Cyient posts 14.2% engineering operating margin as debt rises and chip losses widen
Key Facts
Cyient's engineering and digital technology segment posted an earnings before interest and tax margin of 14.2% in the second quarter of the current fiscal year, according to a company disclosure on its investor relations page. The segment's earnings before interest and tax rose 16.8% from the previous quarter, while losses at the semiconductor business widened. Engineering and digital technology revenue totalled 1664 crore rupees during the period, while the segment posted profit after tax of 153 crore rupees. On new business, the company reported a 20.8% increase in the value of the segment's orders from the corresponding period of the previous fiscal year. The improvement in engineering profitability came alongside mixed performance across its units, with revenue contracting at networks and infrastructure and strategic units, while TAO Digital contributed to revenue.
At group level, reported profit after minority interests and share of profit, under the internal management reporting format in the results appendix, totalled 1,214 million rupees. This measure rose from 1,041 million rupees in the first quarter of the current fiscal year. However, it remained below the 1,275 million rupees recorded in the second quarter of the previous fiscal year. On the balance sheet, group long-term borrowings rose to 22,506 million rupees at the end of the second quarter, according to the same appendix. Those borrowings stood at 7,668 million rupees at the end of the previous quarter, compared with 929 million rupees in the corresponding period a year earlier. The board declared an interim dividend of 12 rupees per share as part of the results disclosures.
In the engineering and digital technology segment, free cash flow totalled 214 crore rupees during the second quarter, according to the company's investor presentation. The ratio of free cash flow to normalised profit after tax rose to 139.2%, according to the presentation appendix. The ratio stood at 80.5% in the first quarter of the current fiscal year. It also exceeded the 114.3% recorded in the second quarter of the previous fiscal year. Meanwhile, the segment's net cash turned negative at 1,138 million rupees at the end of the second quarter. The segment had recorded positive net cash of 16,437 million rupees in the previous quarter. Positive net cash stood at 14,105 million rupees in the corresponding period a year earlier, with the increase in free cash flow coinciding with the segment's cash position turning negative.
The revenue breakdown across engineering units showed TAO Digital contributed 9.6 million dollars in revenue during the second quarter, according to the results presentation. In networks and infrastructure, constant-currency revenue fell 0.3% from the previous quarter. The unit's year-on-year revenue decline on the same basis was 1.0%. Strategic units, which include mining, energy and healthcare, recorded a 1.5% quarter-on-quarter decline in constant-currency revenue. The annual contraction at these units was larger, at 21.5% compared with the corresponding period of the previous fiscal year. At Cyient's design-led manufacturing business, rupee-denominated revenue grew 26.5% year-on-year, a performance the company attributed to aerospace and industrial activities.
In semiconductors, the segment's loss after tax widened to 474 million rupees during the second quarter, according to the results presentation appendix. The loss stood at 362 million rupees in the first quarter of the current fiscal year. It also exceeded the loss of 164 million rupees recorded by the segment in the corresponding period of the previous fiscal year. On demand, the company said orders for its application-specific integrated circuit business "grew 50% from the previous quarter". Cyient expects investments in high-voltage power products for artificial intelligence data centres to begin generating revenue during the following fiscal year, according to the timeline in the results presentation.