In an interview to CNBC-TV18, BVR Mohan Reddy, Founder & Executive Chairman of Cyient spoke about the results and his outlook for the company.
Below is the verbatim transcript of BVR Mohan Reddy’s interview to Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: Just tell us what led to this 9.4 percent dollar revenue growth and what do you see as the growth over the next couple of quarters?
A: If you see the performance of the company what you rightly mentioned the 10.3 percent growth on constant currency terms was largely driven by the communication vertical that is number one. The second one is that we also saw growth in our transportation business.
Both these businesses grew very well, very steadily and added to that is our DLM business which is design led manufacturing -- a combination of those three, communication was about 30 percent growth that we saw -- a combination of all those three drove our business. However, rest of the verticals whether it is aerospace or it is our utilities geospatial all of them have been fairly stable whereas, the rest of them grew fairly steeply and that is how you saw this 10 percent growth.
Latha: Would you be able to repeat this performance for the full year as well? You see enough visibility in aerospace and design and in other areas that you operate, communications?
A: We feel very confident about our order pipeline. Our order pipeline right now is at about USD 1 billion which is an all time high. Compared to last year we have increased the order pipeline by 50 percent. That gives us the tremendous amount of confidence that we will be in this path of growing our business quarter-on-quarter. I also quickly want to point out to you Q3 for every business is a soft business in this industry because most of us are export centric and in export centricity the western world has number of holidays starting from Thanks Giving all the way up to Christmas.
We will have some softness because of the capacity itself during the Q3 will be lower by 4 percent. However, we will make it up, but all the same I will stand by for the year’s numbers, we will certainly be doing somewhere in the double digit growth for our core business, but when you add our DLM business it will be much better than that.
Sonia: When you say order pipeline is at USD 1 billion, can you break that up for us? How much of it is coming from communications, how much from transportation, where are you seeing the highest growth come in from?
A: It still continues to come from our aerospace business. That is the largest business that we have. Our order pipeline is from the aerospace business, which is about in the 30-40 percent range.
The second set of verticals that we have are communications and utilities in geospatial, which contribute to somewhere between 10-15 percent or 15-20 percent of our business. Both these verticals also have a good pipeline.
Thereafter, we have two other verticals which is transportation and energy. They contribute about 10 percent each and what we see as our order backlog is also consistent with the percentage of revenue these vertical contributes to us. There is nothing very sporadic we are seeing. It is very systematic we are seeing in terms of the order backlog.
Latha: We understand pound contributes about 10.9 percent to your revenue. Will that mean some impact in Q3?
A: Not necessarily, probably it will have a small impact, 10.9 percent but all the same our forward cover policy has also helped us considerably. I always keep saying that if you have consistent policies then you don’t lose at any point of time. What we have done is above five years back we put a policy in place which said 70 percent of your net earnings for the next 12 months you will do a forward cover. We are consistently doing that and a result today -- though you know, we might have a small challenge in the operating margin, but when it comes to net profit -- will still be consistent with what we have done this quarter also.
Latha: As a seasoned hand in the IT sector itself would you say that it is only the Banking, Financial services and Insurance (BFSI) space that is facing headwinds of orders? Other things like design, communication aerospace and other such areas are still well hydrated with orders?
A: Not necessarily, two things are there. One is certainly yes there is certain verticals which are soft. You mentioned about BFSI, I would extend in to say energy, oil and gas too given where the oil prices are that is also a soft vertical. However, added to that there is also this major disruption that is going through the world. So, there are verticals, which are impacted by the disruption will also have challenge because companies have to re-position themselves, put their service offerings in play, which will definitely be in a position to address the customer requirements. Not necessarily it is only for BFSI it could go in to even retail for that matter.
Latha: You don’t see yourself getting impacted by this whole social media digital analytics wind?
A: Yes and no, may not be from the social media because we are not business to consumer (B2C) company in anyway or our customers are not largely B2C company. They are all business-to-business (B2B) companies. All the same digital is a very important portion of our business too. Our business in digital is more to do with the machine to machine communication. So, therefore these could be in areas like artificial intelligence where automation is coming in or it is 3D printing or it is to do with drones or it is virtual reality, augmented reality these are the areas.
However, what we have done as a company is that we already set up labs for each one of them. We have got enough of domain expertise being built into them. So, we are today in a position to put services line into customers which says that we have innovative solutions for them far ahead of even they thinking about that. So, therefore it is a question of pre-positioning yourself having had the vision in terms of trying to forecast some of these technologies, building that capability is what will make a difference for companies like us.
Sonia: You did say that a big chunk of your business comes in from aerospace are you seeing higher margins from that business and do you expect to do much better than the 13.9 percent that you posted this quarter?
A: Aerospace is the largest business that we have, but equally important is that our largest customers are in the aerospace business. Therefore whenever you have a very large engagement -- I am sure this is fairly known to people -- that the margins are higher. So, understandably the aerospace business does gives us a higher margin, so is the communication business.
What we have said so far is that we did 14 percent or 13.9 percent as the operating margin for the last quarter. This year we are assuring that we will close the financial year also possibly at least higher than that 14 percent number. So, we will definitely improve our margins as we move forward in the next two quarters.