Cyient Limited (532175) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Cyient Limited Q4 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the Executive Vice Chairman and Managing Director of Cyient Limited, Mr. Krishna Bodanapu. Thank you, and over to you, sir.

Thank you very much, and good evening, ladies and gentlemen, and welcome to Cyient Limited's earnings call for the fourth quarter of financial year 2024. I'm Krishna Bodanapu, Executive Vice Chairman and Managing Director. Present with me on this call are Mr. Karthik Natarajan, Executive Director and CEO; and Mr. Prabhakar Atla, President and CFO. 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 may involve risks and uncertainty. 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 website. This call will be accompanied with an earnings presentation and the details of those have already been shared with you. If I may take a minute to quickly highlight some of the key achievements for this quarter. We signed a strategic partnership with Deutsche Aircraft Group or DAG, which will include detailed design for manufacturing for the rear fuselage for the new 40-seater aircraft, the turboprop aircraft that DAG is now building. We're excited for this partnership to support the development of this new aircraft, which is a once-in-a-lifetime new development that is coming up. And our involvement underscores our commitment and our capability and support rendered in delivering innovative engineering services in the aerospace sector, which as you know, is core to our organization and core to our strength. Our expertise in this area will play a critical role in the development of this new aircraft. And it's also very gratifying to hear from them that much of this aircraft will be designed and manufactured in India that is at a component level before it's finally system integrated in Germany. So that's a very -- achievement that we're very proud of. We also signed a new long-term relationship with Airbus where we will partner for the CIDS or the Cabin Interdisplay -- Cabin Information Display System. This will last for -- it's a 15-year contract. So it's a very long-term contract. And Airbus is moving towards intelligent and digital cabin management and they've chosen us as a partner because of our positioning of intelligent engineering solutions. Of course, it's not just a positioning, our capability and ability to generate intelligent engineering solutions. And this will be above and beyond our current engagement with Airbus, which is more in the traditional engineering hardware, software development space. We've also been ranked as a leader and a noteworthy player for the overall ER&D in North America and Europe, as you know, zones for ER&D services. We were recognized for our innovation and solution development in a range of industries, spanning aerospace, automotive, semiconductor and telehealth among others. In a significant achievement, we also debuted in the data analytics and AI with a leadership ranking. And this recognition is another great testament because as many of you know, it does a very comprehensive assessment and ranking. And it's a great testament of our capabilities and our industrial expertise and, of course, the innovation that we bring to the table. I'm also happy to announce the final dividend of INR 18 per share as the Board has approved in the -- or the Board has approved it and will recommend to the shareholders for their approval. It's INR 18, which is the -- which brings the total to INR 30 per share, which is the highest dividend that we have ever paid. So overall, things look quite good for the future. Of course, we will talk about the Q4 numbers and give you a bit of background to the Q4 numbers, but more importantly, to view the forecast for how -- to give you the view for how the next financial year will evolve and also give you some details behind what gives us the confidence that we will continue to execute at an excellent level. With this, I'll hand over this call to Prabhakar, who will take us through the financial performance for the quarter.

Thank you, Krishna. Hello, everyone. I hope you're all doing well. Thank you very much for your time today and for your kind participation in the call today. Given that this is the end of the year earnings call, we will present 2 sets of data. One for the quarter ending March 2024, which is essentially Q4 FY '24 and the other for full year FY '24, and the focus of this call will be Cyient DET. Just so that we have enough time for Q&A, I'll only call out the key numbers in each page instead of a full and detailed commentary and the nomenclature of our businesses remains the same as of the previous call. The page in front of you presents the key metrics for DET for Q4 FY '24 in dashboard format. The Q4 FY '24 dollar revenue per DET stood at $179.3 million, a Q-o-Q degrowth of 0.5% in constant currency and a Y-o-Y growth of 1.8% in constant currency. In rupee terms, this revenue stood at INR 1,489 crores with a Q-o-Q degrowth of 0.1% and Y-o-Y growth of 2.8%. This Q4 revenue was lower than our expectations and this is with our Aerospace business after 7 continuous quarters of growth had a flattish quarter in Q4 and the recovery in communications business was back-ended during the quarter. Karthik will cover this movements in more detail in the later part of the call, but I would like to underline that in our view, the underlying medium and long-term opportunities and momentum in DET space remains quite solid and very much intact. The Q4 FY '24 DET EBIT margin stood at 16%, up by 90 bps year-on-year. And as you will notice, there is no normalization done in this quarter, in line with the commentary provided by us in the previous quarter. And also, you will see that we were able to hold the EBIT line despite the Q-o-Q moment in revenue. While this then makes it the fourth consecutive quarter of 16% EBIT for DET, I'd like to mention that going forward, waiting to sharpen our focus on further strengthening of investment towards growth. The Q4 FY '24 PAT for DET stands at INR 173 crore translating into a growth of 9.1% year-on-year, and this also translates into an EPS of INR 15.79 for Cyient DET. The Q4 FY '24 DET FCF stood at INR 232 crores, our best ever quarter, with a growth of 25.6% year-on-year. And in the next chart, you'll also see that our full year FCF has significantly improved year-on-year. The next chart presents the full year numbers for Cyient DET, the full year FY '24 numbers. The DET FY '24 dollar revenue stood at $713.9 million, a year-on-year growth of 12.6% in constant currency. And in rupee term, this revenue stood at INR 5,911 crores, with a Y-o-Y growth of 16%. Given that the Q4 revenue was lower than our initial expectations, the full year revenue performance was also below the previously guided range, while we've endeavored to ensure that the margin momentum and the earning trajectory are intact. The DET FY '24 EBIT margin stood at 16.1%, up by 246 bps year-on-year. And as we discussed in detail in the previous earnings call under our Investor Day, the significant expansion was made possible to the number of focused initiatives we executed through FY '23 and FY '24. We will now endeavor to maintain this as a platform for FY '25 as we sharpened focus on investing further into growth. The DET FY '24 normalized PAT stands at INR 689 crores translating to a growth of 31.6% year-on-year, and this also translates into an EPS of INR 62.84 for Cyient DET, on a normalized basis. The DET FY '24 free cash flow stood at INR 754 crores, our best ever, a significant improvement of 71% year-on-year. Before I close the full year chart, I'd like to draw your attention to the balanced progression of various metrics through the year. With a revenue growth of 12.6% in constant currency, EBIT margin expanded by 246 bps year-on-year, and earnings grew by 31% year-on-year while retaining the focus on free cash flow...

