Cyient DLM Ltd (CYIENTDLM) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the Cyient DLM Limited Q2 FY '27 results conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Krishna Bodanapu, Non-Executive Chairman, Cyient DLM Limited. Thank you, and over to you, sir.
Krishna Bodanapu (Cyient DLM Limited): Thank you very much, Darwin, and good evening, ladies and gentlemen. I'm Krishna Bodanapu, Non-Executive Chairman of Cyient DLM Limited. It is my pleasure to welcome you to our Q2 FY '27 earnings call, and joining me today are our Managing Director and CEO, Mr. Rajendra Velagapudi, and our CFO, Mr. RM Subramanyam. Before we begin, I would like to remind you that certain statements made during this call may be forward-looking in nature and are subject to risks and uncertainties. A detailed disclaimer is available in the Investor Update section posted on our website. Let me begin with what I believe is one of the strongest indicators of the underlying momentum in our business: the continued strength of our order book and sales pipeline. While Rajendra and RMS will talk about details, I'm happy to note that the headline number is that order backlog now starts stands at 2,813 crores, with, on top of which, there is a pipeline which is in excess of a billion dollars. So, I'm very happy to note that the order book momentum continues to pick up during the course of the quarters. We've sustained positive momentum in our order book for six continuous quarters. During Q2, our book-to-bill ratio remained at over 1.6 times, supported by strong order out inflows from large OEMs. We have also surpassed the record order book achieved in the previous quarter, providing us with strong revenue visibility. This reinforces the confidence our customers continue to place in our quality, delivery, performance, and capabilities. Our execution teams have done a commendable job in fulfilling critical customer requirements despite the continued supply chain shortages, longer lead terms, and geopolitical uncertainties, specially driven by what is happening in the memory market. This has resulted in a revenue growth of more than 26% year-on-year during this quarter, which is broadly in line with our expectations. Encouragingly, we're seeing positive growth across all key segments. Aerospace and Industrial continues to grow at a faster pace, while Defense and Medical are gaining momentum. We have also strengthened the sales leadership team recently, bringing in diverse experience and capabilities that will help accelerate our revenue and profit agenda growth agenda. This gives us greater confidence in the execution of our strategy. While Rajendra will elaborate on this further, our strategic direction remains clear, which is to deepen and scale our presence in existing segments while selectively expanding into attractive new growth areas. As we position the business for the next phase of growth, we have continued to invest in our sales organization, strategic capabilities, and the overall foundation to support the next phase of growth. These are deliberate investments. While they have an impact on margins in the near term, we believe that they're important to building a stronger and more scalable business. These investments are in two dimensions: one is the investments that we have made in our go-to-market organization, sales, marketing, et cetera, and the second and sorry, and that leads to better pipeline, better
Krishna Bodanapu (Cyient DLM Limited): Of course, eventually better margin and growth, which we are starting to see. The second investment is in our B2S, build-to-spec business, where engineering is done upfront, the IP is co-owned by Cyient DLM with our customers, and we have a very long manufacturing responsibility for many, many years. So, both are very good investments, and I'm happy to state that they're starting to show some very good results. For example, with sales, in terms of the order book or DLM, in terms of the number of DLM contracts that we are bidding and that we have won. As we continue to focus on growth, our focus firmly remains profitable growth, operating leverage, and sustainable improvement in margins, medium to long-term. Looking ahead, we remain excited about the opportunities across our market sectors. Rising electronic content, growing AI infrastructure demand, global supply chain diversification, increasing investments across our focus sectors, and broader outsourcing trends continue to create a very strong and favorable demand environment. Our differentiated, design-led manufacturing, the model which is unique to Cyient DLM, our strong customer relationships, expanding executive execution capabilities, we believe Cyient DLM is well-positioned to capitalize on these opportunities. Most importantly, our H1 FY27 performance reflects a strong rebound over FY26 with revenue growth of more than 30%. It is supported by a record order book and a robust business pipeline, which provides greater visibility as we step into the second half of the year. I am confident that we will see this sustaining through the rest of the year and into next year. With a strengthened leadership team, improving growth momentum, and continued investments in our capabilities and growth areas, we remain confident in our ability to build a strong and more scalable business, create sustainable long-term value for our customers, employees, shareholders, and all stakeholders. With that, I will now hand over the call to Rajendra, who will take you through the business and operating highlights in greater detail. Rajendra?
