Cyient Limited (532175) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Cyient Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krishna Bodanapu, MD and CEO. Thank you, and over to you, sir.

Thank you very much. Good evening, ladies and gentlemen, and welcome to Cyient Limited's earnings call for the third quarter of financial year FY 2021. I'm Krishna Bodanapu, Managing Director and Chief Executive Officer of Cyient. Present with me on this call are our Executive Chairman, Dr. B.V.R. Mohan Reddy; President and Chief Financial Officer, Mr. Ajay Aggarwal; and President and Chief Operating Officer, Mr. Karthik Natarajan. Firstly, thank you very much for joining this call at this late hour and for accommodating this time. Given that the Board meeting now ends only at 6:30, this was the earliest that we could have this call, And I greatly appreciate you accommodating our request for the late hour. Before I begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature, and they involve risks and uncertainties. A detailed statement in this regard is available in our investor update, which has been e-mailed to you and is also posted on our corporate website. This call will be accompanied by an earnings presentation. The details of the same already have been shared with you. With this, let me take you through the highlights for the quarter. We posted quarterly revenue of INR 10,443 million or INR 1,044.3 crores. This signifies a growth of 4.1% on a quarter-on-quarter basis. In U.S. dollar terms, we posted revenue of $141.4 million, which is a growth of 4.7% on a quarter-on-quarter basis and 4.1% in constant currency terms. Services revenue stood at $115.3 million, which signifies a growth of 1% on a quarter-on-quarter basis and a growth of 0.3% in constant currency. EBIT margin stood at 11.2% for the quarter, higher by 14 basis points on a quarter-on-quarter basis. Services EBIT is 11.3% for the quarter, lower by 88 bps, primarily on account of wage hikes and furloughs. DLM revenue for the quarter stood at $26 million, which is up by 24.8% on a sequential basis. DLM EBIT, which was a significant highlight, stood at 10.6% for the quarter and is a sustainable number going forward. Net profit for the quarter stood at INR 954 million or INR 95.4 crores, a growth of 13.8% on a quarter-on-quarter basis. Free cash flow for the quarter is at INR 1,518, lower Q-on-Q by 25.3%. Free -- FCF to EBITDA conversion for this quarter stood at a healthy 85.8%. Now coming to the business highlights. We are happy to share that Cyient has been placed in the top quadrant in the overall ER&D Services category for the seventh consecutive year in Zinnov Zones annual rating. Within ER&D services, Cyient maintained its leadership position in aerospace, industrial, medical devices, telecom and software-defined network verticals. We've also received a number of awards this quarter. These include the Thales Supplier Performance Award, which is given to their best supplier and a number of others from people like Pratt & Whitney, John Deere, et cetera. We've also entered into a number of collaborations this quarter. These are especially important for the digital -- sorry, these are especially important for the digital business that we are now -- we have put a lot of focus on because, as you may know, this business is contingent upon bringing an ecosystem and really bringing an effective system integrator in this ecosystem. In this context, this quarter, we entered into a partnership with SPRINT Partners to facilitate space data collaboration -- space data and technologies. We also entered into a partnership with Decipher. And this helps us enhance and support the mining industry's digital adoption. Lastly, we also entered into a collaboration with SR University in the field of Additive Manufacturing, which is another interesting area within the sphere of digital. Next, before I hand off to Ajay, I would like to introduce the new performance-linked ESOP Scheme, which will come for voting to you starting 23rd of January. We believe that this scheme is an excellent opportunity for employees to participate in the long-term value creation for the company and also aligns the interest of the shareholders and employees because the vesting is linked on performance rather than just on time. The way that this scheme will work is that there is a Cyient Associate Stock Option Scheme 2021 Trust that's been created. The trust will acquire 2 million shares via a secondary acquisition. The intent of this is also not to dilute any of the existing shareholders because upfront we are buying the shares that will be used for this particular scheme. The options on these shares will be granted to employees at face value, and the allocation based on management's recommendation is going to be approved by the LNR committee. Now the criteria of how the vesting will happen is the vesting will happen based on achieving results, which are linked to revenue, operating profit and a sustainable share price milestones. These will occur in 3 tranches. These have been benchmarked in such a way that they will reflect best-in-class and will at least make sure that we are performing in the top quartile of our peer group. The vesting will only happen when we achieve these milestones. And therefore, there is a clear linkage between the performance of the company and the grants that are being given, which we believe aligns well the interest of the shareholders and the employees. The scheme will cover 80 to 100 senior associates, who can significantly influence the company's performance. The voting for this resolution will open tomorrow, and you will receive the resolution for your consideration. But before you saw the resolution, I wanted to request for your support. And if you have any further questions, either today during the call or most likely later, we will be happy to answer them, but I'm counting on your support on this particular resolution. With that, I would like to hand over the presentation to Mr. Ajay Aggarwal, who will take you through the detailed financial performance for the company. Ajay, over to you.

Thank you, Krishna. Let me start with the revenue. We have performed in line with our expectations, and we are very pleased that in terms of the predictability and forecasting, I think, we are doing better. And there are no surprises that are taking place. As you know, we had announced about the IGP acquisition. So when you look at the results, we have got IGP's revenue, which has contributed to 1.2% on the services revenue. And this is being categorized under mining and the portfolio sector. DLM has been extremely good performance in this particular quarter. We have achieved 25% growth quarter-on-quarter. And I will also talk about the margin that we are really doing very well on DLM in terms of the margins as well. Very quickly on the income statement, if you look at our EBIT, we have an EBIT of INR 1,165 crores and a PAT of INR 954 crores and EPS of 8.7. In terms of the margins, I would just like to give a commentary that during the quarter, we have given some increases, which covers about 2/3 of the associates more from the bottom of the pyramid to just to take the measures around retention. And that has taken about 100 basis points of the margin. You're also aware, quarter 3, typically, the billing days are lower than the paydays. And because of that, we also have an impact of 88 bps. Still I think we have delivered the margin of 34.6% because we've also got operational improvements during the quarter. And when you look at this margin, in terms of DLM, whether you look at quarter-on-quarter or year-on-year, we've improved the margin by about 5% to 6% in DLM. And that's very -- we feel that's very much sustainable. It's both in terms of the quality of the mix that we are having as well as the benefit of the volumes in terms of the absorption that we are looking at. In terms of tax and PAT reported margin, I think we are on track. Before I move on, I would say that when you look at our margin for -- 11.2%, and Karthik will talk about the business outlook, we are very confident that we will deliver quarter 4, which will be our best margin in terms of the exit for quarter 2. And this momentum will continue, and we will make sure that we -- last time, we had said that we will deliver year-on-year flat margin. I think we are looking at giving at least 50 to 100 basis points improvement on the margin in financial year '21 compared to '20. And also going forward, there are other initiatives in place apart from the volume acceleration that we expect. And I think we should substantially further improve between quarter 4 of next year and quarter 4 of this year the margin. That's what we are working on. We have provided the bridge for your ready reference in terms of the margin, and all of you can refer to this in terms of which are the impacts, highlights I have already given. In terms of the cash generation, you have seen that we have got INR 1,431 crores. It is highest ever in the company. Also, whatever is the cash flow, as Krishna said, I think the 9-month cash flow is exceeding the last year cash flow. It is coming -- we have further improved the DSO. You would have seen that year-on-year, we have got significant improvement in DSO, and our total DSO is at about 88 days. I feel we can continue this cash flow traction in future also. Still, there is an improvement in efficiencies. I know some of you had concerns around CapEx. Our CapEx is a shade above 3%. We are also trying to make sure that excluding those one-offs, we will track on CapEx also at a level of 2.5% to 3%. So I think the momentum on cash will continue. With this, I hand over to Karthik to give the business update.

