Cyient DLM (NSE:CYIENTDLM) Q2 2027 Earnings Call

0:01 Ladies and gentlemen, good day, and welcome to the CYIENTDLM Limited Q2 FY 'twenty seven Results Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Krishna Bodhanapu, Non Executive Chairman, CYIENTDLM Limited. Thank you, and over to you, sir. Thank you very much, Darwin, and good evening, ladies and gentlemen. I am Krishna Bodhanapu, Non Executive Chairman of Cyient DLM Limited.

0:47 It is my pleasure to welcome you to our Q2 FY 'twenty seven earnings call. And joining me today are our Managing Director and CEO, Mr. Rajendra Belga Pudi and our CFO, Mr. R. M. Subramaniam. Before we begin, I would like to remind you that certain statements made during this call may be forward looking in nature and are subject to risks and uncertainties. A detailed disclaimer is available in the Investor Update section posted on our website. Let me begin with what I believe is one of the strongest indicators of the underlying momentum in our business, the continued strength of our order book and sales pipeline. While Rajendra and RMS will talk about details, I'm happy to note that the headline number is that order backlog now stands at INR2813 crores with on top of which there is a pipeline which is in excess of $1,000,000,000 So I'm very happy to note that the order book momentum continues to pick up during the course of the quarters.

1:50 We have sustained positive momentum in our order book for six continuous quarters. During Q2, our book to bill ratio remained at over 1.6x, supported by strong order out inflows from large OEMs. We have also surpassed the record order book achieved in the previous quarter, providing us with strong revenue visibility. This reinforces the confidence our customers continue to place in our quality, delivery, performance and capabilities. Our execution teams have done a commendable job in fulfilling critical customer requirements despite the continued supply chain shortages, longer lead terms and geopolitical uncertainties, especially driven by what is happening in the memory market.

2:36 This has resulted in a revenue growth of more than 26% year on year during this quarter, which is broadly in line with our expectations. Encouragingly, we're seeing positive growth across all key segments. Aerospace and Industrial continues to grow at a faster pace, while Defense and Medical are gaining momentum. We have also strengthened the sales leadership team recently, bringing in diverse experience and capabilities that will help accelerate our revenue and profit agenda growth agenda. This gives us greater confidence in the execution of our strategy. While Rajendra will elaborate on this further, our strategic direction remains clear, which is to deepen and scale our presence in existing segments, while selectively expanding into attractive new growth areas.

3:28 As we position the business for the next phase of growth, we have continued to invest in our sales organization, strategic capabilities and the overall foundation to support the next phase of growth. These are deliberate investments. While they have an impact on margins in the near term, we believe that they're important to building a stronger and more scalable business. These investments are in two dimensions. One is the investments that we have made in our go to market organization, sales, marketing, etcetera. And the second I'm sorry, and that leads to better pipeline, better backlog and of course, eventually better margin and growth, which we're starting to see. The second investment is in our build to spec business, where engineering is done upfront. The IP is co owned by Cyient DLM with our customers, and we have a very long manufacturing responsibility for many, many years. So both are very good investments, and I'm happy to say that they're starting to show some very good results.

4:37 For example, with sales in terms of the order book or DLM in terms of the number of DLM contracts that we are bidding and that we have won. As we continue to focus on growth, our focus firmly remains profitable growth, operating leverage and sustainable improvement in margins medium to long term. Looking ahead, we remain excited about the opportunities across our market sectors. Rising electronic content, growing AI infrastructure demand, global supply chain diversification, increasing investments across our focus sectors and broader outsourcing trends continue to create a very strong and favorable demand environment. Our differentiated design led manufacturing, the model which is unique to expanding execution capabilities, we believe CYIENTDLM is well positioned to capitalize on these opportunities.

5:38 Most importantly, our H1 FY 'twenty seven performance reflects a strong rebound over FY 'twenty six with revenue growth of more than 30%. It is supported by a record order book and a robust business pipeline, which provides greater visibility as we step into the second half of the year. I am confident that we will see this sustaining through the rest of the year and into next year. With a strengthened leadership team, improving growth momentum and continued investments in our capabilities and growth areas, we remain confident in our ability to build a strong and more scalable business, create sustainable long term value for our customers, employees, shareholders and all stakeholders.

6:25 With that, I will now hand over the call to Rajendra, who will take you through the business and operating highlights in greater detail. Rajendra? Thank you, Krishna. So good afternoon, everyone, and just thank you for joining CYIENTDLM's Q2 FY twenty twenty seven Investor Call. So I will outline the structural opportunities ahead and explain how our long term strategy positions Cyient DLM to participate in some of the fastest growing high reliability segments of the global electronics product and manufacturing services market. Let me begin with the market backdrop. The global EMS industry is on a structural growth path with the market expected to rise from approximately $650,000,000,000 today to about 1,100,000,000,000 over the next few years.

