, which is manufacturing, engineering, MRO, et cetera. But there will be an impact, and we have to see what is the ultimate impact on us. But I think everybody in the aerospace sector would see a fairly interesting time, and we have to see how best to mitigate against it.

The next question is from the line of Pankaj Kapoor from JM Financial.

Yes. A few questions, Krishna. First, how are you managing the DLM business? I mean, what kind of work-from-home can be constituted there? And what kind of -- how you're managing basically the manufacturing activity in that side? That's the first question.

See, so obviously, that's a good point because DLM can't really have very much work-from-home. I would say the support functions in DLM, like the buyers, the supply chain guys, the procurement guys, et cetera, are working from home. But what has happened is that we've gotten permission for a couple of the industries that we work in. The Karnataka government has -- sorry, the national government has declared medical devices and medical electronics as a critical activity. So we're still able to keep those lines running. The Karnataka government has also declared aerospace and defense as a critical line. So we've also kept those lines running. So the challenge is -- see the challenge there will be if it is a prolonged lockdown, then we have to see what happens. But as things stand, we believe that in Q4, there was some impact, but it was minimal. And also in Q1, if you see lockdown is only till the 15th or even, let's say, till May 1. We can make up a lot of the things because it's not like services business where a lost hour is lost forever. In the manufacturing business, we can still make up a lot of it because the raw material is there, the inventory is there. Now from a demand perspective, also, we -- in general, the demand has still not changed significantly. There are the one-off customers where it has come down a little bit, like we do have some oil and gas business where early indications are it might come off. At the same time, we also have a lot of medical business where even for sort of the non-COVID related activities, there is increased demand. Because people are trying to build a lot more equipment at this point. So in that sense, DLM has been a little bit different because work-from-home is not possible. At the same time, in DLM, you don't lose every hour that you don't work because once the factories turn back up again, we can also make up a lot of the lost time.

Understood. The second question is on the last call, you had mentioned some restructuring that you are planning to do for the defense business so that the FII limit can be removed. Any update on that? You had indicated last time that you are looking at fourth quarter or maybe first quarter of FY '21 to complete that exercise? Any update where are we on that exercise?

We're still targeting on the first quarter. We need to do a couple of things, and we -- I think we can get those done in the next few days or next few months. So we still remain on target for Q1. Ajay, do you want to add anything on that?

No, I think we are working on that. That's one of the focus areas. And absolutely, we are targeting quarter 1.

Got it. And just lastly, any thoughts on using the cash for a buyback, given the kind of a correction that we have seen in the stock?

No. Honestly, at this point, we have really been focused on some of the other things to start with, which is our employees, making sure that we are doing the right things for our customers and also looking at the opportunities. The way I look at it is once things stabilize, we'll have to have those conversations internally and with the Board. So give us a little bit of time on that because, I mean, theoretically, yes, it would make a lot of sense, but we also have to look at -- at this point, and my view is when a crisis happens, things get disrupted quite a bit. So it also is not a bad opportunity for us to invest in the right areas because when things settle down, sort of the order of industries typically gets shaken up in a crisis like this and coming out of it, we want to come out much stronger than going into it. So we'll have to wait in that context. But that is certainly one area that we will have to evaluate in the right time.

The next question is from the line of Sudheer Guntupalli from Motilal Oswal.

Yes. Couple of questions from my side. Any initial red flags we are seeing as of now where clients may either default on receivables or request us to take a haircut?

We're not seeing anything right now yet, but we've also -- Ajay still has created a framework or creating a framework of how we will keep a watch out for any potential red flags. And how will we proactively deal with these red flags.

Sure. And some of the earlier comments you made, especially on the new business wins, which are expected to be ramped up by the beginning of May. I'm just curious as to how you plan to go about the onboarding process, given that all the core geographies are now in a lockdown mode with probably very little visibility of these lockdowns getting lifted in the near term?