Sure. Thanks, Ajay. Thanks, Krishna, and good morning, good evening, everyone. Wish you all a very happy new year. I hope all of you are safe and healthy. And I would like to cover 2 aspects. One is the business performance as well as reorganization that we got in the month of October and how are we really looking at the go-to-market structure for the remainder of the year as well as moving forward in fiscal '22. So to highlight some of the key performance parameters for Aerospace & Defense has shown an 8% growth. I'm looking at last but one column of quarter-on-quarter at the group level. And Communication has shown a growth of 5.2% compared to the last quarter. And Energy and Utilities shown about 3% organic growth, including IG Partners that Ajay talked about, shown about 16.7% growth. Transportation portfolio and Semiconductor, Analytics group have been flat, and MT&H has shown a degrowth of minus 9.9% quarter-on-quarter and overall resulting in 4.7% growth as compared to the last quarter. We are still hovering about minus 8.9% as far as year-on-year is concerned. And I also want to highlight some of the key elements that stood out for this quarter. Our services has grown about 1%, and DLM has grown about 24.8%. And the key leading indicators that we are tracking to look at the health of the business for the future, we are looking at an order intake, which is around $194.5 million, and this has shown an increase of 53% as compared to the last quarter. And this also had shown an increase of 7% year-on-year. And we won 5 multiyear deals with the total contract potential of $106 million and 3 of them in telecom, 1 in DLM and 1 with the Med Tech customer. I'd also want to highlight some of the key performance highlights in terms of operating metrics, utilization has improved by 2.1%. And subcon cost reduction has helped us to improve the margin from subcon by about 6% to 7%, and we also have improved our off-shoring by about 70 basis points. And in terms of sales, I covered the order intake, and we are also making an entry to about 4 of our top 100 R&D spenders in the quarter that passed by. And we are definitely looking at how we would be able to meet our Q4 of fiscal '20 performance in Q4 of fiscal '21 as far as revenues are concerned. So in terms of the need for new structures, we want to bring accelerated fund well-structured, go-to-market organization and driving the sales performance and productivity. And also want to bring more agility and be able to create Delivery 4.0 organization, enabled with the digital and DLM. And also looking at automation as a way of life and how do you also bring in the -- a better control on inventory as far as DLM business is concerned. So we are definitely looking at an enhanced value proposition for our customers with this structure, and I'll cover the structure in a minute. So if we go to the next slide. And the way that we are structured for the remainder of H2 in fiscal '21 and is essentially the 2 vertical business units and focused on Transportation and Communication and Utility. And we saw a natural synergy with Aerospace & Defense and Rail Transportation business. We combine them as part of transportation. And we also looked at the network modernization as well as the digital initiatives led by various technology interventions required, both on Communication and Utility, we decided to combine that. And we also have created a portfolio of sectors, and these are like we can keep adding the sectors as we see need for expanding into newer verticals. They are smaller in size, but they have a direct go-to-market channel. And this would probably help us to access about 7 or 8 verticals that we want to get to today. And you'll see that Automotive and Off-Highway; Semiconductor; Energy, Mining and Natural Resources; Geospatial; and Medical Technology and Healthcare as the key sectors, which will help us to accelerate the go-to-market part of it. The horizontal business units, which are led by Digital Services and Solutions, we have been working on various digital solutions over the last 5 years, and we decided to consolidating in 1 business unit to also build momentum on the digital side that we are seeing a lot of tractions from our customers. And DLM continued to stay as another horizontal business unit for us. And now just to give a comparison in terms of our performance, we will continue to report on both the formats until Q4 of fiscal '21 before we transition to the new format from Q1 of fiscal '22. So essentially, as you can see, there are 3 broad segments; Transportation, Communication and Utilities and Portfolio of Sectors. And if you again look at the last but one column, the quarter-on-quarter at group level, Transport has shown a growth of 5.6% and Communication and Utilities had shown a growth of 1.9% and Portfolio of Sectors had shown a growth of 6.2%, including the IG Partners that Ajay talked about. And we will continue to report both the formats till end of Q4 fiscal '21. So to give better color based on each of the vertical units, so if they want to really get to talk about Aerospace & Defense, and this is -- the services business is still lacking. We grew about 5.7%. We are almost stabilizing in Q3 level in Q4, and we probably see a recovery after the traffic of passenger miles flown grows beyond 65% to 70%. And what we have heard so far even end of December this number stands at 50%. I think this is a critical number for the industry to start spending significantly. So we are seeing that the signs of recovery is visible as the vaccination is happening across all the countries, and we hope a sense of recovery happens during the second half of 2021. We continue to see the momentum across DLM, Digital and Defense, and this is what we said last quarter that we are going to focus on growth segments within Aerospace & Defense, and we are continuing to see the traction in those areas. Communication is concerned, I've covered the growth aspects, and we have continued to see momentum across fiber, wireless, system integration and 5G rollout. And currently, whatever business we do in communication, about 10% of them comes from 5G network rollout. And we are continuing to see investments in technology-led network modernization, private LTE, I think some of those areas would continue to see growth even in the next few quarters. Transportation has shown a softening, and this is to do with right shifting of one project from a customer. We expect it to recover in Q4. And we do see that there will be a moderate growth on transportation even for the next few quarters as we hear from our customers currently. And moving on to Energy & Utilities and -- which is essentially shown as 16% growth quarter-on-quarter, about 3% organic. And we are continuing to see momentum across power generation and utility companies and driven by digital and design automation and predictive maintenance and asset management are the key areas that we are seeing growth as far as the E&U is concerned. Medical Technologies and Healthcare, while I talked about 9.9% degrowth quarter-on-quarter, this is to do with the supply chain issues that we witnessed in -- sometime in November 2020. And this is behind us now. We hope we are able to get to the growth path in this quarter. And we also won a large deal in this area. I talked about one of the medical device company and top 5 medical device company and helped us to work on expanding on the supply consolidation and also working on some of the newer areas of software and digital. And portfolio have shown a flat quarter. And interestingly, we have added some of the top 100 R&D spenders, one of the automotive tier 1, and which is among the top 5 in automotive tier 1 and also one of the mining clients amongst the top 5. We have been able to add these 2 top 100 R&D spenders as our clients in the portfolio business. And moving on, Semiconductor and Analytics, and this business had shown flat in terms of quarter-on-quarter, and we also have seen a decline of 12%. We are seeing 2 different drivers. The services business is seeing momentum. The ASIC turnkey is slowing down. This is to do with the fabs are running full and -- but new designs are getting delayed, and that's what is causing some softness in this business. And interestingly, we also added another top 100 R&D spender as a customer in this area, and we are really working on some cutting-edge innovation around the genome sequencing as part of what we are doing for this customer. And the DLM is concerned, I think it is definitely on the right track and -- both in terms of growth as well as profitability. And we want to really drive the right growth in this segment, which are profitable, and that's something which is coming back. And we also added another large deal in this domain, and we are continuing to see traction across Aerospace & Defense and the Medical segment. With this, I will conclude this session and leave it back to Krishna for final message.

