Cyient DLM — Q3 FY25 earnings call

Call held 21 Jan 2025

Management summary

Cyient DLM reported strong consolidated revenue growth in Q3 FY25, significantly boosted by the Altek Electronics acquisition. While adjusted EBITDA margin was 8.1%, one-off M&A expenses impacted reported profitability. The company highlighted successful integration of Altek, a robust order pipeline exceeding $1 billion, and strategic positioning to capitalize on U.S. localization trends and diversification into industrial and medical sectors.

Highlights

  • Consolidated Revenue of ₹444.2 crores, up 38.4% YoY.

  • Standalone Revenue of ₹357.3 crores, up 11.3% YoY.

  • Adjusted EBITDA at ₹35.9 crores, with an 8.1% margin.

  • Adjusted PAT at ₹16.6 crores, reflecting a 10% YoY de-growth.

  • Consolidated Order Backlog of ₹2,142.9 crores, including ₹291.5 crores from Altek.

  • DSO improved to 76 days, and net working capital stood at 120 days.

  • Industrial segment grew 47% YoY, and Medical segment grew 156% YoY.

  • Positive free cash flow for the quarter.

Key financials

  1. Consolidated Revenue ₹444.2 Cr +38.4%YoY
  2. Standalone Revenue ₹357.3 Cr +11.3%YoY
  3. Adjusted EBITDA ₹35.9 Cr
  4. Adjusted EBITDA Margin 8.1%
  5. Reported EBITDA ₹27.9 Cr
  6. Adjusted PAT ₹16.6 Cr -10%YoY
  7. Reported PAT ₹10.8 Cr
  8. DSO 76 days
  9. DIO 129 days
  10. DPO 69 days
  11. Net Working Capital 120 days

What they filed

Q1 FY27: revenue up 34.5%, net profit up 128.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue389 444 428 278 311 −20%303 −32%369 −14%374 +35%
EBITDA32 28 57 25 31 −3%28 +0%43 −25%39 +56%
Net profit15 11 31 7 32 +113%11 +0%22 −29%16 +129%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Industrial (Growth)
    0.47 YoY Growth
  • Medical (Growth)
    1.56 YoY Growth
  • Box Build (Growth)
    0.16 YoY Growth
  • Rest of the World (Geography)
    61% Share of Total
  • India (Geography)
    39% Share of Total

Order book

high confidence

Total value

₹2,142.9 Cr

as of 2024-12-31 quantified

Execution

Execution time on the order backlog is 18 to 24 months. For new plan/award to meaningful revenue, it is 9 to 12 months.

Composition

Mix 2 geographies
  • Rest of the World (includes Altek) 61%
  • India 39%

Share of order book by geography

Pipeline

deal pipeline tcv

Pipeline is considerable with over $1 billion in B2B opportunities.

The pace at which the large order from one of the key customers is being consumed is higher than where we are seeing the growth, leading to a decline in standalone order book.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹190 Cr used IPO proceeds and general corporate proceeds
    We have used up only 135 crores so far, but we will roughly use up about 190 crores by the end of the year. and we will have another 100 crores left for the next financial year in terms of the working capital requirements.
  • Debt Debt disclosed
    • Repayment repaid all external borrowings
    We have repaid all the external borrowings and the trend on the working capital and CAPEX is lower than what we had expected.
  • M&A Altek Electronics Acquisition · Integrated

    Leveraging synergy benefits, expanding into U.S. defense (ITAR programs), providing business diversity in industrial and medical sectors, and creating U.S. manufacturing capability to capitalize on localization requirements.

    PAT accretive deal on a full-year basis; Altek's EBITDA margins are similar to ours but with a roadmap to 10% sustainably.

    In the last quarter, we announced the acquisition of Altek Electronics, a leading EMS company based in Florence, in Connecticut in the U.S. The strategy behind this deal was clearly on leveraging synergy benefits... So, first of all, the Altek's EBITDA margins are similar to ours in this particular quarter, but they have a roadmap for getting to about 10% at least. Even when the acquisition was made and we have seen the historical performance, I think they have operated at around 10%.
  • Liquidity Liquidity disclosed Consolidated company level had positive free cash flow for the quarter.
    I am also happy to report that at the consolidated company level, we have had free-cash flow which is positive for the quarter.

Guidance & targets

Profitability

  • Altek EBITDA Margin Profitability · sustainable basis · High confidence about 10%
    So, first of all, the Altek's EBITDA margins are similar to ours in this particular quarter, but they have a roadmap for getting to about 10% at least. Even when the acquisition was made and we have seen the historical performance, I think they have operated at around 10%. We have a few expenses which are sort of just immediately after the acquisition that have taken place this quarter, but we have a clear line of sight to get to 10% on a sustainable basis in Altek.