7:18 Within this market, the high reliability EMS segment in which we operate represents an estimated opportunity of roughly $230,000,000,000 This growth is particularly relevant to CYIENTDLM because it is driven by sectors that require deep engineering expertise, complex manufacturing, stringent quality standards, resilient supply chains and long product life cycles. These requirements closely align with our capabilities in design led manufacturing and high reliability electronics. And if you just further look at it, there are three structural tailwinds, which are expanding Cyient DLM's addressable market. The first tailwind is rising demand for AI and data center infrastructure.

8:06 The second one is semiconductor capital equipment and the third tailwind is robotics and the growing electronics content in all these three areas. I think again it's this backdrop, we estimate an addressable EMS opportunity of closely around $58,000,000,000 in AI and data center infrastructure. And for EMS providers, this creates a significant opportunity in AI data center, box built solutions, cables and other cooling controls. For Cyient DLM, this is a natural adjacency where our capabilities in high reliability manufacturing, systems integration and power electronics can become increasingly relevant. So if you can look at it, together AI and data center infrastructure, semiconductor capital equipment and robotics extends Cyient DLM's growth runway while remaining closely aligned with our core strengths.

9:04 Against this backdrop, our long term strategic pivot follows three phases. Strengthen, expand and transform. So this deliberate progression builds on a proven foundation, extends our core capabilities into attractive adjacencies and ultimately creates a stronger product and frac for a moat. Our first priority is to strengthen the business we have today. We are anchored in four core industries aerospace and defense, medical, industrial and automotive focused in electric vehicles. These markets form our foundation and are supported by a proven core stack. The margin framework for this phase is approximately 9% to 11%.

9:51 We are focused on deepening customer relationships, improving execution, scaling programs and reinforcing the operational capabilities that have earned customer trust. This foundation provides the credibility and capability base for the next phase of growth. In the second phase from FY '27 through FY '29, we plan to apply this proven stack to new sectors. The portfolio will expand from four industries to seven, adding robotics and AI data center as a key growth areas and sharpening our focus on semiconductor capital equipment alongside with our existing core industries. Our approach is disciplined and the adjacencies where customer requirements align with our engineering, manufacturing, quality and supply chain strengths.

10:43 As the business mix evolves and scale improves, the margin framework for this phase is approximately 11% to 13%. Expansion is therefore not only about accessing new revenue pools, but also about improving the quality and resilience of growth across a broader range of high reliability end markets. From FY 'thirty onward, our ambition is to transform the business by building a differentiated product and platform mode. We expect to retain the benefits of a diversified seven industry portfolio while adding new platforms and expanding our build to specification product. So here I would like to elaborate on build to specification products, a key strategic priority for us. So we recently renamed this offering as electronic products to reflect the broader value we now provide across the product life cycle.

11:41 Beyond manufacturing, our capabilities span product architecture, detailed engineering, embedded hardware and software integration, prototyping, testing, qualification, industrialization and transition to volume production. So we are pursuing several multimillion dollar opportunities in this area, demonstrating both our capabilities and customer relevance. As these programs progress from development and qualification to scale production, we expect them to generate significant sustained growth from FY 'thirty onward. Given the strength of the pipeline, the long term nature of these engagements and their potential to deepen strategic customer relationships, electronic products will remain a priority for investment and execution.

12:29 The margin framework for this phase is approximately from 13% to 18%, reflecting a growing contribution from products, platforms and intellectual property led differentiation. Our objective is to move progressively up the value chain, while building on the execution discipline and customer trust established in our core EMS business. As we execute our long term growth strategy, we remain focused on deliberate forward looking investments that strengthen our competitive position and expand our addressable market. Over the past several quarters, we have accelerated efforts to build capabilities and deepen our presence in high potential areas. Our investment approach includes strengthening domain expertise, expanding customer engagement, enhancing engineering and manufacturing capabilities and accelerating the development of differentiated products and solutions.

13:23 Although these investments carry near term costs, are essential to building a stronger foundation for sustainable and profitable growth as said by Krishna earlier. Even as we invest for the future and support the growing scale of our business in both built to print and electronics product, we remain committed to disciplined execution and operational efficiency. Based on the planned investments and timing of our growth initiatives, we expect margins remain at the higher end of the single digit range for FY twenty twenty seven, while establishing a platform for stronger value creation over the medium to long term. We believe these investments will strengthen our strategic position and market relevance, enabling us to participate meaningfully in some of the world's most attractive technology and industrial growth trends.

