Cyient Limited (NSE:CYIENT) Q1 FY23 Earnings Concall dated Jul. 21, 2022
Corporate Participants:
Krishna Bodanapu — Managing Director & CEO
Ajay Aggarwal — Executive Director & CFO
Karthikeyan Natarajan — Executive Director & COO
Analysts:
Sulabh — Morgan Stanley — Analyst
Shradha — Asian Market Securities — Analyst
Mohit Jain — AnandRathi — Analyst
Akshat Mehta — Sameeksha Capital — Analyst
Abhishek Shindadkar — Intuit Capital — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Cyient Limited Q1 FY’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Krishna Bodanapu, MD and CEO, Cyient Limited, thank you, and over to you, sir.
Krishna Bodanapu — Managing Director & CEO
Thank you very much. Good evening, ladies and gentlemen, and welcome to Cyient Limited earning call for the first quarter of financial year 2023. I am Krishna Bodanapu, Managing Director and Chief Executive Officer of Cyient. Present with me on this call are Mr. Ajay Aggarwal, Executive Director and Chief Financial Officer and Mr. Karthik Natarajan, Executive Director and Chief Operating Officer.
Before we begin, I would like to mention that some of the statements made — statements made in today’s discussion may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in our investor update, which has been emailed to you and is also posted on our corporate website. This call will be accompanied with an earnings call presentation, details of the same have been shared with you.
With this, let me first take you through the highlights for the quarter. In Q1 FY’23, we posted revenue of U.S.$161.6 million, which is a year-on-year growth of 15.8% in constant currency or 12.6% in USD and quarter-on-quarter growth of 4.4% in constant currency or 3.1% in U.S. dollars. In rupee terms, we posted quarterly revenue of INR1,250 crores, this signifies a growth of 18.1% year-on-year or 5.8% quarter-on-quarter.
Services revenues stood at U.S.$137.1 which is a year-on-year growth of 18.7% in constant currency, 15% in U.S. dollars and a quarter-on-quarter growth of 6.5% in constant currency or 5% in U.S. dollars. A point to note, inorganic service revenue contributed 2.9% quarter-on-quarter and we also had a strategic buyout to onboard a few resources to accelerate ramp up for a strategic customer, which contributed to about 1.1% quarter-on-quarter.
DLM revenue stood at $24.5 million, which is a growth of 1% year-on-year, or de-growth of 6.3% quarter-on-quarter. Group EBIT margin stood at 11.5%, down 164 bps year-on-year and 298 bps quarter-on-quarter. PAT stood at INR1,161 million for the quarter, again a marginal growth of 1% year-on-year and de-growth of 24.7% quarter-on-quarter.
Coming to this, the other highlights for the quarter, very proud to report that I talked to BVR Mohan Reddy, our Founder, Chairman was inducted into the Geospatial Hall of Fame at the Geospatial World Forum 2022 earlier in the quarter. The Hall of Fame acknowledges the Geospatial industries legends, whose passion, vision, knowledge, leadership and business acumen have brought the power of geospatial and mapping technologies closer to the core of human lives that made a difference.
We’ve also partnered with IIT Hyderabad and WiSig Networks to enable volume production of India’s first architected and design chip the Koala Narrowband-IoT System-on-Chip. Narrowband-IoT is a 5G technology that enables low bit-rate IoT applications with round range and extends battery delivery life by up to 10 years. As you know — as many of you know, the semiconductor design and semiconductor manufacturing is a key imperative for the Indian government, who are also spending a lot of money and providing a lot of incentives and this chip is actually the first example of a fully indigenously developed chip and now will also be manufactured and we are responsible along with WiSig Networks, which is a part of IIT Hyderabad.
I’m also proud to report that the Founder, Chairman, Dr. BVR Mohan Reddy has end out the BVR SCIENT, which stands for School of Innovation and Entrepreneurship, which is a first of kind initiative in collaboration with IIT Hyderabad aim to nurture and develop world-class innovation and entrepreneurial talent, especially in light of the country’s ambition to become AatmaNirbhar Bharat. It aims to create an enabling ecosystem to help talent spur innovation and nurture business instincts.
I’m also excited to have Prabhakar Shetty, who joined the leadership team as we continue to strengthen our digital footprint. Prabhakar joins us as the Chief Digital Officer and he will be responsible for all our digital offerings, which as many of you know are growing at an accelerated pace at this point and we’re really excited to have him and the number of new leaders who have joined, which will further accelerate our digital offerings and our digital journey.
On the M&A and strategic buyouts Citec, which is the acquisition that we announced in Finland, of a plant engineering company, we’re expecting to close the Citec acquisition this quarter. It has been delayed due to a couple of regulatory issues, which have been — which will be resolved in the next couple of months. Most of the issues have been resolved. I think there still two issues, which we’re quite confident that will be resolved during the course of this quarter. We’re excited with this acquisition because it positions Cyient as a leader in plant engineering and product engineering and also it helps us take our plant engineering in digital portfolio to a new set of customers, who have extensive manufacturing facilities globally and includes offerings such as digital twins and so on so forth.
Grit Consulting, we are expanding our science consulting practice with the investment in Grit Consulting. As some of you probably know, our positioning has been consulting-led industry specific technology solution provider and this whole consulting-led piece gets further strengthened due to the addition of Grit and the capabilities that Grit Consulting brings to the organization. Grit has deep-rooted expertise in consulting for asset intensive industries in which include metals, mining, plant engineering and again aligns well with some of the other investments that we’re making. Grit has been closed and some part of Grit’s revenue is reflected in the growth of the revenue of this quarter.