Ladies and gentlemen, please stay connected. The line for the management has dropped, we'll reconnect the line quickly. Thank you. Ladies and gentlemen, we have the management line reconnected. You can go ahead, sir.

My apologies for the dropoff. I'd like to continue where we left. Before I close the full year chart for DET, I'd like to draw your attention to the balanced progression of various metrics through the year. With a revenue growth of 12.6% in constant currency. EBIT margin expanded by 246 bps year-on-year, and earnings grew by 31% year-on-year while retaining the focus on FCF, which also improved by 71% year-on-year. We believe that this is a good demonstration of the balanced performance, especially in the face of what is an uncertain and challenging operating environment in FY '24. The group numbers that you see in the following page are a combination of all 3 segments we have, including Cyient DLM. And I'll just call out 1 comment on Q4 numbers for group. Group revenue stood at INR 1,861 crores for Q4 FY '24, which is a growth of 6.2% year-on-year in constant currency with an EBIT growth of 7.4% year-on-year and PAT growth of 7.5% year-on-year. With the recovery of FCF in DLM business, which we have commented upon in the previous call, you will also see that the Q-o-Q movement in FCF is very significant with a year-on-year growth of 45%. Now in the next page, for a quick look at the full year numbers for the group. FY '24 was a very interesting and a very exciting year for Cyient as a group as we have started making clear choices of who we want to be, where we want to play and how we execute our strategy. Some of the important milestones for us around this chosen path, as you all know, are: one, the DLM divestiture; two, the development of the balanced portfolio for DET business; three, conscious focus on margin improvement; and four, focusing on investing into future growth. Therefore, for us, FY '24 group performance in some sense was a testing round, a testimony and perhaps is the trajectory of our long-term efforts. As you can see from the numbers on this page, group revenue for FY '24 stood at $863 million, a growth of 15.6% year-on-year in constant currency driven by balanced growth across our portfolio of DET and DLM. This is the highest ever revenue for the group. And while at that, the group EBIT stood at 14.5% with a healthy expansion of 173 bps year-on-year, which is the highest EBIT we've had for the group for the last 10 years. Group PAT stood at INR 735 crores, representing the growth of 30% year-on-year, and this is the highest ever PAT for the group. The FCF also has increased significantly by 32.6% year-on-year. While these are objective metrics, we also have sharpened our focus on building the longer-term sustainable core to our business, especially in the areas of ESG and financial discipline, which we will talk a bit more about in the next page. The next page presents the progress we are making along 3 important dimensions of our business and much of this commentary is specific to DET. The first is on ESG. As you all know, being a responsible corporate citizen has always been the guiding principle of our business philosophy since our inception 33 years ago. Our social consciousness has always been an integral part of our purpose and has played an important role in how we shift our business and our culture. The Dow Jones Sustainability Index, DJSI as it is called, as you all know, is a highly trusted and a very comprehensive index that captures the ESG focus of various organizations across the globe. We're happy to report that Cyient's score this year in this index stood at 72 and within that, we were in the industry best quartile on the social front. This score of 72 is also an improvement from the score of 66 we had last year, and that last year was also the first year we were rated under this index. We also continue to focus on our passion to support education of underprivileged children with special focus on girl child education and empowerment. We were very happy and if I may say, we are also very proud to report that we now support over 21,000 underprivileged children in their education endeavors, and we are looking forward to welcome some of them into our future workforce. A more detailed report on Cyient's ESG initiative and the progress we made has already been published and made available on our website, and I would like to invite you all to go through this. The second dimension, as you can see from this chart is our focus on free cash flow. We've already talked about it in previous pages, especially on the improvement. So I'll not comment further on this, except to say that cash generation is and will continue to remain a focus -- a key focus area for us going forward. I will try to spend a bit more time on the PE ratio improvement year-on-year. The DET PE ratio, which was 0.24% at the end of FY '23 has now improved to 0.12% at the end of FY '24. The DET debt position, which was $94 million at end of FY '23, now stands at $54 million at the end FY '24. This was made possible since we retired about $40 million of debt within FY '24, and we have leveraged our focus on cash generation, which we talked about earlier to retire debt proactively. And we will continue to focus on this in FY '25 as well. We're also very happy to announce a final dividend of INR 18 per share, which translates to full year dividend of INR 30 per share. With this, I would like to thank you again for your time and for all your cheer and support as we navigated an interesting and equally challenging FY '24. We look forward to your continued support and your engagement, and I do hope that we have earned the privilege of your time and your attention. With this, I'll hand over to Karthik for a more detailed commentary on DET performance.