14:16 Turning to the second quarter, our performance demonstrates both strong demand and continued execution. The order book reached an all time high with a book to bill ratio of 1.6 times. This provides a solid foundation for future growth and reflects the relevance of our capabilities across both established and emerging markets. Revenue grew 26.5% year on year in Q2 supported by strong growth in aerospace and industrial together with the continued traction in defense and medtech. If you look at for H1, revenue grew 30% year on year. At the same time, the product mix is shifting toward higher value integration.

15:04 Box build revenue increased 86% year on year. This is strategically important because it reflects our progression beyond component level manufacturing toward more integrated solutions. We also added three new logos in this quarter, strengthening the pipeline for future business. In parallel, we completed the integration of Altek Electronics and renamed the business as Cyient DLM Electronics Inc. This expands our global footprint and enhances our ability to serve customers across geographies. Finally, we are investing in the next engines of growth as said earlier, AI and data center infrastructure, robotics and semiconductor capital equipment while continue to strengthen our build to specification and electronics product capabilities.

15:56 Together, these initiatives align near term execution with the longer term margin and portfolio transformation outlined earlier. To conclude, Cyient DLM is positioned at the intersection of a large and expanding EMS market, accelerating demand in high reliability sectors and a clear internal roadmap to move up the value chain. Our record order book, strong year on year revenue growth, improving mix, new customer wins and broader global footprint demonstrates that this strategy is translating into operating momentum. We remain focused on disciplined execution, profitable growth and building differentiated capabilities that can support sustainable margin and expansion over time. Thank you for your time and continued interest in Cyient DLM. Now I hand it over to R. M. Subramanian, our CFO.

16:53 Thank you, Rajendra for the business overview. Good evening, ladies and gentlemen. I will now take you through the financial performance for Q2 and H1 of FY twenty twenty seven. We delivered a revenue of million, representing a strong growth of 26.5% year on year, reflecting the continued momentum in the business. Our order book reached an all time high of INR28.1 billion increasing by approximately INR2.1 billion sequentially. This provides us with a healthy foundation for growth going forward. At the operating level, EBITDA for the quarter was million dollars up 9.5% year on year with an EBITDA margin of 8.7%.

17:42 The margin is lower by 135 basis points year on year, reflecting our continued investment in growth areas. Moving to profitability. Normalized PAT grew 25.8% year on year to INR158 million, broadly keeping pace with our revenue growth, while the normalized PAT margin remained stable at 4%. Reported PAT for the quarter was million. The difference between the normalized and reported PAT reflects the one time reversal of the earn out provisions of million. We see this as a quarter of strong growth with continued strengthening of the order book. Our focus going forward remains on converting this growth into a stronger operating performance and improving margin as the business scales.

18:32 Now let me provide some perspective on the trends across our key financial metrics. Starting with revenue, we have maintained a strong growth trajectory, the revenue reaching INR3931 million in Q2 FY twenty twenty seven compared with INR3106 million in Q2 last year, representing a growth of 26.5 year on year. On profitability, EBITDA for the quarter was $342,000,000 with an EBITDA margin of 8.7%. The moderation in margin reflects our continued investment in sales, strategy and new growth areas to support the next phase of growth. Importantly, despite these investments, our underlying profitability remained healthy.

19:18 Normalized PAT for the quarter was INR158 million growing 25.8% year on year, broadly in line with the revenue growth. Reported PAT was INR340 million, which includes the one time benefit of INR182 million from the earn out reversal. Excluding this one off, normalized FAT stands at INR158 million. As we look at the overall trend, we continue to see strong revenue momentum and healthy underlying earnings growth by making the necessary investment to build capabilities and support sustainable growth. Moving to the next set of KPIs, let me touch upon our order book and working capital performance. Our order book continued to strengthen and reach an all time high of 28,100,000,000 at the end of Q2 FY twenty twenty seven compared to INR 26,000,000,000 in the previous quarter. This gives us a healthy base as we move forward.

20:13 On working capital, net working capital improved sequentially to one hundred fifty three days from one hundred sixty one days in Q1. Inventory days remained stable at one hundred sixty two days, while DSO improved from seventy seven days to seventy three days. DPO increased from sixty three days to sixty eight days, providing further support to the working capital pool. Customer advances stood at thirteen days compared with fifteen days in the previous quarter. Overall, the sequential improvement in working capital, together with disciplined execution helped us generate an operating free cash flow of million during the quarter. Going forward, working capital efficiency, particularly inventory optimization and collections will remain an important area of focus as we continue to scale the business. Let me now give you some perspective on our revenue mix for the quarter.

21:01 From an industry standpoint, Aerospace continues to be our largest segment contributing 47% of our revenue followed by Industrial at 31%. These two segments delivered strong year on year growth of 6229% respectively. Defense contributed 7% of revenue with 13% year on year growth, while MedTech accounted for 14% also growing 14% year on year. Looking at our product mix, PCBA continues to be the largest category at 48% of our revenue, growing 19% year on year. At the same time, we are seeing strong momentum in Boxbill, which now contributes 27 of revenue and grew 85% year on year. Geographically, our business continues to be predominantly international with the rest of the world contributing 93% of revenue and India geography contributing 7%.

