cyient ltd share price Management discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

Global Economic Outlook

The global economy is set to face another challenging year, with growth rates forecasted to fall from 3.4% in 2022 to 2.8% in 2023 before evening out at 3.0% in 2024. The compounding factor is being attributed to advanced economies experiencing a growth slowdown to 1.3% in 2023, owing largely to the turmoil in the financial sector and geopolitical tensions. The sentiment in industry sectors toward the global economy remains negative. Growth rates in 2024 and beyond are likely to be below the pre-pandemic trend, given ongoing supply-side weakness. Inflation, while lower than experienced currently, may remain relatively elevated for several reasons, including expected persistence in labor shortages, deglobalization, and the global energy transition.

Global inflation has been more persistent than previously assumed, and high core inflation suggests that inflation may remain above pre-pandemic averages in many countries for an extended period. CAPEX-intensive customers will face expensive financing, compelling them to reconsider large deals. Lower borrowing and capex potentially may hamper investments and demand for certain products and services. While underlying price pressures persist, it is a relatively improved picture than 2022, however, potential price spikes and further monetary tightening remain a concern.

The baseline global GDP forecast, which assumes that the recent financial sector stresses are contained, is for growth to fall from 3.4%in 2022 to 2.8%in 2023 before rising slowly and settling at 3.0% five years out—the lowest medium-term forecast in decades. The advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 %in 2022 to 1.3%in 2023. In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5%in 2023—the weakest growth since the global downturn of 2001, barring the initial COVID-19 crisis in 2020 and during the global financial crisis in 2009—with advanced economy growth falling below 1%.

Cyient remains positive that despite the anticipated long periods of disruptions and uncertainty, there are also opportunities. The optimism is underpinned by our organizational structure that supports technology-led growth, the development of intelligent products and platforms across digital engineering and technology. We are confident our operating model, products, and platforms are well-equipped to address the future demands of the autonomous world, digital enterprises, and decarbonization.

Engineering and R&D (ER&D) Outlook

Despite the challenges in the global economy, global investments in engineering and research and development in the engineering (ER&D) sector are set to rise strongly over the next five years, expanding at a double-digit compound annual growth rate (CAGR) of 10% up to 2026 despite currently uncertain economic conditions. As the cost of innovation continues to rise, ER&D spend looks set to rise to fund the development of new products and services as well as to improve existing ones. Investment in Digital Engineering, particularly in Artificial Intelligence (AI), machine learning, and cloud computing are to rise even higher than the growth rate of overall ER&D spend. ER&D companies have historically increased spending during recessions capitalizing on larger and longer spans of R&D work, M&A, talent acquisitions, and intellectual property investments.

The ER&D outlook for this year is set to fuel more innovation with global firms looking to maximize their ROI and overcome the pressures of shorter times to market, making new technology more affordable, embedding digital technology and capabilities, creating value in new approaches, and putting their ESG strategies at the forefront.

New Organizational Structure

Cyient implemented a new operating structure to ensure we continue to drive sustainable growth, develop CXO-level connections, achieve our strategic goals, execute technology solutions, and ensure increased collaboration across the business.

The new operating structure is a collaborative structure along the horizontal and vertical axis. Our horizontal capabilities are anchored in mechanical, embedded, digital, geospatial, networks, plant engineering, and VLSI will strengthen our ability to scale and drive automation.

At the same time, we are confident that our vertical business alignment allows us to define industry-relevant technology solutions and market-defining go-to-market propositions, which will accelerate our growth across the key focus areas of mobility, connectivity, sustainability, new growth areas, and design-led manufacturing.

Business Performance Outlook

Cyient as a company is focused on multiple industries, and below is the outlook across sustainability, connectivity, transport, new growth areas, and design-led manufacturing.

Sustainability

Mining and Natural Resources (MNR)

The global mining industry will see slower spending on gold and iron ore development, but investment in decarbonization- related mining will continue to increase. The slowing global growth and inflation will threaten industry profitability in 2023.

The Mining and Natural Resources Sector enjoyed strong growth of 31% YoY, with the initial stages of work with the 12 new logos added in the previous year. This is set to provide longevity for the business unit. ESG compliance continues to be a major driver of investor sentiment. To support customers in meeting these obligations, we are investing in technology solutions that solve issues around the monitoring and management of activities with environmental and community impacts.

We remain confident in strong growth across this industry vertical with increasing demand for solutions in safety critical areas, autonomous mining, and operations.

Energy, Industrial, and Plant Engineering (EIP)

The energy industry will be driven by global energy consumption, set to grow by 1.3% in 2023 compared to 0.9% growth in 2022, amid a slowing economy and high energy prices. Renewables will dominate the growth of global electricity supply over the next three years; Asia will continue to be the world’s biggest market for renewable energy investment, with a major share from China, India, Japan, and South Korea.

The Energy, Industrial Plant Engineering (EIP) sector grew by 6.4% YoY. Our key highlight for this sector this year was the acquisition of Citec, which was the largest outbound acquisition by an Indian engineering services company. The acquisition of Citec positions Cyient strongly as one of the largest independent plant engineering firms globally for the energy transition market.

The outlook for FY24 remains positive, with a strong sentiment that we forecast strong growth across our sustainability business. This growth will be driven by increased investment from customers in areas such as digital twins, carbon capture and storage, autonomous operations, autonomous mining, and the expansion of digital factories.

Utilities

The Utilities industry is to continue its growth over the next year with investment and innovation focused on providing reliable, secure, clean, and affordable energy to the market. However, supply chain issues, inflation, extreme weather, and high energy prices may impact generation costs and demand. The increase to Capex is anticipated to enhance reliability, grid stability, security, and renewable integration.

