Cyient Limited (532175) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Cyient Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Krishna Bodanapu. Thank you, and over to you, sir.

Thank you very much. Good evening, ladies and gentlemen. Welcome to Cyient Limited's earnings call for the fourth quarter and full financial year ending March 31, 2021. I am Krishna Bodanapu, Managing Director and CEO of Cyient. Before we 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 on our investor update, which has been e-mailed to you and also is posted on our corporate website. This call will be accompanied with an earnings call presentation. Details of the same have already been shared with you. May I now introduce the other participants on the call. In the Board meeting held earlier today, the Board approved a number of changes, and I will make the introductions in this context. Mr. Mohan Reddy, who founded Infotech Enterprises 31 years ago and has had an executive role in the company during this time first as CEO, Chairman and Managing Director and then as the Executive Chairman for the last 7 years, has decided to step back from executive roles. He will continue serving on the Board as Founder Chairman and Nonexecutive Director. Mr. Reddy is on the call. I'm pleased to say that the Board has appointed Mr. MM Murugappan as the Nonexecutive Chairman effective the end of today's Board meeting. Many of you know Mr. Murugappan from his executive roles in the Murugappa Group, but we are also very proud to say that Mr. Murugappan has served on the Cyient Board for over 25 years and will now become the Chairman. Mr. Murugappan is also on the call. The Board today also appointed Mr. Karthik Natarajan and Mr. Ajay Aggarwal as Executive Directors of the company. Karthik will continue to lead operations as the Chief Operating Officer, and Ajay will lead finance as the Chief Financial Officer. I want to acknowledge the extraordinary capability and commitment they bring to Cyient and for their contribution to the company and congratulate them on their well-deserved appointment. Karthik and Ajay are also on the call with me. May I now turn the floor over to Mr. Mohan Reddy for his comments, followed by Mr. Murugappan. I will share the business updates post their comments.

Thank you, Krishna. Good evening to all of you, ladies and gentlemen. And with a great amount of pride at Cyient, I speak to you this evening for this last time in the capacity of the Executive Chairman of Cyient. It's been a very long journey for me. As we close this financial year as we finalize the results today, I would have signed the 30th balance sheet of the company. On 1991 August 28, I incorporated this company and with a small team of 4 engineers. And [indiscernible] on my dining table is what I keep saying, but to the big dream that I had, I would build an engineering services company. Timing was right, the winds have changed, globalization, liberalization world, the tailwinds for me to start Infotech Enterprises. We grew the company substantially in the last 30 years. There was some roadblocks from time to time all the way in 15 years. We took a small detour to become a GIS company. We did an enormous amount of work in digitization of map for as many as 9 years. Finally, good luck smiled on us when the aerospace business came to us, but we took this opportunity and scaled our business into many other verticals in addition to aerospace. We now have communication. We have transportation. We have semiconductor. We have medical and health and a few more verticals. So the end result is that the company was a small and growing to be employing around 14,000 people and a great team of leadership that they are in the organization. We took number of strategies in play. One was called the SP strategy, where we grew ourselves from service to subsystem design to solution. Obviously in the past, we also put in play yet another strategy, which is called DLM, design-led manufacturing, where we now just don't design products, but we also manufacture products for our customers worldwide. And as a consequence of all this, the company has grown very strongly and moved into a situation where I keep saying I built a start-up, it became an enterprise, and now it's becoming institution. I felt very delighted that over a period of time, we built an institution which will live forever. So life has to go on. So I decided that I sit back now and let the new leadership come into place. Before I get there, I think the future of the company continues to be very bright. And the new strategies are in place, we now are looking at digital transformation as a major strategy. Large number of opportunities. And we did systems, geospatial, medical, health, many areas that we are focusing on. We think innovation has become the DNA of the company, the fairly large number of solutions that are being put in place by our team. And we have added a number of domain experts at this point in time to ensure that we probably have the best of domain knowledge to come out with innovative digital positions, which will provide enormous amount of benefit to our customers. So finally, what we decided was, so that is I decided to step back. I couldn't have found anybody better than Mr. Murugappan as my successor to become the Chairman of the Board. Mr. Murugappan has been associated with company right from inception right from -- at the time the company did the IPO in 1997. He's been on the Board as the Lead Independent Director. We may not have the title of Lead Independent Direction now because of some guidelines for SEBI, but otherwise, he was the Lead Independent Director for as many as 20 years. He was kind enough to accept our invite to take on this role as the Nonexecutive Chairman of Cyient. I'm sure many of you know -- or all of you know Mr. Murugappan or you know Mr. Murugappan better than you know me. He was the Executive Chairman of Murugappa Group, which is about $6 billion in terms of its revenue and size, and he continues to be providing leadership for a number of these companies, a 4-generation family business he run. And as a family business it is known for its governance, for its transparency and, importantly, for its philosophy. So I feel delighted in welcoming Mr. Murugappan to chair the Board of Cyient. Along with Mr. Murugappan, we also made 2 other major announcements today, we wanted to strengthen Krishna as the next-generation leader. And we appointed Karthik and Ajay to Executive Directors. Krishna has been providing leadership for the last 6 years now as the CEO of the company. He has done a tremendous job, and he will now further get strengthened out with fresh thinking from Karthik and stronger backbones from Ajay. So therefore, the team becomes very, very strong in terms of the leadership. Finally, let me thank all of you for all the support for us over a period of time. As I said, this company went public in 1997. That's almost 24 years now. I think we just finished 24 years since we went public. And we have definitely made sure that we had your interest as our interest. As rupee invested in the public issue in 1997, today is INR 385 or INR 1 lakh is now INR 3.85 crores. It gives you a compounded annual growth of 29% on your money. That's what we have delivered to our investors. We continue to believe that investors are a key constituent. We have very important stakeholders for our success. I'd like to take this opportunity again to thank you for giving me for all the support you expanded to us. I look forward to your support and continued support to the Board and the leadership team of Cyient. With that, I'd like to thank you again and invite Mr. Murugappan to share a few words with us.