Thanks, Karthik. I'll just summarize our outlook for Q4 and FY '21. And I think it is -- it continues to be in line, perhaps slightly better than what we had talked about previously. We'll continue to witness the progression of recovery in Q4. Services will grow sequentially, except for Aerospace, which will remain flat. We're quite confident that the bottom has been hit in Aerospace. Though we will be at these numbers for a few quarters before we can talk about growth, we are quite confident that at least the bottom has been hit. In Q4, the growth will be in line with what we did in Q3, perhaps -- or it will be slightly better than what we did in Q3 at an aggregate group level. And it will be also more balanced between DLM and services. Our view for FY '21 remains what it has been before, which is a double-digit degrowth. But we're quite confident that it will be closer to 10% rather than further away from the 10% number. In terms of the margins, we expect sequential improvements in margins in Q4, driven by increase in volume and also further improvement in operational efficiency. For the full year, we expect margins to be better than FY '20 margins. We were thinking that they would be in line with FY '20, but we believe they will be better than FY '20. And I think Ajay said 50 to 100 bps is the number that we're looking at. Dilution in margin on account of DLM will be minimal going forward. Like I said, we did 10.5% this quarter, and we believe that's sustainable. And all the new business and the growth is also coming at good margins. We don't see any further export incentives, sorry, in FY '21. The free cash flow generation in FY '21 will be the highest ever in the history of Cyient. I think even for the first 9 months, we are more or less at the highest number. So that will continue, and the effective tax rate will be at about 24%. With that, I will hand it back to the moderator for any Q&A.

[Operator Instructions] The first question is from the line of Sandeep Shah from Equirus Securities.

Congratulation on good execution, especially on margins. Just the first question, Karthik, wanted to understand that it's heartening to see that this quarter there are many deal wins, which are so-called large-size deals. So you believe that the organizational structure has now geared up to make this more systemized and consistent on a Q-on-Q basis? And you believe pipeline indicates the same as a whole?

Sure. Thanks, Sandeep. That's a great question, and we are really setting this up. This may take a while for it to run like a factory, and we hope it gets into create some momentum as we wanted into H2. And the way that we are really trying to set it up is to build a process and how do you really train and coach our sales team and make sure that they are supported in terms of business models as well as ability to build our technology propositions closer to the customer needs and customize spends. And we are definitely approaching it differently. We hope we are able to sustain it on a quarter-on-quarter basis moving forward. That's our intent, but I expect the process to mature over the next 3, 4 quarters.

Okay. Great. Just the second question is in terms of margins, I think, Ajay what you said on a Y-o-Y basis if the margin improves by 50 to 100 bps that indicates that on a Q-on-Q in the fourth quarter the margin improvement could be 100 to 200 bps on a Q-on-Q basis. So is it a right calculation? And second, can you throw some color in terms of the RSU charge? Will -- how big it can be over how many years as a whole because of the new ESOP scheme as a whole?

Sure. I think when I said that the 50 to 100 basis points is what we are saying is compared to financial year '20. The financial year '21 margin we are saying can be better 50 to 100 basis points. And you are right, it will not be fair for me to give the exact number. But if you look at a growth that Krishna talked about, I think definitely, we are looking at a good margin in quarter 4. Your estimate is fairly all right. I will not give a specific number because we stopped giving the numbers for a particular quarter. But directionally, I think your thought process is correct. In terms of the way we have structured this is we have looked at that if you need those milestones that Krishna talked about in terms of revenue and profitability and then how much is the flowback in terms of this, so we did a lot of simulations. In -- I think in all the scenarios, we impacted less than 0.5% of the EBIT for a particular year.

Okay. Less than 50 basis points, that is what?

That's right.

Okay. And just a clarification, being the last question, I think, Karthik, you said that in Q4 FY '21 the revenue run rate aspired to be similar to Q4 FY '20. So that indicates higher than a mid-single-digit kind of a growth rate. So that you believe looking at the order book is achievable right?

Yes, that's our aspiration, Sandeep.

The next question is from the line of Urmil Shah from IDBI Capital Markets.

Congrats on a good operational performance. I had a follow-up on the large deals. It would be helpful if you could throw some light on how has the order intake been if we compare on a Y-o-Y basis? And also on the deal pipeline front right now, Karthik, which of the verticals are you seeing the multiyear deals already building up?

So thanks, Urmil, for the question, Karthik here. I'll try to answer and request Krishna to chime in. I think if you look at, we have given 2 metrics; one is the order sales/order intake, and that has shown an increase of 7% year-on-year. I think that may give you one way to look at the momentum that we are seeing. The second one, we also talked about on the large deal, the total contract potential, and which essentially pans out anywhere between 1, 3, 5 years, depending on the kind of deals that we have signed up with. We are seeing traction across Communication, Medical Devices and some specific pockets in Rail Transport and Semiconductor and DLM. I think those are the areas that we are seeing potential opportunities for us to scale up. And we also -- I've talked about some of the outlook for various verticals. I think probably we expect some softness in terms of semiconductor turnkey ASIC part. And commercial aerospace are likely to be soft, at least for the next 2, 3 quarters. And rest of the verticals are definitely showing positive momentum moving forward.