Celfinet, which is a Portugal-based telecom engineering company, which helps communication service providers, engineer networks, intelligently and smartly and also connect across the smart infrastructure and enterprise networks. This significantly actually strengthens our wireless capability, especially for 5G rollouts and they have some really long-term relationships and some very good customers. This acquisition has closed. There wasn’t any element of consolidation, because it was closed on the last day of the quarter. So any impact will only be seen in the coming quarter.
Lastly, we also completed a strategic buyout to accelerate ramp up we — for a strategic customer. Just to set this in context, we signed a very large deal with an automotive customer and this customer will become one of our top five customers in the next 12 to 24 months. We’re obviously quite excited, because as we’ve talked about in the past, automotive is a very important market and along with a few smaller customers, who are also growing. This is an anchor for us, which really changes the dimension and the positioning more importantly of our automotive business. There was a lot of work that needed to be done.
And for the client also had the opportunity to quickly ramp up, so we had the opportunity to onboard about 500 resources with very, very similar skill sets. So we bought out the company to onboard these 500 resources, which are immediately available for our client. But that’s not where it stops, it actually is going to be one of our growth drivers even through the rest of the year. So it was a good tactical opportunity for us to accelerate ramp up for a very important customer in a very important sector. And I personally I’m very excited that automotive now becomes a very important sector for us and a very unique growth sectors.
So with this, I’ll now hand over the call to Ajay, who will take you through the detailed financial performance for the quarter. Thank you, and over to you, Ajay.
Ajay Aggarwal — Executive Director & CFO
Thank you so much, Krishna. I would say that, as Krishna explained, this has been a quarter where our strategy of diversifying our portfolio as well as looking at revised capital allocation is really playing out, it is very evident in our growth and you will see only the part of it has come in the current quarter. So with that, let me begin with the numbers.
With this, our growth is 18.7% in constant currency year-on-year. In terms of the quarter-on-quarter growth, it is 6.5%. This includes the contribution that we have got from the investments. DLM growth is 1% and Group growth and constant currency year-on-year is 15.8%. Since as Krishna explained, the acquisitions have been taken only for the part of the quarter. Two of them and the other one that is Celfinet has only been consolidated into the balance sheet as on 30 June, it will have its impact only in next quarter, That is quarter two.
So we expect the incremental growth to the base growth of 6% to 7% to come for the full year purely based on the investments and acquisitions that have already been closed during the quarter. And this really helps us, I’ll talk a little bit more about it, but this really helps us to build a much wider portfolio and to give higher earnings growth than what we were able to do with this money sitting in our cash.
In terms of the hedge book, I’m happy to report that if you look at the right-hand side of the table. While there have been significant volatility, especially in the European currencies euro and GBP which form a significant part of our operations, our forward covers, as you know we cover at least for one-year forward or 70% of our net inflows, there we have a benefit of INR7 to INR9 even for the next 12 months. For the current quarter, we have got some good gains from the forward contracts and we expect the same to continue at the current spot rate. And if you look at the current spot rates for our forward cover positions, our benefit for the year will be about $4.6 million and we have looked at the various sensitivity of the exchange rate and how it can change our EPS. In any scenario, the way our forward covers are between the operating profit and the other income, our EPS is absolutely protected. That’s the comfort I want to give to all of you. We have made a little bit additional forward covers — we’ve taken from 70% to 80% for 12 months and we have also taken 20% for the month 13 to month 24 and we feel that this has been a very, very consistent policy that we’ve been having and has really played out in these volatile times.
In terms of the income statement, I think you will see that in our margin is down quarter-on-quarter and our services margin is at 12.8%. So we have given the increases during the quarter and we have provided an annexure, where you will see that most of the decline is coming because of the wage impact that we have given in quarter one. Also, I think we have been building the pipeline of people looking at the anticipated growth, which is looking very nice and due to that our utilizations, I would say, for the time being are bit lower compared to what we were internally expecting as well as compared to the last quarter, but we feel there is something like 5% which is higher compared to what we had internally set out for ourselves, and that’s another 2.5% which we can reverse over the next one and two quarters.
Other levers, we had talked about other levers of margin improvement. I would say, they are really playing out well. We are in pockets able to get the price increases from the customer. We are focusing a lot in making driving the automation in our operations. We are very focused on quality of revenues and the revenue mix and all of them are playing very nicely, so most of the levers are playing to the [Technical Issues]. We are focusing and making sure that we pay best-in-class salaries and the salary increases and that has led to a little bit gap and as I said, we are very sure that all the levers that we have set ourselves for will play out in the full year. And you will see later that we are confident that we will get back to the margins in the next three quarters and for the full year, what we had committed to ourselves and to all of you.
DLM EBIT margin, I would caveat, actually if you exclude the one-off, it will be more like 7%. We had some error in our accounting, in terms of the inventory valuation in the system that we have corrected. That’s why this margin is looking for 4.2%. Excluding that one-off, you should read it as 7% to that extent there is an impact on this. As I said, I feel very, very good about the capital allocation that has happened to the new investments. And we all have been getting 5%, 6% return on the cash and against that the returns on this new capital allocation is looking very, very good.
In terms of the PAT, I think it’s just a flow out of what revenue and growth we have got, but other income has played out well. We have a good increase and a good amount of INR14 crore that we got from the forward contract gains, which as I said is sustainable at current spot rates. And our ETR is an expected lines, when you consolidate some of the acquisitions. They are all accretive on our tax rate, since they are in Europe and Singapore. It’s just that when you look at the goodwill and some of the transactions it becomes a little higher. So we had talked about a tax rate of 27% full confident that we will be at 27%.
