Cyient Ltd

NSE:CYIENT

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Cyient Limited Q1 FY '25 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krishna Bodanapu, Executive Vice Chairman and Managing Director. Thank you, and over to you, sir.

[Bodanapu Krishna, executive]

Thank you very much, and good evening, ladies and gentlemen, and welcome to Cyient Limited's Earnings Call for the first quarter of financial year 2025. I'm Krishna Bodanapu, Executive Vice Chairman and Managing Director of Cyient. Present with me on this call are Karthik Natarajan, CEO and Executive Director; and Prabhakar Atla, CFO and President. Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available at our investor update, which has been e-mailed to you and is also posted on our corporate website. This call will be accompanied with an earnings call presentation and the details of which have been already shared with you. In DET, [indiscernible] to say the least, we saw a significant number of operational challenges this quarter, resulting in deeper than expected performance for this quarter. However, we are confident -- we are very confident, I would say, of a robust recovery starting Q2, which will continue throughout the year, and this is backed by a strong order book, which includes a double-digit growth in order backlog. And engagement helps both across our top customers but also a robust addition of new clients in the last couple of quarters. Karthik and Prabhakar will cover these aspects in much more detail in the next few minutes. However, coming to the significant highlight for this quarter. Our credentials in the semiconductor electronics segment, both through Cyient DET and Cyient DLM have enabled us to set up a wholly loan subsidiary to drive dedicated focus on turnkey ASIC design and chip sales to a fabless model for analog mixed signal chips. What this means is if you look at the growth in the semiconductor business today, a lot of the chips that are being used are chips that take an analog signal, i.e., a real-world signal, a sensory signal be it based on light, sound, what have you and convert it into a digital signal that can be processed in the price and computing equipment. Currently, what we mean is we're able to design these ships. We're able to fabricate these chips, test these chips, prototype these chips and sell these chips to our customers. We already have this ability within Cyient to provide an end-to-end service offerings for the turnkey chip design. And now we believe that there is a significant opportunity along the lines of the value unlock of Cyient DLM to actually create a separate business that can exclusively and dedicatedly focus on Turnkey ASIC. This decision marks significantly forward in our commitment to innovation and excellence within India's growing semiconductor landscape. You may have also seen a number of announcements that happened -- that have been made in the last couple of months on various elements of semiconductor, be it semiconductor fabs or semiconductor OSAT, but we believe that we are one of the few and unique companies that are able to provide an end-to-end solution by leveraging various capabilities, including design, fab, OSAT, testing, et cetera. As you know, the global semiconductor market is in a significant growth phase, and is expected to hit $1 trillion by 2030. And the IESA, which is the Indian Electronics and Semiconductor Association, forecast the industry's growth to be $100 billion by 2030. We're well positioned to capitalize on these vast opportunities for growth and influence in this evolving market. Our portfolio of over 600 intellectual properties covering the range of functions and technologies, long-standing engagements with key clients and global capabilities gives us a strategic edge to achieve significant growth in this market. This unit will report to me, and I believe this move has immense potential, like I said, along the lines of Cyient DLM to unlock value for our shareholders. With this, I would like to hand over this call to Prabhakar, who will take you through the financial performance for the quarter.

[Prabhakar Atla, executive]

Thank you, Krishna. Hello, everyone. Thank you very much for your kind participation in the call today. Before we proceed with the financials, allow me to make a comment on the segments and reporting. For the current quarter, the nomenclature in the segments under which we report our group performance, will remain the same as in the previous quarter, i.e., DLM, DET and others. With the announcement that we made on the [ setup ] was the subsidiary to focus on our Turnkey ASIC business, going forward in the year, we intend to report that business as a separate segment. But for the current call, the reporting will continue as earlier. And the focus of this call will remain the DET segment. Just so that we have enough time for Q&A, I'll only call out the key numbers on each page in the presentation. The Q1 FY '25 dollar revenue per DET stood at $169.6 million, a Q-o-Q degrowth of 5% in constant currency and a Y-o-Y degrowth of 3.6% in constant currency. In rupee terms, this revenue stood at to be INR 1,414 crores with a Q-o-Q degrowth of 5% and a Y-o-Y degrowth of 2.8%. Later in the call, Karthik will provide both colors on the key drivers for the Q2 revenue movement along with the full year view. The Q1 FY '25 DET EBIT margin stood at 13.5%, down by 256 bps quarter-on-quarter. This Q-o-Q movement was largely driven by the absorption impact arising for the Q-o-Q revenue movement and also our continued investments in sales and technology to support future growth. We also focused on building capacity and capability in Q1 so that we see one in the previous quarter, which will flow into revenue in the following quarter that has some impact on the above movement. The Q1 FY '25 PAT per DET stands INR 141 crores, translating into an EPS of INR 12.86 per DET. The Q1 FY '25 DET FCF stood at INR 164 crores with a negative movement of 30% Q-on-Q, moving to the seasonality of the accrual and release factors in this business. In Q1 FY '25 DET debt position stood at USD 46.7 million, a reduction of 14% quarter-on-quarter and a reduction of 44% year-on-year, in line with the focus that we have to retire debt proactively. Moving on to group numbers. Group numbers are a combination of all the 3 segments we have included in Cyient DLM. The group revenue stood at INR 1,676 crores for Q1 FY '25, which is a degrowth of 0.6% year-on-year with an EBITDA degrowth of 281 bps year-on-year and a PAT degrowth of 18.6% year-on-year. The PAT movement on a Y-o-Y basis is not like-to-like since in Q1 of FY '24, we only had partial dilution due to minority interest in DLM, i.e., only for 1 month in that quarter, while in Q1 FY '25, we had a full quarter duration competition of minority interest. The group FCF for the quarter stood at minus INR 15 crores. And the Q-o-Q movement is primarily due to the cash consumption cycle in DLM business, which continues to grow at a steady and healthy pace. With this, I would like to thank you again for your time and attention, and I'll hand over the call over to Karthik for a more detailed commentary on DET performance and outlook. Thank you.

