Cmp-:415
Cyient Limited is a 27 years old based Indian Information & Technology outsourcing company focussing on the areas such as engineering, manufacturing, data analytics, and networks & operations. Established in the year 1991 as Infotech Enterprises Ltd, the company was rebranded as Cyient in 2014 featuring among the top 30 outsourcing companies in the world as of 2018.
It currently operates through eight strategic business units: Aerospace & Defense; Transportation; Industrial, energy and natural resources; Semiconductor, Internet of things and Analytics; Medical and Healthcare; Utilities & Geospatial; Communications and Design-led-manufacturing (Cyient DLM).
Cyient has its headquarters and development facilities in India and serves a global customer base through its subsidiaries and joint ventures in the United States of America (USA), United Kingdom (UK), Germany, Japan, Australia, Singapore and India. Cyient’s range of services include digitization of drawings and maps, photogrammetry, computer aided design/engineering (CAD/CAE), design and modeling, repair development engineering, reverse engineering application software development, software products development, consulting, analytics and implementation. Cyient specializes in software services and solutions for the manufacturing, utilities, telecommunications, transportation & logistics, local government and financial services markets.
The company has figured among the ‘200 Best under a Bullion’ listed in the Forbes Asia. Also, the company was rated as one of the top 100 global outsourcing companies in the year 2007 by International Association of Outsourcing Professionals.
During the current year, Cyient’s A&D business unit acquired Certon Software Inc. and its wholly owned subsidiary Certon Instruments Inc. an IP-led, innovative full product life cycle engineering services provider, offering services and solutions to companies seeking certification approval for safety-critical products. This has helped in expanding Cyient’s capabilities in model-based systems engineering tools and test automation. With this acquisition, Cyient aims to reduce risks and time-to-market for its clients’ new avionics products.
In the current year Cyient completed venture investments in two medical technology start ups that are developing innovative solutions for remote cardiac monitoring and diagnostics. Cyient also made a strategic investment in intellectual property that will enable the company to deliver tactical communication systems for Indian Defense Services and align very closely with the sector’s preference for indigenous design, development, and manufacturing-an important cornerstone of the country’s Make in India initiative.
To leverage new technology and to drive non linearity in its business, Cyient started a new business unit called the ‘New Business Accelerator (NBA).’ This group focuses on identifying and commercializing new solutions with an emphasis on emerging technology and innovation. NBA operates as an internal incubator and offers an intensive, startup-like environment to develop technology led solutions.Currently NBA is incubating 18 new initiatives and the first corp is at the market entry stage generating strong interest from the customers. The client IoT Platform, Cyient Augmented/Virtual Reality Platform and Cyinet Smart City Platform are few examples.
Company’s precision agriculture initiative (in cooperation with major agriculture company) is showing promising result in increasing the net income of the farmers .
Company has presence across 55 locations with 15000+ associates spread across 20 different countries with more than 300 clients.
Some of the key areas/problems Company is trying to solve/working on are-:
- Ensuring high Quality Manufacturing processes in Aerospace and Defence Industry.
- Enabling reality – led Immersive Workforce experiences.
- Enhancing Experience with improved Network Quality
- Building operational intelligence with connected Equipment.
- Driving IoT Enabled decision making.
- Designing protein analyzer for emerging markets
- Enable safer train journeys for passengers
- Enabling video on demand- Anywhere in the home.
- Maximazing productivity of Radar Surveillance Systems
- Leveraging Satellites for Field Asset Safety
Acquisitions-:
Over the past years company has made several acquisitions.
Buyback-:
In its meeting held on 1 February 2019, approved the Buyback of its fully paid-up Equity Shares of the face value of ` 5/- each, from its members/benecial owners, other than those who are promoters or the persons in control of the Company and the promoter group, from the open market. The size of the buyback was ` 200 crores, and at a maximum price not exceeding ` 700/- per Equity Share, payable in cash. The Company has bought back and extinguished a total of 31,23,963 Equity Shares at an average price of ` 640.2105 per Equity Share
Revenue Bifurcation-:
Cyient has operations across the globe. It derives around 60% of its revenue from the Americas, 29% from Europe, the Middle East, Africa, and India, and around 11% from the Asia Pacific.
