Cyient Q1 FY27 earnings call

Cyient's semiconductor business, comprising services, custom ASIC, and custom ASSP, continues to grow. The combined revenue from Cyient and the recently acquired Kinetic Technologies reached $17.9 million in Q1 FY27, with organic semiconductor business growing 5% QoQ to $7.5 million. The custom ASIC pipeline now exceeds $100 million. A significant milestone was achieved with the closure of a $30 million fresh capital raise for Cyient Semiconductors, based on a $500 million post-money valuation, providing balance sheet strength for future growth and scale. The company launched seven new GaN-powered chips, leveraging Navitas technology.

Cyient DLM reported a very strong Q1 FY27, reinforcing its underlying business strength. The segment achieved its highest ever order book, supported by robust order inflow and a book-to-bill ratio exceeding 1.5. This performance was complemented by strong year-on-year revenue growth and sustained double-digit EBITDA margins for four consecutive quarters. Management attributed this success to operational excellence, revenue quality, and disciplined cost management, alongside key leadership hires to strengthen its go-to-market engine.

The DET segment reported Q1 revenue of $162.5 million, experiencing a -0.5% sequential and -0.9% YoY degrowth in constant currency. In INR terms, DET revenue was Rs.1540 Crores, up 2.7% QoQ and 10.6% YoY. Despite the revenue challenges, DET's normalized EBIT margin improved to 13.2%, an increase of 79 bps QoQ and 114 bps YoY, driven by continued cost optimization and favorable foreign exchange. The gross margin stood at 32.7%, down 13 bps QoQ but up 127 bps YoY.

While transportation and mobility showed strong growth (3% QoQ CC, 14.8% YoY CC), the strategic units segment experienced an -8.2% QoQ degrowth, primarily due to a contraction in the energy business. Management acknowledged that the previous strong performance in energy was tied to a single large project that has now completed. They are rebuilding the go-to-market team and broadening their service portfolio, expecting market-comparable results in 2-3 quarters. The overall degrowth was also influenced by slowness in discretionary projects due to geopolitical uncertainties.

Cyient completed a share buyback program, extinguishing 6.4 million equity shares at Rs.1,125 per share, totaling Rs.720 Crores, representing approximately 5.76% of paid-up capital. The acquisition of TAO Digital Solutions is progressing well, with closing expected by August 2026, and $1.4 million in transaction costs expensed in Q1. This acquisition is anticipated to add $40-50 million in revenue. The company also raised $30 million in fresh capital for its semiconductor business, a mix of debt and equity, with the debt carrying a low interest rate (sub-3%).

Management reiterated its goal of achieving a 15% EBIT margin but indicated that this target might take longer than the originally aimed Q4 FY27, likely extending into FY28. This revision is primarily due to a slower-than-expected revenue ramp-up, although cost optimization efforts are on track. The company is consciously continuing investments critical for future growth. The full-year run rate Effective Tax Rate is expected to be between 27% and 28%, down from 29.2% in Q1 FY27.

The company noted that geopolitical uncertainties, including the West Asia crisis, have led to customer caution and delays in awarding discretionary projects across various segments. While existing programs and budgeted projects in transportation and mobility have not yet seen significant impact, management acknowledged a theoretical threat if disruptions persist, potentially affecting flying hours and industry revenue. This macro overhang is also impacting new projects in aerospace and energy, though existing business remains unaffected.