The investment will point toward grid modernization, EDG reporting, grid flexibility, decarbonized fuels, and transportation electrification.

The utilities business delivered a muted growth YoY considering project closures and phased project commencement dates; however, we remain confident that our value proposition continues to resonate well with the key industry trends of sustainability, clean energy, infrastructure upgrades, digitalization, and democratization.

The outlook for the next fiscal year remains very positive, with opportunities to drive strong growth in the areas of grid modernization, transmission capacity, Intelligent Asset Management (IAM), and the integration of smart & micro grids.

Connectivity

Communications

The global telecommunications market was valued at $2.8 Trillion in 2022 and is expected to grow to USD 3.4 Trillion by 2025 at a CAGR of 6.2 %. The market’s growth has been propelled by the rapid increase in voice broadcasting, video streaming, and data sharing.

The telecommunications market has been at the forefront of technological innovation. The introduction of modern technologies such as loT, Cloud, and Big Data to the market has created a robust digital ecosystem.

Cyient’s Communication Business has delivered strong sequential growth throughout the year, with major deal wins in the areas of fiber rollouts, network densification, and 5G rollouts. Our Communications business delivered the highest revenue in FY23 and grew by 18.4% YoY.

The acquisition of Celfinet, an international Wireless Engineering Services company with a strong record of providing end-to-end Network Planning and Performance Optimization services, further adds to Cyient’s capabilities as we strengthen our technology play in wireless networks for 5G rollouts.

The outlook for the year ahead is positive, with a strong focus on improving our customers time to market and growth. The forecasted growth is expected in areas such as private networks, 5G & fiber rollout, network modernization (NFV, Cloud migration, and Smart Operations.

Transport

Aerospace and Defense

The commercial aerospace sector has continued its recovery from COVID-19, and travel demand is expected to return by 2024, led by domestic travel and narrow-body planes. The outlook for the Aerospace industry is optimistic, with a strong recovery in air travel leading to increased aircraft orders and aftermarket activity. Supply chain and talent will pose the biggest challenge for A&D companies in 2023. The defense market is expected to outperform the commercial aerospace market with a boost in demand for military equipment globally due to geo-political conflict.

Cyients Aerospace Business Unit delivered a 12% YoY growth at the end of FY23, which was a testament to our strategy to address the post-pandemic turnaround of the overall sector. This double-digit growth was underpinned by our continued strengthening of our long-standing relationships.

The FY24 outlook remains positive, and we are confident to return to pre-pandemic performance levels with a renewed focus on sustainability-led aircraft electrification, Urban Air Mobility (UAM), drones & defense and Industry 4.0.

Rail

Although the rail transportation market moderately decreased by 0.2% per annum between 2019 to 2021, the expectation for 2023 is that many countries will take advantage of new technologies to improve their networks. The recent COVID-19 pandemic reduced passenger numbers, allowing operators time to implement changes. The new era of innovation has made train technology relevant once again, and the industry is expected to recover with a growth of 3.0% p.a. until 2027.

The emergence of new technology will lead the global rail industry to rapidly increase its digital capabilities through partnerships with specialized tech providers and startups.

The global rail transport market is expected to reach $308.91Bn in 2023 with investments in developing hybrid and autonomous trains. The key investment areas will be highspeed rail, predictive maintenance, decarbonization, and IoT. These investments are likely to be balanced with government infrastructure spend policies, increased energy costs, and inflation rates across geographies.

We remain confident that our Rail business is on the path to recovery in FY24 with the increased industry emphasis on areas such as sustainability, automation, and digital.

New Growth Areas

Semiconductor

The Semiconductor market is expected to decline by 11% in 2023 due to the weakening in the global economy and weak end-market electronics demand spreading from consumers to businesses. The uncertain investment environment is coupled with an oversupply of chips, therefore, elevating inventories and reducing chip prices. A further decline in the memory industry by 35% is predicted but set to recover in 2024. The PC, tablet, and smartphone semiconductor markets will stagnate; however, areas of growth are predicted in the automotive, industrial, and aerospace semiconductor markets.

Despite the significant headwinds faced across the industry and supply chain, Cyient achieved a YoY revenue growth of 48.7% (in constant currency). This growth was driven largely by the demand for Turnkey ASIC solutions, including automotive ADAS and 5G solutions, throughout the year.

Given that the digital economy is reliant on semiconductors, the focus in the medium to long term will center on growth through the development of automotive silicon and next- generation chips.

Medical Technology and Healthcare (MTH)

In 2022, investments in the Medical Device market slowed slightly in comparison to the record high in 2021. Investment growth is expected to be marginal in 2023. Companies are accelerating investment in technologies; however, macro challenges could provide some limitations to growth within the healthcare sector.

Cyients Healthcare division capitalized on the post COVID-19 demand for digital transformation, digital health platforms, regulatory quality standards, and connected devices, with a significant YoY growth of 58.1%.

The outlook for this sector during the upcoming fiscal year remains positive with an increased focus on connected devices, remote patient care, and tele-health.

Automotive and Mobility

The automotive industry is continuing to deal with major global disruptions, not just from COVID-19, but from so many other elements of the global economy. Factors such as the tensions in Asia Pacific and the war in Ukraine have created a climate of uncertainty and hesitation. Additionally, shortages from microchips to labor are affecting almost every touchpoint along the automotive supply chain.

