Cyient Ltd Management Discussions.

Global Economic Outlook

The global economy is expected to slow down in 2019, particularly in developing economies where growth is projected to stall at 4.2%. Growth in the United States will continue to be supported by scal stimulus in the near term, which will likely lead to larger and more persistent scal de cits1. International trade and investment are moderating and trade tension and financial market pressures are expected to escalate the slowdown in global activity.

In all, global growth is projected to grow at 2.9 percent in 2019 and 2.8 percent in 2020-21, as economic slack dissipates, monetary policy accommodation in advanced economies is removed and global trade gradually slows2.

Aerospace & Defense

The global Aerospace & Defense (A&D) industry is expected to witness growth over the year. With strong commercial aircraft order backlog and a strengthening defense expenditure, there is continued optimism across global markets. After periods of spending austerity early in the decade, the next couple of years will see a fresh recapitalization cycle on a global level, and growth in the Asia Paci c region in particular. The Aerospace and Defense Business Unit (BU) witnessed growth driven growth in key accounts and new solution development. Over the year the BU made signi cant investments in digital solutions and manufacturing capabilities which is expected to contribute to the growth in the coming years. Cyient became the rst India-based company to receive Part Manufacturing Approval (PMA) from the FAA for various aircraft—a key development in this scal. Additionally, we rolled out a new digital quality noti cation solution that was designed and built by Cyient and was successfully delivered to multiple clients across geographies. This year we won a contract from a major European OEM to build and lead an engineering Centre of Excellence (CoE) in India focused on avionics solutions. We also formed a partnership with a technical publication solutions provider that will allow us to build on our S1000D expertise for rapid technical publication development and digital content management. We also won many awards and accolades and were recognized by major industry analysts. The key among them being Pratt & Whitney supplier awards for "Supplier Highest Productivity" Award, "Supplier Innovation Award" and "Consistent Supplier productivity" Award. We were also identi ed as a "Major Contender" in the Everest Group Veri cation & Validation Engineering Services PEAK Matrix™ 2018 and were named as one of the Top 20 Most Promising Aerospace Tech Solutions Providers by CIO Review.

Transportation

The Transportation industry has outperformed predicted growth forecasts, supported by strong growth in rolling stock and signaling. With these segments being our core focus areas, the general long-term outlook for Transportation BU remains positive. Our value proposition continues to resonate well with the key industry trends of multimodality, competition from other modes, standardization, digitization, and internationalization. We unveiled our new product, CyceroTM, for rail cab audio alarm noti cation, at the industrys agship event, InnoTrans 2018, in Berlin. Aligned with our S3 strategy and approach to expanding the project and product value chain of our key clients, CyceroTM, is a testimonial of our commitment towards safety in Rail. Along with a number of solutions leveraging technology to address emerging industry trends such as augmented reality and smart asset maintenance. These new o erings have been well received by our key clients and the industry, and have been endorsed by leading industry experts as well.

The Zinnov Zones for Product Engineering Services report positioned Cyient in the "Leadership Zone" in the transportation industry for the year. This is the seventh consecutive year that we have been placed in the leadership zone. Our outlook for FY20 and beyond continues to be positive. This is driven by industry growth in our focus segments of rolling stock and signaling, our strong long-term client relationships, a robust opportunity pipeline, and the increasing momentum in strategy execution.

Energy & Utilities

The oil & gas industry continues to recover from the last few years of weak prices, enforced capital discipline, portfolio realignments, and productivity e ciencies. The outlook for the mining sector is positive with rising commodity prices. The sector is experiencing strong outlook of future orders and reduced operational costs. On the mining front, there is expected to be an upturn in the next one to two years and new deposits have been identi ed in key minerals that supply the electronics industries; i.e., lithium. The utilities industry is witnessing signi cant growth due to an investment in distributed and renewable power generation projects and increasing regulatory driven requirements. Large investments in grid modernization, renewable, mobility and smart metering continue to dominate capital investments, supported by operational processes to manage increasing volumes of data.

The growth in the BU was driven by new customer additions and new solutions o erings. More established solution o erings like iDMS for utilities continue to gain traction. There is increased focus on ADMS readiness, data quality and governance across utilities and solutions for remote sensing and change detection from satellite imagery. Along with this, we will focus on key strategic o erings around connected equipment, asset management, plant engineering and digital twin solutions for capital projects. We also see opportunities in predictive analytics, manufacturing engineering and renewables.

The outlook for FY 20 continues to remain strong with growth expected in Europe and North America markets. We continue to focus on the development of solutions and working with our expanding partner ecosystem to secure deals that bring on-board both synergic and complementary technologies.

SIA

Cyients Semiconductor, IoT, and Analytics (SIA) BU focuses on building capabilities to strengthen our leadership position in digital transformation solutions for our clients across industries. SIA BU is expected to witness strong growth with focus on expanding markets for custom semiconductor and digital services. The full integration of Ansem N.V. a custom analog acquisition, gives Cyient turnkey IC expertise, enabling the development of custom ASICs, including smart analog sensors that transform real-world signals into digital data. With more than 600 innovative IPs in its portfolio the BU delivers specialized, mixed-signal circuits for RF design, power management, reliability requirements and unique form factors across growing markets like industrial, automotive, medical technology and healthcare. Along with this our 100% acquisition of Cyient Insights has enabled us to provide advanced analytics capabilities that help our clients solve complex problems and make smarter, data-driven decisions to improve their business outcomes. Over the year, we also made tremendous progress in positioning Cyient as a connected car and automotive technology solutions and services provider in embedded systems, software and turnkey mixed-signal & analog ASIC solutions. We also successfully won business from some top tier-1 automotive suppliers. We continue to make progress by o ering unique solutions for digital cockpits, autonomous driving, connected mobility and electri cation of cars. Despite signi cant headwind and margin pressure on our traditional layout and physical design services, we increased our focus on pre-silicon veri cation and post-silicon validation in semiconductor design services, establishing innovative equipment in our Hyderabad and Bangalore labs. This focus is helping us create momentum with clients. We continue to work with new clients, expanding our foray into unique and growing applications in AI and autonomous driving.

Medical Technology & Healthcare

The Medical device industry is poised for steady growth, with the industry expected to grow at a rate of ~5% during the year. Digital technologies such as RPA, cloud, arti cial intelligence (AI), and robotics, to internet of medical things (IoMT), digital and virtual reality will continue to see increased investments with focus on patient centered care, increased access and a ordability, improved quality and lower costs.

The Medical Technology and Healthcare (MTH) BU witnessed growth through the year driven by growth in cardiology and in-vitro diagnostics segments. In line with the S3 strategy, we continue to invest in developing solutions. Our current portfolio of solutions includes a pupil screening device and a wearable cardiac device. In the second year of partnership with Xynteo, a Norway based international advisory rm, we have conceptualized an ecosystem platform, MedtechConnect aimed at minimizing the time to take a product from lab to market. The platform connects players from all aspects of the medical technology value chain—innovation, product development, and commercialization, with the intent of taking a ordable diagnostics to the last mile in India. We also expanded our corporate venture-capital portfolio for medical technology by investing in two innovative technologies, one in point-of-care (PoC) diagnostics space and the other one in wearables space. For FY20, we expect growth to be driven by new clients and through monetizing solutions developed.

Communications

The communications industry is expected to grow by 2%-3% through the year driven primarily by broadband as demand for high speed data continues to increase. The trend of increased data consumption will persist in 2019 with even greater volumes of data generated by new technologies. The industry will witness massive investments in the next wave of technology and infrastructure upgrade to drive a 5G ecosystem. Cyient communications business continued to play a signi cant role in enabling CSPs to achieve their objectives. Cyient plays a strong role in designing and building bre networks, small cell, and 5G rollouts. The growth for our business continues to be strong, we will see continued momentum in FY20 and beyond. Our investments on forging strong relationships with global CSPs are showing results as we work towards expanding our services and solutions play and align them to industry requirements.

Ourstrategytoinvestinpeople,technology,andinfrastructure is paying dividends where we see traction in newer services and solutions around SDN, 5G, IoT, and analytics including implementation of massive MIMO and network planning and optimization. The communications BU has been focused on developing client-focused solutions and integrating them into our portfolio to provide clients with a robust and end-to-end o erings. A problem-solution approach to building proof of concept with CSPs in-line with our wireless strategy, is now getting translated into building frameworks that address client issues. These frameworks leverage our core strengths in both wireline and wireless area. This year we established a state-of-the-art experience centre at our o ce in Sydney, Australia. The experience center demonstrates innovative solutions and products using technologies such as open source, IoT, arti cial intelligence, analytics, and augmented/virtual reality amongst others to bring innovation close to our clients.

NBA

Cyients New Business Accelerator (NBA) is the innovation hub set up to develop solutions across di erent industries. Developed as an R&D incubator for new technology solutions and business models, the NBA has grown to include 100+ engineers today. By providing a startup-like environment, NBA helps unleash the imagination of our engineering teams towards the development of new solutions that address customer pain points across a variety of industries. A key focus of the program is to recruit innovative talent and develop high performance teams. We have put unique processes in place to identify "intrapreneurs" with subject matter expertise to build the solutions. NBA focuses on understanding the client problem, de ning, developing, and validating solutions and identify the best strategy and business model for market success.

We started the innovation hub at our Hyderabad and Bangalore o ces and are in the process of expanding this to other geographies. Setting innovation hubs across geographies will allow us better engage with clients to develop solutions. Currently, we have 18 solutions being developed. Our rst set of solutions are expected to be launched in the market in the coming year. We are witnessing strong traction from clients for digital solutions such as AR/VR and our drone security application which we successfully demonstrated with the Hyderabad police. We will continue to invest in developing our solutions capability in line with our S3 strategy and execution focus.

Business Strategy

Cyients business landscape is continually changing and with change comes the opportunity to transform our business and signi cantly accelerate growth. We need to evaluate how we can leverage the expanding opportunities in front of us to further enhance our value proposition and create a di erentiated position in the market.

In this context, our vision statement de nes Where we want to be in the future, the S3 strategy articulates How we will get there and the AGILE execution framework de nes What actions we must take to get there. Cyients vision is to "Apply technology imaginatively to solve problems that matter". Combining our technology capabilities with "the power of ideas" we can make a distinctive and positive impact in the markets we serve. While the vision statement articulates our future, S3 strategy de nes how we intent to get there. S3 articulates our two-pronged approach to expand from Services to Systems and Solutions.

We will build capability across the Design-Build-Operate-Maintain continuum that de ne our industries. This will allow us to create a di erentiated business o ering, expand our addressable market and command better margins. We will also focus on leveraging key technology drivers to move up the value continuum —from o ering discrete services to integrated solutions. Examples include the iDMS solution from the Utilities BU, and the outcome based cost optimization initiative by the Aerospace BU. S3 execution is based on the AGILE framework that identi es objectives, actions and measures. The AGILE framework focuses on ve strategic goals:

1. Ambition: Expanding from services to solutions

2. Growth: Delivering Industry leading earnings growth

3. Investments: Prioritizing Investments

4. Leadership: Developing 2030s talent

5. Execution: Building an AGILE Culture

Business Outlook

The changing business landscape provides opportunity for innovation and technology adoption. As we embark on this journey we see immense opportunities for us in the future. As an organization, we will strive towards our aspirations without compromising on our core values. Our outlook for FY 20 continues to remain strong. We are con dent of a strong performance through the year.

People Function

As an organization we constantly strive to be the employer of choice for our associates. Cyients people function is very closely aligned to our Vision and the S3 strategy and work towards talent acquisition, talent retention and developing next line of leaders. We constantly try to incorporate healthy and innovative HR practices that provide us an edge over our competition. Over the last year we made good progress on our strategy actions and are well aligned to achieve them. The total head count as on 31 March 2019 was 15,085.

Some of the key initiatives we embarked on over the year are as follows:

Early Career Initiatives

As part of early career initiative our focus has been on innovative ways to recruit fresh talent into the organization that gives us an edge over our competition. Key actions initiated as part of this program are as follows:

India

Cyient and TASK Sign an MOU to Help Engineering Students Build Skills and Improve Employability.

Getting industry-ready talent has always been a challenge. Cyient has, therefore, adopted a Train + Hire Model to address this critical gap in employability. Under this model, students across colleges are trained by di erent agencies in critical skills to help them become job-ready. As part of this Cyient has partnered with Telangana Academy of Skills and Knowledge (TASK) is a government non-Profit organization set up to create synergy between industry, academia, and the government to enable skill development and creation of talent speci cally required by the industry. TASK currently operates in the State of Telangana with almost 550 registered colleges. As part of this initiative our focus will be on the following:

• Enhance our talent pipeline

• Access to industry-ready talent

• Reduced training investments

Fresher Campus Hiring:

Each year Cyient approaches select colleges across India for its campus hiring program. However, this year, we moved to a di erent model to target hiring the right talent. We launched a digital campaign for hiring campus freshers for the year. As part of this we received 75,000 pro les. As a next step all the pro les were scrutinized and shortlisted candidates were put through an online assessment, which was conducted across India at nodal centers identi ed by Cyient. Currently, shortlisted candidates are going through the interview process. This initiative helped us expand our reach beyond the colleges we had established relations with and tap into a larger more diversi ed resource pool.

North America

In FY19, we launched the Early Career Program initiative NAM with focus on developing industry-ready engineers through the "Train to Hire" model. The program is custom-designed in partnership with educational institutions to create a path to employment for students, helping them gain the skills and knowledge that Cyient require. As part of this initiative we shortlisted six community colleges across North America to help us drive the Train+ Hire model of recruitment. We are now in the planning phase to design and customize the training program across these colleges.

EMEA

Our recent acquisition Ansem N.V in Belgium has a longstanding relationship with one of Europes leading technical universities, KU Leuven, in Belgium. Through this partnership Ansem recruits graduates and interns as part of their future talent development plans. We plan to expand this to the rest of the organization in the coming years.

Leadership Development

Emerging Leader and Business Leader program

Leadership development continues to be a key focus area for Cyient. Our agship leadership training programs for Emerging Leaders and Business Leaders continue, and we have trained 56 managers across both the programs during the year. The coverage for these programs continues to be across business units, functions, and our markets. These programs are spread over nine months and include working on action learning projects where managers work on as part of cross-functional teams and take on business challenges outside their normal work scope. Along with this succession planning and the individual leadership development process has been further strengthened by extending the talent review process to the next layer of leadership—essentially covering the top 5% of senior managerial talent across the company through this structured process. The process is now built into Workday, our HCM tool, to make it scalable. For senior management development, we have initiated a pilot program with a world-renowned consulting company to assess and coach our high-potential business leaders to enable them to build on their strengths and be future ready.

Executive Leadership Program

Another initiative started as part of leadership development is the Executive Leadership Program. As part of this program senior leaders at Cyient are exposed to the learnings in global business schools with the focus on providing them transformational learning experience and develop them for global leadership roles. As part of this program three senior leaders attended global programs across major business schools.

Career and Competency Progression Initiative

The Career and Competency Progression Initiative was launched to rede ne the technical career path for associates and de ne the critical competencies for career progression. Under the initiative, a competency framework is developed to outline the roles and processes along with the design, launch, and implementation of technical career paths. This initiative was rst launched in the Rail Transportation BU with initial focus on completing the evaluation of associate competencies and identifying gaps. These gaps will be addressed through an Individual Development Plan. The initiative received an enthusiastic response and will be rolled out to other functions in FY20.

Design Thinking Program

As part of the NBA initiative we rolled out a design thinking training for our associates with an intent to build the innovative mindset. As part of this program associates we exposed to the concepts of design thinking. They were able to apply them in the workshop and to the projects. A lean start-up methodology was used where associates were encouraged to do real-time research and come up with possibilities and MVPs. In some cases, just applying the design thinking mindset helped resolve issues and generate solutions.

Emerging Skills Development

Adoption of digital technologies is crucial for Cyient to o er optimized solutions. Digital technologies equip Cyient to respond rapidly to market changes and deliver the innovation that customers need. Opportunities to leverage these technologies exist across the business value chain ranging from spotting opportunities, participating in or managing multidisciplinary projects, and delivering digitally-driven projects, to engaging with customers and emphasizing the bene ts of adopting digital technologies. A number of initiatives were undertaken at Cyient to prepare us for the future business landscape. One such step is the establishment of a framework to provide orientation and develop capabilities in emerging technologies. The framework has varied program structures targeting roles of associates and speci c learning outcomes.

Technical delivery associates have a structured learning path (101 to 103), which begins with an appreciation of technology and being an advocate of technology. The learning path allows enthusiasts to pursue pro ciency in building models and deep dive into technology with mentoring support. Delivery managers and business leaders have di erent learning paths that enable them to have informed conversations with stakeholders. Multiple methodologies—online, remote, classroom, and practice sessions— are used for learning.

Key Diversity and inclusion Initiatives Global Mentorship Program

Cyient is committed to being a diverse and inclusive organization. As part of this our key focus is on gender diversity. To drive gender diversity one key initiative we started was the global mentorship program called ‘DIEL (Diversity, Inclusivity, and Equity-Driven Leadership). The rst series of this program will kick-start with 50 women associates. This will enable an increase in the number of women in leadership roles at Cyient. Cyient is making signi cant investments in this program to improve its gender diversity ratios in the mid and senior management levels. This program will provide yearlong mentoring to 50 women associates. Cyient has tied up with the Hay Group (Korn Ferry), a leading global HR consultancy, to program manage this initiative at global level.

Threats, Risks and Concerns

Risk description Risk impact Risk mitigation
Shift in US Visa policies Foreign currency volatility Higher immigration costs due to tougher application procedures A major portion of our revenues are in foreign currencies and signi cant portion of our expenses are in Indian rupees. Our focus is on hiring local talent within each of our global regions including North America. There is Board-approved hedging policy in place, which is reviewed periodically. Prudent hedging against adverse foreign exchange movements helps in minimizing the impact.
Volatility in exchange rates between Indian rupee and other foreign currencies may impact our operating results.
Global economic uncertainty Economic uncertainties in leading economics like US and Europe can impact the demand for our services. Broad-based and well diversi ed business mix across geographies allows us to minimize the impact on our business.
Overall economic environment continues to be volatile and such volatility may a ect business sentiments.
Cost pressures Increase in employee costs and other operating expenses may create pressure on margins There is a continuous focus on increasing productivity and employee utilization.
• shoring of services is also explored wherever possible. There is a regular process of employee pyramid correction.
Competition risks In this highly competitive environment, there may be severe impact on margins due to pricing pressures There is focus on providing higher value and di erentiated services We are also getting into new business models.
Integration risks in Mergers & Acquisitions Inappropriate acquisitions or mismanaged integration may result in failure to achieve the strategic objectives of the acquisition There is a dedicated team monitoring the post- merger integration with well laid out plans. There is a periodic review of the activities and the same are reported to the Board
Data privacy and cyber security In a connected world, businesses are extremely vulnerable to cyber-attacks, leading to loss of data and damage to reputation. The Company has a stringent Cyber Security policy which ensures timely resolution of incidents.
The Company also has in place rewalls, data encryption, data backup mechanism, patches etc. There are also audits conducted periodically by external agencies.
Compliance risks Being a global company, we are exposed to laws and regulations of multiple countries The Company has an in-house compliance team which monitors global compliances. The team receives updates on changes in regulations from specialist consultants and circulates the same internally.

Internal Controls and adequacy

The Companys global presence across multiple countries and large associate strength makes it imperative for us to have a robust internal controls framework. The Company has in place adequate systems of internal control commensurate with its size and the nature of its 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 of corporate policies. The Company has a well-de ned manual for delegation of authority for approving revenue and expenditure. The Company uses SAP system, globally, to record data for accounting, consolidation and management information purposes, which connects to di erent locations for exchange of information. M/s Ernst & Young LLP carried out the internal audit for the financial year 2018-19 based on an internal audit plan, which is reviewed each year in consultation with the statutory auditors (M/s Deloitte Haskins & Sells) and the Audit Committee. The internal audit process is designed to review the adequacy of internal control checks and covers all signi cant areas of the Companys 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 Companys 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 on March 31, 2019 and have opined that adequate internal controls over financial reporting are existing and that such controls were operating effectively.

Enterprise Risk Management (ERM)

The Company has an organization-wide ERM framework. The framework is based on best-in-class standards and covers various operations of the Company as well as key criteria like Financial risks, Reputation risks, Regulatory risks, Employee risks and Customer risks. The audit of ERM is periodically carried out by Ernst & Young LLP, the Companys internal auditors and a report is presented to the Audit Committee. The Company also has an internal risk committee which reviews the risk management process on periodic basis. The Company received an award on "Best risk management framework and systems" from Kamikaze B2B Media.

Investor Engagement

The Company communicates the business outlook, strategies and new initiatives to its investors in a regular and structured manner. We believe that communication with the investor community is as important as timely and reliable financial performance. We engage multiple communication channels for this purpose. The Companys dedicated investor relations department, along with the Companys senior management team, participate in various road shows and investor conferences. The Company hosts an annual Investor Day at its premises. The Company also engages an external agency to carry out an independent Investor Satisfaction Survey and the results of the survey are analysed and improvements are implemented.

Whistle-blower policy

Cyient rmly believes in Values FIRST (FIRST = Fairness, Integrity, Respect, Sincerity, Transparency) and the organization-wide Whistle-Blower policy is a step towards ensuring transparency and accountability. The Company believes in the conduct of the a airs of its constituents in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behaviour. This allows stakeholders to expose any kind of information or activity that is 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 wrong-doing, impropriety or malpractice within the Company.>

Shareholder Value Creation

As a result of our signi cant growth in revenue and Profit over the last 5 years, dividend payout has substantially improved over last 5 years from 25% in FY 14 to 41% in FY19 (excluding impact of buyback in FY19). The Company has achieved signi cant improvement in free cash ow (FCF) generation capabilities of the business with an increased focus on receivables management, tax optimization and prudent capex strategy. These improvements in business performance also resulted in increase in market capitalization. Our market capitalization has shown CAGR of ~ 6% in last 5 years.

Revenue Growth

The Company has witnessed strong revenue growth of 8.7% Y-o-Y in $ terms and 10.1% in constant currency basis. It has also sustained robust revenue growth momentum in the last 5 years with an impressive compounded annual growth rate (CAGR) of 14%. The revenue for the Company is driven by focus on a well-diversi ed business and geography portfolio.

The Company has delivered robust growth in Asia Paci c (APAC) with signi cant growth of 19.1% in $ terms and America has grown by 11.1% in $ terms due to Cyient sustained investment in market development.

Revenue by Operating Segments

The Company is operating by three Operating Segments and each of the segments have grown strongly across all the geographies and industry segments.

Better Client Mining

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

Profits Trend

The Company achieved signi cant growth on all measures of Profitability. Net Profit has shown double digit growth of 18% and 5 year CAGR stands at 8%.

The Company has achieved signi cant improvement in free cash ow (FCF) generation capabilities of the business in last 3 years. In FY19, the Company generated Free Cash Flow (FCF) at

र 3,770 Mn against FCF generated in FY18 at र 2,706 Mn. The Companys FCF to EBITDA conversion increased from 39% in FY18 to 48.4% in FY19, due to positive cash generation in DLM business of र 111 Mn, improved working capital management, optimizing the capital expenditure and e cient tax management.

Days Sales Outstanding (DSO)

The Company has delivered consistent improvement in Days Sales Outstanding (DSO) in recent past owing to focus on better collection cycle management. Total DSO stands at 88 days in FY 19 as compared to 80 days in FY 18. Increase is primarily attributable to the increase in unbilled revenue. The Company is con dent of continued improvement in DSO and is taking steps to reduce the DSO further.

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

Tax Rate

The effective tax rate for the organization has decreased by 270 bps from 25.7% in FY18 to 23% in FY19, due to various tax initiatives taken during the financial year.

Capex

The Company ended the FY19 with capital expenditure of र 1,367 Mn, which is 3% of total revenue.

Net worth

Net worth of the company has grown by 39% in last 5 years from र 18,441 Mn to र 25,622 Mn. It is mainly attributed to the Profitable growth in each of the last years, driven by both organic and inorganic initiatives.

Dividend payment trend for the company has improved substantially in last 5 years. The dividend payout for the Company stands at 41% (excluding impact of buyback in FY19). The dividend for the full year at र 15 per share, which is the highest ever. During the year, the Company has also bought back equity shares at an average price of र 640.21 per share. The Company expects the current dividend payout ratio to be maintained in the near term.

Market Capitalization

Market capitalization of the Company has improved signi cantly in last 5 years. The market capitalization of the Company has grown from र 56,660 Mn in FY 2015 to र 71,747 Mn in FY 2019.

FINANCIAL PERFORMANCE FOR THE YEAR 2018-19 (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, joint venture and associate. Preparation and presentation of such consolidated financial statements depicts comprehensively the performance of the Cyient group of companies and is more relevant for understanding the overall performance of Cyient. Standalone results of Cyient excludes the performance of its subsidiaries, joint venture and associate. This part of the Management Discussion and Analysis refers to the consolidated financial statements of Cyient ("the Company") and its subsidiaries, joint venture and associate 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 ended March 31, 2019.

CONSOLIDATED FINANCIAL RESULTS

31-Mar-19

31-Mar-18
Particulars Mn % of Revenue Mn % of Revenue
Revenue from operations 46,175 100% 39,175 100%
Other income 1,340 2.9% 1,519 3.9%
Total income 47,515 40,694
Expenses
Employee bene ts expense 25,374 55.0% 21,877 55.8%
Cost of materials consumed 3,936 8.5% 3,272 8.3%
Purchases of stock- in-trade 108 0.2% - -
Changes in inventories of nished goods, stock-in-trade and work in progress 141 0.3% -201 -0.5%
Excise duty on sale of goods - 0% 36 0%
Operating, administration and other expenses 10,288 22.3% 8,837 22.6%
Finance costs 326 0.7% 204 0.5%
Depreciation and amortisation expense 1,114 2.4% 1,052 2.7%
Total expenses 41,287 89.4% 35,077 89.5%
Profit before tax, share of Profit from associate & JV, exceptional item and non- controlling interest 6,228 13.5% 5,617 14.3%
Exceptional Items 35 0.1% 50 0.1%

31-Mar-19

31-Mar-18
Particulars Mn % of Revenue Mn % of Revenue
Profit before tax, share of Profit from associate & JV and non-controlling interest 6,193 13.4% 5,567 14.2%
Tax expense 1,427 3.1% 1,380 3.5%
Profit before share of Profit from associate company & JV and non- controlling interest 4,766 10.3% 4,187 10.6%
Share of Profit from associate company & Joint Venture 5 0% -156 -0.3%
Share of non- controlling interest 14 0.03% 23 0.05%
Net Profit attributable to the shareholders 4,785 10.4% 4,054 10.3%

ANALYSIS

Revenue

Revenue grew by 17.9% in rupee terms and by 8.7% in US$ terms. The growth in constant currency is 10.1%. Growth was recorded across major geographies and we witnessed highest ever contribution by our Top 20 customers.

Other income

Other income for FY 19 was at र 1,340 Mn as compared to

र 1,519 Mn in FY 18. Reduction in other income is primarily on account of loss on forward contracts settlement and foreign exchange loss on remeasurement, compensated with an increase in tax incentives on export of merchandise and reversal of certain liabilities no longer required. The movement of Rupee against major currencies was as follows:

YE March 2019

YE March 2018
Closing Average Closing Average
USD 69.22 69.93 65.10 64.50
EUR 77.77 80.97 80.09 75.43
GBP 90.42 91.81 91.32 85.51
AUD 49.06 50.98 50.04 49.89

Employee benefits expense

Employee benefits expense includes salaries which have xed and variable components, contribution to retirement and other funds and sta welfare expenses.

Employee benefits expense as a percentage of revenue from operations stands at 55% for FY19 as compared to 55.8% in FY18. Despite the increase in headcount we have been able to control the cost through operational e ciencies.

Operating, administration and other expenses

YE March 2019

YE March 2018
Million % of Revenue Million % of Revenue
Rent 1,051 2.3% 796 2.1%
Travel 1,501 3.3% 1,337 3.4%
Subcontracting
charges 3,539 7.7% 2,825 7.2%
Repairs and
maintenance 1,184 2.6% 972 2.5%
Others 3,013 6.4% 2,907 7.4%
Total 10,288 22.3% 8,837 22.6%

Increase in subcontracting charges is in line with revenue growth and directly related.

Travel and Repairs & maintenance expenses have remained at as a percentage of revenue.

Rent expense increased due to addition of new leased premises in India and increase in hardware lease rental charges.

Finance costs

Finance costs is at 0.7% as a percentage of revenue, marginal increase of 0.2% is due to increase in borrowings related to an acquisition, in line with Company policy.

Depreciation and amortisation expense

Depreciation and amortisation expense remained constant

र 1,114 Mn in FY 19 (2.4% of revenue) as compared to र 1,052 Mn in FY 18 (2.7% of revenue).

Exceptional item

Exceptional item for FY 19 relates to net impact of र 35 Mn on dissolution of Cyient Insights LLC, wholly owned subsidiary of Cyient Insights Private Limited.

Exceptional item for FY 18 relates to loss on divestment of its investment of 49% shareholding in Infotech Aerospace Services Inc ( Associate company).

Tax expense

The effective tax rate has decreased from 25.7% in FY 2018 to 23% in FY 2019. Decrease in tax expense is on account of tax initiatives taken during the financial year.

Share of Profit from associate company & Joint Venture

The share of Profit from associate company and joint venture has increased from र (156) Mn in FY 18 to र 5 Mn in FY 19. During FY 18, the Company has recognized a loss of र 160 Mn as ‘share of loss from associate incurred up to the date of divestment in Infotech Aerospace Services Inc. due to hurricane in Puerto Rico.

Net Profit attributable to the shareholders

The net Profit stands at र 4,785 Mn for FY 19, which is an increase of 18% over FY 18.

CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2019

Million

: 31-Mar-19 31-Mar-18
EQUITY AND LIABILITIES
Shareholders funds
- Share capital 552 563
- Reserves and surplus 25,070 22,879
Total - Shareholders funds 25,622 23,442
Non-current liabilities
- Long-term borrowings and liabilities 1,813 1,009
- Long-term provisions 1,157 898
-Deferred tax liabilities (net) 405 356
Total - Non-current liabilities 3,375 2,263
Current liabilities
- Short-term borrowings 2,137 1,780
- Trade payables 3,712 3,813
- Other current liabilities 3,333 2,483
- Short-term provisions 713 545
Total - Current liabilities 9,895 8,621
TOTAL - EQUITY AND
38,892 34,326
LIABILITIES
ASSETS
Non-current assets
- Property, plant and equipment 5,563 4,941
- Goodwill 5,257 3,549
- Non-current investments 267 298
- Deferred tax assets (net) 294 321
- Other non-current assets 1,658 1,761
Total - Non-current assets 13,039 10,870
Current assets
- Inventories 1,833 1,312
- Current investments 278 1,130
- Trade receivables 8,137 6,913
- Cash and cash equivalents 9,705 9,807
- Other current assets 5,900 4,294
Total - Current assets 25,853 23,456
TOTAL ASSETS 38,892 34,326

Share capital

The company has only one class of shares – equity shares of par value of र 5 each. The Authorised share capital of the Company was 280,000,000 equity shares.

Buyback of equity shares:

• The Board of Directors, at its meeting held on February 1, 2019, approved a proposal for the Company to buy back its fully paid-up equity shares of face value of र 5 each from the eligible equity shareholders of the Company other than promoters, promoter group and persons who are in control of the company, at a price not exceeding

र 700 per equity share (Maximum Buyback price), for an aggregate amount not exceeding र 200 crore ( Maximum Buy back size), payable in cash from the open market route through the stock exchange mechanism under the Buyback Regulations and the Companies Act.

• The Buyback shall not exceed र 2,000 Mn (Maximum Buy back size) excluding the transaction charges. The Maximum Buyback Size represents 9.79% of aggregate of the Companys paid up equity capital and free reserves based on the standalone audited financial statements of the Company as at March 31, 2018, which is in compliance with the maximum permissible limit of 10% of the total paid up equity share capital and free reserves in accordance with Sec 68(2) of Companies Act, 2013.

• As of March 31, 2019, the scheme of Buyback was open and as of March 31, 2019, the Company bought back 2,570,518 equity shares as a part of the aforementioned buyback process resulting in total cash out ow of र 1,695 Mn (including र 27 Mn towards transaction costs of buyback). Out of 2,570,518 equity shares bought back, the Company extinguished 1,930,102 shares as at March 31, 2019 and the remaining were extinguished in the month of April 2019 as per the records of the depositories. In line with the requirement of Companies Act, 2013, an amount of र 1,682 Mn have been utilised from the securities premium account for the Buyback. Further, in accordance with section 69 of the Companies Act 2013, capital redemption reserve of र 13 Mn, representing the nominal value of shares bought back, has been created as an appropriation from general reserve.

Reserves and Surplus

Reserves and surplus as at March 31, 2019 stood at र 25,070 Mn as compared to र 22,879 Mn as at March 31, 2018.

• Securities premium account decreased by र 1,483 Mn majorly on account of utilization for Buyback of equity shares.

• Balance in Profit and loss, after appropriation of dividend, stood at र 16,515 Mn (र 13,584 Mn as at March 31, 2018).

• Foreign currency translation reserve increased from

र 549 Mn as at March 31, 2018 to र 640 Mn as at March 31, 2019, due to movement in currency exchange rates during the year. Use of di erent exchange rates for translation (income & expenses at average rates and assets & liabilities at closing rates) gives rise to exchange di erence which is accumulated in foreign currency translation reserve.

Borrowings

The long term borrowings increased from र 1,009 Mn as at March 31, 2018 to र 1,813 Mn as at March 31, 2019.

The short-term borrowings increased from र 1,780 Mn as at March 31, 2018 to र 2,137 Mn as at March 31, 2019. These funds have been utilized for acquisition during the year and other working capital requirements.

Trade payables

Trade payables consist of payables towards purchase of goods and services and stood at र 3,712 Mn as at March 31, 2019 र( 3,813 Mn as at March 31, 2018).

Short-term provisions

Short term provisions increased from र 545 Mn as at March 31, 2018 to र 713 Mn as at March 31, 2019 due to increase in income tax payable (net of advance taxes) and current portion of employee benefits.

Property, plant and equipment

Increase of र 622 Mn in property, plant and equipment is primarily attributable towards the additions of computer software, infrastructure facilities and assets acquired from the acquisitions. Further, Company has entered into an agreement with a third party, wherein it was granted technology license to develop, test and commercially utilise the benefits from such testing and development activity. Development costs incurred during the year ended March 31, 2019 was र 217 Mn.

Goodwill

Goodwill represents the excess of purchase consideration over net assets of acquired subsidiaries.

• Goodwill as at March 31, 2019 stood at र 5,257 Mn (र 3,549 Mn as at March 31, 2018) and the increase is due to acquisition of Ansem NV and New Technology Precision Machining Co. Inc.

• On April 4, 2018, the Company through its wholly-owned step down subsidiary Cyient Defense Services Inc. acquired 100% equity shares of New Technology Precision Machining Co., Inc., USA ("New Tech"). New Tech is in the business of providing precision machining services primarily making tools and parts according to the customer speci cations.

• On April 26, 2018, the Company through its wholly owned subsidiary Cyient Europe limited has acquired AnSem NV, a leading custom analog and mixed-signal application-speci c integrated circuits (ASICs) design company. AnSem specializes in advanced analog, radio frequency, and mixed-signal integrated circuit design and provides custom ASICs for clients around the world across key industries, including automotive, medical, industrial, smart home, and smart grid, with long-life applications of ve to ten years.

Non-current investments

Non-current investments have reduced from र 298 Mn as at March 31, 2018 to र 267 Mn as at March 31, 2019 on account of:

• During the previous year, the entire shareholding of VIOS Medical Instruments Inc. ("VIOS") was acquired by Murata Manufacturing Co. Limited ("Murata"), Japan, as part of a plan of its merger. The Company received shares of Murata on October 13, 2017 as consideration in lieu of its shares held in VIOS and accordingly recognized the gain of र 192 Mn as a part of its other comprehensive income in previous year. During the year, Company sold 24,375 shares held in Murata for a consideration of र 236 Mn (USD 3,470,675) resulting into gain of र 109 Mn (net of tax of र 45 Mn), being transferred from ‘other comprehensive income to ‘retained earnings. Balance shares continue to be fair valued through other comprehensive income.

• The Company has invested an amount of र 104 Mn (USD 1,500,000) as a part of ‘simple agreement for future equity ("SAFE") with Spry Health Inc. during the year. The Company has right tOfficertain shares of Spry Health Inc. based on terms and conditions specified in the agreement.

• The Company has also invested an amount of र 69 Mn (USD 1,000,000) in Series A Preferred Stock in Jana Care Inc. during the year.

Cash and cash equivalents

Total cash and cash equivalents consists of:

( Million)

As at March 31, 2019 As at March 31, 2018
Cash and bank balances 9,705 9,807
Investment in Mutual funds 278 1,130
Total 9,983 10,937

Cash and bank balances including investment in mutual funds has decreased from र 10,937 Mn as at March 31, 2018 to र 9,983 Mn as at March 31, 2019, mainly due to buyback of equity shares. The Company deploys its surplus funds in investments in xed deposits and in debt-based mutual funds in line with an approved policy.

Trade receivables

The trade receivables have increased from र 6,913 Mn as at March 31, 2018 to र 8,137 Mn as at March 31, 2019 mainly due to increase in business.

Other current assets

Other current assets have increased from र 4,294 Mn as at March 31, 2018 to र 5,900 Mn as at March 31, 2019, primarily due to increase in unbilled revenue during the year and receivables from government authorities on export incentives and other statutory receivables. The Company regularly monitors unbilled revenue, separately as well as collectively, along with trade receivables.

Financial Ratios

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

Ratio description March 31, 2019 March 31, 2018 Change % Expla- nation
1 Debtors Turnover (in days) 88 80 10%
2 Inventory Turnover (in days) 121 125 -3%
3 Interest coverage ratio 20.1 27.6 -27% Refer note (i)
4 Current ratio 2.61 2.72 -4%
5 Debt equity ratio 0.15 0.13 15%
6 Operating margin (%) 14% 14% 0%
7 Net Profit margin (%) 10% 10% 0%
8 Return on Net Worth (%) 19.5% 18.2% 7% Refer note (ii)

(i) Decrease in ‘interest coverage ratio is due to increase in interest expense for borrowings availed for acquisitions and working capital requirements.

(ii) The increase in ‘return on net worth is mainly attributable to 10% growth in net Profit during the year.

1 Global Economic Prospects-Darkening Skies https://openknowledge.worldbank.org/bitstream/ handle/10986/31066/211386-Ch01.pdf

2 Thailand Economic Monitor: Inequality, Opportunity And.., h t t p : // d o c u m e n t s .w o r l d b a n k .o r g / c u r a t e d / en/154541457736805518/Thailand-Economic-M