Rajendra Velagapudi (Cyient DLM Limited): Thank you, Krishna. So, good afternoon, everyone. And thank you for joining Cyient DLM's Q2 FY27 investor call. So, I will outline the structural opportunities ahead, and explain how our long-term strategy positions Cyient DLM to participate in some of the fastest growing, high-reliability segments of the global electronics product and manufacturing services market. Let me begin with the market backdrop. The global EMS industry is on a structural growth path with the market expected to raise from approximately 650 billion today, to about 1.1 trillion over the next few years. Within this market, the high-reliability EMS segment in which we operate represents an estimated opportunity of roughly $230 billion. This growth is particularly relevant to Cyient DLM because it is driven by sectors that require deep engineering expertise, complex manufacturing, stringent quality standards, resilient supply chains, and long product lifecycles. These requirements closely align with our capabilities in design-led manufacturing and high-reliability electronics. And if you just further look at it, there are three structural tailwinds which are expanding Cyient DLM's addressable market. The first tailwind is rising demand for AI and data center infrastructure. The second one is semiconductor capital equipment, and the third tailwind is robotics, and the growing electronics content in all these three areas. I think against this backdrop, we estimate an addressable EMS opportunity of closely around $58 billion in AI and data center infrastructure. And for EMS providers, this creates a significant opportunity in AI data center, box-build solutions, cables, and other cooling controls. For Cyient DLM, this is a natural adjacency, where our capabilities in high-reliability manufacturing, systems integration, and power electronics can become increasingly relevant. So, if you can look at it, together AI and data center infrastructure, semiconductor capital equipment, and robotics, expand Cyient DLM's growth runway while remaining closely aligned with our core strengths. Against this backdrop, our long-term strategic pivot follows three phases.
Rajendra Velagapudi (Cyient DLM Limited): strengthen, expand and transform. So, this deliberate progression builds on a proven foundation, extends our core capabilities into attractive adjacencies and ultimately creates a stronger product and platform mode. Our first priority is to strengthen the business we have today. We are anchored in four core industries aerospace and defense, medical, industrial, and automotive, focused in electric vehicles. These markets form our foundation and are supported by a proven core stack. The margin framework for this phase is approximately 9 to 11%. We are focused on deepening customer relationships, improving execution, scaling programs, and reinforcing the operational capabilities that have earned customer trust. This foundation provides the credibility and capability base for the next phase of growth. In the second phase, from FY '27 to FY '29, we plan to apply this proven stack to new sectors. The portfolio will expand from four industries to seven, adding robotics and AI data centers as a key as a key growth areas and sharpening our focus on semiconductor capital equipment alongside with our existing core industries. Our approach is disciplined. Enter adjacencies where customer requirements align with our engineering, manufacturing, quality and supply chain strengths. As the business mix evolves and scale improves, the margin framework for this phase is approximately 11 to 13%. Expansion is therefore not only about accessing new revenue pools, but also about improving the quality and resilience of growth across a broader range of high-reliability end markets. From FY '30 onwards, our ambition is to transform the business by building a differentiated product and platform mode. We expect to retain the benefits of a diversified seven-industry portfolio while adding new platforms and expanding our build-to-specification product. So so, here I would like to elaborate on build-to-specification products, a key strategic priority for us. So, we we recently renamed this offering as electronic products to reflect the broader value we now provide across the product lifecycle. Beyond manufacturing, our capabilities span product architecture, detail engineering, embedded hardware and software integration, prototyping, testing, qualification, industrialization and transition to volume production. So, we are pursuing several multimillion-dollar opportunities in this area, demonstrating both our capabilities and customer relevance. As these programs progress from development and qualification to scaled production, we expect them to generate significant sustained growth from FY '30 onward. Given the strength of the pipeline, the long-term nature of this engagement and their potential to deepen strategic customer relationships, electronic products will remain a priority for investment and execution. The margin framework for this phase is approximately some 13 to 18%, reflecting a growing contribution from products platforms and intellectual property-led differentiation. Our objective is to move progressively up the value chain while building on the execution discipline and customer trust established in our core EMS business. As we execute our long-term growth strategy, we remain focused on deliberate, forward-looking investments that strengthen our competitive position and expand our addressable market. Over the past several quarters, we have accelerated efforts to build capabilities and deepen our presence in high-potential areas. Our investment approach includes strengthening domain expertise, expanding customer engagement, enhancing engineering and manufacturing capabilities, and accelerating the development of differentiated products and solutions. Although these investments carry near-term costs, they are essential to building a stronger foundation for sustainable and profitable growth, as said by Krishna earlier. Even as we invest for the future and support the growing scale of our business in both build-to-print and electronics product, we remain committed to disciplined execution and operational efficiency. Based on the planned investments and timing of our growth initiatives, we expect margins remain at the higher end of the single-digit range for FY '27, while establishing a platform for stronger value creation over the medium to long term. We believe this investment will strengthen our strategic position and market relevance, enabling us to participate meaningful
