Cyient suffered from a slowdown in its Service business in Q3 FY19

/ January 17, 2019/ Cyient, Financials, India

Cyient’s revenues were up 8.6% yoy and up 10.7% yoy at CC in Q3 FY19 to $165m.

Cyient’s DLM business was up 72% yoy at CC (including the B&F Design acquisition), and up ~20 yoy at CC/CS. Cyient continues the transformation of DLM, moving away from low-margin contracts for manufacturing handsets for telecom clients.

The (negative) surprise came from Cyient’s service business, which was only up 3.3% yoy, to $145m. Cyient continued to suffer in its largest vertical (~34% of revenues), Aerospace & Defense (A&D), with revenues up by only 2% yoy. Commercial aerospace was flat, impacted by the P&W account in all likelihood.

Communications, Cyient’s second largest vertical, (~23% of revenues) was up by 7%. The Communications business, once a stellar business, with growth as high as 32%, was impacted by contract renewals being delayed.

The performance in the smaller verticals was similar, with yoy revenue growth all below 6%, which by Indian standards, was disappointing. Cyient remains optimistic about the future. In Q4 FY19 A&D should improve thanks to defense, despite flat commercial aerospace activity. In Communications, Cyient is expecting the delayed contract to sign this contact in Q4 FY19 with revenues expected to come in Q1 FY20.

As a result f this mixed performance in Services, Cyient has revised its guidance for full-year FY19 growth to ~11%, driven by DLM (with a CC/CS revenue growth of 20%) and a Service business growing by 8.5% to 9.5%, somewhat lower than the double-digit growth the company had guided earlier.

Cyient was keen to stress that the Q3 FY19 performance was only a bleep. Cyient certainly has a good track record in execution. Its fundamentals are sound with Cyient have a diversified client base, and with top ten clients accounting for 44% of revenues only. The surprise of Q3 was that performance was mixed across all verticals of the Service business, something that not happened in the recent past.

Cyient highlights it continues to invest ahead of time with its NBA IP program, which should bring revenues in FY21. NPA represents 1% of the revenue of Cyient, around $6m to $7m. This is a significant investment.