Thank you, Prabhakar. Hope all of you are doing well. Hope you can hear me. On top of what we started working for the last 2.5 years about getting our Digital and Technology solutions team in place and our ability to really have more customer conversations around the transformations that they are going through and how we think we are able to bring some of the solutions, which are cutting edge and we inaugurated our customer experience center during last quarter, and that's one of the key milestones for us. And moving forward, like what Krishna talked about, the important partnerships in Aerospace with Airbus and Deutsche Aircraft and all the intelligent connected cabin platform development as well as supporting one of the new aircraft platform. And also happy to share the 2 large deals that we have been able to deliver in Q4 on top of the line that we delivered for Q4, overall. I just want to highlight on the 2 of them, 1 is about the digital aftermarket platform, mapping the customer journey and this is with one of our top customers, and this is going to be run over the next 5 years, and it's a very interesting project that would really establish us as the digital engineering leaders in this segment, and we would also be able to take some of this offering to the entire set of customers that we operate in today. And also the second deal that I would like to highlight is about next-generation intelligent smart meter which has edge compute platform, and we will build the complete SoC and the software that goes around it. This is one of the end-to-end deals that we have been engaged with the customer for the last 6 months, and we have been able to close on this deal last quarter. On back up what we have seen in the entire 12 months and the growth was led by Aerospace, Sustainability and Automotive. And we are pleased to note that we have been able to see the growth that we have seen to the extent of 12.6% year-on-year constant currency growth and also some of the investments that we started making are starting to play out. Also happy to report about 1,000-plus leaders who have been certified on generative AI and this is one of the key initiatives we started working for the last 6 months. And we have also engaged some of our key decision makers and happy to share that 60% of our key decision makers, which is from top 40 customers want to see Cyient as their strategic and advisory partner in their transformation journey that they are likely to take for the next 5 to 10 years. So with that and quick view on the performance. As you can see from the chart, I'm going from left to right, I'll focus on the constant currency column and transportation has degrown by about minus 1.5% on the back of the challenging rail vertical that we have been in for the last few quarters. And connectivity has shown minus 2.3% degrowth at $40.7 million and sustainability at $54.1 million, which has grown about 0.7% quarter-on-quarter. And this is the eighth consecutive quarter of growth as far as sustainability vertical is concerned. New growth areas, which has not done well in the initial part of the year, have come back to growth. We hope that we will continue to have the momentum for the rest of the fiscal '25. And if you translate this at the DET level at $179.3 million, it's about minus 0.5% constant currency growth. And if we translate into year-on-year, this translated into 1.8% growth, a strong growth delivered from sustainability vertical at 19.3% and transport grew by 2.1%, while connectivity and new growth areas have declined year-on-year. We also have secured orders worth of $227.8 million in Q4, which is reported numbers at 7.1% year-on-year growth. Like-to-like, this is about minus 6.2%. And we also won about 9 large deals worth about $197.6 million in Q4. This is one of the highest ever large deals that we booked in one quarter. Moving on again for the full year. And we have seen Transportation, which ended up at $215 million. We've shown a growth of 14.5% in constant currency year-on-year. Connectivity which has been challenged in fiscal '24 has ended up with $169 million with minus 7.1% year-on-year degrowth. And Sustainability, which ended up at $204.1 million and it grew by 45.6% year-on-year. New growth areas at $124.8 million and for the full year basis has shown a growth of 1.5% resulting into 12.6% year-on-year growth. For the full year order intake, we ended up with $902.2 billion, which has shown 25.2% year-on-year growth. In a like-to-like basis, this is about 15% growth. And for the full year of fiscal '24, we have closed 28 large deals with the total contract potential of about $435.4 million. So this is one of the key achievements that we had, and we continue to make progress on the large deals, and we hope we'll continue to build on the momentum. And moving to look at the business performance and outlook. As all of you are aware about the macro and challenges due to the high interest rates and geopolitical uncertainty and the global demand slowing down, we do feel ER&D services is resilient and it is likely to see an increasing demand with smart and connected ecosystem, software platformization, digitization and sustainability as the important theme. And we do believe some of the initiatives that we started working on, will start yielding results even in this difficult environment. We continue to see momentum in Aerospace led by manufacturing and the aftermarket more than engineering part. And we also see increased spend in defense as well as urban air mobility and digitization continue to be one of the key topics. And we also talked about some of the deals that we closed in Q4. Connectivity, and we had a rough start for the last 12 months, and we hope it will start getting back to growth in the next financial year led by RDOF & BEAD. We do start seeing, as Prabhakar indicated, some of the wins that we started seeing late Q4, I think will start playing out in Q1 and Q2 of fiscal '25. And we continue to see from the connectivity standpoint, the software-defined networking and autonomous network operations and premium customer experience are the areas customers are willing to spend. I think there's definitely a lot of cost out programs many of the telecom operators are focused on. Sustainability, which has done well for the last 3 quarters, we continue to see a momentum on the energy transition and carbon capture and alternate energy sources and decarbonization asset management, they continue to be the key focus areas of growth, and we continue to strengthen our ability to address the sustainability opportunity not only from U.S. and Europe, we are also expanding into Middle East, and we will talk about some of them in the latter part of the discussion. New growth areas and Automotive has done well for this year with the software-defined vehicle and connected platforms, and semiconductor, which is likely to see a growth due to high-performance computing and AI-led data center and cloud and healthcare likely to see a growth from patient rotation monitoring, customer experience and connected devices. With that, happy to share some of the deals that we've won and I just want to pick up on few things. And as part of what we've started investing on the technology solutions and advisory group, which leads with customer workshops, helping the customers to define the road map and some of the key wins that I would like to highlight include all the autonomous systems and process, design and development of perception system to improve safety of the operator and machine through various set of sensors that will avoid any pollution and can be alerted. And we also are building the aftermarket kits that can be add-on to any of the retrofit of the existing product as well. And I'm just moving on due to lack of time, and I'll just pick up something about the next-gen connectivity and where we talked about next-generation IoT gateway and edge-computing capabilities using LoRaWAN technology and we've also built a platform which is AI driven rule-based algorithm to detect anomalies in the network and configure the network elements for zero touch configuration strips. And on the generative AI part, which is one of the key areas of investment over the last 12 months, and we've started seeing some of the interest from customers, using generative AI to help them to improve the collaboration from engineering to all other functions and also streamlining some of the processes inside the organization as well as helping them with vision-based LLMs to comprehend the image and drawing content. And some of the areas that we are starting to see definitely looks very interesting and generative AI will have a role to play in engineering, and we are excited about what we have been able to do in the last few months. With that, I just want to conclude by saying that what are we looking in for fiscal '25. We understand the challenges that are seen from the industry, and we are confident that we should be in a high single-digit DET revenue growth year-on-year in constant currency terms, and we expect the margins to be in the range of 16% for the financial year '25. With that -- and thank you for your time. I'll hand it over to the operator for Q&A.