Rajendra Velagapudi (Cyient DLM Limited): the world's most attractive technology and industrial growth tech. Turning to the second this quarter, our performance demonstrates both strong demand and continued execution. The order book reached an all-time high with a book-to-bill ratio of 1.6 times. This provides a solid foundation for future growth and reflects the relevance of our capabilities across both established and emerging markets. Revenue grew 26.5% year-on-year in in Q2, supported by strong growth in aerospace and industrial together with continued traction in defense and medtech. If you look at for H1, revenue g- grew 30% year-on-year. At the same time, the product mix is shifting toward higher-value integration. Box-build revenue increased 86% year-on-year. This is strategically important because it reflects our progression beyond component-level manufacturing toward more integrated solutions. We also added three new logos in this quarter, strengthening the pipeline for future business. In parallel, we completed the integration of Altek Electronics and renamed the business as Cyient DLM Electronics, Inc. This expands our global footprint and enhances our ability to serve customers across geographies. Finally, we are investing in the next engines of growth as said earlier, AI and data center infrastructure, robotics, and semiconductor capital equipment while continuing to strengthen our build-to-specification and, electronics product capabilities. Together, these initiatives align near-term execution with the longer-term margin and portfolio transformation outlined earlier. To conclude, Cyient DLM is positioned at the intersection of a large and expanding EMS market, accelerating demand in high-reliability sectors, and a clear internal road map to move up the value chain. Our record order book, strong year-on-year revenue growth, improving mix, new customer wins, and broader global footprint demonstrates that this strategy is translating into operating momentum. We remain focused on disciplined execution, profitable growth, and building differentiated capabilities that can support sustainable margin and expansion over time. Thank you for your time and continued interest in Cyient DLM. Now, I hand it over to, Hariharan, our CFO.
RM Subramanyam (Cyient DLM Limited): Thank you, Rajendra, for the business overview. Good evening, ladies and gentlemen. I will now take you through the financial performance for Q2 and H1 of FY '27. We delivered a revenue of 3,931 million INR, representing a strong growth of 26.5% year-on-year, reflecting the continued momentum in the business. Our order book reached an all-time high of INR 28.1 billion, increasing by approximately rupees 2.1 billion sequentially. This provides us with a healthy foundation for growth going forward. At the operating level, EBITDA for the quarter was, rupees 342 million, up 9.5% year-on-year with EBITDA margin of 8.7%. The margin is lower by 135 basis points year-on-year reflecting our continued investment in growth areas. Moving to profitability, normalized PAT grew 25.8% year-on-year to 158 million rupees, broadly keeping pace with our revenue growth, while the normalized PAT margin remains stable at 4%. Reported PAT for the quarter was rupees 340 million. The difference between the normalized and reported PAT reflects the one-time reversal of the earn-out provision of rupees 182 million. We see this as a quarter of strong growth with continued strengthening of the order book. Our focus going forward remains on converting this growth into a stronger operating performance and improve- improving margin as the business scales. Now, let me provide some perspective on the trends across our key financial metrics. Starting with revenue, we have maintained a strong growth trajectory with revenue reaching rupees 3,931 million in Q2 FY '27, compared to compared with rupees 3,106 million in Q2 last year, representing a growth of 26.5% year-on-year. On profitability, EBITDA for the quarter was rupees 342 million with an EBITDA margin of 8.7%. The moderation in margin reflects our continued investment in sales,
RM Subramanyam (Cyient DLM Limited): Importantly, despite these investments, our underlying profitability remained healthy, remained healthy. Normalized PAT for the quarter was ₹158 million, growing 25.8% year-on-year, broadly in line with our revenue growth. Reported PAT was ₹340 million, which includes the one-time benefit of ₹182 million from the earnout reversal. Excluding this one-off, normalized PAT stands at 158 million rupees. As we look at the overall trend, we continue to see strong revenue momentum and healthy underlying earnings growth while making the necessary investments to build capabilities and support sustainable growth. Moving to the next set of KPIs, let me touch upon the our order book and working capital performance. Our order book continued to strengthen and reach an all-time high of ₹28.1 billion at the end of Q2 FY '27 compared to ₹26 billion in the previous quarter. This gives us a healthy base as we move forward. On working capital, net working capital improved sequentially