However, one ofthe most significant global trends continues to be the industrys focus on the development of electric vehicles (EVs), whether it is improving battery performance or expanding the charging infrastructure. We will see a significant increase in research and development (R&D) by vehicle manufacturers, who seem to be charging ahead with EV technology despite the many other challenges they currently face. The expansion of EV’s is set to accelerate, driven by regulatory pressures, improving technology, and higher green energy consciousness from the market.

Cyients Automotive and Mobility business unit saw a 78.6% YoY growth and is pacing itself for a year of exponential growth. Our strong record of developing software-defined platforms in safety critical domains, such as aerospace and rail are providing increased opportunities to establish our right to play in the automotive industry.

The outlook for the next fiscal is positive with the continued growth potential in autonomous driving, connected

automobiles, electrification, and investments in alternative energy vehicles.

Design Led Manufacturing

The DLM industry is expected to grow in 2023 despite volatile economic conditions as the industry pushes for "smart" digital factories. Pressures continue to be labor shortages, tighter sustainability goals, and increased demand for products.

The Opportunities for DLM business continue to be driven by growth in the Aerospace & Defense (A&D), Medical, and Industrial sectors. Cyient DLM is well positioned as one of the few EMS companies in India offering electronics solutions for safety and mission-critical applications in highly regulated industries. Cyient’s key capabilities in the domain of highly complex, safety-critical electronic systems with a high criticality of failure, such as cockpit systems and flight control systems, has contributed significantly to the 15% YoY growth.

The outlook is positive for Cyient DLM with the proposed Initial Public Offering (IPO) in the next fiscal year. Cyient

DLM will focus on strengthening core capabilities across focus industries and building scale while taking on more B2S contracts. We will also be strengthening our supply chain ecosystem, building operational efficiency, enhancing capabilities in aftermarket services, and offering value-added services.

Enterprise Risk Management (ERM)

The Company has an organization-wide ERM framework based on best-in-class standards. It covers various company operations and key criteria such as strategic risks, reputation risks, operational risks, financial risks, and compliance/ litigation risks. The ERM framework is reviewed periodically by KPMG, the Company’s internal auditor, and a report on the mitigation status of risks is presented to the Risk Committee.

The Company also has an internal risk committee that periodically reviews the risk management process.

Key Risks and Opportunities

Risk description	Risk impact	Risk mitigation
Geo-political	The USA & China trade conflict has the potential to threaten	Monitoring and review at management council
Risks	internal security and defense. The risk of conflict in Taiwan poses a risk to certain industries, such as semiconductors.	levels. We will continue to evaluate the situation of our semiconductor business.
Recessions	The Company’s operations may be adversely affected due to increased interest rates, inflation, increased energy and labor costs, supply chain delays, and geo-political instability.	Monitoring and review at management council levels. Rigorous implementation of Business Continuity Plans.
		Regular communication with customers and vendors.
		Setting up of work from home infrastructure. Setting up rigorous and innovative talent acquisition plans to mitigate talent hiring challenges.
		Mandating appropriate health and safety norms and advisories.
Technology Disruption	The advancement of generative AI solutions such as Chat GPT.	Monitoring and review at management council levels.
		Evaluating investments in generative AI to address the disruption.
Currency Risk	Exchange rate volatility in various currencies could materially and adversely impact the results of operations.	Long-term cash flow hedges are taken to minimize the impact of exchange volatility on Net profit.
		Regular evaluation of hedging policy by internal Risk Management to assess the effectiveness.
Inflation Risk	The inability of the future real value of investments, assets, and income to be reduced by unanticipated inflation.	To add inflation premium to the rates in which we sign contracts with our customers and vendors.
		Adjust cash flows for inflation to prevent changes in purchasing power.
Attrition Risk	Risk of losing talent across levels in the Organization.	Focus on employee engagement initiatives.
		Actions around talent development, retention, and compensation corrections.
Developing and Marketing	In a fast-paced economy, there is constant pressure for innovation on all clients, including the integration of solution capabilities.	Focus on acquiring on next-generation hiring. Accelerate building next-generation competencies and capability building by investing in our current and future associates.
Newer Solutions		Continue to review our investments in our technology practices to develop next-generation services and solutions.
Intellectual Property Risk	The risk of inadequate protection of the intellectual property rights of our customers can lead to reputational damage and litigation.	Robust data security protection and controls to prevent unauthorized access and/or transfer. Strict physical access controls for employees across customer delivery centers and secure areas.
		Regular internal audits to comply with customer requirements of confidentiality and data protection.
Vendor consolidation Demand for discounts and volume discounts across customers	Pressure on margins due to volume discounts.	Improve efficiency for better economies of scale.
Competition risks	In this highly competitive environment, there may be a severe impact on margins due to pricing pressures.	There is a focus on providing higher value and differentiated services and venturing into new business models.
Compliance risks	Being a global company, we are exposed to the laws and regulations of multiple countries.	The Company has an in-house compliance team that monitors global compliance. The team receives updates on changes in regulations from specialist consultants and circulates the same internally.
Data privacy and Cybersecurity	In a connected world, businesses are highly vulnerable to cyber-attacks, leading to loss of data and damage to reputation.	The Company has a stringent cybersecurity policy that ensures the timely resolution of incidents.

 

Internal Controls and Adequacy

The Company’s global presence across multiple countries and sizeable associate strength make it imperative for us to have a robust internal controls framework. The Company has adequate systems of internal control commensurate with its size and the nature ofits operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization, and ensuring compliance with corporate policies. The Company has a well-defined manual for the delegation of authority for approving revenue and expenditure. The Company uses the SAP system globally to record data for accounting, consolidation, and management information purposes, connecting to different locations to exchange information.

