Hyderabad-based engineering, network and operation solutions company Cyient (formerly known as Infotech Enterprises) on Wednesday reported a 31.7 percent sequential growth for July-September quarter. Its net profit for the quarter rose to Rs 90.2 crore led by strong revenue and operational performance, as against Rs 68.5 crore in the previous quarter.
The company missed street expectations on the bottomline front but rest of the numbers surpassed estimates. Krishna Bodanapu, MD and CEO, Cyient says that growth in Q2 was broad-based, as growth in data network operations stood at 10 percent while top 20 clients grew at 6.1 percent. Despite lesser working days in Q3 as compared to Q2, company’s margin is set to improve consistently by 100 bps quarter-on-quarter, he says in an interview with CNBC-TV18’s Anuj Singhal.
Furthermore, he does not expect US growth to be sustainable in coming quarters but sees a lot of traction in Asia-Pacific.
Below is the edited transcript of the interview:
Q: It was a strong growth for you all, it was up 6.6 percent sequentially in terms of dollar revenue growth. Can you tell us how your data network and operation segment as well as your engineering segment performed?
A: Overall, the growth was quite broad-based. Both the segments actually grew quite well this quarter and therefore, this growth came from both the areas. In the data network and operations (DNO) part of our business we grew in double digits, it was about 10 percent growth quarter-on-quarter in this particular segment. Good growth also came in from the acquisition that we did Softential. The Softential revenue was also their in Q1 so there is nothing that came because of the acquisition; it is just the growth that we were able to demonstrate in Softential. But overall, Softential DNO grew 10.5 percent but if you take out that particular entity in both quarters it grew 4.9 percent, engineering also grew 4.9 percent. So overall the growth was pretty broad-based, which is a good thing.
Q: So from hereon, do you think the kind of revenue growth that you had that can sustain? Secondly, what is the outlook on margins?
A: On revenue growth, the momentum is there and we will continue to see good growth. Now where this number will be is difficult to say; I have said 3-4 percent is the range that we are targeted towards and I am fairly confident that 3-4 percent is the range that we will be in the foreseeable future at least.
Q3 does have some challenges, we have three fewer working days in Q3 compared to Q2, that itself adds a negative USD 2 million of revenue and so on and so forth. But taking all those into account we are still confident that momentum is quite strongly behind us. That is the revenue commentary.
On margins, we improved 200 bps in Q2 over Q1. We will see continued improvement, we will see at least about 100 bps improvement quarter-on-quarter for the coming two quarters and then obviously there will be a reset because Q1 has salary increases etc. But at least in the foreseeable future at least 100 bps is what we believe will happen.
Q: Can you just give us a sense in terms of your deal pipeline, what is it looking like and do you think that you can replicate the growth that you saw in the US for this quarter for the coming quarters as well, what would the outlook for US and the overall deal pipeline look like?
A: The overall deal pipeline continues to be quite healthy. I don’t have an absolute number, we are still working through the system a little bit on the absolute number but just relatively speaking it is about 5 percent higher than where it was say a quarter ago. So overall the deal pipeline is quite healthy. I would say the growth in US will slowdown a little bit. We grew 11 percent quarter-on-quarter in the US. I don’t think that is sustainable. What will happen is the US will slowdown a little bit but we are seeing a lot more traction in Asia pacific. So there will be a little bit of that convergence from the growth rates. So overall as a company we will be fine but I would be very surprised honestly if US continued to grow at these rates for much longer.
Q: The other point is that large amount of growth has come from the beyond top 10 clients, it has grown 12.2 percent quarter-on-quarter while top 10 is only about 1.1 percent. Is that going to be the model going on as well?
A: If you look at the top 20 which we don’t report but top 20 grew 6.1 percent quarter-on-quarter whereas the company grew 6.6 percent. So we believe that our overall growth rate has been and will continue to be correlated to our top 20 and that will continue. We are seeing good opportunities, the cost and the yields of growing top 20 is obviously easier than the others and we believe that that will also continue.
At the same time, we are seeing good growth in others also. So overall, it will definitely be broad based at this point as things go.
Q: So if you saw around 19 new additions in your clients for this quarter, can you give us a sense in terms of what it would look like in the coming quarters, just a broad sense?
A: While 19 clients have been added typically we add 10-20 clients every quarter and that will continue. Now the US business had a very strong quarter and I also want to say that it will continue to grow very well in the US. It is just that not double digits quarter-on-quarter for the foreseeable future but we will continue to grow very well. There is very good growth that we see in North America, just not this high.
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