[Operator Instructions] The first question is from the line of Sulabh Govila from Morgan Stanley.

My first question is with respect to the revenue guidance. So I just wanted to understand how should we think about this guidance panning out across verticals with respect to which verticals would you expect to do the heavy lifting for the year and which verticals would relatively lag. So whatever is the current expectation as per the guidance?

Yes. As we talked about, we continue to see momentum from sustainability and aerospace, semiconductors, automotive, and we do expect connectivity to come back to the growth terms during this year as compared to what we have seen in fiscal '24, almost in the same order.

Okay. Understood. And with respect to the quarterly trajectory of this guidance panning out, should we think about this year to be a back-ended growth year with respect to this guidance? Or you think that the growth would be equally panned out across quarters?

We do expect some softness in the early part of the year, and it depends on how things pan out, and we should probably do well for the rest of the year. And that's the current view that we are carrying.

Okay. Understood. And given that this year is a high single-digit growth year as of now, how should we think about the medium-term guidance that we had provided on the Analyst Day, which is from a 3- to 5-year perspective? Does that also undergo a change or that remains intact as of now?

No, we do feel that I think based on what we heard from our top 40 customers, and they are going through their own challenges and they do see this is going to be a potential growth segment as we've envisaged earlier, I do feel that our medium- to long-term growth prospects are absolutely intact. And we do expect with demographic changes that are seen in Europe and this is going to be a great opportunity for a company like us, having invested in the last 2 years with a lot of capabilities in Europe. And we've started doubling down on Japan. And as we talked about our entry into Middle East, and some of these areas will continue to see momentum. And when we talked about energy transition, we will expect -- while there is significant investment growing from Europe and the U.S., we do feel that Middle East could be another potential growth opportunity that we are planning to invest on. So we do see that for the medium to long term, the growth aspects are absolutely intact.

Understood. And then last on margins. I just wanted to understand what are the areas of investments for growth that we called out in our opening remarks, which we will be investing from incremental margins that we'll get this year?

Sulabh, I'll take this question. As in relation to what Karthik said about your earlier question on the medium-term trajectory. In our view, the underlying drivers for the year-end space remain very much intact. Whether it is year-end spend growing year-on-year, if the addressable market growing year-on-year, the partnership propensity increasing year-on-year or the technology evolution driving the space, we are in the acceleration. Those underlying drivers and therefore the medium-term trajectory we see completely remains intact as we have previously spoken. Within that, the investments that we have made in the past in the technology space to accelerate the margin and revenue trajectory is where we will continue to invest in FY '25. We're talking basically organic investment in technology that will accelerate our revenue growth and the margin trajectory. And this is what we've showcased also during the Investor Day as a part of the experience into visit that we have demonstrated.

[Operator Instructions] The next question is from the line of Kawaljeet Saluja from Kotak Securities.

