Having reported a 45 percent jump in profit after tax (PAT) for the quarter ended December 31, to Rs 101 crore against Rs 69 crore during the same quarter last fiscal, Cyient is eyeing margins of around 16 percent going forward.
Speaking to CNBC-TV18 post Q3 earnings, MD and CEO Krishna Bodanapu said the margins were better-than-expected led by better revenue growth.
According to him, a project that the company was expecting to complete and bill in Q4 got pulled into Q3, aiding the margins quite significantly. The company is confident of continuing revenue growth of around 3-4 percent quarter-on-quarter.
Meanwhile, Cyient is hopeful that Rangsons Acquisition should add USD 70-80 million to revenue for FY16. Rangsons has 12 percent margins but Cyient is planning to dilute it by around 1 percent.
Below is verbatim transcript of the interview:
Q: It is the fifth straight quarter for revenue that your company has delivered but first I want to talk about the margins – we were expecting a tad bit of a decline but there has been an improvement this time. What led to that and has Softential contributed to higher margins?
A: The margins were better than what was expected because the revenue growth was also better than what we expected. Earlier when we were looking at the numbers, we thought we will have a bit of a softer quarter than what we actually had. So the consequence of that was that margins would have been a bit lower but ultimately we had a strong quarter with revenue.
However, as we said yesterday also that there was a project that we were expecting to complete and bill in Q4 that got pulled into Q3 and that helped quite significantly with margins. So that’s why margins were a bit better than what we had originally anticipated but that was because of revenue numbers.
Softential has contributed significantly. We acquired that company on April 1, 2014. There was a good jump in revenues in Softential, quarter-on-quarter they had a growth of 37 percent and that contributed quite well to this growth.Q: What kind of a run rate can we expect in subsequent quarters, similar to this quarter in revenues?
A: We will have a bit of a softer Q4, our commentary on H2, the second half of the year still holds that we are going to have a flattish quarter and a normal quarter. It is just that the orders got reversed a bit.
We believe Q4 will be a bit soft because of a project that we had originally planned to execute in Q4, got pulled in and so on but going forward as far as the foreseeable future goes, about 3-4 percent growth is what we have been talking about and we believe it is something that is achievable and we are working towards.
Q: What would be the average margins? Would it be the higher margin that you delivered in the just concluded quarter?
A: We believe margins will be between 16-17 percent or closer to 16 percent. So, around 16 percent number is what we are anticipating. Quarter one is a tough quarter for margins because of salary hikes. But we are taking some actions in Q4 which we believe will help us keep Q1 also within the same range and if we can keep Q1 within the same range, we believe for the rest of the year, from 16 we will move towards 17 percent or may be even higher number.Q: Is under-promising and over-delivering a standard practice?
A: I hope not. We are just being as transparent as we can but we also want to be realistic. This is because a couple of years ago the opposite was closer to recruit, so we are being as honest and realistic we can.
Q: What about the Softential target? You said USD 70-80 million for Rangsons. What are you targeting from your Softential acquisition over the next one year?
A: This year Softential will end at about USD 22-23 million range. We expect about similar growth between 15 percent and 20 percent probably closer to 20 because it’s a smaller group. So, Softential should add about USD 27-28 million.
Q: What about the deal pipeline? Does it look much healthier than previous quarter?
A: It generally looks quite healthy, both customers and also equally importantly prospects are talking about some large projects, sustainable projects.
While there are some industries where the spend on upfront design is coming down - those industries are focusing a lot more on recurring and engineering, after market engineering which is also where we have a lot of strength. So, the deal pipeline is also looking a lot healthier.
The good news is all this is looking healthy in most large geographies, obviously north America or the US specifically is very strong at this point but at the same time UK is quite strong, Australia is quite strong, Germany is quite strong. Yes, there are some countries where there is weakness, for example France is a bit weak.
Q: What is your geographic spread? How much comes from US, Europe, how much from Australia?
A: Right now about 60 percent comes from the US, about 27-28 comes from europe and about 13 percent comes from Australia plus Japan.
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