Thank you, Mohan. Good day to all of you on the call. I trust all of you are safe and well. For me, it's a great honor and a unique privilege to be invited by Mohan and endorsed by the Board to serve as Cyient's Nonexecutive Chairman. Cyient has been seeded and built over these years by Mr. Mohan Reddy's preliminary leadership, farsightedness and the focus on balancing the interest of all stakeholders and ensuring high levels of governance. It will be my endeavor to try and emulate at least a little bit of what Mr. Mohan Reddy has done and also to build on it with a fine team of people led by Krishna. I believe that Cyient over the years has grown well, and it has been a great learning and a privilege for me to see through the transition and the transformation since Cyient [indiscernible]. What started out as one vertical has grown progressively into many, and there are plans for the future to embrace new technologies and harness new opportunities. Cyient has grown to be a profitable company with a strong balance sheet. But more than anything else, it's the people at Cyient who make the company. The leadership that Mr. Mohan Reddy provided, leadership that Krishna continues to provide. And it's a great honor that we have Karthik and Ajay who have been now elected to the board. And this, to me, is a signal of client emphasis on people, their leadership and development at all stages. As to my role, I will work closely with the leadership. I'm very pleased that Mr. Mohan Reddy will continue to be on the Board, and so that we have the benefit of his experience, expertise, wisdom and counsel. Going forward, I believe Cyient has to build on its engine of growth, cost efficiency and also building new capabilities. So if I have to detail thought, it will be build the core and transform the organization further to embrace new technologies and address new opportunities. I'm sure Krishna, Karthik and Ajay will give you a glimpse and a flavor of what the future holds. It will be my endeavor to work along with the Board to provide them the necessary support across all dimensions in terms of building good customer partnerships, ensuring high levels of governance, ensuring that we learn from every constituent stakeholder and, most importantly, all of you, the investor community who've been very supportive to the company. And I encourage you to be free in your communication to us relative to how we can do better and how we can improve, and please feel free to talk to us from time to time relative to the development and progress of our company. We wish to spend quite a lot of time in developing and nurturing talent, especially in new areas, as also being more and more solutions-oriented rather than just a services company. Our recent investments indicate that, and we will need to build on this further towards the future. I'm very confident of the foundation that Mr. Reddy has laid and the leadership at Krishna, Karthik, Ajay and the entire team provides and the commitment, the dedication, the diligence and the passion the team shows at Cyient across. It will be my honor to be part of this team, provide the leadership and support to all of them, along with the Board. Thank you all for your support, and I would like you to know that I'm always available to the team and to yourself to further improve and grow this company. Thank you.

Thank you very much. Thank you very much for those words. Obviously, it's a bittersweet moment for me. It is both personally and professionally a big change in terms of Mr. Mohan Reddy stepping back as the Executive Chairman. But I think we're also very fortunate that we have a situation where there is continuity with Mr. Murugappan. They have the 25-year relationship that he brings to Cyient and personally a much longer relationship business. So I think we're in a fortunate position. And my commitment, along with my 2 new executive directors, Ajay and Karthik, is we will continue on this performance, and equally importantly, we'll continue on the governance that's expected from all our investors. With that, if I may move on and move to the highlights of this quarter. First, let me take you through the highlights before I hand it over for the business updates. But firstly, we posted quarterly revenue of INR 10,94 million, which is INR 1,932.2 crores. This signifies 4.7% year-on-year -- quarter-on-quarter growth in constant currency. In dollar terms, we posted a revenue of $149.9 million, which is a growth of 6% on Q-o-Q basis and 4.7% in constant currency basis. Services revenue stood at $119.6, which signifies a growth of 3.7% on Q-o-Q basis and 2.2% in constant currency. DLM revenue stood at $30.3 million, which is higher by 16.4% quarter-on-quarter. I would like to highlight one thing, it's that now with this revenue of $149.9 million, our revenue in Q4 of this year is actually better, slightly of course, than what it was last year, which means that those have gone through a tough period in the trough. Now the business is back to last year's level, which gives us a great platform for growth. Normalized EBIT margin stood at 12.6% for the quarter, higher by 148 basis points on a Q-o-Q basis. Ajay will take you through the details of the one-offs and the exceptional items during his slide presentation. Services EBIT stood at 13.6% for the quarter, higher by 233 basis points on a Q-o-Q basis. DLM EBIT stood at 8.8% for the quarter, lower by 181 basis points Q-o-Q. Normalized net profit for the quarter stood at INR 110.7 crores or INR 1,107 million, a growth of 16% on a quarter-on-quarter basis. Next, let me take you through the highlights for the full year. Total revenue stood at INR 41,324 million or INR 4,132.4 crores, signifying a degrowth of 6.7% on a full year basis. In U.S. dollar terms, the revenue stood at $556.8 million, a degrowth of 10.9% year-on-year and 12% in constant currency terms. Services revenue for the year stood at $461.3 million, signifying a degrowth of 16.2% and 17.7% in constant currency terms. DLM revenue for the year stated USD 95.5 million and grew by 28.3% on a year-on-year basis. Normalized group EBIT stood at INR 4,162 million or INR 416.2 crores, which was up 1.9% compared to the last year. Normalized group EBIT margin stood at 10.1% for the year, and this was up by 85 basis points compared to last year, and I also want to call out that this is notwithstanding the very difficult Q1 that we had when we had about a 5.7% EBIT. So the recovery through the rest of the year has been quite good, and I'll talk about what that means for the outlook when I talk about the outlook. Services margin stood at 11%, higher by 46 bps compared to last year; and DLM stood at 5.7%, which was up by 599 bps. Normalized profit for the year to stood at INR 3,714 million or INR 371 crore, which was down by 0.3%, which was essentially flat. We had the highest ever cash flow generation at INR 7,609 million or INR 760.9 crores, which was a cash conversion of 113.5% on EBITDA. And we also believe that this is quite sustainable with many things that we are doing, which Ajay will also highlight during his presentation and during the Q&A. We also got the highest ever dividend at INR 17 per share. Now we will come to the business highlights for the quarter. The first is the design for circularity, consulting and engineering practice. We have partnered with a company called EOLOS and launched its strategic partnership to enable long-term change of industrial processes. The engineering practice will address the needs of many industries who are stringent regulatory requirements and standards that are evolving by offering services and solutions around traceability, material engineering, obsolescence management, supply chain management, et cetera. This practice combines 25-plus years of industrial experience of both organizations, and it's a fairly unique and differentiated service that are premium to the market. The second is Cyient announced the launch of INTELLICYIENT. It is a suite of industry 4.0 solutions that can enable digital transformation for industries that draw significant value from their assets. These are industries such as manufacturing, industrial, aerospace, automotive, et cetera. With 6 digital solutions powered by the interplay of 9 technology studios and a strong partner ecosystem, INTELLICYIENT will help enterprises achieve the full potential of digital transformation with IT-OT convergence. I want to highlight, that while we have not talked so much about digital, we have always had a very strong focus, and we have some great examples. And INTELLICYIENT is our way of formalizing these examples and bringing them together on a platform because the technology is it assumes that we are coming to the market, which include things like smart automation, intelligent supply chain, et cetera. And the 9 technologies that we're working bring to our customers a very unique and differentiated digital offering, and they are actually seeing significant amount of traction along these lines. And lastly, we also have -- we also got the AS9145 Supplier PPAP certification to support global supply chain. Again, this is a good example of how we propose to support digital solutions for our clients. So I want to say, while we perhaps did not talk about it as much, we've always had that capability. And we've always had a very unique capability but that it's not just the technology or the implementation, which ends up being a lot of software and IP type of implementation, but we really come in from the technology and the domain angle, which is really making us differentiated. And we will give you some examples during this presentation, but also going forward of how we've built a very strong and differentiated digital story within the industrial manufacturing and network customer base. With this, I would like to hand over the call to Ajay, who will take you through the detailed financial performance for the quarter and year. Ajay, over to you.