Cyient has appointed M/s KPMG as internal auditors for the financial year 2022-2023. KPMG carried out the internal audit based on an internal audit plan, which is reviewed each year in consultation with the statutory auditors (M/s S.R. Batliboi & Associates LLP) and approved by the Audit Committee. The internal audit process is designed to review the adequacy of internal control checks and covers all significant areas of the Company’s global operations.

The Company has an Audit Committee of the Board of Directors, the details of which have been provided in the corporate governance report.

The Audit Committee reviews audit reports submitted by the internal auditors. Suggestions for improvement are considered, and the audit committee follows up on the implementation of corrective actions. The committee also meets the Company’s statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems in the Company and keeps the board of directors informed of its key observations from time to time.

The statutory auditors have also independently audited the internal financial controls over financial reporting as of March 31, 2023. They have opined that adequate internal controls over financial reporting exist and that such controls were operating effectively.

Investor Engagement

The Company communicates the business outlook, strategies, and new initiatives to its investors regularly and in a structured manner. We believe that communication with the investor community is as important as timely and reliable financial performance. We engage with the investors through multiple communication channels. The Companys dedicated investor relations department and the Companys senior management team participate in various roadshows and investor conferences. The Company hosted its Investor Day recently in November 2022. The Company carries out an independent bi-annual Investor Satisfaction (ISAT) survey. The last survey was carried out in 2022, suggestions of which have been implemented, and the next survey will be done in 2024.

Whistleblower Policy

Cyient firmly believes in Values FIRST (FIRST = Fairness, Integrity, Respect, Sincerity, Transparency), and the organization-wide Whistleblower policy is a step toward ensuring transparency and accountability. The Company believes in the conduct of the affairs of its constituents fairly and transparently by adopting the highest standards of professionalism, honesty, integrity, and ethical behavior. This allows stakeholders to expose any kind of information or activity deemed illegal, unethical, or not correct within the Company that is either private or public. The stakeholder can approach the Ombudsman without fear to report any wrongdoing, impropriety, or malpractice within the Company.

Shareholder Value Creation

As a result of our significant growth in revenue and profit over the last five years:

• The market capitalization witnessed significant growth and increased from Rs 102,347 Mn at the end of FY22 to Rs 110,050 Mn at the end of FY23.

• The dividend payout has substantially improved from 25% in FY14 to 51% in FY22 and 56% in FY23 (51% on a normalized PAT basis in FY23).

• The Company has achieved significant growth in the free cash flow (FCF) generation capabilities of the business with an increased focus on receivables management, working capital management, and tax optimization and generated the FCF at Rs 4,887 Mn in FY23.

Revenue Growth

During the year, revenue has witnessed a growth of 22.7% in US $ terms and 32.7% in rupee terms. The services segment has witnessed a growth of 25.6% in US $ terms, primarily in connectivity, sustainability & new growth areas, and business units. Services (core) have grown by 12.1% in CC terms. DLM segment has witnessed a growth of 8.8% in US $ terms.

Over the last eight years, the Company has sustained robust revenue growth momentum with an impressive compounded annual growth rate (CAGR) of 9.9%. The revenue for the Company is driven by a focus on a well-diversified business and geography portfolio.

Revenue by Geography

During FY23, the Company delivered 20% YoY growth in the North America region, a growth of 35.7% in the EMEA region, and 16.4% growth in the Asia Pacific, including the India region in $ terms. Growth was primarily driven by connectivity, sustainability & new growth areas, and business units.

Revenue by Operating Segments

The Company’s Chief Operating Decision Maker (CODM) reviews the business as two operating segments - Services’ and Design-led Manufacturing’ (DLM).

The Services’ segment comprises ARC (Aero, Rail & Communications), MEU (Mining, Energy & Utilities), and NGA (New Growth Areas such as HiTech, Automotive, Semicon and Medical Technology) while the Digital, Embedded Solutions are across all the Business Units. The DLM segment is engaged in providing electronic manufacturing solutions predominantly in the fields of ARC, Energy, and Medical Technologies as well as Digital Services & Solutions. The DLM segment includes Cyient DLM Limited (formerly Cyient DLM Private Limited), Cyient Solutions and Systems Private Limited and Aerospace Tooling and Parts division of Cyient Defense Services Inc, USA.

During the year, the Services segment has witnessed a growth of 25.6% in US $ terms, and the DLM segment has seen a growth of 8.8% in US $ terms.

Better Customer Mining

The Company continues to stress improving revenue per customer by focusing on strategic customers and generating more up-sell and cross-sell opportunities.

The below chart depicts the contribution of revenue from the top 20 customers over the last five financial years in the services segment:

Profits Trend

During the year, profits have increased due to:

• Increase in Services EBIT primarily driven by improvement in operational metrics, price hikes, and offset by wage hikes and increase in SG&A spend.

• Increase in DLM margin driven by better revenue mix and higher volume

Free Cash Flow (FCF) Generation

The Company has achieved significant improvement in the free cash flow (FCF) generation business capabilities.

In FY23, the Company generated FCF of Rs 4,887 Mn as against FCF generated in FY22 at Rs 5,719 Mn. The Company’s FCF to PAT conversion is 95% in FY 23 to 109.5% in FY 22.

Days Sales Outstanding

The Company has delivered Days Sales Outstanding (DSO) of 78 days as of March 31, 2023, in line with March 31, 2022, owing to better collection cycle management.

* DSO Calculation: Total receivables at the end of quarter/ (Quarterly Annualized Revenue*90)

Tax Rate

The effective tax rate has decreased from 25.2% in FY22 to 24.5% in FY23, marginally decreasing by 73 bps due to efficient tax planning.