My question is for Karthik. Karthik, the back-ended guidance never works for the industry, the environment is challenging. You have missed your guidance perhaps possibly in 3 of the last 4 quarters. I mean, what gives you the comfort of going out and giving such a guidance which is back-ended all over again?

Kawaljeet, I think we also see that many of the conservations that we have with our customers, and they do see some of the difference that are happening or getting started, which happened from Q2 to Q3 in Q4 and some of the difference that they are asking us to move to Q1, Q2, we hope some of them will still materialize. We do see that it becomes too difficult to start getting the specific quarter guidance right because of the kind of challenges that we have seen from projects getting moved to the right and getting pulled back. But we do see that the trajectory for the next year would definitely be a growth year and based on the momentum that we have seen in few of the segments and the lack of it from other segments. And that's the reason why we said we want to...

Karthik, correct me if I'm wrong, but I thought that normally in this industry, normally, your visibility is the highest for the immediate quarter and the visibility reduces as you progress through the course of the year. Now what you're indicating is possibly quarterly trajectory, which is uncertain. So if quarterly trajectory is uncertain, how does one give an annual guidance here?

Yes. I think this is definitely a challenge that we have deliberated internally with our teams, Kawaljeet, what we believe is something that we'll have to work towards during the first half of this year to ensure that we are able to define it as we move forward. And that's the reason why we want to keep it at a broad level instead of a specific number.

Okay. And what are the underlying assumptions that you have made and given your experience of the guidance last year, what are the underlying assumptions and fine-tuning that you have done to ensure that you'll end up with a better outcome on your guidance this year relative to last year?

Sorry, Kawaljeet, before Karthik answers that, I just want to also say that what you addressed is very right. I mean, how do we get to that number and that guidance. And the Board also has -- or the Board also had those questions. And therefore, we did quite a bit of a deep dive internally to look at how the buildup happens, right? Because what can happen in Q4, really, nobody really knows, but then there are a certain set of assumptions. And we got to the second degree of those assumptions to say what are the orders that we need to win, what is the probability. And therefore, can we come up, can we commit to a number. Of course, it's a bit of a range. but can we commit to a number based on the buildup. So I think your question is very valid. And also, I just want to highlight that the Board also shared that concern at the budget point and therefore, we went into quite a bit of deep dive both with the management team and then presented the summary to the Board, say, how does it add up? Because, of course, to your point, there's absolutely no 100% confidence in this industry or for that matter any industry, but the confidence comes from the fact that we've done a bottom-up rather than just a certain aspirational top down. I just wanted to leave that because I thought that was a good question, but since we also had it and we're interested.

That's fair. I just wanted to get -- I mean, where in the assumptions that you have made this year and given your experience last year, how the process of guidance and the underlying assumption is different there? Sorry Karthik, I interrupted you, go ahead, yes.

Kawaljeet, I'll just add to what Krishna said. So if you look at last 12 months, where did we miss our forecast versus the initial guidance was essentially, we did not anticipate the drop in Connectivity and Rail. I think those are the 2 surprises that we saw during the year. And that's one of the key inputs that we have taken into account when we really wanted to plan for fiscal '25. And again, we tried to map out based on order backlog, order intake, the pattern of what customers do. But I think it's the best estimate at this point of time is where we are at.

Kawaljeet, if I may step in. Firstly, thank you for the candid question. I'll just add a few notes from my end to what Krishna and Karthik also mentioned. To your question on Q1, there are 2 things that we are going to watch out for, the flattishness of Aerospace in Q4 was essentially because we won a lot of new business, lot of new contracts. Now the supply that we are building has to catch up with the demand that we have raised. And that will take for us at least 1 more quarter before we see how this transfers for us to translate to revenue. Similarly, all the contracts we won in the end of Q4 for communications, we have to execute them in Q1 and to realize what is the growth that we can see in Q1 compared to Q4. Those 2 are the variables that we're concerned for Q1. But if you take a step back and the good question you had on the full year guidance, there are 3 things in our mind. Firstly, if you see the order book we had for FY '24 is fairly strong. We closed FY '24 with the order intake, which is 15% above the previous year. The order book grew by 15% year-on-year. That's a positive trend as one might say. But that said, you also rightly pointed out, a key learning there in FY '24 was the degree of macro uncertainty that we are handling. When you combine that with the 2 topics I mentioned before about aero supply catch-up and comps watch for Q1, that's the second thing I'd like to say. And therefore, thirdly, we've taken a cautious and pragmatic approach for the outlook, and we will go through this for Q1 and will come back at the end of Q2 and make an update to the trajectory as we see things progress.

Yes. On that, Prabhakar, is the book-to-bill ratio different or basically the ACV number of the order book different in FY '24 relative to the last year? So when you're saying 15% growth in order book, is it really like-to-like? Or is there a change in the tenure of the deals that you have signed in FY '24?

Okay. This number is like-to-like, Kawaljeet. I think I like to see -- the interesting development that we see when Karthik talked about spend being moved along in the quarter, we see a propensity of customers connect smaller favors for shorter term as compared to longer favors for a longer term. So therefore, in a way, if you were to look at it from a pragmatic perspective, in a way, the order book we have in hand should be more executable in the short term than in the previous year. But that's it, I also go back to my earlier comment on the degree of macro uncertainty which can move things a better on. Therefore, the cautious pragmatism. So the answer to your question is like-to-like but we see much more shorter term favors right now compared to the past.

