Cyient Limited (532175) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Cyient Limited Q2 FY '27 Results Conference Call. [Operator Instructions] Please note that this call is being recorded. I now hand over the conference to Mr. Krishna Bodanapu, Executive Vice Chairman and Managing Director. Thank you, and over to you, sir.

Thank you very much, and good evening, ladies and gentlemen. Welcome to Cyient Limited's earnings call for the second quarter of financial year 2027. I'm Krishna Bodanapu, Executive Vice Chairman and Managing Director; and present with me on this call are Sukamal Banerjee, Executive Director and CEO; and Shrinivas Kulkarni, Chief Financial Officer. 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 uncertainties. A detailed statement in this regard is available in our investor update and has been e-mailed to you and is also posted on our corporate website. This call will be accompanied by an earnings call presentation, the details of which have already been shared with you. We are reporting group performance under 4 segments. DET, DLM, Semiconductor and others. The focus of this call, as always, will remain the DET segment and the group numbers will include performance of all 4 segments. I will start with a brief update of our semiconductor business and our DLM business before Sukamal and Srini walk you through DET's performance. Firstly, I would like to take a minute to give you a bit of background on the semiconductor business and how we work there. The Cyient Semiconductors operates through 2 businesses. The first is our custom ASIC business, where we take a customer's requirement for a chip from specification to silicon and then supply it in production in volumes. These programs give us long-term customer relationships and the designs that carry into volume supply, which means that there's an annuity-based revenue stream. The second and very important for our long-term strategy is our product or ASSPs strategy and business. Here, we develop our own chips and sell them to multiple customers, so the IP is fully owned and reusable by Cyient. This includes the low-voltage portfolio that we acquired through the acquisition of Kinetic Technologies and the high-voltage products we are now developing. Applications include AI, data centers, industrial and automotive. The quarterly performance for the business was very, very strong. Revenue for the quarter was $193 million, which was up 8% quarter-on-quarter. This is our sixth consecutive quarter of sequential growth, a record we are proud of and one that reflects the breadth of our portfolio. Order momentum remains healthy and the order intake on our custom ASIC business is up more than 50% compared to last quarter. EBIT margin improved against previous quarter even after we -- even as we kept funding R&D, talent and go-to-market much ahead of the revenue curve. The EBIT loss this quarter reflects entirely our investment in product R&D. Excluding this investment, the core business is generating money at an EBIT level and is self-sustaining. These are deliberate choices that lay the foundation for a company of meaningful scale, and we will continue to make them in line with our strategy. In our custom ASICs, we closed a large turnkey projects and have a very healthy pipeline in excess of $100 million. Our Power Product business or ASSP, which is central to our long-term strategy, we continue to invest in product development for the high voltage and low voltage. Our process wafers and probe test flows have been qualified, and we are working with the leading ecosystem partners to lock specifications ahead of our first customer samples, which will happen towards the end of this year or early next year. Let me give you a brief outlook of what's happening in the semiconductor industry. The industry is in a strong demand cycle driven by AI, but supply is tight. Foundries are running at full utilization and capacity is constrained across the ecosystem, which is leading to higher wafer prices and longer planning cycles. We expect this to continue to weigh on our margin in the immediate term. The shortage in rising cost of memory is also affecting end demand in consumer and edge AI applications, which are our focus areas. So as a result, we expect some softening in the pace of growth in the coming quarters, though we're quite confident that the growth demand remains strong and that the markets will continue to support our strength. In DLM, we delivered another very strong quarter, supported by a sustained order momentum and disciplined execution. The business has maintained positive order book momentum for 6 consecutive quarters with a book-to-bill ratio in excess of 1.6x. The order book surpassed the record level achieved in the previous quarter and is highest it's ever been. Revenue grew more than 26% year-on-year in INR, and we continue to meet customer requirements despite supply chain shortages, longer lead times and geopolitical uncertainty. DLM has significantly strengthened its sales leadership and continues to invest in strategic capabilities and operating foundation to support the next phase of growth. While these investments have a near-term impact on margin, they're important in building a scalable, sustainable and stronger business. The focus firmly remains in profitable growth, operating leverage and sustainable margin improvement for the medium to long term. Looking ahead, the structural drivers across DLM's target markets continue to remain very favorable, including rising electronic content, growing AI infrastructure demand, global supply chain diversification and broader outsourcing trends. With our differentiated design-led manufacturing model, strong customer relationships and expanding execution capabilities, Cyient DLM is very well positioned to capitalize on these opportunities. And overall, we delivered a very strong first half with revenue more than 30% over the first half of last year, and we enter the second half of the year with a very strong order book, a robust pipeline and a very strong and motivated sales force that will continue to deliver into the future. The Board also took cognizance of the cash generation and the strong operating performance, and we will continue this momentum into Q3 and into the rest of the year. Our approach to capital allocation, as you know, remains balanced and disciplined. We will prioritize investments that drive long-term growth, keep financial flexibility to pursue strategic acquisitions where they make sense and we will continue to pay dividends in line with our policy. Consistent with this, I'm pleased to share that the Board has declared an interim dividend of INR 12 per share. We remain focused on sharp execution and on creating sustainable value for our shareholders and are very confident on our ability to generate cash as a group. At a group level, looking ahead, our focus is on opportunities that bring strengths to our business together. Defense, semiconductors and AI are the industries that present the highest growth opportunities, and I'm very pleased and proud to say that Cyient is strongly positioned and is pursuing significant strategic opportunities in all these areas. We bring customers an end-to-end proposition spanning engineering, silicon, manufacturing, life cycle support, reinforcing the compounding value of our complementary capabilities. I want to reiterate that the 3 fastest-growing sectors of defense, semiconductor and AI are where we, as a group, have significant capabilities that nobody else can match within our competitive set. With this, I hand over the call to Sukamal, who will take you through the business performance of DET. Sukamal over to you.