Capital Expenditure

The Company ended FY23 with a capital expenditure of Rs 652 Mn, which is 1.1% of the total revenue.

Net Worth

The net worth of the Company has grown at 8.1% CAGR in the last six years from Rs 23,442 Mn to Rs 34,635 Mn. It is mainly attributed to the profitable growth over the years, driven by organic and inorganic initiatives.

Return to investors

The dividend payment trend for the Company has improved substantially in the last five years.

The highest-ever dividend of Rs 26 per share was declared in FY23. A dividend of Rs 24 per share was declared in FY22.

The dividend payout for the Company stands at 56% in FY23 (FY22: 51%) (51% on normalized PAT basis in FY23)

Market Capitalization

The Company’s market capitalization has grown from Rs 78,237 Mn in FY18 to Rs 1,10,050 Mn in FY23.

Market capitalization has increased from Rs 1,02,347 Mn as of March 31, 2022, to Rs 1,10,050 Mn as of March 31, 2023.

Financial Performance for the Year 2022-23 (Consolidated)

The financial results of Cyient Limited under Indian AS discussed below are for the consolidated results of Cyient Limited and its subsidiaries, which includes the performance of its subsidiaries andjoint venture. This part of the Management Discussion and Analysis refers to the consolidated financial statements of Cyient ("the Company") and its subsidiaries and joint venture, referred to as "the Group." The discussion should be read in conjunction with the consolidated financial statements and related notes to the consolidated accounts of Cyient for the year ending March 31, 2023.

Consolidated Financial Results

	31-Mar-23		31-Mar-22
Particulars	Rs Mn	% of Revenue	Rs Mn	% of Revenue
Income
Revenue from operations	60,159	100%	45,344	100%
Other income	814	1.4%	1,121	2.5%
Total income	60,973		46,465
Expenses
Employee benefits expense	30,260	50.3%	22,665	50.0%
Cost of materials consumed	6,839	11.4%	5,881	13.0%
Changes in inventories of finished goods, stock-in-trade and work in progress	125	0.2%	-175	-0.4%
Operating, administration and other expenses	13,371	22.2%	8,795	19.4%
Finance costs	1,000	1.7%	393	0.9%
Depreciation and amortization expense	2,566	4.3%	1,922	4.2%
Total expenses	54,161	90.0%	39,481	87.1%
Profit before tax and share of profit from joint venture	6,812	11.3%	6,984	15.4%
Tax expense	1,668	2.8%	1,761	3.9%
Profit before share of profit from joint venture and noncontrolling interest	5,114	8.6%	5,223	11.5%
Share of loss from Joint Venture	-	-	-	-
Share of non-controlling interest	-	-	-	-
Net Profit attributable to the shareholders of the Company	5,144	8.6%	5,223	11.5%

 

ANALYSIS

Revenue

Revenue has grown by 32.7% in rupee terms and by 22.7% in US $ terms. The services segment has witnessed a growth of 25.6% in US $ terms, and the DLM segment has witnessed a growth of 8.8% in US $ terms.

Other income

Other income for FY23 was Rs 814 Mn as compared to Rs 1,121 Mn in FY22.

• Treasury income is lower by 159 Mn due to the utlisation of cash for acquisitions.

• Forward contract gain is INR 172 Mn, with unfavorable YoY movement of INR 217 Mn, due to a loss in USD partially offset by higher gains in other currencies.

• Others, higher by Rs 74 Mn, mainly due to interest on IT refund of Rs 53 Mn.

The movement of the Rupee against major currencies was as follows:

Particulars	YE March 2023		YE March 2022
	Closing	Average	Closing	Average
USD	82.09	80.31	75.84	74.50
EUR	89.57	83.65	84.63	86.62
GBP	101.73	96.80	99.58	101.82
AUD	55.13	54.97	56.89	55.09

 

Employee benefits expense

Employee benefits expense includes salaries that have fixed and variable components, contributions to retirement and other funds, and staff welfare expenses.

Employee benefits expense as a percentage of the revenue from operations stands at 50.3% for FY23 compared to 50.0% in FY22. In value terms, employee benefits expense has increased by Rs 7,595 Mn in FY23 compared to FY22 due to an increase in headcount globally (from 13,428 on March 31, 2022, to 15,864 on March 31, 2023).

Operating, Administration, and Other Expenses

	YE March 2023		YE March 2022
Particulars	Million	% of revenue	Million	% of revenue
Rent	194	0.3%	130	0.3%
Travelling & Conveyance	1,029	1.7%	529	1.2%
Subcon tracting charges	4,023	6.7%	3,139	6.9%
Repairs and mainte-	2,074	3.4%	1,412	3.1%
nance
Others	6,051	10.1%	3,585	7.9%
Total	13,371	22.2%	8,795	19.4%

 

Subcontracting charges marginally decreased as a percentage of revenue, in line with the change in the revenue mix during the year.

Travel expenses increased as a percentage of revenue due to the complete relaxation of travel in FY23 post-Covid-19 as compared to partial restrictions in FY22.

Repairs and maintenance expense is in line with business requirements.

Others increased mainly due to an increase in "legal and professional charges" which includes one-off costs incurred during the year of Rs 467 Mn toward legal fees paid in relation to the civil class action antitrust lawsuit filed against one of the Company’s subsidiary and of Rs 211 Mn toward M&A expenses in relation to acquisitions.