No, no, I said -- let me rephrase that. The original intent was 1st of May. That was the original intent of the ramp-up. Chances are right now, it will get a little bit pushed though. Having said that, we have repurposed some of our other associates. So it won't ramp up to the scale that it was supposed to on 1st May, but we will still get a -- get started with some of the associates that are coming off of other projects. And the full ramp-up will get delayed, and that depends on how things play out over the next couple of months.

Yes. Just one last question...

But also -- sorry, I'll also say there's also -- there is -- there are creative things that we are doing. For example, we do have another win that we can't talk about, but it's a win where the work has to be done offshore. But given that it is also a critical part of their business, to start off with, we're going to use some of our resources in the U.K. to start that work off. And these resources have a little bit of slag, given that the customer that we're currently working with has had a push out. So we're trying to balance a lot of these things with our existing resources.

Sure. That's helpful. One last question from my side. While I completely understand your earlier point of adding some exposure to nondiscretionary work as well. Engineering services as a category that itself is considered to be more discretionary compared to, let us say, some other categories like IT services. So even if assuming economies normalize in, let's say, some time, how quickly do you think engineering services as an industry will revert back to normal, let's say, based on your reading of the prior such shocks or similar shocks? That's it for my side.

Sure. Karthik, do you want to answer that and then I can add?

Yes. Well, yes. No, I think what we feel is anything which the customers have already committed to their investors, their customers about the products that they are going to launch, I think that programs will continue. And trying to prolong the investment cycle won't help the customers. Any new programs would get delayed, as we said in majority of the verticals, we are definitely doing a lot of work on sustenance side of it or helping the lights on for the customers. And I do disagree on the point that most of our engineering spend is on discretionary. I think compared to other support elements like BPO and IT services, most of the engineering is part of the core of the customers. And their business depends on how well they deliver the products and services and that's the business cycle that we are in. So we believe there is some element of the discretionary spend, which is about the new programs and new products they want to launch in the next 6 to 12 months, depending on their consumer demand, they may push it out. But I think rest of the businesses are definitely in the area of product sustenance and support. That activity will continue to be supported by us.

And just to add to that, I think if you look at somebody like, say, aircraft manufacturer or an aircraft OEM whether Boeing, UTC or a Honeywell, et cetera. For them, engineering is the core part of their business because their business is to launch products. IT services for them is really the discretionary part. Obviously, there's -- again, in IT also, there's some elements, which would be a must have, but a lot of it would be discretionary. So I think in that context, looking at the kind of customers that we have, engineering would be core and that is our competitive differentiator. And not to go off sort of the context, but if you look at -- when we talk about why the growth rates in engineering are lower than IT, especially when -- at the same time in evolution, that has been the key issue, right? That engineering is core to organizations. And therefore, their ability to outsource has been a little bit more challenged than IT, which has typically been considered as noncore to most organizations.

[Operator Instructions] We take the next question from the line of Mayank Babla from Dalal & Broacha.

Sir, actually, my question was answered by the previous person.

[Operator Instructions] The next question is from Mr. [ Manish Shah ] from [ Vajani Securities ].

Sir, I just wanted to ask about your promoter holding. So what will be the promoter holding as of quarter ending March 31, 2020?

It was about 22.5%.

So it's not gone up in this quarter?

It's gone up a little bit, but not -- I mean, it would have gone up a little bit. I don't know the exact number. But not by percentage points. I mean, it would be by basis points, if that makes sense.

The next question is from Mr. Ujwal Shah from Quest Investment.

Just wanted your sense on medical devices segment that you mentioned before in your opening remarks, can you throw some light on the opportunities in that space? And how do you see that segment improving ahead?