[Karthikeyan Natarajan, executive]

Thank you, Prabhakar. Good evening. Good day, everyone. And on top of what Krishna and Prabhakar has talked about, and I'll kind of give you color for each of the verticals and how did they do for Q1. And we had a challenging quarter for sure, and I'll provide more details about it [ using the ] slides that I plan to cover in the next few minutes. Transportation, which has come at $49.3 million revenue in Q1 fiscal '25, had a degrowth of 7% in quarter-on-quarter and I'll focus on the constant currency column and year-on-year minus 8%. And just to recap, and Aerospace has seen growth over the last 12 quarters, 9 of them, and the challenge continues all the way, and that's the reason why we have seen a degrowth in Q1. Connectivity, which has come at $37.5 million, has seen a degrowth of minus 7.6%, year-on-year minus 16.9%. And the good news is we have the highest order intake for Connectivity in Q1. And we expect a strong recovery for the remainder of the year, and we have confidence that this will start getting into the growth [indiscernible]. Sustainability, which has come at $56.2 million, and has seen degrowth of minus 2.8%. Year-on-year growth continues to be at 8.8%. Just to reflect that this particular segment has been a 10 out of 12 quarters of growth. And we do expect that the growth momentum will continue even in the [indiscernible]. New Growth Areas, which has come at $26.6 million, had seen a degrowth of 1.6% in quarter-on-quarter and 3.8% in year-on-year. And we do expect the highest order backlog from New Growth Areas, given this confidence that this will start growing at double digits as we close the year. In terms of order intake, we ended up at $182.7 million and this is the minus 5.4% year-on-year as a whole. We also closed 5 large deals with a total contract potential of $52.4 million and 2 from Connectivity, 2 from Sustainability and 1 from Aerospace. And the Connectivity, these have already started ramping up at the end of Q1. And that's one of the reasons why we had a miss in Q1 because we expected them to start almost at the end of the first month, but we ended up starting the project by [ third ] month and which has been something that we couldn't avoid. Let me go to the next slide. And also, we continue to make progress in terms of our innovation and especially led by Technology Solutions team. And I just want to highlight a few wins that we had for the last quarter and starting with modernizing the enterprise Usability platform for hospital patient monitoring system and to improve the clinical workflow efficiency for our health care customers and followed with automation and process optimization solution for an Industry 4 and MES system for an energy processing plant, which is a great [indiscernible] scale up as we start moving to [indiscernible].

[Operator]

Sir, sorry to interrupt, but the audio for you wasn't clear, these last 10 seconds, approximately.

[Karthikeyan Natarajan, executive]

Is it better now?

[Operator]

Yes, this is much better, sir, please go ahead.

[Karthikeyan Natarajan, executive]

And the third one, which I'll highlight is on win, this is a global automotive OEM to achieve the regulatory compliance on cybersecurity. And this is expected to grow as a practice as well as, as a growth area within automotive. And other one, which I want to highlight is a very interesting project on developing an ASIC for an intelligent neural systems with advanced electronics that gets into the neuro application device. And we expect this to be a significant win in terms of revenue as well as capability that we work on as part of the brain mapping program. And highlighting 2 things. We have made significant progress on Generative AI and we have won about 15-plus projects in the last quarter and covering various elements of product data management, engineering information management, AI assisted PMO, customer experience, customer support, product support, and we are continuing to see momentum as far as Generative AI is considered. Now going back to outlook. And as you would have heard in the last few minutes, Q1 was weaker than expected, and we expect a strong recovery to begin in Q2. We already started seeing them and we do expect our [ rescue ] to be strong. And given the weak Q1 and single high digit growth for the year, there will be a stretch that we mentioned in our last earnings call. And we are being prudent and transparent in providing you with the guidance in Q1, which is considered to be flattish year-on-year in constant currency terms. In terms of EBIT margin, as this is a function of revenue trajectory, we'll update you in Q3, but we are confident of reaching the margin rate of previous year level of 16% by end of Q4 fiscal '25 as the revenue growth [indiscernible]

Provide a little more color on the business indicators, just move on to the [indiscernible] Krishna started off this discussion to throw more light on, keeping that contributed to the Q1 performance than what we anticipated. The major factors are unanticipated delays of projects shifting to the [indiscernible] and also ramped up later part of Q1 and that really cost us something that we put [indiscernible] and also rail as the sector continues to be in distress, and we are seeing some of the challenges continuing for us in terms of the spend is shifting and [indiscernible]. As per the fiscal '25, lead indicators for strong performance in H2 and also medium-term outlook is concerned. Having said that, there are encouraging trends and factors that gives us comfort and confidence for a very good [ retrofit ] through the year. We are seeing double-digit growth in order book as compared to fiscal '24. And we are also seeing -- our top 10 customers have seen a significant growth in year-on-year terms in terms of double digit. And also the core segments, be it in terms of Aerospace, energy and top of the connectivity recovery that I talked about is very encouraging. And we already ramped up 2 other large teams in connectivity that we signed during the quarter of [indiscernible]. Our medium-term outlook of 3 years remain intact as we don't see any shift in the fundamental growth and the core segments of growth that we have outlined earlier. And we are also investing in technology areas that matter for our [indiscernible] business, which will also position us as an innovative partner for our customers. With that, I'll probably hand it over back to the moderator for Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Sulabh Govila from Morgan Stanley.

[Sulabh Govila, analyst]

So first question, just starting with the obvious. So what has -- in this quarter, the performance this quarter as well as the guidance. So what has surprised us negatively in 1Q versus what you were expecting at the beginning of the first quarter, which led to the high single-digit guidance and versus the current guidance because it doesn't look like it can be a specific client or a vertical issue? So just wanted to understand what's going wrong in our process? And what has negatively surprised?

[Karthikeyan Natarajan, executive]

Yes. So thanks, Sulabh, for getting this question. Like what I highlighted, I think we did expect it to be a soft Q1. And that's what we guided as we knew at that point of time. And some of the projects which were supposed to ramp up and the deal needs to get closed got shifted to the right by about 6 weeks, at least about 4 to 5 projects. And that really created an unexpected delay in terms of revenue recognition and within the quarter. I think that is definitely what has contributed. We did anticipate some softness in terms of rail business. I think that was definitely what we have used in our guidance as Q1 being soft.

[Sulabh Govila, analyst]

Understood. So if I understand this correctly, what you're saying is this is a 1-quarter blip. And that's what has happened and 2Q should normalize. That's the correct understanding?

[Karthikeyan Natarajan, executive]

Yes. No, absolutely, Sulabh, I think you summed up rightly, and we do expect the recovery already began in Q2, and we expect to see a sequential growth for the next few quarters.

[Sulabh Govila, analyst]

The second question is that we mentioned that the growth will start from 2Q onwards. While the presentation is saying that the outlook is strong for 2H. So does that mean that 2Q outlook is better than 1Q, but it will be weaker than 2H. And if that's the case, then this guidance itself is implying a 3%, 3.5% CQGR. So what's giving us confidence on delivering this guidance as well?

[Karthikeyan Natarajan, executive]

Yes. Based on the order backlog that we spoke about and top 10 customers growth being impact and some of the deals that we signed in Q1, and we expect a stronger [indiscernible] from Connectivity, actually that's where we are saying our Q2 would be strong, and we do expect H2 would be better than H1.

[Sulabh Govila, analyst]

Understood. Understood. And the last bit is that, when we say that we have taken steps to align the supply to the demand, is that relevant to Aerospace as a vertical or the company in general? Could you explain that?

[Karthikeyan Natarajan, executive]

Sorry, can you repeat the question, Sulabh?

[Sulabh Govila, analyst]

We mentioned in the presentation that we have taken steps to align the supply to the demand. So is that relevant to Aerospace as a vertical or the company in general?

[Karthikeyan Natarajan, executive]

Yes. That was specific to Aerospace and where we have seen the demand is shifting to on-site and across the geographies beyond what we have seen in the last 2, 3 years from North America to Europe to Japan. And we are building up the supply that is required for us to step up and which is the part that we mentioned as [indiscernible].

[Operator]

The next question is from the line of Kawaljeet Saluja from Kotak Securities.

[Kawaljeet Saluja, analyst]

My question is also on the [indiscernible]. I mean, Karthik, I remember asking this question about guidance because it seemed a little bit aspirational when we basically -- I asked the question last time around. I'm still trying to get my head around how could the magnitude have missed [indiscernible] large. You did talk about perhaps 4 to 5 projects getting bidded. But even 4 to 5 projects in itself cannot lead to such a disastrous 1Q. When I look at the composition of revenues, the decline is broad-based across verticals. So a couple of things. One is that I'm just trying to understand whether there have been any lapses in sales execution or processes. Or is it the fact that the entire guidance process in itself had significant slippages? Help me reconcile the math we have.

[Karthikeyan Natarajan, executive]

Yes, sure. Kawaljeet, I think I too acknowledge that this is definitely a miss. And in terms of our forecast accuracy, our ability to really linking math to the guidance in the [indiscernible] perspective is visible in the quarter. And also given the macro uncertainties and broad-based issues that we have seen from customers and project decisions and delays that we are seeing, and it really becomes difficult to really ascertain for a specific quarter how much of revenue will come and what we need to do to ensure that we are able to deliver on them, especially if we get a letter of intent from customer, we are ready to ramp up. And the customer wants to defer the project by 4, 6, 8 weeks, it is difficult to anticipate some of those issues. I think that's what really played out. And we are trying to refine the process, and we are trying to see how do we factor in some of these issues, especially what we have seen in the last 6 months is something that we have not seen in the last 4 years. And I think we hope this is something which we are really aiming to improve, and we apply some of the learnings in the last 6 months to really refine our ability to [indiscernible] the market.

[Kawaljeet Saluja, analyst]

So have these learnings been incorporated in the new guidance of flattish revenues?

[Karthikeyan Natarajan, executive]

Yes, Kawaljeet.

[Kawaljeet Saluja, analyst]

And can you just help me in what areas have you incorporated these learnings?

[Karthikeyan Natarajan, executive]

I think it is about how you really create a very firm view of our forecast and trying to look at the probability adjusted once that we are trying to cover from various business unit [ heads ] that come in. And where do you think we need to really apply some discounting factors, and how do you think we have a better view of confirmed one as close to the reality as positive. I think that's how we are trying to really refine them. And also some of the sales leaders have been aggressive in terms of their forecasting and what we need to do to outline some gauge R&R to really make sure that we are able to rationalize them as part of what we need to factor in our guidance, so [indiscernible].

[Kawaljeet Saluja, analyst]

Right. And second is that you did speak about macro challenges, but when I look at the performance of all your peers, et cetera, one of them had a performance, which also remotely has [indiscernible]. So what kind of macro challenges are you referring to? Or once again, my question is that are there execution -- sales execution challenges to process lapses?

[Karthikeyan Natarajan, executive]

Yes. So I think I would say if you look at -- I think this was one of the questions sometime last year from one of the analysts. And when you really look at what kind of annuity businesses that we have versus project-based servies and the challenges come from project-based businesses. And whenever the project gets completed, the next project doesn't come on time or it gets delayed, that gives the [indiscernible] gap. And we are trying to really strengthen those segments, especially Sustainability and Connectivity. There's huge dependency on project-based business and how we think we bring in better predictability into that. On top of certain seasonal issues that come in, for example, Europe has more holidays and vacations in Q3, what do we need to factor them in on top of what we have just talked about in the last few years.

[Kawaljeet Saluja, analyst]

Right. And you mentioned that the order book has grown. But when I look at other wins in the second quarter, it has declined Y-o-Y. So where's a disconnect?

[Karthikeyan Natarajan, executive]

Yes. So if you look at what we are talking about order backlog, which is another part that we are also seeing when we have this order book that we have taken in the last 9 months and what is executable order book that we are carrying today, we have seen that growing by double-digit. And that's what that gives us confidence. Yes, I think there is a year-on-year drop, which is seen as far as Q1 is concerned, I think that we do expect should get normalized during the course of the year.

[Kawaljeet Saluja, analyst]

The final question is that in Connectivity, the weakness has been ongoing for the last 2 quarters, 3 quarters, 4 quarters, I don't know what it is. But it's been for some time. And every quarter, the discussion has been that things may pick up in the subsequent quarters. So basically, the environment -- of course, I understand the environment is difficult, but are there again, changes or improvements that you need to make in Connectivity to get a better handle of business and growth prospects?

[Bodanapu Krishna, executive]

I think there are 2, 3 things that we did make during the last 6 months, including strengthening certain leadership across the sales as well as on the development side. And we also brought in a better predictability in terms of how these models are being constructed, allowing customers and starting to engage the customers more to assess their plan for the year and what is the certainty of them. I think all of them gives us confidence that we do see a growth for the remainder of the year. And we are also factoring in certain risks in terms of how we see the need to anticipate certain project delays and what do we need to do to bake it in as part of our [indiscernible].

[Operator]

The next question is from the line of Sandeep Shah from Equirus Securities.

[Sandeep Shah, analyst]

Question relates to the previous 2 participants. Karthik, I think last time when we gave the guidance, it was 25th of April, we were already 1 month into the quarter. So we should be knowing about the delay in the projects, right? So why still we guided for a high single digit and there is a big mess. And I've been surprised to see the reason being cited being railways. Railways has a percentage to revenue, if I'm not wrong, it has become not a needle mover. So even if it declines by 20%, it will not impact the revenue growth very high. So it looks like there has been a miss in the segments outside Connectivity [indiscernible], which we did not anticipate. What has led to this?

[Karthikeyan Natarajan, executive]

Yes. Sandeep, again, sorry to repeat the same messaging. But if you look at the project delays and difference, and there are 2 business units, which have certain dependency on projects, both on connectivity as well as sustainability and transportation, we talked about the softness in rate. And the good news is new growth areas started firing, and we do hope that continues for the rest of the year. And to your point, I do acknowledge that it was a mess in terms of how the forecasting accuracy that we had. And that's what we are trying to correct as we move through the year.

[Sandeep Shah, analyst]

Okay. And ask rate to achieve the guidance is 3.2%. And generally, Q3, Q4 are not seasonally great quarters for enterprise IT as well as engineering R&D. It's one of your peers already calling out on seasonal furloughs to start in the 2Q itself. So how are we confident about even achieving a 3.2% kind of ask rate, which looks not an easy task?

[Karthikeyan Natarajan, executive]

I think with also a mix of businesses that we are in and the kind of holidays and vacation seasons that we have factored in, we do expect that the H2 will be stronger than H1 for us and for our portfolio of businesses, and we also have the validation from the leaders across the company, along with the customers that we are working with. So that's what gives us confidence that H2 will be strong than H1. Coming back to furloughs. If you look at some of the segments that we are in and [indiscernible] aerospace, energy and connectivity and other parts. And we do see that the momentum is already seen from Q2, and we expect that to continue. And if you look at specifically in aerospace, the supply chain issues that have significant challenge and the demand is very robust for most of our customers. They are not able to meet their demand because of the supply chain and some of the new employees that they brought on board and related to the production and quality issues. So they want to fix most of these issues. And we don't hear furloughs from many of the customers that we work as far as aerospace is concerned. But we do expect H2 to be stronger than H1 as far as other business segments are concerned. So that's what gives us confidence about our plan for the year.

[Bodanapu Krishna, executive]

And if I may just add one more [indiscernible] to this is it's sort of in some ways, while the project-based business has hurt us this quarter because of the [indiscernible] to delays in moves, the good news for some of the project-based businesses is also under our control in the sense that we get a [ fee ] for the project. And therefore, what we're seeing at least in the last couple of years is our ability, therefore, to manage furloughs is a little bit easier because we have a project rather than a set of tasks that we're performing. So in that sense, we've reviewed this. And in that sense, I think it also gives us a little bit more confidence that we can manage the furloughs that have typically hit us because if you then go back into some of the more traditional aerospace, historic aerospace businesses, which were more task based, there, the impact was much higher, whereas with the project-based businesses, the impact is a bit more managed.

[Sandeep Shah, analyst]

Okay. And just a related question, when you say H2 stronger, that doesn't mean 2Q Q-on-Q growth would be lower than the Q-on-Q growth, which you expect in 3Q and 4Q because you are also commenting a strong 2Q, right?

[Karthikeyan Natarajan, executive]

Yes.

[Sandeep Shah, analyst]

Okay. And just in terms of capacity, so is it fair to assume the capacity issue is more in on-site location versus offshore, but your employee ad still shows a decline on a Q-on-Q rather than a ramp-up?

[Karthikeyan Natarajan, executive]

Yes. I think to answer the same question like what we answered in the previous question, we are also trying to build the flexibility of contingent versus permanent hire and especially on project-based businesses. I think that gives us confidence in terms of how we think we can meet. And we still have some unutilized capacity as far as Q2 and Q3 is concerned, so that will start being put into use for bringing us the revenue for the next 2 quarters.

[Sandeep Shah, analyst]

Okay. And last question on margins. I think your initial remarks implies that now 16% would be achievable only by 4Q of FY '25 rather than the whole year because of a weak start at 13.5%. Is it the right understanding?

[Karthikeyan Natarajan, executive]

Yes, that's correct, Sandeep.

[Operator]

The next question is from the line of Aaron Armstrong from Ashmore.

[Aaron Armstrong, analyst]

Can you talk a little bit more about the challenges that you had this quarter, please, in terms of how many of those related to in-house execution. So availability of manpower on-site versus not on-site mix, those kind of things that are within the control of the company versus how many of those kind of delays, those projects moving to the right, how much of that was driven by corporates wanting to kind of delay or postpone for their own kind of reasons?

[Karthikeyan Natarajan, executive]

Aaron, I would say about -- it's difficult to put a specific number, but I would just roughly say about 1/3 of each of these issues, our project deferrals and delays about third of them. And about third of them, we did anticipate and about third of them is a combination of supply/demand matching, especially with some of the demand that we started seeing in some on-site locations.

[Aaron Armstrong, analyst]

And could you give a little bit of context in terms of addressing some of these in Q2. So for example, on-site locations, can you talk about some of the kind of new hirings that you've made or kind of project deferral or is that now kind of slowing down and kind of an early indication, I know it's very early in Q2, but what kind of visibility you have on that side of things?

[Karthikeyan Natarajan, executive]

We are confident about how this quarter looks at this point of time, and we have already started ramping up some of the projects from June, as we indicated in my earlier commentary. And that gives us confidence that this quarter will be a growth quarter for us -- strong growth quarter.

[Aaron Armstrong, analyst]

Maybe final follow-up, if I may, please. Just in terms of kind of head count availability, how much that impacted you in Q1? And so for Q2, how many hires have been made on site? Are you putting more people in U.S., Europe, Japan, any of those more so? Is it mainly on the aerospace? Or is this also relevant for the connectivity piece? Anything you could share there that's a little bit more specific, please?

[Karthikeyan Natarajan, executive]

Aaron, I would say it's not of a broad-based head count addition that we look at, and we don't share specific numbers at this location and how many are we adding every quarter. But we are prepared for the supply and capacity that is required for us to relaunch quarter-on-quarter growth for Q2. I think that is something we are waiting from the supply side.

[Aaron Armstrong, analyst]

Do you share a headline employee head count number quarter-on-quarter?

[Karthikeyan Natarajan, executive]

Maybe we can take that off-line, Aaron, [ if you are okay with ] that?

[Aaron Armstrong, analyst]

Yes, sure.

[Operator]

The next question is from the line of Vibhor Singhal from Nuvama Equities.

[Vibhor Singhal, analyst]

Sir, my question was on the margins. Now I understand that on the revenue growth part, if the growth is lower in this quarter, our entire full year guidance gets shifted by, let's say, a couple of quarters and that is why the [indiscernible]. But as far as I'm able to understand the business, the miss in margins in this quarter would have been because, as you mentioned, some of the projects were deferred, they were not built. We had employees who were not being built, and that is why the drop in the margin. And if you're expecting those rigs to recover in Q2, why the deferment of guidance for margins? I mean, if we have already reduced the head count in this matter. As per you, quarter 2 and H2 should be strong and should be growth in the quarter again. So the projects which were deferred, they should start building again and the employee utilization and all those things should pick up and hence your margins. I understand maybe a bit here and there, but reaching the 15% margins by the end of Q4 seems a bit -- I mean I'm not able to reconcile the math. Can you please help me understand that?

[Bodanapu Krishna, executive]

Prabhakar, you want to take this?

[Prabhakar Atla, executive]

So Vibhor, just a couple of things on this. For the current year, for FY '25 from where we currently are, our margin will be functional for revenue, [indiscernible] from our perspective because the cost we have ahead of this agreement. We will have the range, right? We will continue to make technology investments. We'll continue in our sales investment. All the right things to do, we'll continue to do. Therefore, the comment that we made was margin is a function of revenue trajectory, and we are, therefore, confident of bringing it back to where we were in the previous year rates towards the end of the year.

[Vibhor Singhal, analyst]

But sir the base [ height ] and the investment in technology would have been part of our business plan, which we drew at the beginning of the year when we gave the guidance for the fully flat year margins for the full year. That doesn't change the math, right? That basically [ remained ] status for as it was 3 or 4 months ago.

[Prabhakar Atla, executive]

No, you're right. Absolutely right. Absolutely right. And therefore, the [indiscernible] 13.5% where we are in Q1. [indiscernible] all those inputs to get back to earlier margin. [indiscernible] as the primary market for us going forward in the next couple of quarters, we are not expecting that the previous year's margin range towards end of the year, but we can make a quick update as we get into Q3, this is the trajectory of revenue growth we see in Q2 and Q3, of which we are confident. So [indiscernible] that the margin is as the same.

[Vibhor Singhal, analyst]

Sure. Sure. That's helpful. So on the order book side, I think we mentioned that the order books are double-digit growth, but the order intake for the quarter was weak at around minus 5% Y-o-Y. So any color on why the order book -- order inflow in this quarter was on the softer side with specific verticals? And where do you expect -- how do you expect the order inflow number to pan out over the next remaining quarters of the year?

[Karthikeyan Natarajan, executive]

I would say at a broad level, we have seen a strong order intake as far as connectivity and new growth areas are concerned and some of the orders from sustainability and transportation, I think they will probably come through during the part of the year. And we do hope the order date will start converting into order backlog that we'll start executing. And as I again stated in the call, we are still at double digits order backlog as far as executable orders are concerned, and we do hope in it catches up during the year from where we have seen today from Q1.

[Vibhor Singhal, analyst]

Got it. Just one last question, sir. I think we've dealt on th eguidance part a lot, maybe just on my final -- I mean, just one small question on my side. I mean, as Sandeep mentioned in his earlier comment, [indiscernible] quarters is 3.2%. How strongly have you tested this number? I mean, what could potentially lead us to basically miss this number as well? Could -- I mean, are there other projects which you are expecting again to maybe start in Q2 and Q3, which can potentially get delayed and put causes to slip again? Or do you think we've tested this guidance and it should be easier -- I mean it should be doable for us from where we are sitting today?

[Karthikeyan Natarajan, executive]

We have been prudent about how we want to guide, Vibhor, and we understand the challenges that we had in the last quarters. I think that's where we are confident about getting this deal flattish for the year and [indiscernible] certain elements of risk and opportunities, is a balance in terms of what we are recovering the guidance.

[Operator]

The next question is from the line of Shradha from Asian Markets Securities.

[Shradha Agrawal, analyst]

A couple of questions. Would it be possible for you to break down the plan in revenue in aerospace and defense within transportation specifically?

[Karthikeyan Natarajan, executive]

Sorry, Shradha, we are not breaking up from the 4 business units that we are providing the color on, and we are not breaking up for each of the business units with subsegments. I think that is something too detail for us to share and the bulk of the revenue that is there in transport is coming from the aerospace.

[Shradha Agrawal, analyst]

Okay. And secondly, if I look at your top client revenue contribution, it suggests that the [indiscernible] in revenue came from clients beyond top 10. So is the understanding right that the top line -- top 10, top 5 clients held up well and weakness was more beyond top 10 or top 15 accounts for us? And are those accounts significant for us to have a 5% decline in revenue in 1 quarter?

[Karthikeyan Natarajan, executive]

Yes. So we did have 1 or 2 accounts from the top 10 had a minor decline. And -- but if you look at all the top 10 revenue that has grown year-on-year in double digits, and we don't see the top 10 -- accumulative revenue of all the top 10 customers as a concern. And yes, you're right in terms of just arithmetic works out that there must have happened in some kind of a decline in 1 or 2 of these customers from top 10. But it's not significant enough that we really try to accumulate the revenue for all the top 10 clients, I mean sometimes in Q1 [indiscernible].

[Shradha Agrawal, analyst]

Right. And just the last bit, I understand that you are talking of increasing our investments in sales and technology, but I also see an increase in your G&A expenses, and I mean, the logical thinking is, one, when you're going into a bad cycle [indiscernible], you would want to keep the control on the overhead expenses. So why this increase in G&A in this quarter?

[Prabhakar Atla, executive]

Shradha, the rate growth in some part of technology investments typically [indiscernible] go into G&A. That is what we see. And there are a few one-offs also in the current quarter.

[Shradha Agrawal, analyst]

Sorry, I didn't get you. Sorry, can you please repeat again?

[Prabhakar Atla, executive]

You're right. Some part of the technology investment we made go into G&A [indiscernible]. And there are a few one-offs in this quarter 2, not significant, but there are still there.

[Operator]

The next question is from the line of Dipesh from Emkay Global.

[Dipesh Mehta, analyst]

I just want to understand first about the reclassification. So Geospace vertical now it is part of services. So can you help us understand implication on the reported core business unit because of that?

[Karthikeyan Natarajan, executive]

It is marginal, Dipesh, and we've kind of -- we've catch across more than 1 or 2 business units, and it is marginal in terms of how it [indiscernible] across.

