Cyient Ltd Q4 FY24 Earnings Conference Call Insights

Key highlights from Cyient Ltd (CYIENT) Q4 FY24 Earnings Concall

• Industry Trends
  • China Plus One strategy driving new opportunities in regions like India.
  • Significant technology changes across sectors like EV, communications, AI, Industry 4.0.
  • Overall EMS industry is massive ($1 trillion) with 5.4% CAGR.
  • High-mix, low-volume segment focused on mission-critical electronics is growing rapidly at 30%.
• Business Growth
  • Strong year with significant growth.
  • Inaugurated new facility in Bangalore for precision machining.
  • Expanded with new manufacturing facility in Mysore for increased capacity.
  • Growth driven by working with industry-leading OEMs.
  • Added new client logos.
• Investments & Capabilities
  • Invested in Build to Spec capabilities for design and manufacturing.
  • Appointed a CTO to drive strategic programs.
  • Strengthened supply chain solutions and talent.
  • Enhanced go-to-market and sales capabilities.
  • Received industry recognition and awards.
• Strategy and Future Outlook
  • Focus on large deals with OEMs in high-value segments.
  • Leverage integrated design and manufacturing offerings.
  • Pursue inorganic strategy for capability, capacity, and geographic expansion.
  • Explore opportunities in sectors like EV, automotive, and communications.
  • Continue core focus on aerospace, defense, medical, and industrial sectors.
  • Utilized IPO proceeds to clear debt, fund working capital, and capex.
  • No deviations from stated objects in RHP.
  • Planned investments in headcount to strengthen team for growth.
• Financial Performance
  • Q4 revenue grew 30.5% YoY to INR 361.8 crores.
  • Q4 operating profit grew 19.2% YoY, with 10.5% EBITDA margin.
  • Q4 PAT grew 80.7% YoY to INR 22.7 crores, with 6.3% margin.
  • FY24 revenue grew 43.2% YoY to INR 1,191.9 crores.
  • FY24 operating profit grew 26.5% YoY, net profit grew 92.9% YoY.
  • Fixed asset turnover ratio improved from 6.8x to 8.6x.
• Operational Metrics
  • Q4 order backlog at INR 21,705 million, down INR 262 crores YoY.
  • Q4 net working capital at 79 days, lowest in four quarters.
  • Reduced DSO to 57 days and inventory holding by 20 days in Q4.
  • Generated positive free cash flow of INR 129 crores in Q4.
  • Average net working capital over 100 days in FY24, aim to bring it to 90 days.
  • FY24 free cash flow negative INR 104 crores, manageable given high growth.
• Industry and Product Mix
  • Higher revenue share from aerospace and defense industries in FY24.
  • Increased share of PCBA business in FY24 revenue mix.
  • No preference on product mix, driven by customer programs and preferences.
  • Objective to maintain and enhance margins regardless of product mix.
• Order Backlog
  • Order backlog declined to INR 21,705 million, down INR 262 crores YoY.
  • Order win in FY24 was weaker, half of FY23.
  • Long-term framework agreements in place, new orders expected to fructify.
  • Pipeline is robust, key strategic programs to be announced.
  • Expecting solid updates on order backlog within the next quarter.
• Customer Advances
  • Customer advances as a percentage of sales have come down.
  • Execution of large Bharat Electronics order consumed advances.
  • Concept of customer advances reducing as supply chain eases.
  • Corresponding offset expected with lower inventory levels.
• Margin Expansion
  • As mix shifts from BEL orders to higher-margin orders, margins to expand.
  • BEL to remain a key client, but lower percentage of overall mix.
  • Margin expansion potential as higher-margin orders get executed.
• Outlook
  • Maintained guidance of 30% CAGR over a three-year period.
  • No specific revenue or margin guidance provided for FY25.
  • Line of sight for margin improvement from current levels on a full-year basis.
  • Potential sequential softness in margins for first couple of quarters due to business seasonality.
  • Around 45% of revenue comes in H1 and 55% in H2.
  • Margins expected to improve as higher-margin orders get executed.
  • Target ROCE of 15% in a couple of years, 25% in steady state (5 years).
• Revenue Mix
  • Exports contributing two-thirds of revenue, domestic one-third.
  • Higher growth traction seen in exports business.
  • Strong 78% growth in defense segment driven by Middle East and India opportunities.
• IPO Funds Utilization
  • Utilized around INR 100 crores for working capital requirements in FY24.
  • Of the remaining IPO proceeds, around half earmarked for future working capital needs.
  • Rest to be utilized for capex, general corporate purposes, and M&A.
  • Working capital cycle expected to be maintained at 90-100 days in FY25.
• Healthcare Segment Outlook
  • Currently a smaller segment, but good growth outlook.
  • Working on key opportunities, significant upside potential.
• Bharat Electronics Order
  • $55 million order backlog remaining from initial $95 million order.
  • Margins substantially lower compared to rest of the business.
  • Key contributor to declining customer advances as order gets executed.
• Revenue Mix Outlook
  • Targeting 25% revenue share each for medical and industrial segments in 2-3 years.
  • Aerospace and defense to contribute around 50% of revenue in that timeframe.
  • Diversification from current high exposure to aerospace and defense.