Finance costs

Finance costs have increased from 0.9% in FY 22 to 1.7% in FY 23 as a percentage of revenue. Increase in finance costs is primarily on account of new loans availed for acquisitions purposes.

Depreciation and amortization expense

Depreciation and amortization expense for FY23 was Rs 2,566 Mn (4.3% of revenue) compared to Rs 1,922 Mn (4.2% of revenue) in FY22. The increase in depreciation is on account of additional capital expenditure incurred during the year of Rs 652 Mn and amortization of intangible assets acquired as part of acquisitions in FY23.

Tax expense

The effective tax rate has decreased from 25.2% in FY22 to 24.5% in FY23, marginally decreased by 73 bps due to effective tax planning.

Net profit attributable to the shareholders

The net profit stands at Rs 5,144 Mn for FY23 as compared to Rs 5,223 Mn in FY22.

Reasons for the decrease in the net profit during the year are:

• One-off costs of Rs 467 Mn incurred toward legal fees paid in relation to the civil class action anti-trust lawsuit filed against one of the Company’s subsidiaries.

• One-off cost of Rs 211 Mn incurred toward M&A expenses in relation to acquisitions.

• Increase in depreciation and finance costs on account of new acquisitions.

The above costs were offset by:

• Increase in Services EBIT primarily driven by improvement in operational metrics, price hikes, and offset by wage hikes and increase in SG&A spend.

• Increase in DLM margin driven by better revenue mix and higher volume.

Consolidated Balance Sheet as of March 31, 2023

Particulars	Rs Mn
	As of March 31, 2023	As of March 31, 2022
EQUITY AND LIABILITIES
Shareholders funds
- Share capital	553	552
- Reserves and surplus	34,082	30,582
Total - Shareholders funds	34,635	31,134
Non-current liabilities
- Long-term borrowings and liabilities	8,169	2,424
- Long-term provisions	1,616	1,347
- Deferred tax liabilities (net)	830	345
Total - Non-current liabilities	10,615	4,116
Current liabilities
- Short-term borrowings	4,397	3,241
- Lease liabilities	882	738
- Trade payables	7,142	5,259
- Other current liabilities	6,103	2,621
- Short-term provisions	1,707	764
Total - Current liabilities	20, 231	12,623
TOTAL - EQUITY AND LIABILITIES	65,481	47,873
ASSETS
Non-current assets
- Property, plant and equipment	12,328	7,398
- Goodwill	16,363	6,185
- Non-current investments	3,463	3,582
- Deferred tax assets (net)	482	248
- Other non-current assets	932	1,488
Total - Non-current assets	33,568	18,901
Current assets
- Inventories	4,358	2,790
- Current investments	1,718	866

 

Particulars	Rs Mn
	As of March 31, 2023	As of March 31, 2022
- Trade receivables	11,271	7,333
- Cash and cash equivalents	7,194	12,666
- Other current assets	7,372	5,317
Total - Current assets	31,913	28,972
TOTAL ASSETS	65,481	47,873

 

Share capital

The Company has only one class of shares - equity shares with a par value of Rs 5 each. The Authorized share capital of the Company was 280,000,000 equity shares.

Reserves and Surplus

Reserves and surplus increased from Rs 30,582 Mn as of March 31, 2022, to Rs 34,082 Mn as of March 31, 2023, primarily due to profit generated during FY23 of Rs 5,114 Mn.

Borrowings

The long-term borrowings increased from Rs 23 Mn as of March 31, 2022, to Rs 4,939 Mn as of March 31, 2023, due to loans availed for funding acquisitions during the year.

The short-term borrowings increased from Rs 3,241 Mn as of March 31, 2022, to Rs 4,397 Mn as of March 31, 2023, due to borrowings availed for working capital purposes.

Trade payables

Trade payables consist of payables toward the purchase of goods and services and stood at Rs 7,142 Mn as of March 31, 2023 (Rs 5,259 Mn as of March 31, 2022).

Property, plant, and equipment (including intangible assets)

The increase of Rs 4,930 Mn in property, plant, and equipment in FY23 is primarily attributable to the following:

• Capital expenditure incurred during FY23 of Rs 652 Mn toward additions to computers, buildings, plant and equipment, computer software and others.

• Intangible assets recognized on the acquisition of Grit consulting, Celfinet, Citec and Klaus IT of Rs 5,752 Mn

Goodwill

Goodwill represents the excess of purchase consideration over net assets of acquired subsidiaries. The increase in Goodwill of Rs 10,178 Mn during FY23 is attributable to the

following reasons:

• Rs 9,419 Mn recognized on the acquisition of Grit Consulting, Celfinet, Citec and Klaus IT (refer note below)

• Rs 759 Mn represents foreign exchange translation adjustments in line with the Indian Accounting Standards.

Grit Consulting: On April 26, 2022, the Company, through its wholly owned subsidiary Cyient Singapore Private Limited entered into a Share Purchase Agreement (SPA) to acquire 100% of the issued capital of Grit Consulting Pte Ltd (Grit Consulting’) for an upfront cash consideration of SGD 25 Mn and earn-out payments based on future performance.

Celfinet: On June 6, 2022, the Company, through its wholly- owned subsidiary Cyient Europe Limited, entered into a Share Purchase Agreement (SPA) to acquire 100% of the issued capital of Celfinet - Consultoria em Telecomunicacoes, S.A. (Celfinet’) for an upfront cash consideration of EUR 38 Mn and earn-out payments based on future performance.