We provided [Technical Issues] detailed bridge. I would only like to call out that in terms of utilization, I have already talked. We continue to make significant investments and that’s what is reflecting in our SG&A spend, be it driving our five pillars, driving our new organization driving, getting the technology organization, investments on technology, that’s why you will find quarter-on-quarter, our SG&A is higher but it is in line with our internal plan and we are very focused that we will not compromise on these investments to build the long-term earnings growth for the company.
In terms of the cash generation, we have the cash balance position of INR1,375 crores, which is $174 million, which is a decline of $207 million. As you know, we have generated a free cash flow. At the same time, we have given the money for the acquisition, we have continued our same practice of doing one part of the acquisition from our internal accruals that is the cash available and one part, we have taken from the debt, where we have very nice leveraging at least 2% to 3% leveraging between what we get on our treasury income versus what is the cost of that capital, since they are all in overseas acquisitions in the same currency, no risk arbitrage of at least 2%.
In terms of the cash flow conversion, free cash flow conversion is 27% for the Group, 35% of services, DLM, we did have a little negative free cash flow. But I think we got some of that collection spilled over in the first week. So we are confident of delivering that 50% of free cash flow in DLM. In services, we did have the benefit of the tax refund. Overall, you will find that our DSO has temporarily gone up. But we are very confident as we proceed during the year, we will bring it back to the normal and we will deliver the free cash flows that we have maintained the norm that we followed. Some of it fluctuates between the growth year and less growth year. So we’ll have a good growth year. But despite that we are confident, our conversion will be more than 50%.
With this, I hand over to Karthik who will give us the business update.
Karthikeyan Natarajan — Executive Director & COO
Thank you, Ajay. Good day, everyone, and to start giving you a quick update on the performance, before that I want to really give an update on our organization design, we just modified it slightly and we are focusing on the segments like we have been doing earlier and we tried to consolidate them under some buckets based on both organic, as well as the inorganic growth that we have planned for this year. I think we hope this structure will help us to sharpen the focus and also better integration and synergies that we have planned out for this year. And also to strengthen this, we have also added customer success partners and which will bring focus on our top 100 customers and which will really create long-term customer relationships, increasing the win rate and driving largely.
And as Ajay said, we continue to focus on the five pillars, we call them as tech stack of Cyient and we are making our investments in this area. We expect our five pillars to grow at more than 25% through this year and we have seen a growth of about 17% in Q1 and we expect this to accelerate during the course of this year. And also driving the order intake on growth offerings, collaborating with our CTO office, we have formalized the CTO office along with focused investment in building solutions for the future, I’ll cover that in the next few slides.
So if you go down to the next level in terms of, as per the new structure, we will also give you a reference for you with the whole structure. What you have seen enough in Q1 of fiscal ’23 and ARC which is aero, rail and comps, they have grown by 2.5% quarter-on-quarter. These are all in USD terms and 5.6% year-on-year. I think the growth is predominantly led by communications and the interesting thing is aerospace did join the party for growth, but it is not growing at a pace that we really expect it to be, probably the recovery would happen over the next 12 to 18 months as shared by various analysts.
Rail transportation has seen a dip. This is essentially led by the mergers and acquisitions and the consolidation of their products and services and also increased offshoring and ForEx and that has impacted in terms of growth and we have anticipated this and we hope this to reverse by H2 of this year. And mining, energy and utilities, and this is led by the de-growth that has happened on the utilities business and where some of the contracts, which ended in Q4 and we have not been able to replace them fast enough and we hope this should start getting to the recovery path in H2. The new growth areas, which we talked about as semiconductor, medical devices, automotive and mobility and high-tech and they’ve grown by 3.6% with 23.6% year-on-year growth and DLMs, which we again anticipated this earlier and which has shown a minus 6.3% growth in Q-o-Q and 1% year-on-year, so as a Group level and 3.1% Q-o-Q and 12.6% year-on-year in the USD terms.
And we also — if you look at order intake and if we take the view year-on-year, I think the services order intake is up by 17.8% and this gives us the confidence that I think we have the growth trajectory for the year and we have to execute well to make sure that we capture this. And also, this is the largest DCP that we have done in the last many years and we have closed six large deals of $424 million and we’re very excited about the opportunities to expand with many of our existing clients and deeper penetration of our existing clients is going to be critical and focus on top 10, 20, 30, 50 and 100 clients is where we’re really trying to maximize what can do in terms of adding value to them.
If we go to the next slide, this gives the comparison with the structure that we had earlier. I think everything remains the same and except you will see some breakup on utilities, which shows minus 16% de-growth as compared to last quarter and this was due to the project close that I talked about. So if you really take a broader view on the industries and look at aerospace, the global travel is estimated pickup may be during later part of this year, while the pandemic is not the issue anymore. The oil prices and logistics and labor availability for crew as well as on the ground staff support, I think all of them are still not bringing the demand to the level of pre-pandemic and also some of the specific issues with North American air OEM. I think that continues to struggle and any ecosystem players connected to them will have a challenge on the recovery for a few more quarters. But at the same time, we are seeing some new green shoots in the form of electrification, hybrid or urban air mobility and space and defense. I think this area continues to see a growth. We have added about two new logos in the urban air mobility space and we are very excited about the opportunities that we are likely to see in this domain.
Rail, as I talked about the challenges on offshoring and the consolidation of vendors that continues and we are likely to see the benefit over a period of time, at the same time, we are also expanding into some of the newer areas on rail signaling, embedded and digital transformation across products and factories. Communication, which has seen the strongest growth and we are very bullish on what is likely to be seen for the remainder of the year, and this is led by the network transformation and modernization in the areas of fiber roll out, wireless and 5G. The unique capabilities that we added through Celfinet, which is on the wireless network transformation is going to help us to really capitalize on the growth from our existing customers too. And we also strengthened our private wireless capabilities and this is also helping us from taking the communications practice to the enterprises like mining and manufacturing and other segments.