[Dipesh Mehta, analyst]

Because sustainability, let's say, for example, you reported 3.5% decline. If I look at the reported number, it seems to be growth. So there is a sizable difference. So that's why if you can provide some detail about it or maybe if you can provide comparable number for prior quarter?

[Bodanapu Krishna, executive]

Okay. I'll ask Mayur and Krish to work with you off-line.

[Dipesh Mehta, analyst]

And second question is about the guidance, I think, earlier participants tried to get sense about downside. If you can help me understand what can bring upside. In terms of now, let's say, you are seeing good recovery double-digit deal intake of the [indiscernible] top 10 clients doing well. If you can give me sense about what can bring upside?

[Karthikeyan Natarajan, executive]

Yes. So we don't want to be too optimistic at this point of time since we are coming off from a low Q1. I think it's very important for us to execute well for the next 2 quarters and before we get too optimistic about how things would look. But I think given the nature of where we stand and understand from our customers, and we are confident about the growth for the next 3 quarters and recovering [indiscernible] happen from Q2, and we are very confident of it. How will it manifest for the upside, I think we do see an upside for sure in many areas, and it would require a few things to happen well in Q2 and Q3 and most of our customers continue to start opening their purse or decision making has to happen sharply. And we've seen the difference in the extent of 3 to 6 months in some of the areas. If they really start reducing the gap, I think that will probably give us an upside [indiscernible].

[Dipesh Mehta, analyst]

And last question is about rail. And I think you alluded a couple of times. Can you give just sense about, let's say, now contribution from rail? How big is rail after a couple of quarters of decline, what we always use to highlight?

[Karthikeyan Natarajan, executive]

Sorry, Dipesh, I couldn't get your question.

[Dipesh Mehta, analyst]

What was the contribution from railway now for us?

[Karthikeyan Natarajan, executive]

Yes, we are not really calling out any subsegment breakup, Dipesh, and it is part of the transport vertical and like what I covered earlier, the bulk of our revenue comes from Aerospace, and that's where we leave it at.

[Operator]

The next question is from the line of Nitin Sharma from MC Pro Research.

[Nitish Singh, analyst]

Most of my questions have been answered. Just one question. On the semiconductor business, what are the time lines and the investment requirement?

[Bodanapu Krishna, executive]

So we're still working on those. The time line is probably going to be towards the end of this financial year, just looking at the various things that we have to do in terms of splitting the business and many other steps to it. In terms of funding requirements, also we're working on it. We are both working on what is the funding requirement and also post the source of funding. So I would say we'll have a better update for you towards the end of the calendar year with a target of execution towards the end of the financial year.

[Operator]

The next question is from the line of Mihir Manohar from Carnelian Asset Management.

[Mihir Manohar, analyst]

Karthik, I wanted to understand structurally on the aero side I mean if there's a structural change happening on the outsourcing in key figures from a around this, there are talks that [indiscernible] has been called to reduce the outsourcing. I think 1 of a quarter can be weaker. But is there a structural change on the outsourcing side? That will be useful. Second question was on the guidance part. And you know the guidance that we have given now flash kind of revenue. How much is there in the books? I mean, what part of the guidance is coming from the order backlog, which is already there in the books and what part of the guidance are you considering from new deals, which you will win in this particular financial year and as you expect to ramp up some clarification around that will be helpful. Yes.

[Karthikeyan Natarajan, executive]

Sure. Thanks, Mihir. To first point, we don't see any structural change. And if at all there is anything I can only tell you that most of our customers need a lot of talent. And there are system employees of 600,000 covering both blue collar and back collar in the aerospace. And this is more than 40% of the workforce. This is the first time that is seen after 1942, as shared by one of the customers. And I think we have to really get them trained in digitalized tools and processes and kept up ready to deliver on the right quality and production schedules. I think that's a challenge that exists for this industry. And we don't expect this to get any better, at least for the next 2, 3 years, and we can at least take 2, 3 years for 3. And we are seeing a lot of interest from customers around manufacturing, engineering, aftermarket, digitalization, integration with various tools and systems. I talked about some of the assistant PMO, I'm trying to help them to supply chain. I think a lot of this is the request that come from customers, and I don't think there is any change that we are seeing, which are structural in nature. Having said that, retail issues and the top 2 clients in the aerospace and do have their own challenges, but they need a lot of help as far as engineering manufacturing and aftermarket is concerned.

[Mihir Manohar, analyst]

Sure. Sir, just 1 extension to this. I mean, is there any pressure on reducing outsourcing?

[Karthikeyan Natarajan, executive]

I don't think so. There is nothing that changes structurally for them to really make those changes. And 1 thing that we are also seeing like order covered in my initial comment. It is also expected to be a little more centric for the next few quarters as they are going through their challenges on manufacturing and aftermarket, which are more closer to the branch, helping them to improve the productivity and quality of employee. I think that would really require more on site intervention than [indiscernible].

[Mihir Manohar, analyst]

My second question was on the guidance part, the flattish guidance, which is there, how much is coming from the orders that you already won in part of the backlog? And how much part of the guidance is coming from new deals that you will win or you expect that to ramp up in the balance part of the year?

[Karthikeyan Natarajan, executive]

Typically, our order backlog covers about 6 to 7 months of work ahead, and this has been the trend that we have seen over the last few years, and rest of them still needs to be won and added to this backlog.

[Mihir Manohar, analyst]

Okay. So [indiscernible] split.

[Karthikeyan Natarajan, executive]

Yes.

[Mihir Manohar, analyst]

Sure. And just 1 last question was on the semiconductor business. I mean you mentioned you would be taking the end-to-end responsibilities I just wanted to get a clarification responsibilities. And what part of the value chain will be ourselves to be doing on signed net books and what will be done under the manufacture into other contractors?

[Bodanapu Krishna, executive]

So it's actually quite similar to what happens in DLM in the sense that if you look at today in DLM also, where we have end-to-end projects that we have the design responsibility and the manufacturing responsibility, our design is being done in Cyient Limited or in Cyient DET and manufacture is being done by Cyient DLM. But overall responsibility is with Cyient DLM. So the responsibility, liability, is Cyient DLM. So in the semiconductor, the science semiconductor also will follow a similar kind of a model where the whole idea is that there's a lot of chips that newer companies or non-semiconductor companies they are using, examples of which are automotive companies, medical companies and so on and so forth. So Cyient Semiconductor will take the overall ownership for the entire project. starting from design all the way to sourcing and supply. Of course, sourcing in that case will be typically through a fab like a TSMC or a global [indiscernible]. So Cyient Semiconductor will take the overall ownership. We still anticipate that much of the design will still be done in Cyient. So we don't anticipate the design capability to be built out of Cyient, that capability will be still leveraged very much like what is happening in Cyient DLM.

[Operator]

The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities.

[Chirag Kachhadiya, analyst]

I have 2 questions. In the 1 side [indiscernible] CRM contribution 3 years after some years the current has changed the long-term outlook? And second, for FY '26, any color you can share on demand and what the is ongoing to decline for FY [indiscernible]?

[Karthikeyan Natarajan, executive]

We are currently working on a shoe that we are meeting our guidelines that we are sat as we start developing our plants 26, we'll definitely share the outlook in July of this financial year. And like what I shared in the next 3 years, we do see that the recovery is coming back strongly. And we hope the U.S. election in the end and the interest rates will start going down, [indiscernible] should start getting leased. I think all of them should help our customers to start spending on innovation. And I think that's been something which is muted for a while. We do hope some of those investments that are on hold should start coming back. And for the long-term outlook, I think we do see that this is going to be much more critical than ever before with a softer relation of products and digitalization of the entire value chain and how the impact of automation in the low at all to play. And I do see that India is a very important in to play in terms of supplement customers on R&D. Given that there is a demographic change that is at play and with fastening as well as the increase in spend towards software and vehicles, I think that's 1 as [indiscernible] and in fact, it's only going to accelerate. If not are staying where the current gens.

[Chirag Kachhadiya, analyst]

Okay. And just one more last question. In the area and different side, some of our client decisions on intent part and component tissue on a timely manner. Is the situation normalize or better than before, still the seeing simulation on supply side.

[Karthikeyan Natarajan, executive]

We don't want to comment on any specific customer issues. But if you look at the broad challenges for the ASP remains our customers' demand is very robust, and we have demand in excess of 20% plus, but the challenges are led by what I talked about in terms of supply chain, really end workforce and is required to be trained and lack of utilization that we have not invested in the past I think all of them are contributing factors why they won't be able to realize their demand. And I think that's where they are seeking 1 to 1 the challenges that they have.

[Operator]

SP1 The next question is from the line of Karan Uppal from PhillipCapital India.

[Karan Uppal, analyst]

First question is on the margins. So I Karthik you mentioned that you are anticipating a pickup in aerospace as well in connectivity and specifically in aerospace, you mentioned that the deal ramp-ups are happening on site. So would that be a pressure to the margins given that the rates will also be there and you have also talked about investments in technology. And I can see that your S&M investments -- S&M spend have also gone up. So are there risks to margin guidance as well? And what are the legs to offset these headwinds?

[Karthikeyan Natarajan, executive]

I think this was Prabhakar talked about current and whatever that we are talking about for Q4, and we have factored into all this at your mission. And that's the reason why we are not giving specific numbers for Q4 or Q2.

[Karan Uppal, analyst]

And when are you planning to give wage hike?

[Karthikeyan Natarajan, executive]

And starting this quarter.

[Karan Uppal, analyst]

In Q2, okay.

[Operator]

Ladies and gentlemen, we will take that as a last question for today. I would now like to hand the conference over to Mr. Krishna Bodanapu for closing comments. Over to you, sir.

[Bodanapu Krishna, executive]

Thank you very much, and thanks, everybody, for being on the call this evening. As we talked about, it has been a tough quarter, and it has been a series of events that we did not anticipate at the beginning of the quarter, especially in terms of some of the project loss, et cetera. But what I do want to reiterate and give confidence on is much of what we were expecting to happen in the beginning of the quarter has happened at the end of the clock. Therefore, that gives us a very strong confidence that we will see good growth starting from Q2 onwards because I think to 1 of the comments, it just cannot be back ended. We will see growth start to put a starting from Q2 numbers. And based on the order backlog and what we're seeing from our customers, we're quite confident that the rest of the year will be quite good. Unfortunately, the compound we can back to Q1 is what it is. And that's why the guidance might not look so appealing, but I just want to assure everybody that the rest of the year is quite an order. And we're also quite on that we will see trajectory out of here is quite covered into all of us here and both from a revenue and margin perspective. We will continue to have a good set of -- we'll have a good set of quarters -- sorry, good set of quarters going forward.

With that, thank you very much for your support. And if there's any further questions if you reach out to 1 of us will answer them for you. Thank you.

[Operator]

Thank you. Ladies and gentlemen, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.