Citec: On April 22, 2022, the Company, through its wholly- owned subsidiary Cyient Europe Limited entered into a Share Purchase Agreement (SPA) to acquire 100% of the issued capital of Sentiec Oyj (Citec Group’) for an upfront cash consideration of EUR 71 Mn and Rs 906 Mn as part of 100% acquisition of Citec Engineering India Private Limited.

Klaus IT: On May 6, 2022, the Company, through its wholly owned subsidiary Cyient Limited entered into a Business Transfer Agreement (BTA) to acquire Specified Business of Klaus IT Solutions Private Limited (Klaus IT’) of provision of professional services being engineering, software and IT for an upfront cash consideration of Rs 850 Mn.

Refer note 33, Business Combinations in consolidated financial statements of Cyient Limited for the year ended March 31, 2023, for further details.

Non-current investments

Non-current investments have decreased from Rs 3,582 Mn as of March 31, 2022, to Rs 3,463 Mn as of March 31, 2023, primarily due to the sale of perpetual and tax-free bonds Rs

297 Mn.

Cash and bank balances

Total cash and bank balances consist of:

(Rs Mn)

Particulars	As of March 31, 2023	As of March 31, 2022
Cash and bank balances	6,847	4,413
Investment in FDs	347	8,253
Investment in MFs	1,290	704
Treasury investments & Commercial Papers	2,288	2,319
Total - Cash & cash equivalents including treasury investments	10,772	15,689

 

During the year, the Company generated FCF from operations of Rs 4,887 Mn, comprising Services FCF of Rs 4,400 Mn and DLM FCF ofRs 487 Mn, representing 95% conversion of PAT for FY 23.

Decrease in closing balance of cash and bank balances is due to the utilization of cash for acquisitions. The Company deploys its surplus funds in fixed deposits, bonds, mutual funds and other approved instruments in line with an approved policy.

Trade receivables

The trade receivables have increased from Rs 7,333 Mn as of March 31, 2022, to Rs 11,271 Mn as of March 31, 2023. The Company regularly monitors unbilled revenue, separately as well as collectively, along with trade receivables.

The Company has maintained DSO (Days sales outstanding) at 78 days as of March 31, 2023 and March 31, 2022 representing efficient collection management. {DSO has arrived considering trade receivables and unbilled receivables}

Other current assets

Other current assets have increased from Rs 5,317 Mn as of March 31, 2022, to Rs 7,372 Mn as of March 31, 2023, primarily due to an increase in prepaid expenses & balances with Government authorities by Rs 882 Mn and unbilled revenue by Rs 1,137 Mn.

Financial Ratios

Following are ratios for the current financial year and their comparison with the preceding financial year, along with explanations where the change has been 25% or more when compared to the immediately preceding financial year:

Sl. No Ratio description	March 31, 2023	March 31, 2022	Vari ance	Explana tion
1 Debtors turnover (in days)	78	78	0%
2 Inventory turnover (in days)	177	125	42%	Note (i)
3 Interest coverage ratio	7.8	18.8	58%	Note (ii)
4 Current ratio	1.58	2.30	(31)%	Note (iii)
5 Debt equity ratio	0.35	0.19	(81)%	Note (iv)
6 Operating margin (%)	15.9%	18.1%	(12)%
7 Net profit margin (%)	9%	12%	26%	Note (v)
8 Return on net worth (%)	15.6%	17.2%	9%

 

(i) Increase in inventory turnover days is attributable to cater revenue of FY23-24 in DLM.

(ii) Decrease in the Interest coverage ratio is primarily attributable to the increase in borrowings which were availed for funding the new acquisitions during the year.

(iii) Current ratio is decreased due to increase in short-term borrowings due to working capital requirements.

(iv) Increase in debt-equity ratio is due to increase in borrowings availed during the year.

(v) Decrease in net profit ratio is due to one-off costs of Rs 467 Mn incurred towards legal fees paid in relation to the civil class action antitrust lawsuit filed against one of the Company’s subsidiary, one-off cost of Rs 211 Mn incurred towards M&A expenses in relation to acquisitions and increase in depreciation and finance costs on account of new acquisitions.

People Function

Our associates are our most important assets. Their passion for solving complex business problems, a desire to innovate, and an urge to push boundaries have ensured that our clients are fully engaged. As an organization, we constantly strive toward making Cyient a great place to work. And our efforts in talent engagement and development were recognized by the prestigious Great Place To Work certification that we earned in India for 23-24. This external validation showed our position as best-in-class among our peer competitors. Based

on our organizational growth strategy, we plan to seek GPTW certification in countries of interest. We will continue with our annual employee listening exercise to gauge and monitor our associate satisfaction.

In FY23, we continued our efforts in enhancing our hiring efficiencies & retaining talent. Apart from hiring and retaining associates, ensuring our associates well-being in the current post-COVID recovery period, competency development around niche skills in embedded and digital streams, enriching our solutions capability, and integrating newly acquired entities have been our top priorities and remain our key focus areas in the near term.

Well-being & enablement for a resilient workforce

Associates safety, enablement, and engagement have been our primary considerations and remain our important focus areas in the near term. Taking steps toward the same, we ensured that our associates were safe throughout the different phases of the pandemic and beyond.

At Cyient, we believe in taking care of our associates health and well-being. Post-pandemic, too, we continue to provide our associates 24/7 instant access to consult specialist Doctors through our tie-ups with virtual healthcare providers. They can consult through phone calls, chat, or video calls, and is offered at zero cost to associates. We encourage associates to be healthy and fit. Furthermore, we also provide Creche benefits to our associates along with leave policies that aid their paternal & maternal journeys.

We trust that the hybrid & flexible working model is a step in the right direction towards achieving an optimum work-life balance, wherein associates work from the office any three days a week. Throughout the financial year, we also ran global wellness challenges and had good associate participation in these programs.