Thank you, Krishna. Good evening to all of you, and thank you for joining us today. At our Investor Day in August, we shared our perspective on the opportunities ahead for Cyient, the role we see for life cycle engineering in sharing our future -- in shaping our future and the priorities that will guide our next phase of growth. We also introduced our new brand promise, Nothing Less, giving a clearer voice to the exemplary outcomes that have shaped our work and our customer relationships. As we look at our second quarter performance, I'm encouraged by strong progress we are making to drive predictability and profitability across the business. We delivered growth during the quarter, recorded our highest ever order intake for quarter 2, highest EBIT in 10 quarters and remained focused on building the capabilities that support our long-term strategy. An important part of that capability expansion was welcoming the TAO Digital team to Cyient. Their expertise adds depth to what we can do for our customers, and our teams are already pursuing opportunities on the same together. Let me now take you through our financial performance first across 4 metrics. Revenue for the quarter was USD 174.2 million, which was up 7.5% quarter-over-quarter and 6.3% year-over-year in constant currency. This includes 1 month of revenues from the TAO Digital acquisition. On an organic basis, the revenue grew 1.6% quarter-over-quarter and 0.4% year-over-year in constant currency. Our EBIT margin stood at 14.2%, up 107 basis points quarter-over-quarter and 206 basis points year-over-year. We recorded highest ever Q2 order intake of $158.4 million, up nearly 21% year-over-year with positive momentum across both new businesses in existing and new customers from an order intake perspective. This doesn't consider any order intake from TAO consolidation, which we'll start talking about and announcing in the near future. In addition to the order intake in this segment, we signed a multiyear frame agreement with a potential to execute up to EUR 50 million annually as the upside potential for a global leader in consumer product groups. This particular contract, we have not included as part of our order intake and the work that they have signed up with us consists of a broad range of engineering services, which will be contracted through future SOWs and the frame agreement provides us a significant position to execute on the same on a go-forward basis. I wanted to highlight this contract because of its significance, but also wanted to share that we remain consistent on how we announce our order intake at Cyient versus how it may get captured by some of our peers. Technology order intake stood at $10.3 million, up 39.7% year-over-year, reflecting the demand we are seeing for the capabilities we are building in data, AI, digital engineering and intelligent engineering solutions. The strength of our order intake, together with continued growth in our pipeline, gives us a greater confidence as we enter the second half of the year. Focusing on our market clusters and market units, Transportation & Mobility again grew strong at 4.5% quarter-over-quarter and 16.5% year-over-year in constant currency terms. It's the sixth consecutive quarter of growth for this particular segment. The shining light of this quarter and over previous couple of quarters has been our performance in automotive and mobility. Despite the challenges in the market, we continue to see robust growth in this market segment for Cyient. Growth is supported also by continued momentum in commercial aviation, where our focus on aftermarket services and helping customers improve operating efficiency is delivering results, alongside a greater emphasis on systems and avionics. We see medium- to long-term opportunities emerging in defense, supported by sustained geopolitical demand or demand created by geopolitical actions, while rail continues to demonstrate moderate recovery. Despite potential pressure from aviation fuel prices and inflation, our strategy, customer base capabilities and the industry standing gives us confidence in sustaining this business performance. Networks & Infrastructure was flattish with a slight degrowth of 0.3% quarter-over-quarter in constant currency and a 1% year-over-year growth, largely reflecting completion of certain project-based engagements and some weakness in our utilities business. We continue to reshape the portfolio towards longer-term growth, more recurring programs, and we hope to make some announcement on these lines very soon. Even so, the underlying demand remains strong, continued fiber rollouts and the global build-out of AI data centers are sustaining wireline demand, while rising power needs and grid modernization are driving investment in network design, asset data and special intelligence. Strategic markets degrew 1.5% on a constant currency basis quarter-over-quarter. However, at the outset, let me state we are at the bottom of our business in some of these markets, especially energy, where we see growth ahead. In energy and process industries, the go-to-market teams we rebuilt are starting to deliver. We have steadily pivoted the business towards annuity-led engagements, working directly with the owner operator of these assets, we have enhanced our position across several existing customers. Our recent wins reflect that shift with customers increasingly embracing long-term strategic relationship built around recurring value rather than