21:51 The international mix continues to be supported by demand from aerospace, medical and industrial customers. Overall, the revenue mix reflects strong growth across our key verticals, increasing contributions from box build and continued strength in our international business. Let us now look at the detailed financial performance for the quarter. As mentioned earlier, revenue grew 26.5% year on year to million, reflecting a strong growth momentum in the business. EBITDA stood at INR342 million, up 9.5% year on year with an EBITDA margin of 8.7% compared with 10% in the same quarter last year. The moderation in EBITDA margin was primarily driven by two factors. First, we saw an impact from the revenue mix and certain product development related costs. Second, employee costs increased as we continue to invest in sales strategy and new growth areas to support the future growth.

22:46 Below EBITDA, finance cost declined by 10.4% year on year to INR61 million supported by lower working capital borrowings. Reported profit before tax was INR393 million and reported PAT was INR $340,000,000. It is important, however, to look at the profitability on a normalized basis. Other income during the quarter includes a onetime earn out reversal of 182,000,000. Excluding this, our normalized PAT was INR158 million, representing strong growth of 25.8% year on year with a normalized PAT margin remaining stable at 4%. While we have seen some near term impact of the EBITDA margin level, the underlying earnings growth remains healthy and broadly in line with our revenue growth.

23:32 Our focus remaining on sustaining growth while driving greater operational leverage and margin improvement as the business scales. As we complete our half year through FY 2027, let me now summarize our performance for the first half of FY twenty twenty seven, okay. We delivered a revenue of million representing growth of 30.2% year on year, supported by healthy business momentum and a strong order book. EBITDA for the first year was $733,000,000, growing 30.4% year on year, broadly in line with the revenue growth. Importantly, despite these investments we are making to strengthen our business, our EBITDA margin for H1 remained stable at 9.6%. At the bottom line, the performance has been particularly strong. Normalized FAT increased 60.4% year on year to INR $321,000,000 with normalized PAT margin improving by 79 basis points to 4.2%.

24:29 Reported PAT for H1 stood at INR $5.00 3,000,000, up 27% year on year. The difference between recorded and normalized path reflects the INR183 million onetime earn out reversal recorded during the second quarter. Our order book stands at all time high of INR28.1 billion, an increase of approximately Rs. 5,200,000,000 compared to the same period last year, providing good visibility as we move into the second half. Overall, H1 reflects a strong and broad based financial progress with revenue and EBITDA growing around 30%, normalized earnings growing significantly faster and the record order book supporting our growth trajectory. Since we have already covered most of the H1 performance highlights in the earlier dashboard, let me keep this slide brief and highlight just few additional points. While the EBITDA margin remained broadly stable at 9.6%, we saw some impact from the revenue mix and product development related costs, particularly in Q2.

25:24 At the same time, we continue to make targeted investments in capabilities to support growth. Below EBITDA, finance costs declined by 21% year on year supported by lower working capital borrowings. Overall, the underlying profitability remained strong with normalized PAT growing at 60% year on year and normalized PAT margin improving by 79 basis points to 4.2%. To conclude, Q2 and H1 has been strong for us with a healthy revenue growth, a record order book and strong growth in underlying profitability. As we enter H2, our focus will be on continued momentum in order intake, executing the order book, improving margins and driving working capital efficiency as we continue to scale the business. We remain confident in the growth trajectory of the business and our ability to translate this growth into sustainable value creation.

26:13 Thank you. Let's move to question and answer Our Our first question comes from the line of Balasubramanian with Aryehat Capital. Sir, my first question, the margin impacted due to one off revenue mix and product development spend.

27:07 And how much it impacted in Q2, especially in product development spend? And what is the annual product development budget over the next two to three years? And whether we are capitalizing or whether we are expensing that? Yes. This is Subramanuj here. In terms of the margin impact, we explained the reasons for that, okay. I'd like to clarify that it's a marginal investments in terms of what we have done, which is in the range of 100 to 150 basis points. And as a policy today, are not capitalizing any of the cost what we are doing. This some of the costs are forward looking in terms of employee cost for sales and building the sales engine, okay, and also product development cost in terms of prototypes, etcetera. All of them are being expensed and that's the way you're seeing the impact on the margins. But we see this as a positive investments, which will yield results as we go moving forward.

28:06 The annual product development which has there is any number in terms of series, that would be We will not like to get into in terms of individually what is the product development spend, but that's part of our business, which Rajinder talked about in terms of Electronics product division. So as we keep moving forward and as we identify opportunities, we will keep investing on a healthy basis, but we don't want to be putting a number in terms of what we'll be doing it, okay? This depends on the opportunities available in the market and what we'll doing. Okay. As I mentioned, the new growth engines like AI, data center, semiconductor and robotics, those areas.

28:52 So what are the work we are doing right now? How do you look at those growth engines next maybe three to five years time frame? Especially, you have mentioned post FY 'thirty, we have seen the focus will be different. Yes. I think as I said earlier, I think also if you look at on the new growth areas, the AI and data center infrastructure, robotics and also on the semiconductor capital equipment. I think on semiconductor capital equipment, we are already there. We are already working right now. And on other two areas where I said earlier, so I think we just started exploring it right now. And it may take some time for us to get to a number there. So that's why I think we'll come back on where we stand on those things probably after by the end of this financial year.

29:43 Okay, sir. Thank you. Our next question comes from the line of Santosh Seshadri with Aventis Park. So I just want to follow-up on the margin part of the question. So could you help us quantify how much of this impact was due to one off product development cost and how much due to underlying revenue exchange? And also, just to get some flavor on what is driving the revenue exchange. So basically, is it a shift between BTBA versus Box Pillar or the BTS to BTP that you're talking about?

30:33 And the second part of the question is, as you continue to grow the business, how should we think about the instances of all these product development costs recurring again? Okay. So what we're seeing is a mix of various factors in terms of revenue product mix, some investments into the future in terms of the cost, okay. So what we definitely see this is leading to getting back to the margin levels of what we will like to get back into, okay. And from a pure revenue product mix perspective, we as you know, we are in a high mix, low volume business. And there will be a small amount of moments. It's not a static in terms of revenue mix. But as we keep moving forward, we are confident that in terms of overall margins, we should get back to what our targeted levels are.

31:29 Just sorry if I missed it earlier. What would be the margin guidance for FY twenty twenty seven? Yes. FY twenty twenty seven, as said earlier, we will be at a high single digit number, maybe close to around 9% EBITDA margin. And if you look at on the Q1, so what are the investments we're making, what are we seeing it, some of these one offs which we have it, I think from Q1 onwards, we won't be having we'll be having a double digit EBITDA margins going forward. Thank you. And just lastly on the timeline for executing the order book, what would be the typical timeline to convert these order into revenues? And also on some of your new programs like semiconductor programs, when do you exactly expect this to contribute to your revenue?

32:22 Is it fair to say that from third quarter or fourth quarter onwards, we should start to see some meaningful revenue? And also if you could help us quantify the run rate from some of these new programs? Yes. I think if we look at on the order book, what we have, it is usually from eighteen to twenty four months. That's what the range, maybe very few will be there beyond that two years. But otherwise, mostly it's eighteen to twenty four months is our order book what we have. And coming back on the semiconductor capital equipments, we have already started working on that in the last two quarters. We have the revenues on that. Now that's where probably we'll be seeing it some ramp up going in that particular industry. All right. Thank you very much.

33:07 Thank you. Thank you. Our next question comes from the line of Shashank Jha with SP Capital. Please go ahead. Shashank, your line has been unmuted. You may proceed with your question. Yes, sir. My question regarding EBITDA margin. So you told that it will be around 9% for FY twenty seven. Have I got it correctly? Yes. More or less, in that range. Yes. 9% to 10% range. So we'll be that's that is what we have current guidance. Yes. And sir, like your order book is growing fast, but your revenue is not growing at that rate. Is it due to external factors or the order book delivery or starting from other like after one year or something like that?

34:05 I mean, now if you look at the challenges, what we have is due to all the challenges in getting the materials. So that's where I think the challenge is in the materials right now. The order book, what we have is we have to go and release the purchase orders if you have done it. So getting the materials, that's why it is taking the time. So that's why that eighteen to twenty four months is what I said, that's when we'll be closing these existing order books. And you told about the bid pipeline, which is exceeding $1,000,000,000 So what can we expect from the conversion issue? I think so that's what the conversion usually happens. So what are the way conversions we are seeing it now, that's why the conversions the book to bill ratio of 1.6. Now if you look at it, what we had in the last quarter and this quarter is close to INR600 crores plus.

34:53 That's where probably you'll be expecting it for the next two quarters too. No, sir. I asked about something else. Like you have a green pipeline of $1,000,000,000 you say. Out of that, what do you expect to win? I mean the percentage of the wins, you are asking it, that one? Yes. So usually it will be closed around I mean by the time when it's closed, if you look at our past history, it will be closed around 40% is what the win ratios. So based on that, some of the things are there in the initial stage, lead and qualification. So probably once we put those things, so we'll be closing coming close to around 40% of the win ratio. Okay. Got it. And regarding EBITDA margin for FY 'twenty eight, so are we going to have it in double digit?

35:48 Double digit for the, yes. For FY '28 onwards, it will double digit. And for this year, I said it will be nine to 10, yes. Okay. Got it. Thank you. Our next question comes from the line of Meet Jain with Systematics Asset Management. Please go ahead. Meet, your line has been unmuted. You may proceed with your question. As we're not receiving a response from the current participant, we will move to the next participant. Our next question comes from the line of Uman Gada with Avanir Investment Management. Please go ahead.

36:36 Hello. Am I audible? Yes. Yes. You are audible, sir. Thank you. Thank you for the opportunity. Sorry to hop on the margins part again. We are expecting kind of a squeeze in margin of around one percentage this year compared to 26. And you mentioned that it's due to the product development cost and revenue mix. So can you, I don't know, clarify a little bit in detail that specifically, is it because of some nature of services mix changing like PCB or box print or some industry mix changing in revenue? Because of that, the margin is getting squeezed out. If you can explain that in a little bit of detail, that would be helpful. No, I think what our earlier said is, but this quarter is where we just mentioned about that revenue mix. But if you look at it for when you asked about FY twenty six compared to FY '27, the main the reason for that reduction is basically coming from the investments what we are making into the sales and marketing.

37:34 Okay. So that's what I said earlier, these are all the future investment which we are making it, I mean for the future growth. So I think if I may just qualify that, if you look at our gross margin or contribution margin, both of which are quality of business, they are higher actually they are significantly higher in FY 2027 year to date than they're in FY 'twenty six. So the quality just to clarify that it was this quarter, there was a bit of a revenue mix. But again, even this quarter, if you compare it to the same quarter last year, our contribution margin is still higher, right? So it's not the revenue mix. Revenue mix is always going to be there. Think that was just mentioned as it was this quarter thing.

38:25 The reason why margins are really lower is two things. One is we've invested quite a bit in sales and marketing, all of which is now in the P and L, right, in the SG and A, S and M or G and A. So all of the value of sales and marketing is there, which is depressing the margins obviously a little bit. And we continue to invest in product development, which is not capitalized. Again, the product development piece also has been going on for a while. It's not that it is something that we only started this quarter. So it's really net net, if I may just clarify, the reason for the drop in margins by about 100 bps or so is because all these sales and marketing costs have been accounted for.

39:12 We will not add any more sales and marketing costs till we at least hit about or at least net new, we won't add any more sales and marketing costs till we hit at least double our revenue on a quarterly basis. So that's just the issue. It's a point in time issue that is fully loaded. We've added a number of salespeople. We've added a number big people. We've added a number of marketing costs, etcetera, including we added a Chief Growth Officer in drama, etcetera, etcetera. It's just that the full benefit of there's zero absorption right now because if you look at it last year, we would have done a similar revenue with none of that cost, which is almost 150 basis 200 basis points. So I just want to clarify that it's not a one off thing, it's not a Yes, there is. There was a bit of a one off, but there's always going to be there. It's just the fact that we're investing in sales and marketing and we're investing in product development.

40:07 Understood. So sorry, I mean, just if I extrapolate this thing, so when you say FY '28 onwards, we will have 11% kind of margin, which is down from close to 9% that we're expecting this year. So do you mean that the intensity of investments will get lower or the result and outcome is gonna get higher because of that, the margin expansion has happened of around 200 basis points? So this intensity of investments will get kind of lower or from q three or q four onwards? That's what I think I said with Krishna, whatever has been done, sales and the marketing cost, that is already done now. There won't be any future investment in that area. And so I think once the revenues grows in FY twenty eight, when you are seeing the growth curve for FY twenty twenty eight, what are the growth we have currently, growth will continue in FY twenty twenty eight. I think with that growth coming in with the absorption and all, so we'll be seeing the EBITDA margins going up.

41:05 Understood. And sir, one last question, if I can ask. I mean, couple of weeks back, there was an interview written in the newspaper that, you know, we have a $1,000,000,000 order book, you know, executable for, like, seven years design led order book. I genuinely didn't kind of quite understand what does that mean or where where this is accounted. So, you know, if you can, you know, give some... Throw some light on this. Okay. So that is predominantly on our build to spec, which is nothing but the electronic product, which we are working out for some other customer programs. There are four major programs which we are working right now. I think if you look at it, some of the works which we are doing it, we already have some of the contracts signed with the customers. By FY 'thirty is where we told that, that's where we'll be seeing the revenue coming in from that. So the... All the four programs are really coming now currently close to a billion dollar, which are not there currently in our order book. Okay? So I think once once we materialize it, that's what we'll be seeing our order book going up at that time.

42:07 Okay. So you are saying you have the visibility of the order book, but it is not translated to order book yet it will come in the later side when it is more materialized properly? Exactly, exactly. But the contracts, we know that what are the volumes are going to be there, what is it is, mean, the value of the contracts going to be, that's where I said it is a billion dollar. So the business is, I mean, the stage where you are in the negotiations, the business is bound to come to you if understanding that correctly. We are already working on those programs right now. Our electronic product team, they're already doing the designs. Some of the products have gone at the state of testing at a customer location. Okay. Some are internal testings are happening. So the programs will be in the production from FY thirty onwards.

42:56 Understood. Thank you for answering my questions. Thank you. Thank you. Thank you. Our next question comes from the line of Nishita with Sapphire Capital. So you mentioned that we have 1,000,000,000 of order book pipeline. So is it... And our win ratio is 40%. So, like, that means that we can get to around 400,000,000 of orders.

43:41 So if you can specify the timeline of when can we expect these orders in? And have you also, like, included the $1,000,000,000 of B2S that you just mentioned in this order pipeline? Yes. Think not the entire $1,000,000,000 what I said on the PTS is not in that one. There is only a part of that. Okay. But the rest of the things are the ones which we will be getting it when we complete the various stages of the exit pipelines. So it's a little difficult to say that when are we going to close the entire thing because there are some will take slightly more time and we are also seeing some of the things going up. Think if you look at it sometime back, were closer on $1,400,000,000 Now it is in the range what we said, I mean, just more than $1,000,000,000 Probably it will take some time to close those things.

44:33 But usually what we see is close to around $400,000,000 $400 to $500,000,000 is what we can make it as our order intake going forward. So $400 million dollars from the existing pipeline. That is the order I'm sorry, so INR 400,000,000,500,000,000 from the existing pipeline, when can we expect this to like inflow in our order book? Sorry, The way I would look at it is the order backlog is like a balance sheet, right? It's at a point in time. It's not like a P and L, which would be for a period. So this $1,000,000,000 or the $1,500,000,000 roughly, which is the unweighted pipeline, which the $1.4 we talked about previously was also unweighted.

45:23 So $1.5 which has increased, is really a continuous moving thing. Because if we close next quarter, again, let's assume we'll close in the same range, 60,000,000, dollars 70,000,000. We'll also add another x $100,000,000 into the pipeline. So it's a constant add addition. So you can't say that the order book or the sorry, the pipeline isn't for a period. It is at a point in time. So it constantly keeps adding. So it's not that once this $1,000,000,000 pipeline or 1,000,000,000 point dollars pipeline is converted, we're exhausted. There'll be new things that will constantly be coming. So what you should really be looking for is, has the order backlog grown because that indicates your future growth. And of course, has the pipeline grown because that indicates the feeler for the future order backlog.

46:18 Right, right. Okay. Understood. And my last question would be on our revenue growth. So in Q1, we had quite a good growth of 35%. And in Q2, compared to that, we've grown 26% only. So like why was the growth not as far with Q1 and Q2? And can we expect growth of around 30%, 35% for the whole year FY 'twenty seven? Yes, I think now probably yes, you will be getting that much of the growth going forward 3035% growth. And for this quarter it is lower for various reasons, not that you have everything because it's all depending upon the availability of the material and the challenges what we'll be having it and some other things we have customer sites, there will be some delays.

47:04 So that's why it will be varying the growth percentage. It won't remain exactly the same, maybe the quarter. But if we look at the hedge fund, we are there at 30% revenue growth. And yes, if look at for the H2, we'll definitely going above 30% growth. Our next question comes from the line of Sumant Kumar with Motilal Oswal. Sumant Kumar, your line has been unmuted. You may proceed with your question. The current participant seems to have dropped from the queue. We will proceed to the next participant.

47:53 Our next question comes from the line of Aditya Pal with MSA Capital Partners. Please go ahead. Yes. Am I audible? Yes. Yes, you're audible. Yes. So Kugi wanted to understand over the last couple of quarters, FY 'twenty six, Q3 and Q4, you had mentioned that B2S sales contributions will be in double digit in FY 'twenty seven. And if I were to understand correctly, there are higher EBITDA margin products, which would take our overall EBITDA margin in FY 'twenty seven higher. And if we are investing, say, for example, 150,200 basis points, this higher EBITDA margin, higher gross margin products should actually neutralize it. So I'm not able to connect the dots, if you can help me understand these two points.

48:49 See, build to spec division is where we are now renamed as a product division, electronic product division. So in terms of whatever investments we make and the product development life cycle, it's a slightly longer life cycle. So cost happens in one particular quarter and then obviously you'll see the results moving in the getting out in the later quarter. So overall, what we will see is we will continue to invest for the long term, not only on build to spec, prototypes, product developments, etcetera. And the impact and the benefits will accrue more in the future. So what we have the option is to capitalize some of the costs, which we have chosen not to do it because from a pure conservatism principle, we would like to expense it, okay. That's what we've been doing it, okay. So sort of matching principles may not work from that perspective, okay. So but we are clear that we are continuing to invest for the long term and the benefits will accrue as we move forward.