Thank you, Krishna. I would say it is also emotional day for me. I have been very closely working with Mr. Mohan Reddy, and I think I've learned a lot as we mentor from him. And I would say that you have heard about the additional responsibility I have. We have continuously worked on enhancing the shareholder value. My belief is we can be one of the best in terms of shareholders' value generation without compromising on our tradition, responsibility around governance, transparency and other standards. So I think I'm happy that we will continue to get the counsel from Mr. Mohan Reddy as a Director, but I'm also promising in this call to him that we will continue to maintain the highest standards both from the shareholder return as well as on governance, transparency and other value that we have created. With this, I begin on the revenue side as we discussed, we had a fairly good quarter, in line with our expectation. Overall, as Krishna said, we have done $149.9 million, $119 million from services and $30.3 million from DLM. DLM also had a good quarter. Overall, we have done a growth of 6%. And in the services, we have grown at 3.7% and in DLM at 16.4%. We definitely see -- I'm sure Karthik will talk about it more, but I think we are seeing a steady increase and stabilization, and we only see the way up in terms of our growth and revenue in the coming quarters. This also talks about the full year. We have logged $556.8 million. And as you have seen, our de-growth is about 10%, 11% compared to the last year. When we started the year, we had guided for 15% to 20% kind of degrowth. We are happy that we are at below that since we have a large segment called Aerospace, which also impacts this particular number. And in terms of the services, we had a degrowth of 16.2%; and in case of DLM, 28.3%. In terms of in performance also, I think, has been doing well, both in terms of the revenue as well as the pipeline and the order intake that we have. And as I said, services, we continue to have the traction. You can also see the geographical mix that is provided here. I would like to spend some time on this particular slide. If you look at -- in terms of our EBIT margin, we have generated 12.6%. And I would say that I personally feel very excited to see this particular number of 12.6% and also the fact that our service EBIT is at 13.6%. And we all feel confident that this is the rate which we can sustain and improve over a period of time, and we have also provided a bridge in the next slide. I can also take a few seconds to explain that. DLM also has generated about 9% in this particular quarter. I think the idea is that proportion of the business has been a little higher in this particular quarter, and that has impacted the margin quarter-on-quarter. In terms of the profit, you can see that we have generated INR 1,107 million. Our ETR is 23.4%. And I think most of these are in the predictable terms. In terms of the other income and tax, I think we are going in line with whatever we had forecasted, and I'll try to give more color on how we expect it to be going forward. This is for the full year. We have we have already seen about INR 4,132 crores of INR as we talked about the final EBIT, it's INR 416 crores. I'll explain in the next sheet the EBIT between the reported and the normalized. It's provided complete, which is as part of the transparency, so that all of you can refer to that. And our PAT, as I said, is about INR 371 crores, almost flat. So we are -- what we have to see, despite degrowth, our net profit has been quite flat. And our exit EPS is around INR 34. And I think if you look at our margin, we are improving both in terms of the gross margin. There have been extremely good efforts. You can see during the quarter itself on the operational metrics, we have got 126 bps. And we also have got the volume absorption in other dealers for the year as well as for the quarter. While the number for DLM is lower for the year at 5.7%, I think the all efforts are to improve the in the next year. Here, I would let you read these numbers. What I would like to call out is we have 2 basic things. We had done as part of the governance, we look at complete balance sheet and approach the rest every 6 months. And as part of that, we have looked at our goodwill, intangibles and other assets in the company. And there have been 2 categories of exceptional items. One has been in terms of impairment of goodwill. This is for one of the assets in semiconductor in Europe, the numbers are given here. And also, we had a -- one of the corporate venturing investment that is not -- that is valued at nil. In terms of the tailwinds, we also had the cancellation reversal of the earn-outs, and that also has been beneficial. So as a stigma of that, you can see the impact. And if you have any questions, we will be more than happy to explain to you about each one of them. And yes, we can move on this. This is where I said, if you look at the different chart at the bottom, 12.6% is our normal EBIT. And for the Services, which is 13.6%. And also, I would say there have been some one-offs, which are not expected going forward. So there is some cushion here. And as I said that while for the year, you are looking at 10.1%, I will more focus on the EBIT margin. As I said, we further are working on various levers, including doing the more automation in terms of reducing the cost. We are looking at teasings again, accounts which are not profitable or curing them. That also leads to our focus on profitable growth. We are also looking at some other initiatives with the customers in terms of change requests, pricing and other things. So we are very confident with those initiatives. We should be able to sustain this particular margin despite the wage hike and some of the investments that will go into new forays that were talked about in terms of digital and others. In terms of cash flow, as you can see that for the full year, we have generated INR 761 crores, from Services INR 752 crores and from DLM about INR 8 crores. And this INR 760 crore is 113% from EBITDA perspective and 204% from the conversion impact. I would like to say that you will see in the various matters in the investor update, we have really -- we drive to conserve the cash, and that has really worked well. At services level, our DSO is down year-on-year by about 20 days, and that's what is showing up in current quarter as well as our journey over the last 4 quarters. In terms of CapEx, we are much lower. In terms of overall tax, we are at a lower number. And we feel that while we cannot sustain 103% of the EBITDA in a steady state, 65% to 70% is the free cash flow that we will be targeting in the coming times for Services and 50% for DLM. So that will be there, I want to assure you. And we still have certain initiatives whereby we can further reduce our working capital, including the reduction of DLM. With this, I will hand over the presentation to Karthik to take us through the business update.