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

Sir, just one question on Transportation, like we were hoping for some growth in 4Q. So what happened here and why the 6 months of flattishness in that particular vertical, while we have won few large deals?

So look, sorry, Mohit, I'll answer that. And I think this is -- again, we still have not hit the bottom on rail. I think that is still the challenge that we are dealing with when we talk about transport, and we do continue to see momentum as far as Aerospace is concerned and also add to what Prabhakar mentioned, we've seen 7 consecutive quarters of growth in the Aerospace and there is definitely a breather and we do hope this starts getting back to the growth trajectory in the latter part.

So now for transportation, we are building in Q4, Q1, Q2 more or less range bound and then look at it from a third quarter standpoint?

We are not saying specific on how the Q1, Q2 will pan out, and we do see there could be continuous growth, and there are 2, 3 issues that I want to highlight that the Aerospace industry is. What we have seen from 2019, I think the demand for air travel has come back and the customer's ability to cope up with in terms of manufactured components and products as well as their ability to service, I think there is a huge demand that's piling up. And the supply chain issues have not been fully rationalized while maybe I would say, 85%, 90% of the issues have settled, but there are still issues on the supply chain and constraints on them produce is more than the demand side and which is definitely a good news. So we do expect the growth will be led by manufacturing, engineering and aftermarket and we've talked about one of the large deals, which is the one on the digital aftermarket side. So we do expect the aftermarket MRO growth is robust for a few more years, and manufacturing has to cope up and if you go to most of the aerospace customers today, their biggest challenge is they have more orders than what can they fulfill. So they still look for solutions to improve the productivity, their ability to digitize their existing process and ability to get better visibility on supply chains. I think those issues are still hitting them and they need help in all those areas.

And future decline is purely on the Rail side?

Yes.

Okay. Last is on order backlog. We had this Y-o-Y decline despite signing these 2 orders. So why would we have a Y-o-Y decline in order intake?

Yes. The order intake is confirmed purchase orders. And when we talk about largely their total contract potentially, all of them manage have got converted into purchase orders. They will get converted in the due course of the year end.

I was referring to the like-to-like Y-o-Y number that is given, minus 6 for 4Q 2024 on order intake.

Yes. So I think Q4, like what Prabhakar said, interestingly, when we looked at Q4 of fiscal '23, we saw at least about 5 deals of about $40 million, which may be beyond 12 months, 18 months, 24 months TCP. The customers were willing to give their purchase order and the customers are cutting short in terms of the POs in Q4 of fiscal '24, which is an interesting observation that we saw. And we hope this is only an aberration and it seems to get corrected as we move into the year.

And the 2 deals that you have announced, that TCP is already included in 4Q number?

Not, yes. Let me put it this way. The order intake of INR 224 million we are talking about, they do not include the TCP of INR 197 million we have reported as part of the large deal. Some part of this INR 197 million of large deal which would have come as a purchase order could be included in that.

Look at it as a change in portfolio, right? Because the growth is coming in varying location. So we also have to look at it in the conjunction that there is a change in our portfolio, I think like-for-like, because some of the acquisitions are doing quite well, and that it was a sort of deliberate choice to go down the path of acquiring because those were the growth areas that will make up to some of the softness that we're seeing in other areas, like Rail or Communication. So I think you've to see it in that conjunction and the fact that it's gone up, I think, 7.1% year-on-year is a good sign.

The next question is from the line of Vibhor Singhal from Nuvama Equity.

Sir, just a couple of clarifications from my side. Just -- I couldn't really get the math of this deal flow that you mentioned. So in the quarterly deal flow, so you're saying part of the INR 197 million is included and part is not included?

So Vibhor, this INR 197 million is the total contract potential that we signed as large deals for Q4 fiscal '24. Out of that, part of the purchase orders that we would have received is included in the order intake number.

Okay. And this would be a recurring thing, in the sense you've included that in the purchase order [indiscernible] for this number.

Sorry, maybe about, I would say, roughly about INR 30 million would have been included in the order intake and the remaining INR 160 million would be delivered as part of the purchase orders...

Whatever the period of the deal is?

Yes.

Got that. And also just coming to a little bit more on the Transport division, both Aero and Transport -- Aero and Rail. In Aero, you mentioned that you're expecting a good demand from air travel coming back and supply chain issues also having rationalized. So in nutshell, do we expect Aero to be a growth vertical in FY '25? I'm not looking for a number, but just the direction. And similarly, in terms of the Rail, has the issues with the top clients been sorted or when do we expect that Railways vertical could actually bottom out and we could see that going into the green again?

We continue to hold the view that Aerospace should be a growth engine for us even in fiscal '25. And we also expect, hopefully, the Rail bottoms out sometime in this year and lot of order book that is built in by the customers has definitely been taken into account. And we also feel it's a matter of time that they start engaging with executing on them. I also want to call out one of the aspects that we have heard from many of our customers over the last 2 years, especially with the political -- geopolitical uncertainty, a lot of money that is getting moved towards defense to ensure that the security is being the priority as compared to infrastructure, I think some of them should probably ease out maybe later part of this year and hopefully that should start getting us some growth. But having said that, we have also seen most of the rail degrowth is also led by what we have seen is offshoring. And most of the on-site work has moved to offshore. And that is one of the reasons where we have seen the drop in the revenue volumes.

