Cyient Limited analyst Q&A

Yes, hi, good evening and thank you for taking my question. So, my first question was more in terms of the near -term in terms of Q3 and Q4 of FY26. So, we have seen a very strong rebound in the transportation segment. And do you think the segment is going to continue to drive growth for you in the near future? And then also in terms of networks and infrastructure where you have seen a good rebound. So, how do you see things even for that segment going into the second half of FY26?

Sure. So, thank you for your question. Firstly, on transportation, we do believe that from the strength of our presence, the market and our positioning, we should be able to sustain growth. And, while I would like not to comment about quarter specifically, if I take a horizon of the next four to six quarters, we definitely see this as an area that we can depend on for consistent and significant growth. When it comes to networks and infrastructure, as I had called out in Q1, and our primary focus right now and our high focus on energy is to actually change the service mix which is far more critical for us, and not that growth is not critical, but while growth is good, we would like to first make sure that we are focused on changing the service mix because that is significantly important for the mid-term and the long-term. So, our focus would be more on how we drive metrics around the mix of services from wireline to wireless mix as an example, but on transportation, we remain confident.

Understood. And then on strategic units you mentioned that you know there is one part of it which is holiday-driven and the other was also due to the ramp down of a large project. In terms of the ramp down, do you see that ramp down continuing in Q3 or do you think that that is broadly done going forward?

I think we are mostly done with it. There will be still some ramp down in Q3 but I think materiality to overall numbers has gone down substantially.

Alright, understood. And then maybe just speaking on the broader macro environment, right, so you have seen some improvement in terms of growth, Sukamal you called that out in the beginning of the call as well . So, now in terms of macro, in terms of deal flow conversions, etc., do you see some improvement in the macro versus where you were in 1Q, in, deal ramp ups, deal signings, etc.?

So, yes, so, obviously, Q1 includ ing the months of April and March, where obviously we had a significant freeze on decision -making and significant spike in uncertainty. I think most of our customers and industries have now understood and digested the changes that are going on in the global macroeconomic situation. So, it has definitely improved. However, I would not like to say that the market environment is strong. I think market environment is definitely much better than the early part of Q1.

Next question is from the line of Shradha Agrawal from AMSEC.

Yes, hi. Congrats on a steady quarter. Two questions from my end. One is you indicated that there was a one-time restructuring expense of close to 200 b ps in this quarter. So, what was it related to and any indication on that?

Firstly, thank you for the question. It is related to the cost o ptimization that we were doing under which we have to restructure some part of the operation , especially around people that we have and therefore much of it is one-off for the quarter.

So, is it related to employee layoff and one-time severance payment to such people?

Yes.

Okay. So, this entire impact is baked in for this quarter, or we expect some residual impact in next quarter as well?

Much of it is in the current quarter. There could still be some more continuous activities we do as a part of the business-as-usual operation that we optimize capacity capability. But what you see right now is the largest piece of what we would do in the current year.

And what was the quantum of the one -time gain on the insurance reimbursement benefit that you got?

It is actually a bit lesser than the headwind. So, the headwind was about 200 bps on restructuring and tailwind was much a bit lesser than that.

Right. And in terms of aerospace and transportation, while you have indicated that macros have gotten a little better, but in terms of growth for us, is it still led by MRO activities or have we started seeing some green shoots of recovery in design-related activities as well?

So, I think it is a mix of service areas that we are seeing recovery. So, I would not call out design as a significant contributor yet. As you know obviously whenever a new design gets announced, it is pretty worldwide public news and no such announcement has happened. So, while we continue to do design for business jets for many other smaller aircraft carriers or airframe manufacturers there are always variations and extensions that are done to existing design, which is also design work. While that continues, our work remains varied across the product as well as the aftermarket of the products. We are seeing significant traction in cross selling across digital and AI. So, our technology infusion across aerospace and the transportation sector in general has also picked up significant momentum.

Right. And so you indicated that your second half would be better than the first half. This is despite furloughs impact. I know for us the f urlough impact is relatively higher in 2Q because it is holiday season, but in terms of growth trajectory going into 3Q, do you expect 3Q would have better growth compared to 2Q on a QoQ basis despite the furloughs in other verticals?

Yes, so, I think first thing, as we mentioned previously also, we maintain our no guidance policy. Second, our intent is to continue the trend I talked about in terms of quarter -over-quarter improvement, in our quarter-over-quarter performance. So, that trend is something that we are very committed to making it happen. Third, as we have discussed, we have a healthier pipeline on our near-term programs and projects that we can convert for Q3 and Q4. I would probably leave it there in terms of giving you an answer for the H2 versus H1.

And we have discontinued giving our order intake number, but any qualitative indication on what that number should as in how much is the improvement in order intake number for this quarter in terms of any improvement in the closure cycles that we have seen or what has been the improvement in the pipeline buildup?