Sure. And as regards the profitability, especially of the DLM segment, there has been a significant bridging of gap being done versus services profitability. So from a more long-term point of view, how should we look at that segment? Your Services segment would have levers from growth coming in, how should we look at the DLM of profitability? I mean, we had talked about reaching high single-digit margin, but that has come ahead of what we had earlier related to?

Sure, Urmil, I can give my view and request Ajay to add to that. What we are also seeing that is our ability to influence the supply chain and ensuring that we are able to look at the direct material cost reduction by about 3%, 4%. And also improving the operational efficiency through automation. We have been able to bring in some of them in Q3. And to sustainable margins moving forward, I would request Ajay to add some of these comments as well.

Thanks, Karthik. I think apart from the lot of initiatives because in this business, there is a significant cost, which is material cost, I think those operational efficiencies like utilization are reflected in this business. That's a focus area. The absorption issue also has been helping us in terms of our SG&A. Also, I would like to confirm that the way we are taking the new business, we have put some thresholds on profitability of the business and that's also helping us. So if you look at our gross margin, I think that itself has moved by about 3% to 5% because of the choice of business that we are making. So I think in terms of -- internally, I think we are trying to make sure that we sustain at least 10% plus kind of a margin in DLM going forward.

That was helpful. Just a last bit, Ajay, as regards the payout, should we factoring in a similar payout compared to last year given that the FTF augmentation has been quite strong?

Yes. I think that's our thinking that we still feel that we should keep that same payout, 40% to 50% of net profit, and we still are working on how can we put this cash to use so that we can improve the overall return for the investors. That's the current thinking.

[Operator Instructions] We take the next question from the line of Rishi Jhunjhunwala from IIFL Capital.

Am I audible?

Yes, Rishi.

Great set of results. Just a couple of questions. One on DLM, right? So clearly, we are focused on taking more profitable business around that and still it hasn't come at the expense of growth, and for the past 1 or 2 quarters, it's been growing at a pretty decent rate. Just wanted to understand, do we have enough visibility for the near-term growth momentum to continue in fiscal '22 as well based on the order book and the pipeline? And also whether -- at what growth or at what revenue level do we require to make incremental investments in capacity on the manufacturing rate in the sense that how much are we already utilizing in terms of capacity?

Sure, Rishi, I think what I would say that is -- I think as far as capacity is concerned, probably we don't need any immediate capital investment, at least, for the next 12, 15 months. And we are fairly confident on the robust pipeline that we built up. And we do see that the growth continuing into the next 3, 4 quarters as we see things today. And we are also cautious in making sure saying that we are definitely entering into the deals that we think we can execute them profitably and be able to create a sustainable model for us. I think that's going to be key as part of how we are looking at the qualification of deals that we want to participate in.

Just to add to that, in terms of the capacity, I think between Mysore and Hyderabad, we have at least about $250 million worth of capacity. Now I'll use that as a rough benchmark because that business also has a different sort of metrics. But I think there'll be just about $250 million. We don't need to add any capacity that we need to call out. And we're also quite clear at this point that it just can't be $250 million in revenue, it has to be at a margin, which is high single digit, but I think at least about a 10% margin. So until we -- I mean, doing the math, until we generate at least $25 million of EBIT from that business we won't add any significant CapEx or we don't need to add any significant CapEx.

And the momentum continues, right, in terms of growth depletion?

Yes, absolutely. I mean, there is good growth momentum. And I think that at least for the next 6 to 8 quarters, we're quite confident that there is good growth momentum.

Great. And second question is on you have given wage hikes in this quarter. Just from next year perspective, do we expect wage-hike cycle to go back to your previous cycle? How do we think about building in wage hikes for fiscal '22? Or is it a year where you can potentially skip that given that you've given it now despite the overall fundamentals or growth looking pretty bleak for the year?

I think we'll have to rationalize it a little bit. And I think we have to bring in some logic to it in the sense that, I think, of course, we've given wage hikes this year a little bit late in the year. So next year, we could push them back. But I think there's also -- I mean, in general, the market is doing reasonably well. And I think, especially some of the skills that we have are quite niche, which means that we have to also look at it from that perspective. I would say -- net-net, I would say, I think next year, we will come back to a more reasonable cycle. So I mean, there might be wage hikes in Q2 onwards. Of course, the quantum might be moderated to take into account the sort of the timing, et cetera. But I would imagine with the way things are looking right now and where the markets are looking right now, we will be back to a normal wage-hike cycle. And last thing I'll say is, if you recall, in 2000 -- in, I think, it was FY '10, which was after the challenging year of FY '09, where there weren't any wage hikes, et cetera, '10 was actually a very significant amount of wage hikes wherein what, so we have to look at all that carefully. I think it's a little bit too early to comment. So if you just take everything into account before we come to an actual decision.

Great. Just last thing, any export incentives expected over the next 2 to 4 quarters?

No, nothing at this point, but I'll ask Ajay to...

See, as far as current year is concerned, we have got the export incentive. And as Krishna mentioned, there is no further export incentive, except for few incentives which come in manufacturing, which are small. As far as the future incentives are concerned, I think government has been mulling various alternatives, and there's no announcement from the government. So I think we have to wait for the clarity from the government on that.

Our next question is from Ritesh Rathod from Nippon India.

Congratulations for such strong performance. Karthik, my question was out of multiple changes, which you would have done post you coming over here, what will be 1 or 2 changes which you would like to highlight, which will have a disproportionate impact on company's performance? And what I mean disproportionate, positive impact on the company's performance?

I would say that I think it has been across many areas of continuing few things and bring the discipline of operational execution. I think that's definitely across the utilization, DLM margins and making sure we are doing the right things in the business. I think that really helped us to channelize the energies rightly. And most of them are executed by the same set of people. So they understand what is required to be done. We are able to help them to channelize their energies in the right areas. And the second one that we are still working on is about the sales performance and productivity and also helping us to get the focus on large deals and services growth and the digital part. I think those are the 3 things, which I would say it's work in progress. Probably we'll start seeing some of these turning into results over the next 2, 3 quarters.

Okay. And my second question will be, given this post-pandemic work-from-home, so when you see company and the CapEx intensity for next 2 to 3 years, would it be much lesser than the last 2 to 3 or 3 years which you are seeing in terms of the annual CapEx? In particular, FY '21, we have seen very low CapEx. Also, when you exclude DLM since you mentioned, highlighted DLM CapEx, which is there for last couple of years, won't be there in coming year. So on a services like-for-like basis, you see that kind of CapEx intensity coming down sharply?