Financials-:
1) Sales Growth:
The company over a period from 2008-2017 has shown good revenue growth of CAGR: 20%, though the growth has been decreasing in the last few years. Sales of the company increased from ₹953 cr. in FY2010 to ₹4,618 cr in FY2019.
2) Profit margins:
Operating margin has seen some constraints in the last 4 years decreasing from 18.5% to 12.5%. This could be explained by the investments done in the DLM business unit where a lot of capital is being stuck in inventory and the adverse currency movement, which owing to the export nature of the company has resulted in lower sales and margins.
3) CFO vs PAT for Cyient Ltd:
Over the period of 2008-2017, the company has posted a total net profit of ₹2,170 cr while the total cash from operations is ₹2,000 cr.
Slowing business drag top line and operating margins Cyient Ltd., one of the leading Engineering and Research and development services, company reported revenue degrowth of 5.2% QoQ and 2.6% on YoY basis in CC terms at Rs. 1,089 crs.
The EBITDA margin in Q1 FY20 has declined by 180bps to 13.3% from 15.1% in Q4 FY19.
The Net income declined in Q1 FY20 at Rs. 90crs. Order intake for the quarter also remained softer during the quarter at $155mn as compared to previous quarter.
Holdings-:
Promoters hold around 23% shares of the company.
Notable Foreign Portfolio Investors such as Government Pension Fund Global , Amansa Holdings etc hold around 45% shares of the company.
Mutual funds hold 17% shares of the company.
Key Takeaways-:
- In Communication vertical, Cyient is facing some issues on key account customers. on DLM side, which drove decline in segmental revenue.
- The management is expecting the EBIT margin to grow by double digit in FY20. NBA program will help improve the efficiency in the operations.
- Cyient’s management expects slowdown to be short term and business to normalize towards the end of Q2. The digital solutions offerings are gaining momentum and the management sees increased interest among several of clients. The Outlook for Q2 remains positive, company expects a single digit growth through the quarter driven by growth in key clients and manufacturing business.
- The cost optimization measures taken helped deliver a good margin growth through the quarter. Management expects single digit growth in Q2 margin driven by growth in Europe and North America as it continues to support large carriers in fibre network rollout.
- Service EBIT margin stood at 10.5%; DLM margin stood at -0.3%.
- Strategic Investment in Cylus (a rail cyber security company) – strengthened its focus on digitization and cyber security solutions for the rail industry.
- Order intake stood at $155 mn, the order intake was lower than the previous quarter (196) due to slow
- Company has paid the highest every dividend of Rs 15 per share taking the Payout Ratio (post tax) at 82% in 2019.
- In total 400 Cr has been returned to the shareholders in 2019.
- Company has debt of 368 crore Rs while the cash and equivalents stand at 970 crore Rs . Company believes in maintaining sufficient cash in event of any organic as well as inorganic expansion via acquisitions.
Going Forward-:
Comments-:
Cyient has been in a down cycle for the past few quarters due to internal issues in some of the large clients that led to deferrals of orders and suspension of project flows. We believe the issues in Cyient are typical of the cyclicality in the ER&D industry given its high client concentration (Top5/Top10 clients are 37/50 percent of services revenues). Also, its integration in the supply chain of its large clients is high and thus, with no major client loss, it should be a net gainer once the cycle revives.
Thus, a probable recovery in the revenue growth from 2QFY20 + shift in valuations to FY21 by Q2FY20 could revive investors’ interest given the stock’s inexpensive valuations (10.7x FY21F EPS). Its is expected that Cyient may report net profit at Rs. 118.5 crore up 31.3% quarter-on-quarter (down 6.8% year-on-year).
Industry Outlook & Business Performance
The company further wishes to foray into business such as -:
Additional Notes-:
Acquisitions-:
In April 1997, the company acquired SRG Infotech, a software company which provided services in oracle and visual basic client server environments.