Sure, yes. Thanks, Ajay. I'd also want to thank the Board and Krishna and Mohan for getting faith and getting me into the Board and really appreciate the confidence and trust. Our policy is safe and healthy, and we've continued to be safe and healthy, and things are getting really intense in India. And with that, I would like to share some more color on what we have seen as part of the performance in Q4 of fiscal '21. So if you look at the third column from left, which is about the Q-o-Q Services growth of 3.7%. And especially, it's broad-based growth that you can see across regulator, semiconductors, aerospace and communications and [indiscernible]. I think this will be something that we are really pleased with, and we believe we should be able to continue the growth momentum into the next year. And also I want to bring more attention on the complete aerospace and defense on the last column. The A&D has grown only by 9.9%, even though the services was normal at 33%. I think thanks to the DLM, which helped to balance the de-growth of Aerospace and Defense. And also want to share a lot of highlights and we talked about in Q2 that we have hit our bottom on Aerospace, and that is mainly played out, and we have clocked about 3.9% sequential growth as compared to Q2 and Q4 in the Aerospace and Defense. Also we have hit some of the new peaks, both in terms of communications and semiconductor verticals, over the last 7 quarters. And we also hit our highest DLM revenue, which stands at $20.3 million for Q4. And also, the order intake is up about 22% as compared to Q4. It is slightly down as compared to Q4 of fiscal '20, but which is to be what we have gone through in the commercial aerospace and on the orders that have been pretty low as much as what we have done in the last financial year. And we also won about 8 large deals. We talked about this in the last quarterly call that how we are trying to build in the focus on driving the average sales of the deals that we are competing in the market. I'm happy to share that we have closed about 8 deals of $90 million and have 6 done on services and 2 from DLM. We can go to the next slide now, I think. So now giving the complete view on the performance of the fiscal '21 level, and I think last question on as we talked about, we have seen a degrowth of 10.9% year-on-year at the group level. And services were down about 16%. And I also want to give a color saying that as compared to overall non year, if you compare between H1 and fiscal '21 and H2 of fiscal '21, we've seen that the non year, we've grown about 9.4% on Services. I think this is what give us confidence that the Services growth is definitely something we would look forward to. And also the financial aerospace turnaround in Q4 is a good sign. And we don't expect it to come back in a hurry, but we expect it to be a gradual recovery through fiscal '21 -- '22, sorry. And we also want to share that we have done at annual survey with our customers, and they continue to post faith on us, and we have found a lot of praises from customers. And the score is up by about [ 400% ] as compared to last year same time. And we've appreciated the support that we provided, especially during crisis time in the initial part of fiscal '21. And we also shared that we are seeing this as the strategic partner [indiscernible]. I think this gives us confidence that customers continue to have confidence in our ability to deliver. And this has also been recommended by some of the customers we shared outside with the excellence performance to us in Thales and Boeing and 2 more customers that we share more details at a subsequent time. And we have been recognized by the more [indiscernible] seventh consecutive year as leader in the engineering and R&D space, and this is a good recognition of our continued capabilities that we have been building for the last 2 decades. Go to the next slide. So I also want to give a color, this is something where we will start reporting in this format, as we have shared with you in October, but we resisted ourselves in the form of business units of transportation, commutation and utilities and portfolio of sectors. I think this really has noted that in the last 2 quarters. As you can see that most of the business units are showing growth and portfolio sectors we talked about. We are all in 6 segments that are in [indiscernible] portfolio sectors, and that has grown at 600%. I think this is clearly something that we laid out [indiscernible]. And so it's something that I'm being happy to report. The performance is definitely showing up, and we continue the same trajectory moving forward. This is again the same numbers reported in the new structure, and we will continue to share more details of it in terms of what our NIMs are and how we are really trying to build on it. Can we go to the next slide to provide more color on each of the verticals? So if you look from business performance for Aerospace and Defense, I think commercial aviation continue to face challenges, and the travel percentage has not come back to in the 60% level as compared to 2019 level. We are still expecting this to be back by around 2023 to 2019 levels. And the diverse challenges that I've seen across Europe and U.S. and from the India and China has come back to 90% of the 2019 level as in Jan and Feb, but much is what will let into the next few months based on the challenges that we are seeing within India. So we expect this to be a little more prevalent for the near term. And probably by second half of fiscal '22, we expect the commercial aviation to improve in terms of including air traffic, and that will develop into significant growth in the aftermarket business. And we continue to see growth in manufacturing. We are continuing to see growth in Digital and DLM, as we said in the previous quarters as well. If you look at communication side, I'm continuing to see strong momentum, and this has been a third consecutive growth that we have shown on the Communication vertical, and we are confident that this will continue even in fiscal '22. And as I said, we have got the highest in Q4, and we hope to continue to see the momentum. And we have seen growth, which is again, broad-based across 5G rollout, fiber and rural digital opportunities that are coming in and how the broadband is getting rolled out in various parts of U.S. and U.K. We're also seeing the network technologies, which have seen growth both on the enterprise as well as on the consumer side, and that's something that we continue to hold positive momentum on communications going forward. Energy & Utilities, this still been challenging for the last 12 months, and we hope we will settle down to our bottom as quickly. And we continue to see momentum in utilities and mining and machining the social side. And I see that [indiscernible] talking about IT partners, that acquisition that we fully integrated, and we see an opportunity on this consulting and digital transformation on buying them naturally possesses and energy and industrial products and utilities. All 3 of the sectors within Energy & Utilities are showing momentum, and we hope this continues even in fiscal '22. As far as Transportation is concerned, we see a strong momentum, and both on [indiscernible] as well as on digital and software. And we are definitely working with many customers globally, and most of them have their projects intact, and they continue to receive help from us, and we expect this to continue to drive growth for us even in FY '22. Medical Technologies and Healthcare business segment that we expect to grow more, but the COVID challenges are continuing to play havoc, and we are also concerned on the global supply chain. I think that's been the concern for many of our customers both on medical as well as in automotive and aerospace, and we hope that the we see it gets better as we move through the fiscal '22. And also, we are confident that this will start growing from the later part of H1 and definitely in H2 in fiscal '22. And portfolio, this is mix of couple of segments with geospatial and industrial. And the geospatial part, we have seen a lot of momentum as we start taking the offerings that we had focused on geospatial customers into vertical applications of communications, utilities, mining and defense. And we are seeing a lot more opportunities by taking business and the resulting service line across many of the verticals. As far as South Korea is concerned, I think this continue to be muted and have the new infrastructure spend will probably bring more growth to the segment, but it continues to be muted. And probably, we will see a slight uptick in the second half of fiscal '22. Semiconductors, we have seen significant growth in the last quarter, and this is essentially driven by the Services growth. And as you know, we have both Services as well as the Solutions part, which is coming from our ransom application that we made 2 years ago. And we are seeing strong demand on the Services side, and we're also trying to address both the supply/accelerated demand side. Still, the entire semiconductor industry is high, and so growth potential on. And they also have a lot of challenges on the manufacturing, and the supply chains are completely restricted. And the whole industry is in turmoil for supply, and -- but the demand is technically strong on the services side. The Solution side is going to take a while as customers start coming back and spending money on new silicon designs for 5G, artificial intelligence of [indiscernible]. And all of this requires the momentum of spend on semiconductors, and we hope we would start seeing record in H2 of fiscal '22. DLM, we kind of have seen the best of DLM in the last 12 months, and we hope we continue this momentum of growth in fiscal '22. And it is driven essentially by growth in India and strong push towards total cost of what the customer wants to have, and we also want to rebalance the supply chain beyond just China and also looking for opportunities in the emerging markets. So I think these are the drivers that help us to see a growth in DLM, and we hope the momentum continues in the second of fiscal '22 on DLM. And probably Krishna can cover the color on the outlook for fiscal '22.