If I can take that. I think if you look at, one is the space which impacts some of the CapEx, which reduced over a period of time after we have started taking the lease from ISIC and of course, we are working on that space separately, and I think that's more of a cost saving issue that we are looking at on what model we go forward. I think it also has substantial amount of software and hardware for the customer delivery and some other improvements. I would say, as I mentioned earlier, 2.5% to 3%. If you take out that DLM impact, and we have spent about INR 100 crores, about 20% of that is in this year and 80% was in the last year. And if you take that out, we should prepare for 2.5% to 3%. This includes hardware and software also for the delivery to the customers.

2.5%, 3% on services revenue, when you mean or overall revenue?

On the services revenue. I would say the maintenance CapEx in case of DLM also is not more than 3% to 4%. So for the overall also, it should not exceed the 3%.

But the 2.5%, 3% is on the higher side. Is there a possibility of optimizing that?

I just stated that as of now. Precise details, we'll go -- we do a detailed exercise for the budgets and, obviously, we can give you more precise details at that time.

The next question is from the line of Mohit Jain from Anand Rathi.

First is on the employee cost side. So did I hear it right, you guys are saying 50 basis point impact of the RSU charge, is it correct?

No. No. No. Not 50 basis points charge impact. It's 0.5% on EBIT is what we said. Sorry, you're right. 50 basis points.

0.5%.

This will be done in phases, not 2 million upfront, right?

Sorry? No, no, it will be in stages, not absolute.

Second is your view on the offshore shift, like a lot of the industry participants have moved to much higher offshore. You guys have also signed large deals this quarter. Is there a significantly higher offshore proportion in that which may give you margin benefit in '22?

No, we are operating at about 47%, 47.5% in offshoring in terms of revenue mix. So we probably expect it to continue and slightly improve over the next couple of quarters. And I think it has been probably increasing over the last 2, 3 quarters as we would have seen. And I think customers are aware of the challenges that we have in terms of having people to be located in various countries, I think that has helped. And second, we also could convince the customers that some of this work could be done since most of us are working from home, and this will be something which is easy to convince the customers as well. I think the mindset of customers have definitely changed as compared to what they were stringent on, and that really helped us to increase our offshoring contribution.

But in the current quarter deals, it is more or less in sync with the company average, is it?

Sorry. What is the question, Mohit?

In the deals that you have signed this quarter, they are proportionate, more or less in sync with the company average?

I would think so. I would wait for it to convert into revenues for this quarter and next few quarters for us to realize, and it may start-up with a little higher on the on-site, but it should stabilize at the similar levels like what we are doing today.

Okay. And lastly for Ajay, sir. DLM was still negative free cash flow. So any outlook there? And the payment for IGP is done or will it be done like in a staggered way?

So in terms of the DLM cash flow, I can assure you that for the full year, we will be generating a handsome free cash flow. It is a swing between quarter 3 and quarter 4. So we are looking at a very good conversion in DLM also for this particular year and that you will see in quarter 4. So I would say, if you look at YTD and full year, we have got good inventory reduction. We have got good improvement in the payable days and also there is a focus on receivables. So I would say that we will see a positive free cash flow, not only for this year as a whole, but going forward also, at least at the rate of 50% conversion. And some of that, of course...

50% of EBITDA?

50% of EBITDA, yes. And in terms of IGP, we have made the upfront payment of -- upfront payment we have already made. And the rest of the earnout is over the next 3 years.

So rest of the earnout is reflected in your balance sheet liability, is that correct?

That is right.

So whatever liability number we see, that includes all this?

That's right.

The next question is from the line of [indiscernible].

Am I audible?

Yes, please. You are.

Yes. So I would request you to please share some details on the ESOP scheme. Like I understood, it would be a secondary purchase by the trust, right?

Yes, correct.

So then how would we be deciding the compensation, I mean the figure which would hit the P&L because the price at which the trust would acquire would be not ascertainable? I mean is it ascertained that within the next 3 months, the trust would be acquiring, or next 6 months? So how would it go about?

So the trust would acquire the shares upfront. So within the next 3 months, the trust would acquire the shares. And then we have simulated at what cost these shares can be acquired, and there is an agreement with the Board in terms of what cost these shares can be acquired. Now after they're acquired, given that they will be distributed at face value, there's an option pricing mechanism that we have worked on. And based on that, we've come up with this conclusion that for the first few years, there will be a -- because this is also not in perpetuity. This is only for a 3-year period or a 4-year period from what I remember. So this is -- on a 3-year or a 4-year period, there will be a 0.5% of EBIT. It will be the impact. 50 basis points will be the impact.

Okay. Okay. So trust would be acquiring it in the next 3 months, and the cash would be provided by the company, right?

Yes. Yes, correct. That is correct.

Okay. So we'll see an outflow of -- by Q4, I mean it should hit our P&L by Q4 -- sorry, balance sheet by Q4, right?

Q1 probably. Not this Q4. Q1 of next year.

The next question is from the line of Vikas Ahuja from Antique Stockbroking.

Congrats on a good quarter. I have one question regarding just the overall order intake. So in terms of the order intake of some of your peers, they have reported very strong numbers. We have also signed some large deal wins. However, do we think that it's just a matter of time, we will also start getting much larger deals compared to the past as now we are focusing on improving the large deal momentum and pipeline continues to remain good? And also, thanks for the additional data on total contract potential and large deal wins, this number of $106 million, how is it if we compare it with the previous few quarters?

Sure. Thanks, Vikas, for this question. Karthik here again. And I would say that I think our intent is to really create a large deal factory, so to say, over the next 1 year. And how do you think we are able to really build that, which can keep generating the deals. And whether we will see more such needs, I think we have to wait and see how the budgets for 2021 would pan out. We are still working with many of our clients. We'll probably have a better view by end of this quarter. So we would be able to share that contract. And as far as digital is concerned, I think definitely, there is a lot of interest from customers across the domain of various digital technologies, whether it is on Industry 4.0 and enabling the asset performance, predictive maintenance and remote monitoring and diagnostics as well as on the digital twin and thread, and helping the customers through the journey of IT/OT integration. I think that's where we are seeing a lot of traction within our customers. We've created a dedicated business unit because we wanted to really bring out a specific focus and ability to reach out to the customers faster. And that's what we did as part of our reorganization that I talked about in Q3 of fiscal '21.

And also that -- the number of $106 million, I mean is it possible to get some deals -- how is it compared to past few quarters or maybe on Q-on-Q basis? I think you have just introduced this number from this quarter.

That's right.

I think it will be difficult because we used to track things a little bit differently in the previous quarter. But just as far as intuitively, this is obviously a fairly significant step-up. It's just -- I think we would add on not giving that out just because it would be a very rough guess because we didn't track it this way. I think the idea will then to also start to align to sort of the more widely understood terminology, and that's why we started tracking it this way.

The next question is from the line of Abhishek Shindadkar from Elara Capital.

Congrats on good execution. My first question is regarding any analogies from what we saw in GFC. So the deceleration that we saw post -- during GFC, in the subsequent 2 years, we saw almost 20% of growth. Based on whatever you are seeing in the market, the question is, can we see similar acceleration this time around? And in case what we have to do from a sales and the delivery engine to kind of capture that opportunity? And the second question is, obviously, during that time, the next 2 years' growth was at the expense of margins. However, our exit rate today is substantially lower than what we did that time. So can we see both growth and margin expansion over the next 2 years? And the last question is to Karthik's comment about large deal factory. If you can talk about the org structure that we are trying to create, including the incentive structure or any other changes that could help us understand or what it takes to kind of win large deals in the market?

So if you look at -- let me answer the first part of the question, and I'll hand it over to Karthik for the second part. But if you look at the parallels, I think it is a good parallel between what happened in 2008, 2009 time frame and what is happening now. But I'd say the shift is a little bit different this time in the sense that I think what happened in 2008, 2009 is companies were stopped for investment in that time frame. So when things started to recover, they just started putting more money back into the traditional products, traditional way of doing. It was just a multiplier effect at that point. But right now, what we're seeing is fundamentally how companies design manufacturer use, how we fundamentally design or how we fundamentally use and expect from products and services has changed. Therefore, in this sort of recovery, right, there's going to be a lot more focus that happens in a different set of areas which is essentially technologies like electronics, embedded software, IoT, connected devices, experiential devices, remote telemetry, all those kind of things. So what is happening is we are seeing -- we will -- we are and we will continue to see acceleration in spend, but it will just be of a different type of competencies and capabilities than sort of what companies used to use. Therefore, I think one is the acceleration will happen because if you look at it even at a macro level, fundamentally, how we sort of live our lives has changed and therefore, fundamentally, how the products that enable us to live our lives, which is essentially what we're designing. I mean, ultimately, if you look at it, we are designing or we are helping companies design trains or planes or electric equipment. So with things like more telecommuting, with things like more virtual meetings, with things like more focus on decarbonization, electrification, obviously, the fundamentals of the product is changing. So to -- I guess the second part of that first question, I'd say, we need to now get ready to execute in this new reality with a new set of skills, and we need to make sure that we have a workforce that is ready and able to execute within these skills rather than the recovery in 2008, 2009 was we just needed to be ready to scale the existing skills. So I would say, in that sense, the recovery will be there, and it's just the nature of how, I guess, the world works is when company is under-investing at some point of time, when certainty recovers, they, again, bring back their investment scale. But I think this time, the type of skills that are required and the capabilities will be different, and that is really what we're focused on building. So when the recovery happens, we're in a good position to execute to those capabilities. Karthik, I'll hand it over to you for the large deal factory.

Sure. Thanks, Krishna. Thanks, Abhishek, for the question. I think I would just say one thing which is important to understand is Abhishek, as you would have seen the 5 deals that we announced, the interesting point is most of them are existing customers. So our focus is to really go back to our top 35 clients. And what do we need to do to understand their pain points and can we sharpen our proposition? Can we bring some of the technology proposition that we want to bring in, whether it is led by 5G or digital or electrification or grid modernization? I think look at some of the propositions that are critical for the customer's roadmap and also bring in hyper automation, which is going to be way applied and how do we think we are able to stitch all this in a compelling value proposition to the customers, and also trying to seek support from some of the advisory, which could be ex-customer CXOs and how do you think we're able to bring in all these points together in terms of building it as a factory. So we are just starting off. As I said, we have a long way to go, and we are hopeful that we will be able to set this process in motion over the next 2 quarters like what I talked about earlier.

That is helpful. Krishna, if you can also address the question on margins, where the growth years then had lower margins at a company average, but today, our exit rate is substantially lower? And also, just wanted to get your perspective that with the shift of manufacturing that is happening or at least the supply chains, are we kind of seeing any traction in the design-led spending in our customer base or there is an uptick in the market?

Thank you, sorry, I missed the question on margin. I think -- see, the margin pressure will always be there as a choice, I would say, that we just have to make sure that we are picking the right kind of business and executing the right kind of business. I think, in that sense, the -- if you look at the market in 2008, 2009 was very different. And I think we were also, at that point, competing with a set of commoditized, in some ways, offerings, whereas I think now we also have a set of offerings which are very different and which are a lot more sort of higher up the value chain and therefore, for us to stick on or hold on to our pricing will become a little bit easier. So I think that in any growth market, there is going to be the temptation, if I may say, of taking revenue at a lower margin. But I think 2 things are happening this time. One is our maturity. We just need to make sure that we don't do it. And the second thing is we also have the ability to command better prices. And therefore, we can actually stick to our sort of philosophy on how much margin dilution we want to take. Now on the design and manufacturing also, we are seeing that we're seeing a lot more opportunity because there is a proactive initiative from a number of our -- from number of -- sorry, global OEMs and Tier 1s to rebalance their supply chain and maybe it's not as sort of stark as what some people made it out to be in the early days that they're packing their bags and moving from China. It's not that. But having said that, I think most companies are rethinking what their supply chain should be. And India -- I wouldn't say India is front and center of that region. But I think we definitely figure quite nicely along with Vietnam and Malaysia and maybe Thailand, in some instances, because ultimately, they also want to keep it in this region for 2 reasons. One is the rest of the supply chain, the component manufacturers, et cetera, are in the region. And the second is, of course, the cost benefit by this region, of course, for manufacturing.

The next question is from the line of Sandip Agarwal from Edelweiss.

Wish you all New Year. Excellent execution, congrats on that excellent deal wins and really things are turning very positive. So I have 2 questions. One on the numbers. So Karthik, if you see some of our peers in terms of business composition have started with similar kind of guidance [Technical Difficulty] kind of decline [indiscernible] they have been able to come to 5%, 6% decline for the year and maybe they end up at less than 5% or 5%, while we are not probably looking that strong in that sense. So what is the reason? Where are the gaps? Which is differentiating this strategically? Number one. Number two is more of a question to Krishna, you and Ajay altogether, is that if you see our business in general versus IT services, weak derivative of global manufacturing, which inherently is a more volatile business and keeps very high volatility. And we have added to that although very strategic to our business, a DLM piece, which is also volatile. So both volatilities have been troubling us for the last several quarters. Profitability-wise or business objective wise, they have fulfilled some of the requirement. But from an investment perspective, the volatility probably has caught us in terms of what is a fair value of product. So what is your thoughts on that side? Whether it really makes sense to add so much volatility of about what 30%? How will you reduce that volatility going forward? So that is the strategic part of the question. And then third and final piece is I'd like to know is Karthik since you have come, you have made a lot of changes. But can you tell us at least 3, 4 big changes on the leadership side where you think we have done a great job, at least, if you can throw some light on that?