DLM, we won the largest ever multi-year deal in aerospace and we are very excited about what we announced a few days ago for the Farnborough Airshow, and this is to build a digital cockpit for Avionics and this is for a general aviation and business aviation aircraft system and this gives us confidence to expand, to build this kind of relationship with many of our existing customers, which can really give us the scale over a period of time. While the supply side challenges persist in terms of semiconductor to electronic component availability, but the outlook looks strong.
Moving on the mining, energy and utilities, I think mining, this is — the growth is led by a couple of things, one is the regulatory, which is driving sustainable mining or responsible mining and along with the energy transition and if you look at any of the renewable or clean energy sources, they would require minerals like copper, nickel and other new materials and this is where the mining is likely to see a significant growth, and we are continuing to build momentum on that. Grit Consulting that we added last quarter is going to be another addition to strengthen our growth in this area.
Energy and utilities, the focus again fees on clean energy front. The integration of multiple energy sources, how do we think they can drive the grid modernization, enterprise asset management and finally leading to the de-carbonization of the world. And many of our customers, who have committed to bring this by 2040 to 2050, and that is driving significant amount of digital transformation opportunities that we are going to participate in. We expect recovery on the utilities business by H2 of this financial year.
Automotive and mobility and following on what Krishna talked about I think, the sector is definitely poised for growth this year and enabled by connectivity, improved safety, electrification and customer experience and with our expertise, we are very confident that we can really latch on to the demand that is coming on the Infotainment, Connected, ADAS areas.
Healthcare and Life Sciences, this is another interesting customer that we added. On the Life Sciences side, which is a new line of business for us and we believe we have a unique proposition to offer in the convergence of medical device, healthcare and life sciences. And we’re also providing the quality and regulatory services at scale and our differentiation comes through the digitalization, telemedicine, remote patient monitoring and software-defined medical products and we are working with some of the customers in defining the future of how the medical products are not going to be led by hardware, but are going to be led by software.
HiTech, and this is the business we were calling earlier as a Geospatial and we really want to bring the focus on bringing the offering of digital and technology solutions to tech companies and to drive both location-based services, as well as the digital services and we are trying to take this offering across many of our enterprise customers like mining and communications, automotive and utilities.
Semiconductor, which though it continues to see supply chain issues on the manufacturing side. But the R&D demand looks robust and enabled by the edge analytics, 5G, AI and IoT. And Krishna talked about one of the recognition that we received last quarter for designing the first narrowband-IoT design from India. I think we are really proud of what we have achieved in this segment and we are really seeing that significant opportunities are up for us in terms of silicon design for automotive and industrial applications.
If we go to the next slide, this is where we are really trying to create the future for ourselves and we are calling them as intelligent connected products, autonomous systems and processes and how do we drive the NextGen or hyper connectivity and sustainability, digital platforms and customer experience. Various solutions that you’re seeing on the right side, and I just picked some of them like the Single Board Computing Platform. This is for a medical device customers, where we are trying to create a scalable cost hardware platform and can we really define the software, which can be configurable to really meet various variants that are required to be built up and we are trying to create this platforms to really reduce time to market and really help the customer to innovate faster.
And similarly, we are working on some of the improved ADAS and safety, and this is for a construction and mining customer and we are trying to really integrate some of the camera and lidar sensors and to really help improving the safety of operations. And this is something, which is very unique capabilities that we built over the last many months and we are trying to scale some of these areas. And also getting on the sustainability front, this is an interesting project, which is on battery energy storage system, modular package system. And this is going to help in terms of de-carbonization as well as the carbon sequestration and some of these technologies really help us to build for greener planet and we are seeing the growth in some of these areas are really happening as we speak and we are confident that the sustainability is an initiative is at least a two decade opportunity in terms of how this is going to pan out both on electrification as well as a clean energy sources that are going to get integrated into the utility segment.
With that I’m hand over this back to the Operator. Sorry, Krishna.
Krishna Bodanapu — Managing Director & CEO
I will quickly take you through the outlook for the rest of the year. [Technical Issues]
Operator
Sir, sorry to interrupt you. The audio is not clear.
Krishna Bodanapu — Managing Director & CEO
Sorry. I’m sorry the mic was not on. I’ll repeat that. I’ll take you through the outlook for FY’23. Largely the outlook has not changed. From a revenue perspective, we will continue to grow in the range of or we believe we will grow in the range of 13% to 15% in constant currency for the Group. Of course, this is the organic numbers. So it doesn’t include any of the inorganic that has happened. We have visibility for a high-single digit growth in DLM due to supply chain — supply side challenges. So that continues, but will at least get to the high-single digits. I will add another 6% to 7% due to the acquisitions that we’ve already announced. That is Grit and Celfinet, and this does not take into account Citec, because it’s not close to — still not commenting on it — if or when Citec happens and depending on the timing obviously, it will add a bit more to that growth. But 13% to 15% in constant currency organically, and another 6% to 7% based on current acquisitions plus whatever we get due to the other acquisitions.
On margins, we expect EBIT to be in the 13% to 14% range. As Ajay had explained in some detail, margins did fall in Q1, but there is a clear line of sight of how we will recover. It was a quarter of salary increases and the recovery is also starting to happen as we see some of the costs and how they’re playing out. ETR, the effective tax rate will be around 27% and free cash flow will be in line with what we typically have done in previous years.