Thank you, Karthik, and thank you, Ajay. So to summarize and how things look like, this is the outlook that we're providing for the next fiscal, which is FY '22. On revenue, we expect a double-digit growth. Services will definitely grow in the double digits. We are not still giving a more concrete range because we still need to see how things turn out. There are some demand side challenges, but more importantly, there are also some supply side challenges. So it's an opportunity that we're addressing. But even in various scenarios that we look at, we see that the growth will be double digit for the year. In Q1, the group revenue will see a slight decline because of drop in DLM, which I'll talk about. Services revenue will witness growth on a sequential basis in Q1 and through the rest of the year. DLM revenue drop in Q1 is seasonal. And for the full year, we expect that DLM will grow about 20%. So I think the seasonality is something that is just a reality of that business. And as I have commented in the past, we will provide as much color and as much insight into this possible upfront, but that is something that we have to deal with. Having said that, I just want to reiterate that it's been a great business for us. And next year also, we expect about a 20% growth. In terms of EBIT margin, the efficiency improvements, it started this year, will continue into FY '22. And for the full year, we expect margins to improve by about 200 basis points. Also, despite the headwinds of wage hikes, and we will give wage hikes for a large percentage of our population in the first half -- first quarter of the year, we expect margins to be stable and improve in Q1. Roughly, we'll see a 50 bps improvement in margins in Q1. Margins for DLM, of course, will drop in Q1 because of the volume. But again, just as in revenue growth, I'm also confident that the margins will improve by about 200 basis points for the year. Also, we do not expect any export incentives given that there is no clarity on the new policy from the government, and also the effective tax range will be in the 25%, 26%. So I'll conclude with that, and also thank you very much again for your support. We've had a rough quarter, but I'm very confident that we're back to where we want to be. It's great to see that we've delivered a quarter that's in line and slightly better on a revenue perspective that much focus on a margin perspective than Q4 of last year, which means that it positions us for good strong growth into FY '22, and that also means that we have the momentum, we have the efficiency in place, and that will help us deliver a much better FY '22. With that, we'll open it up for questions.