Sure, Sandip, maybe I'll try to answer the first and third part and request Krishna to chime in on the second one. On the first part, what you asked about the strategic direction and what is that we need to do to really get ourselves in line with industry-leading growth. I think it is also a function of the industry mix that we are operating and the industries which are going through the challenges to date. And as you know, about close to 1/3 of our business was coming from Aerospace & Defense pre-pandemic. And we have done very well over the last 5 years in Aerospace & Defense. We definitely rode on the way of growth that has happened in Aerospace & Defense. And nobody would have expected the pandemic would create such a big havoc on the travel and tourism globally. So that is essentially what we are seeing at the impact that we have, the mix of verticals that have a role to play. And the second impact is there are certain parts of the businesses, which has really happened on -- for example, if you look at our communication has become the largest vertical now. We are definitely seeing the traction on that vertical. We are definitely seeing momentum around rail transportation and medical and mining and utilities areas that I talked about. So we kind of believe probably in the next few quarters, once our large deal process kicks in, our ability to mine the customers improve. We should be able to get into the position of probably the leading growth in the industry. And maybe I would request Krishna to answer the other 2 parts.

Yes. So on volatility, Sandip, that's a good point. And obviously, as a Board and a management team, we debate about it quite a bit. But I think ultimately, we have to look at what -- how do we make our business more strategic. And we believe that the path that we're going down with the right mix of engineering, but that's really underlined or underpinned with these 2 things, which is manufacturing and digital or digital-led manufacturing and DLM. I think that really makes it a lot more strategic and a lot more sustainable. Yes, it has added a little bit of volatility in the short term, but I think that volatility also is because of, honestly, 2 reasons. One is, while we knew the strategic intent of how to manage a manufacturing business, I think the realities of manufacturing business were very different. And I think we're just getting a handle of that. So I think our ability to manage the manufacturing business has gotten much, much better. That obviously helps with how we can manage volatility also. And the second thing is scale. I think the -- in the previous times, we were very dependent on a few rather volatile customers, if I may use that word. And when sort of they had a cold, we caught pneumonia, whereas I think we've also derisked that quite a bit. And also the large customers today are the sustainable customers. So taking all that, I think we can manage the volatility. And if you look at it from the lens of the strategic intent, then I think it is definitely something that's worthwhile. And I think from an investor perspective also, going forward, you will see that, obviously, margins are better and they're sustained. And also the volatility will be reduced, both because of scale and our ability to manage the business, including the fact that there's engineering that's now starting to come in. It's not just pure contract manufacturing, which it was 2 or 3 years ago. Also, let me take the question on leadership because I think it maybe more fair to ask me being a little bit more disconnected than Karthik who is directly involved in those decisions. I think what Karthik and the rest of our support has done really well. It's not just about adding more leaders. I think what -- if you ask me, the biggest change that has come in is the discipline around the process and the rigor because what ultimately, it's not that we took out a number of people and added a number of people. That's not the case at all. And I'm also very proud to say that we have some of the best leadership in this sector. So it wasn't about just the people. It was more about the rigor and the process around the people. And I think that rigor and the process is what Karthik has really brought in and the discipline. And the same people, therefore, have been able -- have been much more effective and have been able to do their jobs a lot more effectively. And I think it is a support. And once the operating processes became more efficient, people can do their jobs more effectively. And I think both from -- from all the support functions, including finance, IT, et cetera, and then HR, obviously, I think the rigor was there. And once the operating processes became more efficient, the system just started working very well. So in that context, I'll say that it wasn't just about saying, "Oh, okay, we want to replace people back." I mean there were some people and that always happens. But I think more than that, it was just a rigor and the discipline and the process focus that's been brought in by Karthik and some of the other people who came in to support him. And a lot of the other people who came to support him were also in Cyient, it's just they were repurposed into this. So it's more about the rigor and the discipline rather than saying that it is about new people and new leadership.

Yes. No, I tend to agree with you, Krishna, and also add to that. The tremendous support path that is shown by the entire team and -- including Ajay, Nam and yourself and the leadership team that really brought in the change together, so I think that's been something I'm really proud of, what the team had done over the last 9 months. I hope you continue to do well in the near term as well.

[Operator Instructions] The next question is from the line of Shradha from Amsec.

Congratulations to the entire team on a good quarter. Karthik, I think in one of your opening remarks, you had mentioned that you expect our 4Q '22 margins to be higher than 4Q '21 margins. I'm assuming this is ex of RSU impact, right?

Sorry, Shradha. Your voice is not clear.

So I think...

RSU impacted.

Yes.

We've worked the area of the RSU impact this quarter because we still need the investor approval, and then we need to start the process. So that...

No. I'm talking about 4Q '22 margins, Karthik. You had mentioned that you expect 4Q '22 margins to be higher than 4Q '21, if I got you right.

No, we didn't guide anything on fiscal '22, Shradha, sorry.

Ajay here. I did say that in terms of the exit quarter of quarter 4, this is going to be the best quarter for us for this particular year. I also said that we are going to see the quarter 4 of next year also significantly higher. And we -- as we discussed, we need to just shape up some of the details, both on the revenue and some of the other initiatives, some people asked about how are we going to deal with the space and some of the CapEx costs and all those things. So once we sit together, I think we'll have a good idea, but there is no doubt that we will definitely improve the margins going forward. And I think if we don't improve the margin significantly, the question of RSU, it doesn't come. Let me assure you that whatever is the quarter 4 exit margin, unless there is a significant improve over that, it will not -- so I think it's not that we will continue the same margin and that set of 50 bps can come. And it comes over a longer period of time. It's not -- again, I'm clarifying. The way the accounting works, it's not on the purchase of the shares. It works when they are vested into the various individuals and that only happens when people need those milestones. So I want to assure you that those milestones are quite significantly higher compared to current margin.

Right. So again, just to summarize, I mean you've kind of indicated that 4Q '22 should be higher than 4Q '21. I mean the final calculation still need to be done, but directionally we are talking of improvement in 4Q '22 exit vis-à-vis 4Q '21?

Absolutely. I think that's what we are very confident about. But what will be the exact number and how much it will be, we would not like to say that.

Sure, sure. That was a clarification I wanted.