to 153 days from 161 days in Q1. Inventory days remained stable at 162 days, while DSO improved from 77 days to 73 days. DPO increased from 63 days to 68 days, providing further support to the working capital position. Customer advances stood at 13 days compared with 15 days in the previous quarter. Overall, the sequential improvement in working capital, together with disciplined execution, helped us generate an operating free cash flow of ₹172 million during the quarter. Going forward, working capital efficiency, particularly inventory optimization and collections, will remain an important area of focus as we continue to scale the business. Let me now give you some perspective on our revenue mix for the quarter. From an industry standpoint, Aerospace continues to be our largest segment, contributing 47% of our revenue, followed by Industrial at 31%. These two segments delivered strong year-on-year growth of 62% and 29%, respectively. Defense contributed 7% of revenue with 13% year-on-year growth, while MedTech accounted for 14%, also growing 14% year-on-year. Looking at our product mix, PCBA continues to be the largest category at 48% of our revenue, growing 19% year-on-year. At the same time, we are seeing strong momentum in Box Build, which now contributes 27% of revenue and grew 85% year-on-year. Geographically, our business continues to be predominantly international, with the rest of the world contributing 93% of revenue and India geography contributing 7%. The international mix continues to be supported by demand from Aerospace, Medical, and Industrial customers. Overall, the revenue mix reflects strong growth across our key verticals, increasing contribution from Box Build, and continued strength in our international business. Let us now look at the detailed financial performance for the quarter. [cough] As mentioned earlier, revenue grew 26.5% year-on-year to ₹3,931 million, reflecting a strong growth momentum in the business. EBITDA stood at ₹342 million, up 9.5% year-on-year, with an EBITDA margin of 8.7% compared with 10% in the same quarter last year. The moderation in EBITDA margin was primarily driven by two factors. First, we saw an impact from the revenue mix and certain product development-related costs. Second, employee costs increased as we continue to invest in sales, strategy, and new growth areas to support future growth. Below EBITDA, finance costs declined by 10.4% year-on-year to 61 million rupees, supported by lower working capital borrowings. Reported profit before tax was ₹393 million, and reported PAT was ₹340 million. It is important, however, to look at the profitability on a normalized basis. Other income during the quarter includes a one-time earnout reversal of ₹182 million. Excluding that, this, our normalized PAT was ₹158 million, representing strong growth of 25.8% year-on-year, with a normalized PAT margin remaining stable at 4%. While we have seen some near-term impact at the EBITDA margin level, the underlying earnings growth remains healthy and broadly in line with our revenue growth. Our focus remaining on sustaining growth while driving greater operational leverage and margin improvement as the business scales. As we complete our half year to FY '27, let me now summarize our performance for the first half of FY '27, okay? We delivered a revenue of ₹7,669 million, representing growth of 30.2% year-on-year, supported by healthy business momentum and a strong order book. EBITDA for the first year was ₹733 million, growing 30.4% year-on-year, broadly in line with the revenue growth. Importantly, despite these investments we are making to strengthen our business, our EBITDA margin for H1 remained
RM Subramanyam (Cyient DLM Limited): stable at 9.6%. At the bottom line the performance has been particularly strong. Normalized PAT increased 60.4% year-on-year to ₹321 million with normalized PAT margin improving by 79 basis points to 4.2%. Reported PAT for H1 stood at ₹503 million, up 27% year-on-year. The difference between reported and normalized PAT reflects the ₹182 million one-time honor reversal recorded during the second quarter. Our order book stands at all time high of ₹28.1 billion, an increase of approximately 5.2 billion compared to the same period last year providing good visibility as we move into the second half. Overall, H1 reflects a strong and broad-based financial progress with revenue and EBITDA growing around 30% normalized earnings growing significantly faster and a record order book supporting our growth trajectory. Since we have already covered most of the H1 performance highlights in earlier dashboards let me keep the slides brief and highlight just a few additional points. While EBITDA margin remained broadly stable at 9.6% we saw some impacts on the revenue mix and product development related cost particularly in Q2. At the same time we continue to make targeted investments in capabilities to support growth. Below EBITDA finance costs declined by 21% year-on-year supported by lower working capital borrowings. Overall the underlying profitability remains strong with normalized PAT growing at 60% year-on-year and normalized PAT margin improving by 79 basis points to 4.2%. To conclude Q2 and H1 has been strong for us with a healthy revenue growth, record order book and strong growth in underlying profitability. As we enter H2 our focus will be on continued momentum in order intake, executing the order book, improving margins and driving working capital efficiency as we continue to scale the business. We remain confident in the growth trajectory of the business and our ability to translate this growth into sustainable value creation. Thank you. Let's move to question answer part now.
Moderator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Balasubramanian with Arihant Capital. Please go ahead.
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