Yes. Absolutely. So in the medical devices segment, we do a lot of work, both on the design side. That is the design of the medical equipment and also the manufacturing, which is the actual production. Our focus has been on the electronics for medical devices, and that's where we've built some strong capabilities in the manufacturing plant because the medical devices also have some very specifics in terms of the quality standard, the specifics in terms of, obviously, safety, tenderness, standards and so on and so forth. So we've built some good capabilities. So what we are seeing is more and more, there is a focus. The focus on -- in the medical world is also moving towards the devices and to be able to do a lot more diagnosis and a lot more things on the product rather than -- or sorry, on the product and remotely, rather than just in the hospital. So there is a number of new medical devices that have come into the market. So there's both the traditional players like GE Healthcare is a customer, Philips Healthcare is -- Philips medical is a customer. But also a number of newer companies are evolving, for example, Molbio, which is in the forefront of this COVID testing, who are also our customer and a few others. So we believe that going forward, there will be a lot more focus on medical devices because with the economics and so on and so forth, just having a doctor always might not be the most optimal solution, the optimal solution or the solution will be technology more and more. And therefore, we see a fairly significant opportunity in terms of both the design of medical devices and the manufacturing of medical devices. And lastly, I'll say, for medical devices, India is also becoming quite an important market, more so than ever. And I think, therefore, the companies that are doing work from India is also significantly increasing.

[Operator Instructions] Next question is from Sandeep Shah from CGS-CIMB. We seem to have lost the line to Sandeep. We move to the next question. Next question is from the line of Prashant from Pictet.

Four questions. One is on the transportation segment, what's the outlook? And we had this kind of client discount issue a couple of quarters back, are we still getting the benefit of that? Or will that disappear, given the change in circumstances?

So on the -- I'll say, on the specific client issue, we don't see any significant change yet, but we are monitoring that closely. So I'd say, it's a little bit too early to comment on what will happen. Though the early signs are at least the principles don't change. But what we are seeing in the industry is it's been hit hard by a lot of the restrictions. Some of the programs that we worked in also are on parse because the public transport is under a freeze and access to our customers to a lot of the construction sites, et cetera, has gone down. Having said that, we believe that a lot of the stimulus monies, et cetera, will go to this sector because typically the stimulus goes to large infrastructure projects. And if you look at much of Europe, a lot of the U.S. are also investing in logistics trade becomes an important aspect. So therefore, I think the way that we look at it is H1 will be difficult for the transport sector. But over a period of time, I think this is one of the sectors that will benefit with the increased investment in infrastructure type of projects.

Okay. And on the Energy & Utility segment, is there some sense how much of that is kind of energy, which should be more impacted in the current circumstances?

So there, see, the utilities part is doing quite well because utilities, again, tend to be a little bit more buffered from some of these cycles, given that their CapEx cycles are a little bit different and much more elongated. On energy, we will see an impact because there's also the oil prices have fallen quite a bit. But while there is a challenge on the oil and gas side, there's also an opportunity on the mining side that Karthik talked about. So net-net, we will have to see the impact on how that will play out. But at least in H1, we see that there will be an impact net-net, though there's also some mitigating factors there like the mining that we talked about.

I'm sorry, how much is in energy?

Roughly about, energy will be 40% of that business, 35%, 40%.

Okay. Okay. Okay. Of the E&U business, you're saying, right, sir?

Of the E&U business, yes, of the E&U.

Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Okay. Thank you very much. So I will first say thanks to everybody for participating and for the engagement. Obviously, these are uncertain times, but we are quite focused on making sure that we do the right thing, both from a short-term to make sure that we manage through the first few parts of what I laid out, which is the employee safety, the employee enablement, engagement and being connected to the customer and making sure that we do the right things for probability. At the same time, we believe that we are well positioned for the medium to long term. So within that framework, we will also start to look at opportunities that we can invest for the future and also look at ways in which we can make our capital structure more efficient. So the key for us is to make sure that we are -- we use this opportunity to get to be optimal and efficient in our cost structure. So as revenue growth comes back, we grow on a much stronger base. But like I said, we have a great set of customers who are still very, very engaged. We have employees who are quite motivated, and we will make sure that we do the right thing in the short-term to be successful in the long term. Thank you very much for your participation, and we will stay in touch.

Thank you very much.

Thank you.

With that, we conclude today's call. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.