one-off projects. The consumer goods framework agreement I mentioned earlier, demonstrates the reach of our process industries capability beyond the traditional energy market as well and is a clear demonstration of the impact this team is creating. While it's early, the traction we are seeing reinforces our confidence in this direction. In nuclear energy, where we bring more than a decade of experience, customers are increasingly increasing their spending plans, and we are already seeing early ramp-up demand in that direction. AI infrastructure is creating additional opportunities, particularly around data centers and supporting infrastructure. And over the medium term, we want to at least half this -- want at least half of this business to be recurring revenue, and that's our ambition and goal that we are working with. Switching over now talking about capability development and making sure that we continue to invest in the future, the opportunities we see across our business are closely linked to the capabilities we have been building. To support customers more effectively across the life cycle, we are continuing to strengthen those capabilities. The integration of TAO Digital adds depth to our platform software and data engineering capabilities, and our teams are now taking this combined expertise to the customer engagements. This expands the support available to build stronger data foundation and enterprise AI adoption, complemented by our understanding of customer engineering environments, products and operations. It further strengthens that we can offer in automotive, high-tech and HealthTech and adds delivery capabilities in Greece and Taiwan. We are also bringing our engineering knowledge, data and AI expertise together through newly established business unit, Intelligent Engineering Solutions to develop and commercialize repeatable and scalable solutions for our customers. CYiNGINE, our Agentic AI-enabled life cycle engineering intelligence platform brings together governed industrial data, deep engineering domain knowledge and modern AI stack to help customers improve outcomes across engineering, service and quality. It enables 3 playbooks in engineering -- 3 playbooks in terms of the value that we deliver to customers across engineering means faster design life cycles and better first-time rates. In service, it means higher asset availability and fewer unplanned outages. In quality and regulatory world, it means faster certification with audit-ready traceability. Each is measured against the customers' own KPIs, which positions us well for long-term outcome-based engagements. Our progress in this area has received several recognition One of them in Q2 was the Frost & Sullivan, who awarded Cyient with 2026 Global Technology Innovation Leadership recognition in the intelligent life cycle engineering services space. Looking further ahead, we are evolving our technology organization through the creation of a CTO office with a focus on research and development in Horizon 2 and Horizon 3 technologies. This spans technologies at different stages of maturity with opportunities to create advantage over the next 1 to 5 years. Its initial focus areas will be around physical AI and robotics, AI in core engineering, advanced domain-specific AI and some look ahead at quantum and other emerging technologies. This office will work across the group companies of DET, DLM and semiconductors, identifying technologies with relevance across the group and building capabilities through collaboration with start-ups, academic institutions and research universities. This creates a clearer bridge between innovation and commercialization between the 2 groups that we have set up. So talking now about life cycle engineering, which we introduced as a concept to the market as well as we touched on in our Investor Day. Together, these capabilities strengthen our ability to support customers across the products and the asset life cycle. We already work across all 9 stages, building on our engineering relationships to take on broader role through longer-term engagements. This is central to our position as the life cycle engineering partner of choice for our customers. Our presence across this life cycle also creates significant opportunities to expand in the aftermarket. While we already support service life cycle activities in 58% of our accounts, we remain underpenetrated relative to the opportunity ahead from the initial presence we have built. Our ambition is to evolve from supporting discrete service activities to becoming a strategic partner across full asset life cycle, helping customers improve reliability, performance and operational efficiency. Our agentic AI MRO offering launched this quarter in Q2 is a key enabler to that growth and is already generating strong customer interest. Supporting customers over these long operating life cycles carries a responsibility to understand the outcomes they depend on. Our promise, Nothing Less, expresses that standard we bring that responsibility, exemplary outcomes and the result to reach beyond them sustained through engine discipline and an understanding of what each customer needs. The goals we set in Mumbai stand. I would like to thank all of our associates for their efforts this quarter and our Board for its continued guidance for the results we have delivered. With that, let me invite Shrinivas Kulkarni, our Chief Financial Officer, to take us through the financials in more details.