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

All the best to Mr. Mohan Reddy. Just a question in terms of the Services business. So if you look at in Q3, there were 4 deals with the $70 million. But this quarter's revenue growth, is time in constant currency? Is it a chance? And if I strip out the inorganic portion, the organic growth results to be close to around 1% and this is despite the aerospace on the commercial side has been turning around. So is it something which is as a rating market headwinds to the growth and which may impact in the P&L? Can you reconcile this?

Karthik, do you want to answer that question?

Sure. Sandeep, thanks for the question. And I will say I think we have seen about 2.5% growth even if you were to take into account the part that we talked about. And what we had really started seeing the momentum, I think it is just not one particular business unit or sector that has grown in Q4. I think it is across the board, which is the early signs that we are all looking for and because we can consider the same math and the 3 years is competitive.

And I think just to add to that, I think the deals are there, they do take some time to ramp up. So if you take out this point, the net-net, the growth has been about 2.5%. Aerospace has stabilized, at least, I would say. It still has a little bit more time before the growth comes back. But in spite of that, the fact that it's been a decent quarter. Now the reason for our confidence for FY '22 is that some of these deals will start to pick up in the next financial year.

Yes. And Krishna, just clarifying down to the FY '22 outlook. So we are also saying that Services business will also grow double digit? Or is the total...

Yes, we're saying services will grow double digit, and DLM will grow about 20%.

Okay. Okay. So this is obviously, I think there would be a contribution of 2%. There will be a cross currency of INR 100 crores. So if I assume a 10% to 11% growth on an organic basis, Services business in constant currency may grow at 7% to 8%. So currency, looking at it?

Yes, I think that's too much reconciliation. I think as we said, we've said what we can say about the growth. And I think it's also not very fair to break out organic, inorganic because a lot of what we would classify as organic is also -- I'm sorry, inorganic is also organic in the sense that the acquired companies are winning business on the back of what Cyient can deliver and Cyient's capability. So I think it's basically -- I think it's too much slicing and dicing to break it down that way. I'll just say that I've given as much color as I can on the growth book.

Yes. And if I may just add Krishna. Whatever we are saying, we are talking about constant currency. So we are not looking at -- we are looking at constant currency, so there is no further headwind in the next year based on the constant currency. That's already taken into account.

Okay. Okay. But last few things in terms [indiscernible]. In terms of [indiscernible], I just wanted to understand, last year, also Q4, we had a INR 40 crores worth of dividend-related impairment. This was also close to INR 50 crores worth of dividend-related impairment. So what is happening? And why [indiscernible]? And second on a minority investment write-off, it looks like we are not entitled to believe despite that company gets sold. So what is the reason? Is it the fair value is almost 0?

So let me take, see, in terms of the goodwill, we have been looking at this very robustly in terms of whatever is the goodwill and then the whole process of testing it based on the future projections, and we are not leaving it to be last minute. So I would say we have been very proactive. If there is anything that is made, we are taking it at the annual level. And I don't see that it's an annual feature. It is just that 2 of the assets in the last 2 years had this particular impairment. And also, if you see there is also compensation in terms of the -- are now not being paid for one of the assets. In terms of your other question of the company being acquired, and so that is corporate venturing, as I explained. And what happens, our share has been as a matter of detailing on preference capital. And as part of the -- so basically, it is not about company being acquired. It's more about the lost value, and it is more of a distressed sale and the way it happens in terms of the order of parity of the creditors in the situation. Preference shareholders don't get their share. That's how the whole thing is working.

Okay. Okay. And just lastly on the order book. Krishna, can you -- because this quarter, at the end, we had a good win of $90 million worth of large $70 million. From Q-on-Q, the order book does not trade. So is it the contractual order book is something different than what you know in terms of the last due deal?

Yes. See, the large deals, when we win a large deal, that is the anticipated value, right, because that's the value that we expect that will come in the next, say, x number of years. But the order book that we report is the purchase order base. So some of the large deals, which are quite significant, the purchase orders that we get in the first cut might only be much smaller. And therefore, we only report the purchase or their related order book. But the order book is showing an increase. There's a 28% increase in order book that we have reported. So the order book has increased but it is also into caveat.

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

Krishna, just wanted more clarity on the outlook for FY '22. And mostly talking about how the giveaway is expect to be panned out, whether we'll have much stronger growth in the second half to Services business as a whole? And maybe for -- you explained about the DLM and but for key other verticals like comms, transportation and portfolio.

Okay. So on the growth, I think what we are anticipating is it would be fairly well spread out, at least on the Services part through the -- we don't -- I mean the reason why I also say that this -- with the current situation, H2 seems quite part of it. But with H1, we are quite confident that we will have decent growth both in Q1 and good growth in Q2 also. In terms of the...

Excuse me, sir, we are unable to hear you.

Hello?

Yes, sir.

Yes, sorry, I got disconnected. Sorry. I was saying that the growth will be well spread out through the -- both the quarters of the -- both the first quarter and the second quarter. H2 will wait until how the things pan out because, like I said, the good thing is, while demand has stabilized, the supply also is still a little bit of a challenge. So I think it's a good problem to have. So it will be spread over the course of the year. And DLM, of course, in Q1, will have some totality, Q2 will make up. But for the year, it will be a 20% growth on DLM. With that, Karthik has already articulated what the outlook will look like, so various strategies. But if there's any specific questions on one of the sectors, then I'm sure Karthik give a little bit more detail.