    — Krishna Bodanapu

  • Overall Margin Profitability · full-year basis this year · Medium confidence higher margin
    Yes, see, we will also end with the higher margin on a full-year basis this year as well.

    — Shrinivas Kulkarni

  • Overall Margin Profitability · first milestone · Medium confidence 10%
    And yes, 10% is just starting with one milestone. It's not something that stops at 10%, right? I think our aspiration is bigger than that. But I think the first milestone for us is to consistently deliver 10% and then grow from that point on.

    — Shrinivas Kulkarni

  • Margins Profitability · Q4 and beyond · High confidence improve
    As we get into Q4, I think the one large deal, which is slightly a drag on the margins, is going to ramp down significantly, right? And therefore, I think our margins will improve in Q4 and beyond.

    — Shrinivas Kulkarni

Working Capital

  • DSO Working Capital · High confidence between 60 and 70 days
    So, we will obviously as we target our DSO to be between 60 and 70 days, it's currently at 85 days, I think we will start seeing that improvement.

    — Shrinivas Kulkarni

  • DIO Working Capital · Medium confidence between 90 and 100 days
    DIO, we are at 129 days. Again, this is a little bit higher than last quarter, but we have a road map to get to between 90 and 100 days and we are still at a level which is slightly elevated more than where we would like to be.

    — Shrinivas Kulkarni

Capex

  • IPO Proceeds Utilization for Working Capital Capex · by the end of the year · High confidence about 190 crores
    We have used up only 135 crores so far, but we will roughly use up about 190 crores by the end of the year. and we will have another 100 crores left for the next financial year in terms of the working capital requirements.

    — Shrinivas Kulkarni

Market context

  • Margins Profitability · exit quarter for the current year · Medium confidence good
    But the exit quarter for the current year, margins will be good, right, which will argue well for the next year, that is, the next financial year as we go into it.

    — Shrinivas Kulkarni

What to watch in Q4 FY25

Overall Margin Improvement

Next quarter (Q4 FY25)
Current Adjusted EBITDA margin 8.1%
Target Improved margins

Why it matters

Management expects margins to improve significantly in Q4 as a large low-margin deal ramps down, which is crucial for profitability.

As we get into Q4, I think the one large deal, which is slightly a drag on the margins, is going to ramp down significantly, right? And therefore, I think our margins will improve in Q4 and beyond.

Risks & concerns

  • Order book growth without corresponding revenue growth (execution delays)

    medium

    Organic order book growth was slower than consumption, leading to a decline in standalone order book. Management attributed this to consumption of large orders and longer gestation periods for new large deals.

    Analyst acknowledged

  • Working capital deterioration (receivables buildup)

    low

    Bad debt provisions and ECL taken on aging receivables, but management stated it's a one-off event and expects improvement with DSO target of 60-70 days.

    Analyst acknowledged

  • Margin pressure due to one-off expenses and business mix

    low

    Adjusted EBITDA margin was 8.1%, lower YoY by 109 bps, due to one-off M&A related expenses and a specific low-margin deal. Management expects improvement in Q4 as low-margin business ramps down.

    Management acknowledged

Q&A highlights

4 direct
Order book growth and U.S. market outlook post-Altek acquisition. Partial
Altek has the shortest sales cycle compared to Cyient DLM. So, they will fill a lot of orders even during the year... I think we will definitely see much higher growth in North America compared to what we have seen in the past.

Addresses concerns about standalone order book decline and provides a positive outlook for U.S. growth driven by Altek and localization trends.

Asked by Deepak Krishnan

Sustainability of Altek's EBITDA margins and overall company margin targets. Direct
So, first of all, the Altek's EBITDA margins are similar to ours in this particular quarter, but they have a roadmap for getting to about 10% at least. Even when the acquisition was made and we have seen the historical performance, I think they have operated at around 10%.

Clarifies Altek's historical profitability and the company's ambition to achieve 10% EBITDA margin sustainably for the acquired entity.

Asked by Deepak Krishnan

Reaffirmation of 30% CAGR guidance and current organic growth. Partial
Yes, regarding the 30% figure that we have discussed, that's just been more of a guidance, you know, it's more of a CAGR year-on-year. I think you are gonna find some variability... So, it's not meant to be a firm 30% year-on-year guide.

Management clarifies that the 30% CAGR was a guidance, not a firm target, acknowledging variability and lower organic growth in the current quarter.

Asked by Deepak Krishnan

Explanation for strong free cash flow despite minor working capital changes. Direct
No, I mean the release of working capital is significant. Even though it looks like seven days, I think that does translate to a big number, right? So, you will see the, I mean 47 crore also includes some of the cash generation that is coming from Altek.