Thank you, Sukamal. Ladies and gentlemen, thank you for joining us today. I'll now take you through our financial performance for the second quarter of FY 2027. Before I get to the numbers, there are a few points on how this quarter's results are presented. First, the TAO Digital acquisition closed during the quarter. Our results include 1 month of TAO Digital's P&L for September 2026. Second, Kinetic, a part of our Semiconductor segment is now in its second quarter of consolidation. And to separate the underlying performance from the effect of these 2 acquisitions, we will present results on 2 basis: one, organic. For DET, this will exclude TAO Digital. And at the group level, it will exclude both TAO Digital and Kinetic and the reported number will include all the entities. Also, as you all know, Q1 figures were normalized for M&A-related expenses tied to the TAO Digital acquisition. There are no such adjustments in Q2. So the reported and normalized figures are the same this quarter. Quarter-on-quarter comparatives remain on a normalized basis. I'll focus mainly on the DET performance, followed by a brief look at the group performance. A couple of quick capital allocation updates as well before we move on to the financials. First, we completed the buyback of INR 720 crores, covering 6.7 million shares earlier during the quarter. This affects our results in 2 ways. It adds to EPS based on the reduced paid up share capital and it reduces our cash balance, which also lowers our other income. Second, we financed the TAO Digital acquisition through an external commercial borrowing. The debt and finance costs appear in the DET's reported numbers. And as Krishna mentioned, the Board has approved an interim dividend of INR 12 per share for FY '27. This signifies our confidence in the free cash flow and the business outlook. Moving on to DET's performance. DET reported a revenue of $174.2 million, that is up 7.5% sequentially and 6.3% year-on-year in constant currency. In rupee terms, revenue was INR 1,664 crores, up 8.1% quarter-on-quarter and 15.7% year-on-year. Power Digital contributed $9.6 million or about roughly 5.5% of the overall revenue. On an organic basis, DET revenue was $164.5 million. That is up 1.6% sequentially and 0.4% year-on-year in constant currency. In rupee terms, organic revenue was INR 1,572 crores, up 2.1% quarter-on-quarter and 9.3% year-on-year. The gap between the constant currency and the rupee growth rates reflects the currency tailwinds. DET's EBIT margin was 14.2%, up 107 basis points sequentially and 206 basis points year-on-year. This is DET's highest EBIT margin in the last 10 quarters. In absolute terms, EBIT was INR 237 crores, up 16.8% sequentially and 35.3% year-on-year. The sequential improvement came mainly from our cost optimization initiatives, more billing days. TAO Digital added to both margins and PAT in Q2. And that holds after all the related M&A-related costs, the borrowing costs, the fair value changes and the earn-out liabilities, amortization of acquired intangibles are all taken into account. Our cost optimization program is well underway. We expect it to keep supporting margins through FY '27 and to help offset the wage increases we are expecting in Q3 and Q4. We remain committed to the margin expansion road map we presented in the Investor Day and provided there are no major surprises on the exchange rates. DET PAT was INR 153 crores, up 8.7% sequentially and 11.9% year-on-year. EPS was INR 14.59, up 14.2% sequentially and 17.4% year-on-year. This is helped by the buyback. Other income was lower mainly because of the fair value change on the earn-out liability. Finance cost includes the interest on the external commercial borrowings raised for the TAO Digital acquisition. The effective tax rate for the quarter was 28.3%, including TAO Digital. That's down about 90 basis points sequentially because the adverse one-off items from Q1 did not recur. We continue to expect the ETR to be around 28% for the rest of the year. On cash flow, DET free cash flow was INR 214 crores or nearly 140% conversion of PAT. That is up 87.9% sequentially and 36.3% year-on-year. The drivers were higher operating profit, a 3-day reduction in the net DSO and favorable working capital movements. I'll now move on to the group performance. At the group level, Q2 revenue was $233.9 million, that is up 7.1% sequentially and 15.3% year-on-year in constant currency. In rupee terms, our revenue was INR 2,235 crores, up 7.7% quarter-on-quarter and 25.5% year-on-year. This includes INR 9.6 million from TAO Digital and about INR 11.9 million from Kinetic. Group EBIT margins was 10.2%, up 52 basis points sequentially and 83 basis points year-on-year. DET's margin improvement was partly offset by continued R&D investments in the semiconductor business. Group PAT was INR 121 crores. EPS was INR 11.54, up 11.8% sequentially. For the first half of FY '27, group revenue was INR 452.9 million, up 12% year-on-year. EBIT margin was 10%, up 52 basis points year-on-year. To sum up, this was a quarter of progress on 2 fronts. DET delivered year-on-year growth and its highest EBIT margin in 10 quarters. TAO Digital is already adding to both margin and profit after tax. With the buyback completed and TAO Digital closed and consolidated, our focus is now on integrating TAO Digital, continuing our cost optimization work and expanding margins further to sustained organic growth. With this, I'll now hand the call back to Swapnil for the Q&A.

[Operator Instructions] First question from Sandeep Shah of Equirus Securities.

Congratulations on a strong set of numbers, especially in DET. So the first question, Sukamal just wanted to have a view, what proportion of DET revenue is more sticky annuity now versus when you joined? Any target in future? And this question is to understand the growth strategy.

So I would probably defer answering a question on exact specific numbers. What I can say is that we have a goal to get to about 70-30 mix, 70 being more sticky long-term annuity revenue versus project-based or short-term revenues. I think we probably are -- and this is the best estimate I can share with you. It's probably about 200 basis points, 300 basis points away from that or rather 20 percentage points, 30 percentage points away from that. And that is the work that we are working on with some of the deals we have in the pipeline and some of the recent engagements we have won and the nature of the way we have structured the engagements, it gives us confidence that we'll get there relatively soon.

Just a clarification on the DET organic. This quarter has been good despite some holidays in Europe, which impacts the sustainability as a segment. Is it fair to assume this growth on a Q-on-Q can continue on organic basis in the second half? On TAO Digital, the run rate on a yearly basis looks like $115 million, which looks like, again, a 40%-50% growth in TAO in the CY '26. Is it the analysis or numbers are correct? Or if you can provide a clarity.

Okay. So firstly, on Sustainable Energy segment, as we call it, your reflection is correct and the data point you highlighted that, yes, summer holidays does impact our revenue in Q2, and we do have some return of that in Q3. As you know, we don't share guidance. All I can share is that we feel confident about second half of the year, which I already shared in my commentary. So I'll leave it at that. In terms of the question on TAO, I could not very clearly get that question. So in case Srini, you have understood the question.

I can answer that. So Sandeep, I think when we acquired TAO, they were at a run rate of about $80 million a year. And I think what we have seen is growth in the business to close to about $100 million a year. I think extrapolating 1 month would not be accurate. I think we'll wait for their Q3 performance. But definitely, they are on a very high growth trajectory. My sense is they -- for the next 12 months, I think they could be closer to $100 million to $110 million. But this is not -- this is just a very rough order of magnitude estimate at this point in time.

Just a clarification, the confidence on second half in DET is even for the organic basis, not including TAO, right?

Absolutely, right.

And just a last question, then I will come in a follow-up. This new deal worth EUR 50 million, what is the reason not to be included in order intake? And will it ramp up immediately from second half or it can ramp up from the next financial year?

No, we will see some ramp-up in second half of the year. And the reason is there are many such contracts which get signed, which -- I mean, I would refer to them as framework agreement. So that essentially gives you the opportunity to drive that revenue, does not give any kind of signed commitment or a signed plan for that level of revenue. And that is why we kept it out of the order intake numbers. However, as we start booking specific SOWs against this frame agreement, we will start including that in order intake numbers going forward.

We'll take our next question from Gokul Handa of BTH Capital.

Yes. I just want to understand, so in your Transport & Mobility segment, the growth has been impressive compared to other segments. So what -- could you give us some more color on this? What is leading this? And geography-wise also what is driving this? Because I think Europe has been a point of sort of difficulty in this space. So I just want to understand if you could give us some more color in this segment?

Sure. So as I mentioned, while there is generally a challenge in the market for automotive and mobility, we have been fortunate in terms of our customers and the areas of work that we do to continuously see growth in that segment, which has definitely been helping us in our growth in transportation and mobility. Of course, from an absolute growth perspective, majority of that weight is carried by the work that we do in aerospace. And as I mentioned, while there are no new programs, except for some regional carriers or private regional jets, we have built a very strong capability about aftermarket and how do you essentially provide a full life cycle support to aerospace customers, both Tier 1s as well as airframe manufacturers. And given the volume increase of number of aircraft, driven by sheer growth in consumer traffic, we are seeing that demand reflecting in our numbers. We continue to see that. Yes, potentially, there's a headwind with what's going on with oil prices and potentially a negative turn for commercial aviation in the future, but these are risks that are out there. But for the time being, we continue to see that momentum, and we probably will for the next couple of quarters in terms of visibility. We are also planning in terms of hedging against potential downturn in commercial by making strong investments in the defense space, where the capabilities that we leverage are the same. So that's what I would say to your question.

Got it. And in your semiconductor business, could you give us the number for Kinetic that we have in this quarter? Like last quarter, I think it was some $10.6 million. So has there been any growth in -- like could you just give us a breakup of how much is Kinetic this quarter?

Kinetic is roughly $11.5 million, however…

$11.8 million.

$11.9 million. So almost $12 million. There is a significant growth is there.

$11.9 million. Got it. And also just one more thing. Could you help us on how many employees have been added as a result of the TAO acquisition?

So we'll roughly come to about 3,000 something is the number. Right now, all in all, as a group, we're at 19,500 employees.

So, if I remember, 3,000 you said?

Yes, roughly 3,000 something is there.

[Operator Instructions] We have Dipesh Mehta of Emkay Global.

Congrats for strong execution. A couple of questions. First, about the margin side. You indicated about wage hike in H2. Can you help us understand how to look it in terms of whether it will be phased manner or how it will play out, and likely impact from it? Considering the wage hike and overall growth momentum, what we expect, plus the cost optimization program which we are running, how one should look your EBIT margin trajectory in second half as well as over medium term? That is question one. Second question is on the strategic unit growth. You indicated about energy to return to growth. What about mining and HLS? If you can give some sense how to look holistic strategic unit growth trajectory. That is second question. Third question on the TAO Digital profitability, if you can give some sense. Because revenue seems to be on the upward curve, how it is playing out at margin level, if you can give some sense.

Okay, Dipesh, I will answer the first and third question and maybe hand over the second question to Sukamal. Is that okay? On the margins side, I think we are doing the wage hikes in 2 phases. I think it will be done over Q3 and Q4 with roughly an equal impact in terms of the headwind that will create for us on the P&L. What we are doing right now is, we have a visibility on the cost optimization program. So we are very confident of being able to retain the margins at the current levels and as we grow through the year despite the wage hikes, right? So -- and on the second question on TAO, I think after taking into account all the intangibles and amortization and interest costs, et cetera, their margins are very close to our margins. So more or less, they will be at the same level as what Cyient is operating at. Sukamal, you want to take the second question?