So if I just -- you talked about comps and portfolio, that would be helpful.

Sure. Karthik, can I turn it over to you to talk about comms and portfolio?

Sure. Yes. No, I think -- thanks, Urmil, and thanks Krishna for your earlier answer. So Urmil, to give a specific color on what we are seeing on the communication is we are looking at growth in 2 parts. One is the commercial-led design and second is on the technology-led network cooperations. So we are definitely looking at growth on commercial-led design, and that will give situation that I talked about in U.S. and U.K. That's essentially driving the growth on the [indiscernible] part. And as far as the corporations and technology side of it, which is driven by the increase in network as well as the enterprise on IT-OT. I think those are the 2 segments that we are seeing growth happening. Interestingly, we are putting a dedicated structure for driving the network technology growth over the last 4 months, and we expect that to really start flowing out probably during the second half of fiscal '22. As far as portfolio of are concerned, and I will give color on various segments that we operate in, and we definitely believe the energy industrial production and plant engineering. We expect that to read the growth along with the part of geospatial and medical. I think we expect those 2 to really lead the growth for H1. As far as H2 is concerned, some of the other segments like mining and semiconductors will start joining the party in the H2 [indiscernible]. We expect the portfolio sectors should only grow at least about 4% to 5%, and that's the kind of aspiration that we have for the portfolio sectors growth.

Sure. And you mentioned about the supply side issue, if you could provide a light on that.

Look, I think the key is that the kind of growth that is coming back on is while it is great, it's also instinct that are increased different than what it needs to be previously. Therefore, the ramp-ups that are required to happen now is happening in the United States. Also, the other thing is the market is quite hot. I think that's the other thing that we do have to acknowledge. So taking both these into account, I think we have to be a little bit cautious on how realistically we can address some of the demand. And it's many not so much here because I'm quite confident that we will achieve the numbers that we are committing to as taking into account even some of the supply chain challenges, but I think what I'd like to say is there is the growth that is further possible. We are at least moderating it right now because of the supply side until we get a good handle on the supply side. So I would say our commitments are based on a realistic case. I'm just saying that the supply side challenges give us -- solid supply side challenges give us a potential opportunity to do even further debt.

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

Just wanted a little more color on your outlook on the aero side for FY '22. Now on the Services side, the IT Services side, it appears that the ramp-up is on the faster side. So what do you -- how fast can it be for us in FY '22? And why are you building at it for the second half?

Sorry. What's the second part of your question?

Like I -- what I understood from the commentary was that you expect aerospace to start picking up from second half of the year whereas that on the commercial side, things are picking up quite fast. So why do -- what do we see given that our client budget, I'm assuming, will be more or less finalized? And before, how realistic is the expectation of a very slow growth in FY '22?

So we have to be cautious in the aerospace sector. I think our client budgets have been finalized, but also they are also facing the same fluidity, especially in the aerospace side because there has been growth in some parts of aviation, there has been growth, some parts will come back a lot quicker than the other parts. So I think the customer budgets have been posing, and that gives you the confidence that there is a stability and some growth. I think for us to be very sort of confident about significant growth, we still have to wait. And that's why we think that some -- actually, I'd say some elements of commercial aerospace are coming back because intercountry travel is coming back. But intercontinental travel, if anything, is getting more and more stalled. So we have to look at those things. And therefore, I would say that in H1, we're definitely seeing growth. Our tactile muted growth or a limited growth. So that's why I say we will have to look at H2 because how things stabilize will have a big impact on how it looks because also then -- while U.S. has stabilized, and therefore, you're seeing a lot of inter U.S. travel. Europe has not stabilized. India has not stabilized. Middle East is not stabilized. And therefore, the growth in aerospace is still not what will drive large volumes yet.

Okay. So Q4 has no element of onetime project or assignment because Karthik in his commentary said that Q4 has started seeing growth in the vertical on a sustained basis?

So there's no one-offs, but it is sustained, but it's going to be muted. That is to be quarter-on-quarter, 2%, 3% number, not 7%, 8%. That's what I think Karthik meant.

Understood. Second is for Ajay, sir. On the CapEx outlook, like you have given quite elaborative guidance. But on the CapEx side, last time also we discussed, I think the idea was that you will give it to us at the end of the of FY '21. So what is the plan for CapEx for FY '22?

So we are looking at, Mohit, in the last few years, we have been making some investments. That's how our CapEx was higher. Now we are looking at for the services somewhere between 1.5% to 2%. And for DLM, it will be somewhere between 2% to 3%.

Okay. And sir, last one, is this more like housekeeping. In your commentary, SIA and MTH, they will be part of portfolio services as per the new segment? Or will they get locked on there?

Yes, they are part of the portfolio.

They will be part of portfolio?

Yes, that's correct.

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

Congrats on a great execution. My question is on the employee cost. Now we have seen a good reduction on a Y-o-Y basis on the IT cost, but our attrition is now upwards of 21%. Is there a risk that the margin expansion that we are committing can witness or cannot be achieved if attrition moves beyond 25%? That's one. And on the second thing is, again, if I look at the balance sheet given the general administrative expenses still seem to be really high despite FY '21 being a year of pandemic. So what is keeping that cost higher? If you can just elaborate, that would be helpful.

So just on the first part, there is an expectation on how attrition will work and also what we need to do to manage the attrition. I'll say this is the first time that we've done a very bottom-up exercise in terms of how we want to be salary increases. For example, they've taken into account the realities of each group, the reality that we scale and then planned on what is the increment and what is the salary cost that we need to build in and also still assumed a certain percentage of attrition. Now to your point, if it goes much further beyond 21%, I mean if it starts rate 25%, et cetera, then it is a risk. It is definitely a risk. But I think we have put in place some good mitigation against the risk, including how we manage outside increases. On the second part, on the SG&A, we are a little bit higher, and I think that is something that we have been focused on bringing down. If you look at it over the last couple of years, we've brought down SG&A as a total percentage of revenue, and we'll continue to focus on bringing it down. Ajay, do you want to add any specific comments on SG&A and what spreads are being done?

