Q4FY20 will see marginal growth from the cost optimization program.
Engineering and technology solutions company Cyient's third-quarter profit grew by 10.4 percent sequentially to Rs 107.6 crore on revenue of Rs 1,105.9 crore.
The rupee revenue fell 4.6 percent compared to Rs 1,158.9 crore in September quarter, while dollar revenue declined 5.5 percent quarter-on-quarter (QoQ) to $155.2 million in the quarter ended December 2019.
Earnings before interest and tax (EBIT) also dropped 5.6 percent sequentially to Rs 105.3 crore and margin contracted to 9.5 percent in Q3FY20, from 9.6 percent in Q2FY20.
But the company in its conference call sounded confident about strong growth coming from Q4 onwards back into the business.
Here are key highlights from Cyient's conference call by Narnolia Financial Advisors:
Management Participants: Dr BVR Mohan Reddy - Founder & Executive Chairman, Krishna Bodanapu - CEO & MD, Ajay Aggarwal - CFO
Aerospace & Defence: Mostly growth is driven by new project manufacturing and MRO. Engineering spend has come down significantly. The company expects 1 more quarter to get back into the growth path. The management does not see Boeing and related project to pick up significantly in the near term.
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Communication: The Communications industry is expected to grow by 4.4 percent driven by the fast pace of innovations and developments taking place in the industry.
E&U: The management expects to see an excess of double-digit growth in FY20 and Q4 will continue to see growth.
Transportation: Q3 saw a one time hit in this segment due to the extension of a project where the company has to do certain investment for the future which will result in strong growth in coming quarters. This will also come as margin tailwind in Q4 due to this investment.
Semiconductor: The company expects to remain flat for the current year.
DLM business: Expects it's the base now and will start scaling on this base.
The company sounded confident of strong growth coming from Q4 onwards back into the business.
Going forward, the management expects to see uptick in margins up to 200-250 bps net for FY21 with absence of some headwinds like volume, investment done on NBA (New Business Accelerator) which will start to fructify (investment will be lower from next year) and absence of implementation cost in cost optimisation exercise created a cost base for the next year.
Q4FY20 will see marginal growth from the cost optimisation program. The company expects some of NBA investment (Rs 12 crore quarterly run rate) to continue in FY21.
Other income to inch up as a combination of treasury income and gain from foreign exchange and other benefits from export incentive is likely to come in Q4.The company expects to maintain 22.5 percent to 23 percent effective tax rate (ETR) for next year. After 2 to 3 years; the company will take 25 to percent rate.
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