In terms of immigration, we achieved noteworthy progress in cross-country deployments to Australia, the UK, and the USA, along with newer countries, Poland, Denmark, Laos, Italy, and China.

Process Transformation

At Cyient, we believe in AGILE way of working and have initiated a Transformational journey of process simplification, automation, insights-driven, and reaching the intelligent stage. This initiative is across Enabling Functions of HR, Finance, and IT departments. As part of this journey, a significant portion of transactional activities is outsourced to leverage scalable, optimized, and stable operations. BOTs have been introduced for handling first-level associate queries and new hire onboarding.

Strengthening our Management competencies

The focus this year has been on building competency across key elements to equip our Managers in Sales, Account Leadership, Project Management and Leadership Development.

Dedicated sales and Account Leadership training has been delivered to our Sales, Presales and Customer Service Partners and Managers. This interactive program has equipped them to build strong relationships with our customers enabling demand creation and sales.

We have continued to build the Project and Program Management capabilities, delivering a series of training and certification programs, PMI - PMP, PMI - AGILE and Certified Scrum Master.

We have enhanced Management capabilities with Managing@ Cyient, which is designed to give new and existing managers the skills needed to be a successful Manager at Cyient.

To develop and increase our pipeline of Women Leaders, we have designed and launched the Women in Leadership Program to 43 Women Leaders. This program combines workshops, mentoring and talks and Q&A sessions from inspirational women leaders within and outside of Cyient.

Technical Competency Development

Technical Competency development remains a strategic priority for us as we transition into the next era of the digital technology-driven world and strive to transform Cyient into a digital organization. We have implemented several new programs closely aligned with five MegaTrends and disruptive technologies, shaping the future of Cyient and our customers in the coming decade. Our primary focus has been enhancing our technology-driven training initiatives across various domains, bolstering our middle management capabilities, and equipping our associates to effectively navigate the significant technological changes integral to the digital era.

The Technology Leadership Program equips our associates with the skills to navigate digital disruption and understand the drivers of the evolving technology landscape. By challenging conventional thinking, they uncover the unspoken emotional needs of our customers, master co-diagnosis, and effectively communicate the business value we offer. This empowers us to strengthen existing accounts and win new customers, while embodying our vision of creatively applying technology to solve meaningful problems. Currently, 100 SMEs/Technical managers are undergoing this intensive six-month program.

We have cross skilled ~5000 associates in digital, emerging technologies, and traditional skills such as Data Analytics, Cloud Computing, Software Development, Software Testing, Fiber Optics Design, Design & Drafting, and Analysis & Simulation. This year, we have also invested in creating digital content that would aid new hires during their technical

induction. The investments to acquire new skills will yield: enhanced expertise, increased productivity, innovation and adaptability, greater associate engagement, and accelerated career growth.

M&A Due Diligence & Integration

In FY23, we embarked on a strategic path of growth through acquisitions and aquihires, resulting in the addition of over 2,000 talented associates to our existing workforce. These acquisitions have not only expanded our team but have also brought valuable expertise and perspectives to our organization.

We are proud to announce that we have successfully integrated these new entities into our larger organization. Our diligent efforts have focused on fostering collaboration, sharing knowledge, and creating synergies between the acquired companies and our existing teams. By leveraging the strengths and capabilities of each entity, we are maximizing the potential for innovation and delivering even greater value to our clients.

Inclusion & Diversity

As of March 16, 2023, women hold just over 26% of technology-related jobs, and the percentage has decreased over the last two years. With only 10% of C-Suite roles and 13% of senior vice president roles being women, we need to make our gender balance programs more intentional. As part of International Women’s Day, we had the pleasure of hosting four amazing female leaders from our customers. It was inspiring to get to spend time with these accomplished ladies, and we were so impressed with their authenticity, and they all expressed the importance of having a culture of psychological safety where associates can be their best selves.

At Cyient, we want to attract and retain our female associates across the entire lifecycle of their careers: entry-level to executive and everything in between. For the next 12 months, we have three key goals to intentionally build a stronger gender balance across all levels of our organization.

1. Achieve 50% gender balance in hiring our entry-level associates.

2. Roll out a Women in Leadership program to develop and mentor our mid-level female associates.

3. Focus on our culture and especially on inclusion to ensure that all our associates can bring their authentic best selves to work daily.

To attract more female talent for our entry-level roles, we have launched multiple programs, including a tool to ensure our job descriptions are unbiased, enhanced flexibility for working hours and locations, multiple workshops, and sessions to discuss both home and career opportunities and challenges and focused training and development programs.

Cyient has had multiple mentorship programs in the past, but this year we are excited to launch our new Women in Leadership program, which will combine development activities with mentorship. Given that diverse companies are more innovative and perform better, we want to ensure that we have a strong pipeline of empowered, strong female leaders that can bring their unique perspectives to ensure we are leveraging technology to solve problems that matter and to ensure that we build solutions that matter for a diverse set of people.

Culture

Having an inclusive culture is the cornerstone to creating a diverse, innovative environment that inspires growth and associate engagement. Cyient defines its culture with the acronym A G I L E (ambition, growth mindset, inclusive, lead by example, and empowered).

We believe it is critical that we invest and focus on our culture to ensure we have clear expectations of how we will lead, manage, act, and treat each other, our customers, and the community. This year we have created a focus on how we can ensure that inclusion is the key foundation for all our stakeholders to excel. This inclusive culture will ensure all of our associates have a voice and that it is heard and valued.