No, I think that is right. If you look at what Krishna said, if you see, we have been able to bring it down from -- over a period of time in the last 3, 4 years from -- further to bring it down. Part of it is the measures that we are taking in here and part of it is also the volume that is there because we have built and we have a lot of initiatives that are on growth, still continue to make the investments, be it taking help to involve best on the strategy or any other initiatives. So I would say it's coming down. And we will see further in the next 2 years, it will further come down.

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

Congrats on a great set of numbers. Just one clarification on margin outlook. This 200 basis points improvement as versus the FY '21 on margins, or is it versus the exit normalized margins of Q4 FY '21?

No, no, it's FY '21, the whole year margins. Sudheer, the whole year margin, the full year FY '21 margin.

Okay. Okay. So -- but in that case, actually, if you see normalized EBIT margins for this quarter was around 12.6%. And as far as in terms of contract, we are confident margins will only improve. So it should -- logically, we can expect the margins to be -- to the north of 13% odd on a normalized basis. So what is the other headwind that we are seeing at this which is kind of holding us back to just 200 basis points sort of an improvement outlook in FY '22 or '21?

No, that one right now.

You take that, Krishna?

Yes, sure, sure. Go.

No, please go ahead, Krishna, please.

So I think there is still some risks that we see and considering where the markets are and considering where we will need to also continue to make investments and so on and so forth. I think this is a prudent number to plan for. I mean, logically, yes, there is a bit of upside that is there, but I think just looking there, this is a just a good starting point. Karthik, do you want to add to that?

Yes. I was saying that, as Krishna said, I think we are looking at some risk and opportunities. But most importantly, we have investment plan for future, which we will calibrate to make sure that -- how we grow and how things stand up. So there could be a little bit of conservatism here, but we are also keeping some room for investments, both in the talent that we are building, the full impact of that, as well as creating of new offerings and digital, et cetera.

Sure. So if I understand it right, if there are no unforeseen headwinds, let us say, and at the exit margins of EBIT margin rate of Q4 FY '21 versus stand, then possibly, there might be an upward risk to whatever the conservative items that you are seeing right now?

So I could say that we can be a shade better, that's what I meant by conservative. And there could be a little bit downwards, but I think that can be mitigated.

We take the last question from the line of [indiscernible] from [ Arc Capital ].

A couple of questions on the DLM side. I mean, Krishna, if you can just give us the split of per manufacturing work and the through DLM side for FY '21, that would be very helpful.

So manufacturing is still a fairly significant majority. It could almost be 97%, 98% is still manufacturing. Because the true DLM work, we only started doing about a year ago, and what that means is much of it is in the design phase. So for that to start to come into manufacturing phase will still take a bit of time because we have to go through design prototyping, certification, et cetera. But what we're seeing is over the next 3 years, it will become more of 50-50 because some of the design that we are actually doing right now will bring into manufacturing. But it will take a bit of time, and this is what -- or what the currency is. Also -- sorry, having said that -- sorry, can I just also say one more thing? While we might be doing the manufacturing only in discrete manner right now, it is for a customer that they're also doing design elsewhere, right? So there is a fair amount of synergy between customers because like there are a number of aerospace customers where they're doing design and manufacturing. It's just that both of them might be disjointed at the moment. This is design might be for different projects or design might be different to us than manufacturing.

Okay. And the Asia business has seen a good amount of growth in DLM and so in Services. But that business historically used to be in a lower-margin business. Has the margin profile changed over there?

Yes, absolutely. We've been able to change the margin profile, and I think we are also quite clear on the title business that we will take both in terms of margins and in terms of terms and conditions. And I think once we started taking a fairly systemic view on how -- what kind of business and agencies we will agree to, we've been able to significantly increase the margin number.

Okay. And just one last question is on the new business unit side where we are planning to invest in all. Are there leadership changes that have happened in the last quarter or 6 months or so on the newer vertical?

No, I think we've added a few new leaders, but not at a very -- sort of not at a group level. We've added leaders at sector levels. We'll also put out a release in the next few days, highlighting some of the people that have joined. But I'd say the leadership continues, the DLM leadership continues with the number of people that have been in Cyient for a long time, and that's something that is very important also because they understand the business well, they understand the customers better. But at the next level, either at sector levels or sales levels, we've added a number of people to help enhance that and also bring in newer capabilities. But at an executive leadership level, I'll say I'm very proud to say that the team is additive. There are big movements, for example, on information and who was heading Aerospace now heads the new digital [indiscernible]. We have a new who is heading operations at DLM but not at an executive level. Things are laid there.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.

So thank you very much. Thanks to everybody for joining. Obviously, it's been a good recovery for us, and we feel very confident that we're back to where we are. Q4 ended up, like I said, on a revenue perspective slightly better than Q1 -- sorry, Q4 of last year. From a profit perspective, we are doing much better. And I can just assure you that the momentum will continue, and we're also being cautious on how we look at the outlook for the business and what commitments that we make. But we are very confident on what we said. Like we said towards the end, there the existing leadership team has really stepped up, and we have a great set of leaders. We've also enhanced them with some of the new people who have joined the organization. And taking all that into account, this gives me great deal of confidence to say they're going very strongly into FY '22. Thank you for your support, as always. You stood by us even through some very tough times. I greatly appreciate that. But I want to say things we look a lot better going forward, and look forward to our continuing interactions. Thank you.

Thank you. On behalf of Cyient Limited, this concludes this conference. Thank you all for joining. You may now disconnect your lines.