The next question is from the line of Sudheer Guntupalli from ICICI Securities.

Karthik, one question on the new GTM organization structure. It will be helpful if you can share your thoughts contrasting our new GTM structure with the earlier one? What are the gaps we are trying to plug-in here or improvements we are trying to make? And maybe what are the unit level measurable outcomes we can expect because of this restructuring going forward?

So, it's still too early to say this, Sudheer. But the changes that we are really expecting to work in our favor is to really churn better sales productivity and definitely helping us to drive accelerated growth. And I also talked about the importance of agility, and we won't have more customer touch points. I think that's what this structure would help us to achieve. And we also have brought in a kind of not combining multiple groups. We kind of created space for many other sectors to really charter their own growth path. And we have terrific set of leaders who have taken up this challenge, and they are really going to look at how they can build these businesses to be scalable. And the last but not the least is the focus on digital. I think this is definitely brought to the front end. I think that's something which is definitely one large deal that we have been able to bring it. We're also putting some of the process related things, whether it is about large deals, whether it is about mining of existing accounts and how do you think we are able to drive a combination of services, digital and DLM deals within the existing customers. I think that is something which is expected to yield results over a period of next few quarters.

Sure, Karthik. And Krishna, one question on the new ESOP scheme. Can you elaborate on how you are going to link the vesting with share price performance? Will this be absolute performance or relative performance? And secondly, barring very few precedents, not many had taken this approach to ESOP so far. While one school of thought suggests that this aligns the interest of employees with the shareholders. There is always a flip side of the argument about this theoretically incentivizing higher risk-taking behavior in the near term or front-loading of risk by employees. So how do you plan to structure these and balance out these risks and pros of this plan?

Yes, absolutely. So the share price is only for a couple of senior execs. For the rest of the team, the linkage will be to the EBIT of the company. So EBIT is an absolute performance, right? It's not necessarily relative. So the absolute share price -- on top of EBIT, the absolute share price is only for the execs of the company. For the others, to the leadership team, it will only be linked to EBIT. So once it's linked to EBIT, it would take away sort of the -- some of the risk taking, at least, right? Because ultimately, with all due respect, I will be there, and I'm in it for the long haul. So I'm quite sure I won't allow for any irrational decisions that pop up the -- either the EBIT number or the share price for a short-term because I'm really looking at -- or at least from my perspective, I'm here for the long haul. So it would be in my worst interest if somebody was doing it only for the short term rather than from a sustainable basis. So one is that it is the absolute share price and absolute -- of course, EBIT is absolute. But the share price is only for a small set of very senior execs. And obviously, I'm the check and the balance because as long as I'm here and I'm in it for the long term, I wouldn't incentivize the short-term behavior of trying to run-up either of these numbers.

The next question is from the line of Neerav from Maybank.

A couple of questions. One, will we see seasonality in the DLM business, which we used to see earlier?

So Neerav, I think there is some part of it we can control and some we won't be able to control. And for example, any of the demand that we are seeing and how do you think the customers are going to deploy whatever we are going to supply to them? I think that is dependent on their demand. So there may be some pickup, which may be seasonality based. So we will also mimic the same thing what they have. And some of the businesses are annuity tag. So we do expect most of the quarters to be consistent, but we are trying to see how do we really have better predictability in the business. I think that's what me and Rajendra are working on and putting together a plan to see how do we get a better view on the predictability of this business over the next 12 months. We'll try to keep any variations to minimal. But again, we are subjected to how the customers' demand change. So there could be some pull from some customers on specific quarters, but we won't be able to really correct that.

Right. Because earlier, second half was stronger than the first half. So that's where I was going to.

I think this year is a wrong year to make any comparisons, Neerav, given the challenges that we have seen from many verticals. And probably, we have seen a lot more demand on the medical equipment side over the last 2 quarters, which I'm not sure would continue as the vaccination is picking momentum and the infection rates are coming down. So it may not be a right comparison for us to look at for this year.

The other question was that, would we -- now that the new structure is in place, are we now going to look at any new industry verticals, which we were not -- which we may be planning to enter earlier? So now we are sticking to these 7, 8 -- 8, 9 verticals that we are -- we would still look at other industry verticals?

Yes. I think we would -- we are really looking at a couple of areas. One is about automotive. I think that is one area that we're really trying to bring more focus into it. And that's definitely seen from the go-to-market structure that we shared. And the second would be, we are still exploring about the clean plants and how do you think we are able to bring in the plant re-engineering as an offering and especially focused on semiconductor and pharmaceutical equipment areas. And can we really look at that as a service line that we would be able to scale up across many of the customer domain.

And finally, just one clarification. The POs that we received, that would be part of the order intake in the quarter?

That's correct.

We take the last question from the line of Ritesh Rathod from Nippon India.

In your last slide of the presentation, you mentioned there are 11 targets for M&A and pre-LOI. So has our criteria -- have we changed gears for doing acquisitions, Karthik? And what number of companies would be in the digital area or new technology area, if so?

Yes, I think it's a little bit early to comment on that. I think the idea is just to give an overview of how things are progressing. I think once we start -- because at this point, until they get into the LOI stage, I think it's very early to comment on the specifics. I'd say -- I'd just say that we've refined our focus. We'll continue to refine our focus. Some of the areas that you see here like digital-embedded systems, which also support digital power electronics, which support electrification are really the key areas that we're looking at. So it would be a mix of all of them. But I'd say till -- till it gets into the LOI stage, I would say it's not worth your time to really put too much into that because it's just -- that's just the nature of M&A.

We'll take that as the last question. I would now like to hand the conference back to Mr. Krishna Bodanapu for closing comments.

So thank you very much. Like I said, thank you for also joining us at this late hour. Our performance is back to meeting, at least, our expectations. But of course, 1 or 2 quarters, the trend does not mix. So obviously, we understand the onus is now on us to continue setting the expectations correctly and meeting those expectations. The management team with -- especially with Ajay, Karthik, Nam and others, we've done a lot of work in making sure that we bring predictability and sustainability back to the business, and that is what we're seeing reflect in the numbers. I want to assure you that we will continue to do this. The sale -- the wind is in our sails, I assure you. We've done a lot of the hard work. We've paid a lot of the price for not performing over the last couple of -- last year, both because of the pandemic and before that because of some operational performances. But I really want to say thank you very much for your support and your patience. And going forward, I assure you that things are looking much better. And also with the imminent arrival, hopefully, of vaccines and some amount of stability to come back, we're very confident that we're well positioned as a business. So thank you for the support, and we will look forward to speaking to you again at the end of this quarter.

Thank you very much. On behalf of Cyient Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.