So with that, I will now hand it over to the moderator to curate questions, please.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] First question is from the line of Sulabh from Morgan Stanley. Please go ahead.
Sulabh — Morgan Stanley — Analyst
Yeah, hi, thanks for the opportunity. Am I audible?
Krishna Bodanapu — Managing Director & CEO
Yes, you are.
Sulabh — Morgan Stanley — Analyst
Yeah. So, just a clarification to begin with, on the revenue guidance, this strategic buyout of clause is that included in the 13% to 15% organic guidance or 6% to 7% in organic one?
Krishna Bodanapu — Managing Director & CEO
No. It would be on the inorganic one. It’s not in the organic.
Sulabh — Morgan Stanley — Analyst
Sure, sure. Thank you. And then on the utilization front, what led to that dropped this quarter given that it has come in as a negative surprise for us, so because employee addition is something, but the capacity building is something that you would have largely known at that point in time at the beginning of the quarter?
Krishna Bodanapu — Managing Director & CEO
Karthik, do you want to add?
Karthikeyan Natarajan — Executive Director & COO
Thanks, Sulabh, for the question. I think this is built out that we had been planning out for the last two, three quarters, and it is important for us to continue to invest on some of the technology solutions area, one. Two, we also need to build the talent pool that is required for the next six to nine months. So we started putting lot of combination of freshers as well as laterals on the skills that we want to really build up and there is a skill building exercise that is happening as we speak. And that has created pool of engineers that are ready to be deployed, partly in Q2 and partly in Q3. And this is a situation, we really want to get too maybe a quarter ago and we are able to really have this pool of engineers is ready to be deployed at least at next quarter.
Sulabh — Morgan Stanley — Analyst
Okay. And then on the margins — for Ajay. Ajay, given the margins that you reported this quarter versus the guidance that we have on the margins, the path to deliver those margins looks quite steep from here on. So just trying to understand, how do you plan to get there given there is a component of wage hike which is coming in 2Q, again. So what are the near-term levers that you’d see that are there in the vicinity which can remove some of this headwinds out of there?
Ajay Aggarwal — Executive Director & CFO
Yes, I would say that if you look at what has happened during the quarter and what levers we had talked about both internally and to you in terms of what will drive the margin improvement. Absolutely, I think, there is a headwind from the wage hike. It will continue in quarter two as well as in quarter three, we are giving the wage hike spread over the three quarter. The largest part of it has come in quarter one and rest of it will come in quarter two and quarter three. In terms of the levers, if you see that one is that — the biggest one that we are looking at is, some of this inflation. We have also been talking about passing on some of this to the customers in terms of pricing and we have been also talking about the change request and some of those recoveries from the customers. So that’s one area, which you will see will play out. We have a plan for the full year it has played to the plan for the quarter one and it will also play to the plan for the next three quarter.
Second is the bucket is again when you look at our growth, what we are talking about is looking at, not taking business at very low margin or which doesn’t make sense. So season cure if you see in this quarter has also given us about 50 bps and we have a plan for the full year. And we do see a good amount of tail off business with focus on more profitable growth that we can let go off. Automation, I talked about, it is spread over the full year. And you will see that we will do that for the full year. And utilization is one, we have got temporary sort of headwind, which will also play out in the rest of the year. So I think these are some of the things that we’re doing to make sure that we come back for the year as a whole to 13% to 14% of the margin that we had said.
Yes, it will have a steep ask in the next, especially in quarter three and quarter four, but some of those margins, especially for services, we have done in the past. We can come back to those levels.
Sulabh — Morgan Stanley — Analyst
Sure, Ajay. And then on the last bit from my side is on the M&A strategy. So given that we have done three acquisitions and then one buyout in the recent times, so how we are thinking about this going forward? Do we have more targets that are there in the pipeline that we are evaluating or more gaps that we’re looking to fill in the next six to 12 months?
Krishna Bodanapu — Managing Director & CEO
So I think practically, if you look at it. We also have to look at the bandwidth considerations, etc. We’ll definitely pause a little bit because these three have to be integrated. I think this is a strategic buyout is fairly straightforward. There isn’t too much of a challenge or an integration imperative there. But with the others, they have to be integrated and we really have to start seeing the benefits of synergy, the intent is still there, the areas of focus are still there. But the pipeline is now in an early stage given that, how much we have spent, both from a time and effort on these three. We’re still on the early stage. So some of the tactical deals will continue, there are some tactical gaps that we wish to fill. And we’re also in having some conversations at a fairly advanced especially on these tactical gaps. But in terms of the more, the larger strategic M&A I think just looking at where things stand, it will probably be only in the towards the very end of the year or early next year, just looking at the pipeline, etc. So we’re still focused. We’re still going to build out the pipeline, but just practicality and execution — executability, sorry, it means that it will be end of the — later this year, but most likely early next year.
Sulabh — Morgan Stanley — Analyst
Sure. Thanks for taking my questions.
Operator
Thank you. The next question is from the line of Shradha from Asian Market Securities. Please go ahead.
Shradha — Asian Market Securities — Analyst
Yeah. Hello, can you hear me?
Operator
Yes. Please go ahead. We can hear you.
Shradha — Asian Market Securities — Analyst
Yeah, hi. Sir, just one clarification, the margin guidance of 13% to 14%, this is organic margin guidance or does it also include the impact of consolidation of acquisitions.
Krishna Bodanapu — Managing Director & CEO
This is organic margin guidance, but I’ll also say that the acquired entities also have a very similar margin profile at a consolidated manner. But the outlook that we talked about is organic.