Sure. So your question was on mining and minerals. And all I would say is at an overall level, we have already seen some progress in Q2, and we'll continue to see it in Q3. We have won some strategic programs. And it remains one of our smaller units at this point in time. But to come back to the overall view of strategic units, we definitely should be expecting better results going forward.

So broadly, from a composition of mix perspective in strategic market, how one should look at it? Because mining and minerals, energy, HLS, these are the 3 constitute of it. If you can give some sense about composition of it -- and among these 3 buckets, where you are more positive from growth recovery perspective?

Sure. So it is roughly 65% and the other -- you can split the other 35% between HLS and mining and minerals, HLS being probably more 22% and the rest being mining and minerals. We are -- we definitely remain positive longer in the midterm on energy and HLS. Mining and minerals, we are still working through some portfolio aspects that we need to work through. But in the near term, which is next 1-quarter or 2 quarters, we have enough visibility for growth.

We have Kawaljeet Saluja of Kotak Securities.

Good to see a very nice print for the quarter. Sukamal, I have a couple of questions for you and then a question for Shrinivas as well. The question for you, Sukamal that you mentioned about the EUR 50 million framework contract in Europe. Typically, in these framework contracts, I mean, in your experience in engineering services world, do they translate into an expected revenue? And typically, what I've seen in the past is that such framework agreements do not realize the full value. If that happens, what are the typical reasons why it happens? And in this particular contract, how have you arrived at, let's say, EUR 50 million estimate of the contract as such?

Sure. And you are absolutely right on your observations. One of the reasons we do not include it in the order intake. The reason we came to the value is because it's mentioned in the contract.

Okay. And that…

Did I answer the question?

Yes. But typically to realize this to the expected value, what needs to happen? And when does the ramp-up start? And what's the sequence of ramp-up? Does it start off at an expected run rate? Or is this a part of a larger program, which will take a lot of effort to build up?

It will need some effort to build up. I will not say a lot of effort to build up. The -- and it does not start at run rate level. If it is at a run rate level, we would have probably announced it as part of our order intake. It will take 1-year or 2 years to ramp up to full expectation. That is the realistic view that I can share with you. But obviously, our attempt would be given the opportunity has been presented to us is to see how we can maximize ramp-up as soon as possible.

Got that. The second question is around -- I mean, I could see a lot of idiosyncrasies around the numbers in the sense that top 5 clients and top 10 clients ramp down and there was a massive growth outside of top 10. We can just explain on the composition of numbers, anything that we should know?

I think the top 5, top 10 is probably more just an aberration for the quarter. There is nothing material or strategic that is going on in these accounts for us to consider per se. I think overall, our top accounts remain healthy, and you will see substantial year-over-year growth by the time we are done with the financial year. There may be 1 or 2 accounts which may become flattish for next year, but that's still further away from a discussion perspective. But right now, this may have been an aberration of the quarter and not something holistic.

Got that. And just third question for you, Sukamal, is that transportation and mobility, again, fantastic quarter both from a quarter-on-quarter and year-on-year perspective. If you can just give me a strategic view about the legs of the sustainability and drivers for growth. We said the quarter, but let's say if you have to lay out the road map for the next 2 years to 3 years, right, how do you see this segment growing and the drivers for it?

Sure. So there are 2 scenarios, Kawaljeet, that we should be conscious of. One is the continuation of the war and continued increase in oil prices. And one is a cessation of the war in the near future, which can be in the next 3 months, 4 months, 5 months as well. We're not talking about just this one. So in scenario 1, while we do not see any near-term impact to our growth trajectory, we definitely will have to start working towards pivoting more towards defense and expecting the results in defense to protect us against potential slowdown in commercial aviation, which is bound to happen. In scenario 2, if the war does come to an end, I think we definitely feel much more confident in terms of continued trajectory that we are on. What we have to also just keep in mind is a lot of our growth has been also driven by automotive and mobility. That does not have as long term our strategic view as we have for aerospace and to an extent, even rail.

Just a question for Shrinivas. What's the kind of hedge book that we are running an average rate for the hedge book?

So we have covered roughly 50% of our net hedge Kawaljeet, for the next 12 months. I don't have the average rate offhand. I can separately tell you about it.