Provides insight into the drivers of positive free cash flow, attributing it to working capital release and Altek's contribution.

Asked by Deepak Krishnan

Impact of one-off expenses (ECL, M&A) on Q3 profitability and future margin trajectory. Direct
No, this is a one-off thing. I think we have had some of the receivables not getting collected during the December quarter owing to holidays and a few other factors like that. Definitely one-off thing. We will see substantial improvement going forward.

Addresses the temporary nature of certain expenses impacting margins and provides assurance of future improvement.

Asked by Vipraw Srivastava

The reason for 11% standalone growth and the conversion of large deals from the pipeline. Partial
Yes, these programs do have impact on our next two fiscal years, and so definitely some on FY '26. And they really are dependent on, you know, a couple of these are transfer programs and a couple other different programs. So, there are some variability there as to how fast they come in, but again we do see the impact on the field starting in the next couple of years.

Explains the longer gestation period for large deals and their impact on future fiscal years, indicating that current growth might not fully reflect pipeline strength.

Asked by Vipraw Srivastava

The difference between Cyient DLM's and Altek's business models and ROE. Direct
So, I think from a ROE perspective, both businesses will end up being quite similar. If you look at the advantage that Altek brings, two things, right? One is Altek works in some very sophisticated sectors like industrial, safety critical industrial, or safety critical medical, which is a complement to what Cyient DLM does... The second thing is the defense angle that Altek brings to the table.

Clarifies the strategic fit and complementary nature of Altek's business, particularly in specialized sectors and U.S. defense manufacturing.

Asked by Deval Shah

The status and impact of the large aircraft tooling technology contract. Partial
No, it's a large award, right? So, from a total contract value perspective, that value is high. We have not received specific purchase orders, which are large yet. As you know, I think the cycles are very long in this industry... But right now, we are not counting any significance from that program into our order book.

Provides clarity on a significant contract, distinguishing between a large award and its current impact on the order book, highlighting the long sales cycle in the industry.

Asked by Mihir Manohar

2 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Cyient DLM reported consolidated revenue of ₹444.2 crores for Q3 FY25, marking a significant 38.4% year-on-year growth, primarily driven by the Altek acquisition. Standalone revenue grew 11.3% YoY to ₹357.3 crores. Adjusted EBITDA stood at ₹35.9 crores, translating to an 8.1% margin, while adjusted PAT was ₹16.6 crores, a 10% YoY decline. The company also reported positive free cash flow for the quarter, indicating improved operational efficiency.

Altek Integration & U.S. Localization Strategy

The acquisition of Altek Electronics, an EMS company in Connecticut, has been successfully integrated within one quarter. This strategic move diversifies Cyient DLM's industry base, particularly in industrial, medical, and defense sectors, and provides U.S. manufacturing capability. Management anticipates significant growth in North America, driven by Altek's shorter sales cycle and the increasing demand for local manufacturing due to U.S. industrial policies, with synergy revenue expected in the next few quarters.

Order Book and Pipeline Dynamics

The consolidated order backlog reached ₹2,142.9 crores, with Altek contributing ₹291.5 crores. The standalone order book saw a decline as consumption of existing large orders outpaced new wins. The company maintains a robust pipeline of over $1 billion in B2B opportunities, with three large deals in advanced stages of negotiation. Management expects these conversions to drive order book growth in the coming quarters, though execution timelines for large A&D contracts can extend to 18-24 months.

Profitability and Margin Outlook

Adjusted EBITDA margin for Q3 FY25 was 8.1%, impacted by one-off M&A related expenses and a specific low-margin deal. Management expressed confidence in margin improvement in Q4 and beyond, as the low-margin deal ramps down. Altek's EBITDA margins are currently similar to Cyient DLM's but have a clear roadmap to reach 10% sustainably, contributing to the overall company's aspiration for higher margins.

Working Capital Management and IPO Proceeds

Cyient DLM demonstrated improved working capital management, with DSO reducing to 76 days from 85 days, and DPO improving to 69 days. DIO, however, increased slightly to 129 days, with a target to bring it down to 90-100 days. The company utilized ₹135 crores of IPO proceeds for the Altek acquisition and general corporate purposes, with plans to deploy approximately ₹190 crores by year-end, leaving ₹100 crores for next fiscal year's working capital needs.

Sectoral Growth and Diversification

The acquisition of Altek has significantly diversified Cyient DLM's industry mix, with industrial and medical sectors now contributing a larger share. The industrial segment witnessed a 47% year-on-year growth, while the medical segment grew by an impressive 156% year-on-year. This diversification is seen as a positive development, enhancing business resilience and opening new growth avenues, particularly in high-value, mission-critical electronics.

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