Shradha — Asian Market Securities — Analyst
So, sir, because the Grit Consulting, sir, you called as very high margin business and so it’s tempting it at 20% of EBIT margins. So from that perspective, the consolidated EBIT margin profile should ideally look better?
Krishna Bodanapu — Managing Director & CEO
See, I would say that there are two parts. If you look at from the perspective of the businesses as we acquire them, they have been accretive. Then we have to also look at we have done the purchase, price allocation and some of that will have to be depending on how much has gone to the intangibles, this exercise happens, subsequent to when we talk about the announcement of closure of transactions, where we had to also take to the end. Our rough estimate is that we will be at similar margins for the company. Good news is, we don’t expect any dilution on the margins, and also in the first year, we have also seen there are integration expenses. We find people have not taken proper software licenses. There is not enough work done in terms of some of the simple things like certifications for the customers and all. So we have seen that, there is a good investments. So I would say — I would say that we would see that it will not drag the margin. That’s what I would say, Shradha.
Shradha — Asian Market Securities — Analyst
Yeah, sure. And as of quarter end balance sheet, you’ve already made the payments against Grit and Celfinet, is that right?
Krishna Bodanapu — Managing Director & CEO
So as far as Celfinet — Grit and Celfinet, yes. Grit and Celfinet, yes.
Shradha — Asian Market Securities — Analyst
And was there any payments involved around this strategic buyout also?
Krishna Bodanapu — Managing Director & CEO
Yes, there was a payment involved. So we had acquired the people and we had made a payment towards that acquisition of hiring. Yes.
Shradha — Asian Market Securities — Analyst
And what is the potential size of this particular buyer deal, I mean, how big can this particular deal ramp up over the next 12 to 24 months?
Ajay Aggarwal — Executive Director & CFO
I think the buyout is a part of a much bigger deal that we have going on. And like I said, overall that the customer has the potential to be a top five customer, and not just potential, we have a high degree of confidence that it will be a top five customer within the next 24 months. I should probably even quicker next 12 months. The buyout is only one part because it helped us ramp up in the initial phase quickly, but there’s still a significant amount of demand and momentum for wrap up, which continues over there.
Shradha — Asian Market Securities — Analyst
And sir, you took over the offshore employees of this particular client?
Krishna Bodanapu — Managing Director & CEO
Sorry, say that again.
Shradha — Asian Market Securities — Analyst
I mean —
Ajay Aggarwal — Executive Director & CFO
Yes, yes. That is right.
Shradha — Asian Market Securities — Analyst
And sir, can you quantify the amount paid on account of these two acquisitions in this quarter? Because I think there is some contingent based payment also on these acquisitions. What was the the amount paid out this quarter?
Krishna Bodanapu — Managing Director & CEO
We have — so we’ll get back to you on that number.
Shradha — Asian Market Securities — Analyst
Sure. And sir, on DLM, you said that there was some accounting mistake, which is the reason why we had to book one-time expense. But how do we see the visibility of margins in DLM business going ahead? And also if you can talk about the single — high-single-digit growth expected in DLM, how confident are we on that number, given that we have started DLM on a very soft note this quarter?
Ajay Aggarwal — Executive Director & CFO
As far as margin is concerned, maybe I’ll take that and maybe Karthik or Krishna can talk about the growth. So as I said, excluding that one-off the margin is 7%, that’s what we expect for H1. For H2, we are still working out. But what it shows us is it could be marginally better than that for H2. Maybe Karthik, do you want to talk about the growth?
Karthikeyan Natarajan — Executive Director & COO
I would just add to what I just said, I think the supply side issues are not going away. I think we are still trying to deal with them. Hope by end of Q2 or early Q3, it gets better. And we are still keeping our guidance and helping that Q2 would be — sorry H2 would be a better outcome than H1. And on the margin side, we are still trying to look at anywhere between 7% to 9% on EBIT for the DLM business for the full year.
Shradha — Asian Market Securities — Analyst
Sure. That’s it. Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Mohit Jain from AnandRathi. Please go ahead.
Mohit Jain — AnandRathi — Analyst
Sir, two questions. First one is on DLM, like, is there a change in outlook from last quarter versus this time? Because I think this time you’re telling more towards 10% and earlier it was this towards mid-single-digit kind of growth. So that was one. And second, when you’ve given the outlook and you already mentioned that on the M&A side, you have taken a pause for few months? This auto deal that you’ve done, now this involves moving people and you said, there is a bigger plan or bigger deals because the customer can potentially come in. So if you could give some color on what is included in this particular quarter that you just reported? And is it done for the full quarter or half quarter and how should we estimates from the next quarter onwards. What kind of revenue contribution can it have on your number?
Ajay Aggarwal — Executive Director & CFO
See, the — on the first one, I don’t think there is change. I mean, there might be a percentage or two here or there in the outlook on growth from DLM, but overall I think from the commentary perspective, I don’t believe that there is a change in what we’re saying with DLM. And anyway, I mean, it’s either higher made up, which means it’s a couple of percentage here or there, but that’s the range anyway that we will hit.
Mohit Jain — AnandRathi — Analyst
Okay.
Ajay Aggarwal — Executive Director & CFO
Now in terms of this wider deals — that the deal that we signed is actually an MSA that we signed with a large automotive player, after we signed the deal, the demand was quite immediate and therefore we went and found the opportunity to onboard, a number of resources, about 500 resources, which we were extremely fortunate about to come across in quite smart about that very, very quickly and get these resources because there was an alignment and the skills that the customer wants. Now as any growth that is coming on further, the 500 resources, it’s one that will remain where it is, etc., but the MSA, it’s for a much larger set of services and capabilities. And therefore, when we talk about the growth aspirations for Cyient that is covered in the — one of the — obviously there is a number of assumptions of which customers, which industries, etc. One of the assumptions is that this automotive player will also grow quite significantly. So this 500 —
Mohit Jain — AnandRathi — Analyst
The ramp-up is complete, like you’ve taken full three month revenue for the acquisition or for the money that you’ve done.