In January 1999, the company entered into an agreement with Navionics Italy for digitization and Conversion services. In July 1999, they established a wholly owned subsidiary namely Infotech Software Solutions Inc in USA which is engaged in the business of supplying computer software and related services. In September 1999, they acquired Cartograpic Sciences Pvt Ltd, Mumbai from Analytical Surveys Inc, USA and in April 2000, Cartograpic Sciences merged with company.
In May 2000, the company entered into a Master Services Agreement with Pratt & Whitney, a division of UTC group and in April 2001, the company acquired European GIS distributor Map Centric a leading independent GIS distributor in Europe.
In September 2003, the company incorporated Infotech Aerospace Services Inc, a wholly owned subsidiary in Puerto Rico for providing engineering design services and also they signed a long term outsourcing contract with Bombarder Transportation for providing Engineering Services in India. They acquired VARGIS, a US based GIS Services Company through their wholly-owned subsidiary Infotech Software Solutions Inc, USA.
In March 2005, the company acquired Tele Atlas India Pvt Ltd and also entered into a long-term service agreement with Tele Atlas NV. They opened their branch offices in Singapore and Australia to provide services to growing number of clients in Asia Pacific region.
In May 2005, the company inaugurated Geospatial production facility at Frostburg, Maryland, USA in collaboration with Frostburg State University, Allegancy Country and state of Maryland, USA. They have also set up a new office at Rockford, Illinois, USA which shall cater to the needs of After Market Services in the engineering design space.
In February 2007, the company set up a development center at Kakinada in Andhra Pradesh. During the year 2007-08, the company acquired 74% stake in Geospatial Integrated Solutions Pvt Ltd and they become a subsidiary of the company which was renamed as Infotech Geospatial (India) Ltd. Also, they established Infotech HAL Ltd, a 50:50 joint venture with Hindustan Aeronautics Ltd to focus on aeroengines, technical publications and anticipated work from various OEMs under offset programmes.
In May 2008, the company bagged 3 year GIS/ Data Management contract from Powercor Australia & CitiPower Limited. The company set up a marketing and liaison office in Japan in August 2008 and inaugurated a new facility at NOIDA on September 22, 2008.
In October 2008, the company acquired 100% stake in TTM India Pvt. Ltd and signed a new long term contract with Bombardier Transportation to provide engineering, electronic design, technical publications, and IT-related services to Bombardier Transportation divisions worldwide. In the same month, the company incorporated a wholly owned subsidiary namely Infotech Enterprises Engineering Services Pvt Ltd in Andhra Pradesh.
During January 2010, the company acquired Daxcon Engineering Inc., USA and also acquired Wellso inc; USA in August 2010.
During 2011, IGIL (Infotech Geospatial India Ltd) became a wholly-owned subsidiary of the company.
During October 2012, the company set up branch in South Korea.
In January 2013, the company inaugurated new development center in SEZ in Kakinada. The company also set up branch in Taiwan and South Africa in September and November respectively.
In March 2014, the company announced the acquisition of Softential, Inc. Softential brings significant domain expertise, track record and referenceable customers for service management and service assurance solutions. This acquisition aligns well with our strategy of leveraging our network engineering capability to expand into the areas of operational support and managed services for the communications industry.
During September 2014, the company opened the Dallas Engineering Center and also strenghtened aerospace and defence capabilities. During 2015, the company opened delivery Centers in Taiwan to addresses mature semiconductor market.During the financial year ended 31 March 2015, the company changed its name from ‘Infotech Enterprises Limited’ to ‘Cyient Limited’. This name change is part of the company’s re-branding exercise.
During September 2014, the company opened the Dallas Engineering Center and also strenghtened aerospace and defence capabilities. During 2015, the company opened delivery Centers in Taiwan to addresses mature semiconductor market.
Headquartered in Melbourne, Cyient Australia Pty Limited (CAPL) was incorporated during the year 2014-15. CAPL seeks to provide engineering, data and network operations services for Asia Pacific region.
