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.