Ajay Aggarwal — Executive Director & CFO
No, no. We haven’t taken three months revenue. We were probably taken — can we see that [Speech Overlap] part of the quarter we can — Mayur can give you more details when required. But we have only taken part of the quarter. So it has two elements. One is, yes, this will ramp up, but this is just the core, growth will come on top of that.
Mohit Jain — AnandRathi — Analyst
Understood. And now that you have only taken people, how do we take into account attrition, because I’m not very sure what kind of attrition these guys would run? But the payment of around INR85 crore or whatever you have done, it is essentially for the people transfer? Or is there a commitment that these guys will stay? Or is there an element of committed salaries, etc., just to ensure that these stay with site? So what is the plan on that side?
Krishna Bodanapu — Managing Director & CEO
There are commitments in terms of the people continuity etc. It’s not just to transfer one time. So there are commitments and people contribute. And the business commitment comes because of the larger MSA. It’s not that because of the contract we got any business commitment, the business commitment as part of the MSA really that we have.
Mohit Jain — AnandRathi — Analyst
Okay. All right, sir. Thank you and all the best.
Operator
Thank you. The next question is from the line of Akshat Mehta from Sameeksha Capital. Please go ahead.
Akshat Mehta — Sameeksha Capital — Analyst
Hello. Thank you for the opportunity. Am I audible?
Krishna Bodanapu — Managing Director & CEO
Yes, please.
Operator
Yes. Please sir.
Akshat Mehta — Sameeksha Capital — Analyst
Sir, my first question would be on the recent Honeywell partnership that you’ve done, what would be the contract value and the term of the deal?
Krishna Bodanapu — Managing Director & CEO
So we are not disclosing the contract value. It is a very long-term contract, and it goes into obviously multiple tens if not even hundreds of millions of dollar. So it’s a very large contract. Unfortunately, we can’t disclose the value because of some of the non-disclosures that we have with the customer.
Akshat Mehta — Sameeksha Capital — Analyst
Okay. My second question is on the line of the recent acquisitions that you’ve done. Grit and Celfinet. So can you give some quantification on the integration calls that would arise on count of the two? Maybe as a percentage of sales or absolute amount something?
Krishna Bodanapu — Managing Director & CEO
See, what we do is, if you look at in terms of our total investment that is there during the quarter, we have about INR4,063 million total investment, INR406 6 crore. This involves the payout for Celfinet, this particular people that we have acquired and also for Grit of about INR390 crores. And we also have the — another earn out that has been accounted in the investments was one of the earlier acquisitions, that’s how, this is INR406 crore. When we account for these investments, we don’t take the integration cost. What we are taking as the integration cost is another expenses [Speech Overlap].
Operator
We’re not able to hear you proper.
[Technical Issues]
Krishna Bodanapu — Managing Director & CEO
So moderator, there is a problem on Echo. Mr. Akshat, we request you to —
Operator
Mr. Mehta request you to use the handset mode please, if you’re using earpiece, I request you to use the handset mode.
Akshat Mehta — Sameeksha Capital — Analyst
Yeah. Yeah. Is it clear now?
Krishna Bodanapu — Managing Director & CEO
Yes, Akshat. So I was saying that I disclosed the amounts that are taken as investments during the quarter, our integration cost is taken as part of the profit and loss account. And typically 3% to 5% of revenue is what we have seen comes out as one-time expenses, right, for a typical every $10 million you will spend about $350,000. That’s what is enough estimates that we have seen on these integration costs.
Akshat Mehta — Sameeksha Capital — Analyst
Okay. Last question from my side, can you give some color on why the Citec acquisition kind of has been pushed ahead by another three, four, five months?
Ajay Aggarwal — Executive Director & CFO
RBI approval that is required from because of their India presence, they’ve also a fairly sizable India operation, which is — where a good part of the value resides. So that’s just a procedural issue. We’ve have been quite assured that there is nothing of a challenge, but it’s a procedural issue and it will take, as you know, with some of these. It’s also not a huge priority for us to overtly or it’s not a huge issue where we want to escalate and push. I mean, it’s a priority to get close, but not so serious that we want to escalate and that’s why we’re just letting it take its course of time. I mean, we have some really good advisors, bankers, everybody is very confident. So it’s the issue with their India subsidiary having some filings which are maybe not very up to date.
Akshat Mehta — Sameeksha Capital — Analyst
Okay. Can you provide some numbers on what has been the performance in Q1 for Citec or you can’t disclose that?
Ajay Aggarwal — Executive Director & CFO
We can’t disclose that, I’ll just say that Citec.
Krishna Bodanapu — Managing Director & CEO
We hit effort, if you look at when we had announced the transaction, the signing of VSP. We had given the run rates of revenue, it was about [Speech Overlap]
Akshat Mehta — Sameeksha Capital — Analyst
So that will continue to grow that for 11 months of consolidation. So that will continue linearly right is what you’re saying?
Krishna Bodanapu — Managing Director & CEO
That’s right. $20 million top line is the kind of take. I’m just giving you the order of magnitude, top line is about $20 million per quarter. And this is more of after taking into account the integration cost and everything. For the first year, it’s more like 10%, 11% kind of business. Steady state, it’s again at the Company average.