Yes. So, order intake remains healthy. As I mentioned, our order intake not just in terms of absolute numbers, but quality of order intake, which is essentially new business as a percentage of overall order intake is going up. Our order intake as a percentage from a technology standpoint which is digital and AI which is critical for Cyient growth strategy is going up. So, I think definitely we are in the right direction. So, it is not just an indication from pipeline , order intake is also in the right direction.

I mean generally every year 3Q we do see a good amount of renewal happening and that trend would follow this year as well?

That is correct.

Okay, thank you. That is it from my side.

Thank you, sir. Next question is from the line of Sulabh Govila from Morgan Stanley.

My first question is a bit bookkeeping question. So, I just want to check this order intake number that we were calling out, which is the non -renewable portion, which was 21%, last quarter. What is that number for this quarter?

That number is 27% now.

Okay, understood. And then, secondly, with respect to networks, when we talk about change and mix that we are trying to do from a medium to long -term perspective, I know you called out, wireline going to move towards wireless, but from a service line perspective if you could highlight what is it that we are trying to change and what can that change lead to?

Sure. So, you might be aware that Cyient ’s business has been built significantly on our strength on fiber technology, and essentially doing fiber design, fiber rollout, and essentially creating access to the wireless si de. That has been the core strength of Cyient for quite a few years and I would say even decades. Obviously, fiber roll out and fiber investments continue to be healthy . So, it is not a business that we see any kind of significant challenges in the near future, but, where we believe the real growth and the technology harnessing can happen is from the acquisition we had done with Celfinet two, three years back, where we have capabilities on manageability, observability, around wireless networks including the WISMON AI platform, which I talked about a little while back which got awarded even in Q2. We would like to create service offerings which are more focused around how do you dri ve network automation and more importantly network autonomy. Leading network carriers today in the world are between level 2, level 3 autonomy, and everybody aspires for level 5 autonomy in the next four to five years or even sooner in some cases, and we are working with them and the CTO organizations of the network carriers to help them adopt autonomy of their networks, which is where we are spending most of our energy in terms of building a network.

Understood, understood. The next question is with respect to the changes that you highlighted, it is quite a bit of I would say, detailed level of changes that were mentioned and it actually covers the breadth of the organization. So, from an outside perspective it is difficult to understand those how they are progressing, etc. , but just wanted to understand that whatever you have seen so far, what areas within these would you classify that are the most difficult or would take the most amount of time for you to see some sort of results?

I think there was a similar question in the last call as well, so I will probably repeat the answer from that, which is changes which are more with regards to areas of focus, policies, how to do reprioritizing of focus, which are more concrete . Black and white is always easy to do. And most of them have fallen in place. There is definitely a change management aspect, which is necessary in order to adapt to the performance culture that I referred to . That is something which will take some t ime. We will definitely make sure that we stay patient and stay perseverant in making that change happen.

Understood. And then lastly on the margins bit, just wanted to understand that while on growth, we called out that H2 will be stronger than H1. From a cadence perspective, how should one think about the margins in the rest of the year? And given that you have already started with some bit of wage hike for most of the associates, so how should one think about H2 on growth better than H1, how should the margin cadence pan out?

Thank you for the question. In line with the revenue commentary on the second half the year, we also believe that the H2 margin will be stronger than H1.

Okay. And that will be a function of operating leverage on growth or there are other levers which will help with that?

Both. It is not only revenue dependent, it is also a number of things that we are doing. We spoke a little bit about the cost optimization program in the earlier part of the conversation. So, the results are becoming more and more tangible today. So, we also see benefits coming from that and a number of others.

Understood. Thanks for taking my question.

Thank you, sir.

Thank you. Next question is from Nitish Rege from ChrysCapital.

Hi, thank you for the opportunity. Just following up, my questions will be on EBIT margin from next quarter. So, since we do not have any restructuring costs in the next quarter, can we expect a 100 basis points to 200 basis points expansion in margin because there will be a benefit on the cost side, right?

So, tempting as it is, we will refrain from commenting on the quarterly guidance for revenue or margin at this point in time. I will just come back and say that you have very good observation. We believe that H2 is going to be better than H1 by margin.

Okay, thanks so much.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to Mr. Krishna Bodanapu for closing comments. Thank you and over to you, sir.

Thank you very much everyone for taking the time for this call this evening. I thought it was important to give you all a good overview of the semiconductor business considering it is very strategic and it is still in investment mode. I also thought it was important for Sukamal to give an overview of the state of the business and the way forward. And if I may say, the way forward looks very promising thanks to a very strong focus Sukamal has brought on operations, leadership, and technology adoption. Sukamal will of course keep you updated periodically on the progress of these changes. The board also strongly believes in the growth prospects signaled by the increase in the interim dividend. So, all in all, I believe we find ourselves in a good place and well positioned to deliver as Sukamal and Prabhakar said a stronger H2 both in revenue growth and margins compared to H1. Thank you for your support and I look forward to speaking to you again next quarter.

Thank you, members of the management. Ladies and gentlemen, on behalf of Cyient Limited, that concludes this conference. We thank you for joining us and you may now disconnect your lines. This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy