Cyient Q2 Revenue Jumps 25% to Rs 2,235 Crore, but Pre-Tax Profit Stays Flat on Rising Costs

Engineering and technology services company Cyient reported its September-quarter results after market hours on Thursday. Revenue grew quickly, but very little of that growth reached the bottom line. Consolidated revenue from operations was Rs 2,235 crore, up 25.5% from Rs 1,781 crore a year earlier and 7.7% from Rs 2,076 crore in the June quarter.

Net profit for the quarter was Rs 132.5 crore. That figure is about 22% higher than the June quarter. After minority interests, the profit attributable to Cyient shareholders was about Rs 121 crore, or Rs 11.54 per share.

Growth that didn't reach the bottom line

The year-on-year comparison tells a different story. Consolidated profit before tax was Rs 196.7 crore, almost exactly the same as the Rs 196.6 crore reported a year earlier. Revenue grew by about Rs 454 crore, but total expenses rose by about Rs 394 crore to Rs 2,044 crore, which absorbed most of the gain.

Employee costs alone were Rs 1,173 crore, a little over half of revenue. Materials consumed came to Rs 355 crore, reflecting the manufacturing-heavy work that now passes through the group. Finance costs were Rs 37 crore. The effective tax rate was close to 33%, which also weighed on the final profit.

The standalone business, which carries much of the parent company's own services work, was weaker. Standalone revenue rose 16% to Rs 692 crore, but standalone profit before tax fell to Rs 145 crore from about Rs 191 crore in both the year-ago and June quarters.

Where the growth came from

Cyient said demand was broad-based across its digital, engineering and manufacturing services. Its Digital, Engineering and Technology segment grew revenue 8.1%. The design-led manufacturing arm, listed separately as Cyient DLM, reported revenue of Rs 393 crore and profit of about Rs 34 crore on what it called a record order book. That subsidiary's shares fell sharply last week after it cut its margin guidance. Cyient's semiconductor business recorded its sixth straight quarter of growth.

For the first half of the fiscal year, consolidated revenue rose 23.4% to about Rs 4,311 crore and net profit totalled Rs 241 crore.

Dividend and a stake buyout

The board declared an interim dividend of Rs 12 per share, or 240% of the Rs 5 face value, with October 28 set as the record date. It also approved buying the remaining 49% stake in Cyient Solutions and Systems, which will make the unit wholly owned.

What to watch

The quarter shows Cyient can still win business in a difficult environment for global engineering spending. The open question is margins. With the revenue mix moving toward lower-margin manufacturing and costs rising almost as fast as sales, investors will want to know when operating leverage starts to show. The stock's first reaction comes on Friday, the same day Infosys reports and sets the tone for the wider IT sector.

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