Cyient acquired a majority stake in Invati Insights Private Limited, a Hyderabad, India and Troy, Michigan, USA based datasciences company in October 2014. The company was subsequently renamed Cyient Insights Private Limited (CIPL). CIPL enables customers drive business innovation and deliver quantifiable business results through smart data analytics and actionable intelligence. CIPL leverages Cyient’s relationships in different verticals such as Auto and Heavy Engineering, Aerospace, Transportation, and Utilities and its global delivery model in executing projects.
Cyient acquired a majority stake in Rangsons Electronics Private Limited REPL in February 2015. Established in 1993 and headquartered in Mysore, Karnataka, REPL operates world class production facilities to support the requirements for Electronics Manufacturing Services (EMS) and System Integration requirements from customers globally. REPL is one of the fastest growing companies with customers in India, North America, Europe, Japan and China. REPL’s strategic positioning in the Railways segment is further boosted with the receipt of IRIS certification, an international railway industry standard. Further, the NADCAP AC7120 accreditation demonstrates the company’s commitment towards customer satisfaction and meeting stringent industry specifications on a global scale.
Cyient’s Aerospace and Defense business unit acquired Pratt and Whitney’s aftermarket business Global Services Engineering Asia (GSEA) on September 1, 2015. Through this transaction, Cyient continues to build on its growth strategy for the Asia Pacific region, specifically in aftermarket services for the aerospace industry.
In September 2015, Cyient SRO, Czech Republic was established to provide engineering and data services to customers across the European Union.Infotech Geospatial India Private Limited (IGIPL), a wholly owned subsidiary of Cyient, was merged with the company effective 1 April 2015 vide order of the High Court of Judicature at Hyderabad for the states of Telangana and Andhra Pradesh dated 2 March 2016. This is mainly to simplify the operations in India.
FY 2017 marked Cyient’s first year under its industry-focused organization structure, providing significant operational benefits, such as an increased momentum in strategy execution and new acquisitions to strengthen its Aerospace & Defense (A&D) and Geospatial capabilities.
Cyient’s Communication business unit rolled out several new service offerings around Information Technology Operations Analysis (ITOA), Software Defined Networking (SDN), rail communications, smart cities, small cells, and wireless coverage.
In November 2016, Cyient SRO, based in Prague, the Czech Republic, completed the acquisition of Blom Aerofilms Ltd, the UK subsidiary of NRC Group from Norway. The business brings a team with complementary skills of around 40 associates, mostly based out of their offices in Cheddar, Somerset. The company is an ISO 9001 and ISO 27001 certified organization.
After acquisition of a majority interest in Rangsons Electronics Pvt Ltd (REPL) in 2015, Cyient completed the integration and in 2017 renamed REPL as Cyient DLM Pvt Ltd. This is towards Cyient’s vision to provide a complete product life cycle solution (Design Led Manufacturing (DLM)) to its customers as part of its S3 strategy.
During FY 2017, Cyient established its local presence in Israel to engage more closely with Israeli Defense OEMs who are significant clients for the company’s Design-Led Manufacturing (DLM) business.
During the financial year ended 31 March 2018, Cyient’s Aerospace and Defence Business Unit (BU) continued to witness strong rise in demand for risk sharing business models from its clients.
During the financial year ended 31 March 2018, Cyient’s US subsidiary Cyient, Inc. acquired B&F Design Services, a Connecticut based company, engaged in the design and manufacturing of tools, which will focus on machining development hardware for the aerospace and defense industry .Cyient’s Transportation BU witnessed a strong growth in FY 18 driven by growth in key clients and new wins.
Cyient’s Semiconductor, IoT and Analytics BU made good progress in setting up verification and validation lab for key clients. The business unit also started working with a number of new clients. The company made two key investments. First was the acquisition of Ansem N.V. which specializes in advanced analog, radio frequency and mixed-signal integrated circuit design. AnSem N.V. specializes in advanced analog, radio frequency, and mixed-signal integrated circuit design. The company also signed a definitive agreement to acquire 100% ownership of Cyient Insights Private Limited (Cyient Insights). The company earlier owned 51% stake in the company. This investment will allow the company to provide integrated engineering and analytics solutions for its clients.