Ajay Aggarwal — Executive Director & CFO
And if you wish you can also — Citec has a bond that’s traded in the public market. So they disclosed the numbers on their website. So you can look at that if you wish.
Operator
Thank you. Mr. Mehta. Request you to join the queue for any follow-ups. We’ll take the next question from the line of Abhishek Shindadkar from Intuit Capital. Please go ahead.
Abhishek Shindadkar — Intuit Capital — Analyst
Hi, thanks for the opportunity and congrats on a good quarter. Just wanted to understand, given that there are three moving parts in terms of acquisition contribution coming in, I know, you’ve given a percentage number. But can you just give any color in terms of the growth rates for those three larger pieces because it seems like Grit is growing 21%, 20-odd percent versus almost 100% plus growth in the previous year as for the filings? So similarly, if you can just give us color on —
Operator
Sorry to interrupt, may I request you to speak from little farther away from the mic?
Abhishek Shindadkar — Intuit Capital — Analyst
Okay. Is this better?
Operator
Yes.
Abhishek Shindadkar — Intuit Capital — Analyst
Yeah. So if — not repeating the entire question, if you can just give the color of the three acquisitions in terms of growth? And to the earlier question on the margins, Ajay sir, we thought that all these three acquisitions are running in plus of 25% EBIT margin. So when we probably would integrate them are we keeping that — are we being a little conservative while guiding the company average margins given the benefit these three acquisitions could bring in at the consolidated level?
Krishna Bodanapu — Managing Director & CEO
From a margin perspective, I’d say, three of them are running at a higher than company average. But we also have a Citec, which is where a lot of the volume will come from, which will be slightly lower than the company average at least in year one. And the second thing is, there’s also integration cost which we have to take into account because of IT systems and various other things, that’s why I say, we’re being a bit prudent on the commentary. We’ll have to see how it all plays out because in our experience, when we typically and even when we paid the consideration for these companies. We have taken a bit of adjustment in margins because when they run as independent companies when — versus when there a partner signed, because of all the overheads that go into a business like Cyient, there will be a dip in margins. So we’re just being prudent. Of course, as things evolve, we will see a better highlight of that.
Abhishek Shindadkar — Intuit Capital — Analyst
Thanks.
Ajay Aggarwal — Executive Director & CFO
You were talking about the growth rates in the earlier acquisitions, maybe give us some time. I think we have given you a color about what happens this year. Give us some time as we proceed on the earnings call we integrate them. I think it will be better placed to talk about those growth rates as Krishna said. Right now the mind is on integration and taking stock, understanding them, I think, it will be a little early to talk about those growth rates but we promised you, we will come back in the coming earnings — press — earning calls and talk about their growth rates.
Abhishek Shindadkar — Intuit Capital — Analyst
Okay, that’s helpful. Krishna, just one clarification in the Citec acquisition call that we did, probably I recollect, we had highlighted that the margins for Citec business have grown from mid-single digits to almost 25% or 30% EBITDA, is that understanding right? Or maybe there is a change in that number or the understanding is absolutely wrong. And the second is —
Krishna Bodanapu — Managing Director & CEO
We have been doing about 13% to 15% kind of EBITDA at their levels and we said after taking into account the integration costs and other things, we will be 10% to 11% in the first year and then going forward, we will be improving that. That’s what we said.
Abhishek Shindadkar — Intuit Capital — Analyst
Okay. And just a last clarification —
Ajay Aggarwal — Executive Director & CFO
Looking at the numbers and they are in line with these numbers.
Abhishek Shindadkar — Intuit Capital — Analyst
Okay. And just a last clarification, in terms of the impact of amortization, Ajay sir, would you like to just give a number in terms of what could be the total impact at the D&A?
Ajay Aggarwal — Executive Director & CFO
Maybe we can come back to you, but broadly what we have seen is that if you look at our current EPS, if I include what number we had given you for Citec as well when we had that call. Roughly, I would say if you look at our base EPS of the last year and you look at the earnings growth, at the full year operation for the next year. Roughly, we are looking at something like 25% kind of increase in EPS, if all these get consolidated into the results and run at full year run rate, that’s what we have in terms of the impact of these. In terms of D&A, maybe we can come back because each has a different purchase price allocation and different computation. I don’t have a thumb rule depending on the asset type, there is a different allocation that happens between goodwill and intangibles.
Abhishek Shindadkar — Intuit Capital — Analyst
Thank you for taking my question and best wishes for the rest of the year.
Ajay Aggarwal — Executive Director & CFO
Thank you.
Operator
Thank you. Ladies and gentlemen, due to time constraints, that would be our last question for today. I now hand the conference back to Mr. Krishna Bodanapu for closing comments. Thank you, and over to you, sir.
Krishna Bodanapu — Managing Director & CEO
Thank you very much and to everybody for joining. As you can see, it’s been a very interesting quarter. I think our organic performance has been in line with what we expected, but now the real opportunity for acceleration for us is both organic performances will continue to remain quite strong, including on revenue growth in margins, but also inorganic has started to kick in and we believe that that will also provide a fairly significant acceleration. So we’re quite excited, I think the road ahead of us now looks quite a little bit clearer than what it was maybe 12, 24 months ago and we’re very excited that we have a very robust strategy that we can execute on and that we are going to be able to execute on this over the course of the next coming quarters. So thank you very much for the support. Thanks for the questions. And of course, as always if there is any follow-on questions, then Mayur Maniyar is always available to answer these questions. So please do reach out to him and if required one of us will also chip in as and when appropriate. With that, thank you very much. Have a good evening. And we’ll speak again next quarter.
Operator
[Operator Closing Remarks]