Got it. Just maybe one bit more on the rail segment, again. Net of -- I mean, excluding the top 2 clients in which -- which merge together and which are basically being a large part of -- responsible for the large part of the degrowth, the remaining vertical, is that growing? Or is that also seeing challenges from the on-site to offshore transfer that we are seeing?

So there is definitely a significant money that needs to be spent in terms of upgraded signaling in Europe. I think that's going to be a massive investment that is coming up. Only issue is it is not clearly defined yet, when is it likely to start, when is it likely to end. And some of the infrastructure that we heard from customers are 30 to 40 plus years old, and they definitely need modernization and maintaining uptime and making sure they're able to deliver on-time performance has taken a hit. And this probably should get fixed in the next few years for sure. And we will see some of this growth coming back maybe in the next few quarters as we anticipate.

[Operator Instructions] The next question is from the line of Vihang Subramanian from Zaaba Capital.

So I think our constant guidance has previously been 10% to 20%. And I think recently, you confidently even said that it wouldn't be below 10% for the next few years. So I'm just trying to understand what has really changed here in 4 weeks and which segment has led to this change in view?

No, I think we've talked about -- we have seen maybe 20, 25 customers in the last 3, 4 months that we have engaged have kept moving things around in terms of how they really want to prioritize certain projects compared to the list of projects we are supporting them and moving some of the projects to the right, or canceling a few of them. And I think this is part of the portfolio that we are trying to prioritize, we can understand where they come from and some of our customers, the top 40 customers that we work with, we have seen that they reduced their guidance for the next 12 months, given the macro uncertainty they are likely to face, as far as a leading indicator, which gives us the view saying that while they do see growth coming probably in the next financial year and with some of the issues around -- uncertainties around the elections and -- plus some of the interest rate reduction that is expected at this time this year, I think they were trying to really time it maybe later part of this year on some of the investment plan. So I think those are the indications that we have from our customers, and that's the basis on which we are trying to look at. I think the same question was asked by the Board to Krishna. How do you make sure that we still keep our medium to long-term growth intact? And we still hope that we should get back into that range. And I think what we have seen in the last 3 to 6 months is definitely something that we have not seen in the last 2, 2.5 years. So it is definitely a surprise for us, and we do hope things get better as we start getting into this.

Let me also add to that, Subramanian, thank you for the question. I'll just say 3 things. If we dive back to the commentary we've been making about [indiscernible] our view was that and remains that the 4 themes that we have picked up, transportation, sustainability, connectivity, new growth areas, we're seeing have the potential to grow double digit over a period of 3 to 5 years. And that still remains very strong in terms of the potential that we see and the indicators that we see. The second thing we also cited that an annual number, to extract from this multiple themes an annual number will be context today in which we operate, which is where we currently are. The third thing I would say, at the expense of repeating what I mentioned in the call earlier, my apologies for that, is that order book for us is very strong for FY '24. But at the same time, we have revenues from FY '24 in terms of the degree of macro uncertainty and we also have to watch Aerospace and communications for Q1. And therefore, we're taking a cautious and pragmatic approach as we currently guide revenue for FY '25. And as we execute through Q1 and Q2, we will come back at the end of Q2 and make an update as we see it appropriate contextually for the current year. So in summary, to your first question, we are extremely bullish on the 4 themes that we have picked up in the medium term in terms of what we see long term, and what we hear and what we're also seeing in the order book.

Understood. And just a follow-up on that. I think the 2 large deals which you mentioned, is that included in the guidance?

Part of it is included in that and how it ramps up, we will probably evolve as the program ramps up.

To the degree where we had the order intake available, it's baked in, Subramanian. To the degree where the order is still not part of the TCP, that is not baked in. To Karthik's earlier clarification, we won a number of large deals in Q4. Some of them have also come with purchase orders. To the degree we've received them, we've baked in into the outlook. If we don't have a figure, we haven't baked it yet.

Understood. Understood. Given this kind of macro uncertainty, I don't really understand why are we even guiding for something in the range of like 20% and so on, right? Like I mean, I think 10% was supposed to be a floor that we had previously guided to the Street, right? And now it seems like the floor is out of the picture, right? So just to add to that, the last question I have is if you have done 2% this quarter, what gives you the confidence of even achieving high single-digit here?

So I'll take that, Subramanian. I think you are referring to the guidance that was provided in April of 2023, which was updated at the end of the calendar year, that is the first thing. The second thing is our confidence comes from 2 things, I'd say. To the degree that we can have a confidence in the world we live in today, our confidence comes from 2 things. One is a strong order book, especially with key wins we had in Q4 for Aerospace, which is a growing sector for us. And the second thing is we're also present in all the right segments which are poised for growth in the medium and long term. The 4 segments I spoke about before. These 2 are the elements on which our current view of the FY '25 outlook is based on.

And I think if I also may add to that, the outlook is really based on what we see at the point in time, right? Because we also have had a lot of debates around you give guidance or not and unfortunately, there was too many different schools of thoughts. And again, we're trying to give you a view and say, more than a guidance, it's the view of how we see the world right now. I mean that we're happy to be transparent to that degree to say that's what we see in the world right now or that's what we see in our customer world right now. So again, if you look at the medium to long term that Prabhakar talked about, we are just as confidence -- confident in our business as we were 12 months ago or 24 months ago. But the reality of how the purchase orders come, when it comes, how it comes changes, so if I -- again, it might not help with the immediate case, but I'd say if I were to venture against and say, over a 5-year period, would we deliver that double-digit number? Absolutely. There's no doubt in my mind that we will. We will obviously always have the -- it is just the nature of the business where you are going to have ups and downs. So we're just trying to give you a view of what we see at a point in time. And of course, we expect that you will use your judgment on top of it, because this is what we see at this point in time.

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

Just one clarification question. Sir, can you just quantify or break the growth between organic and inorganic for '24 as a whole? That is first. And second, to Prabhakar when you mentioned that we'll revisit investments, are we referring to M&A at this point in time?

Abhishek, to your second question first. No, we're not referring to investments and M&A. We're talking about organic investments we make in technology that will accelerate the revenue and the margin trajectory [indiscernible]. Your second question was?

My first question was regarding the growth, if you can break that between organic and the inorganic component.

So in this case, I have to say, very fortunately, the integration of all the entities that we acquired is completely complete. They're well integrated as part of the Cyient ecosystem. Even for FY '24, a number of deals that we won were together, both in terms of order intake and revenue. So we don't have -- nor we should actually have any separate view of organic versus inorganic component, integration is complete. And if we have them, I personally believe as a finance person, we haven't achieved the objective of the acquisition. So I would like to see it also as much as anybody else. But fortunately, for us, it is all well integrated and we're operating as one machine right now.

Next question is from the line of Nitin Sharma from MCPro Research.

First of all, there seems to be some client loss since 3Q in $1 million and $5 million bucket. Which vertical this belongs to?

Yes. Nitin, I'll just clarify that. I think we have looked at this data, I think there are about -- it's more of a seasonal variation we look at from the last 12 months, and there are a few customers who fell to 900,000-plus bucket and that's the reason why you're seeing them as a drop in $1 million. And some of the other buckets have moved from one to another. So that's a shift that you see there.

Understood. And secondly, can you please explain what led to decline in headcount in Q4 and how should one see this in terms of headcount addition?

Sorry to interrupt, sir. Sir, your audio is slightly muffled. Can I request you to please use your handset, please?

Yes. Is it better?

It's too loud, sir.

Yes, yes. So can you please explain what led to decline in the headcount in Q4? And for how one should see it in FY '25 in terms of headcount addition?

Yes. So I think we also looked at based on where the demand is, and we are trying to bring in as close to that ramp up as possible. Also some of the attrition that we did not replace in Q4 and is the reason why you see headcount reduction and also we have completed our performance management process as of Jan. And we also have taken some action on poor performers. I think all this added up to what you see as a negative headcount. We do expect that this should start really getting into the growth trajectory during FY '25.

The next question is from the line of Bhavik Mehta from JPMorgan.

Just 1 question going back to the guidance. I think, Prabhakar, you said that you're taking a cautious view on the high single-digit guidance what you have provided right now. But I just want to understand what are the risks that this high single-digit goes to the mid-single digit over the next 3 to 6 months. So what are the verticals that you see things don't play out as per your expectations currently?

Bhavik, thank you for the question. Yes, you're right. We are being very cautious and pragmatic with the learning we had in FY '24 as we provide the outlook for FY '25. We would like to watch out for Q1 in terms of how these 2 segments we have, basically Aerospace in terms of the supply catching up with demand and Connectivity in terms of translating order wins we had in Q4 into revenue in Q1. I think then we will be able to look at a much more clearer picture for the full year. Those 2 are the variables, Bhavik, that we are tracking right now, the 2 important variables.

The next question is from the line of Suraj Malu from Catamaran.

Sir, I just wanted to understand when you mentioned like-for-like degrowth in the order intake. Can you just help me understand what do you mean by like for like because there were [indiscernible], so I just wanted to understand.

Yes. Suraj, when we looked at Q4 of fiscal '23, we have not established a clear system of the order intake from the acquired entity, and that was still coming in based on revenue equal to order intake versus some of the assumption that was made. So when you have to really neutralize for it, I think that's where we kind of came up with this like-to-like model. It is still an estimate, but we do feel that as we start rolling through this year, we'll have a better view of a single number, which is integrated with acquisitions as well as the upcoming part.

Ladies and gentlemen, that was the last question for the question-and-answer session today. I would now like to hand the conference over to Mr. Krishna Bodanapu for closing comments.

Thank you very much. Thank you, everyone, for your time and being on the call. While Q4 was a tad bit lower than what we expected, as we explained, we're quite confident on what the financial year holds for us. We take your feedback on the ask ahead of us and how we also provide the view going forward, which, of course, we will be incorporating that. But thank you very much for the support. Thank you very much for the questions. Of course, if there's anything else, please do reach out to Mayur or Vish and we can provide an answer. But with that, thank you very much. Have a good day, and thank you for the support.

Thank you. Ladies and gentlemen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.