49:45 Understood. Last question, which is a combination of our B2, the electronic production division and the aerospace and defense. So Krishna earlier mentioned to a participant that the B2S will start transpiring from FY thirty onwards. But one of our large e v toll customers, they've already received a lot of order book, and they've already said that they will launch their product in 2028... 2027, 2020 So that becomes a... Because that's a nine year contract, high margin b two s product, that becomes a large revenue stream for us. The second part to aerospace and defense is on Honeywell. So Honeywell recently won a very large contracts on for the avionics suite from Indigo for 800 Airbuses.

50:36 Can I possibly say that a large part of that should accrue to us for contract manufacturing? Yes. Think on the Honeywell side, as you said, it is basically the build to print. We are already working with them. We are just made several of the prototypes. They are right now in the testing phase and some modifications, engineering changes that are happening. That's where it has took some time to just bring it back into the serial production, okay. And your other question on the Evotal, yes, there is also part of that. As I said, the contracts have been signed, but it is not there in our order book. It comes once we complete the engineering design and then the prototype testing, everything is done, that's where it will happen. So when all the production happens in FY 2029, that's where probably you'll be seeing the revenues coming in for us also from FY 2029.

51:28 Understood. Just one last question. So if I see the the micro VCS product that we signed with Honeywell, which is where we'll be making the liquid loops. So two pronged questions to this. One is because we'll be manufacturing liquid loops, and we'll be using a precision manufacturing facility. So intuitively, there should be a higher margin product for us. And second is, can this know how because we are developing a know how on this, can this become a lateral capability when we expand to robotics and AI data centers? So, I think basically, mean the program, whatever you said, that is predominantly a box build with a lot of electronics involved in that one, okay.

52:22 And it is not for the liquid cooling anything, but that is entirely a different module. That is again a build to print. It is a build specification. It is completely a build to print program, which we are doing for the customer. Thank you. Our next question comes from the line of Karan Sanwal with Diveshai. Please go ahead. Hello, am I audible? You are audible, sir. Great. So, sir, wanted to understand which projects are we currently working on in the B2S segment and for which client? And how large can these projects be once they mature, maybe in 2020, 2029 or FY 2020?

53:12 That's what I said earlier. The four programs which we are doing on the build to specification are a product design programs right now, electronic products. So there are close to $1,000,000,000 and where few other things are contract signed and few will be contract signed once it comes to a stage. The production, as I said, I think in the earlier, so FY 2029 probably it may start. So FY thirty onwards is where you'll be seeing the full production happening and the ramp up in FY thirty onwards. So this 1,000,000,000 is across how many years? For a period of some seven to nine years. Some are the seven years, some are the nine years programs. Okay. And also how is this Altek presence in sharing the export market? If you could talk about in detail like how is The U. S. Defense projects via this facility, maybe B2B, and what revenue and margin can we expect for this part of the business?

54:19 But build to specifications, you're asking about the margins? No, I'm asking about the Altek division, which we acquired and changed the name recently. So wanted to understand like how does it help to in the export market and what revenue and scale up can we expect in this in that company, we are the Yes. Think for the I mean, for business, as I said, we just renamed that as a CYIENTDLM Electronics Inc, okay? So that business is currently doing as per the our plans. And we now there is a now I think there is a plan where we are working out and there are the people, the sales team on the ground, so who are looking for more of the growth coming in, in that area. So probably you'll be seeing some more traction on the revenue in that division there in U. S.

55:18 Understood. And one last question. Currently, our revenue mix is towards the export market. So wanted to understand like the B2F opportunity that we're working on plus the upcoming B2P opportunity, would the revenue mix stay in the similar lines? Or would it change towards any of the market? Revenue mix between build to print and build to build to spec. Geographies. Geographies. The geographies I'm asking about. Currently, it's export oriented. So would it change towards the domestic market happen? Or would it continue staying towards the export market only, the overall company revenue?

56:12 I think the export market will continue, but at the same time, there are also opportunities that we are working on the domestic market for the some other products for the build to specs. So we'll be seeing a little growth in that India market, but otherwise the domestic I mean the export market continues. Understood. Great. Thank you so much and all the rest. Ladies and gentlemen, we will now take one last question, which will be from the line of Gaurav Shukla from Investor. Sir, Sir, as you said that your order book is 28,100,000,000, your current order book, then, sir, how much order book is added to QT in FY '27, is this one?

57:07 And how much in FY 2028? Okay. What the order book has, Rajinder explained to it in terms of having average execution period of eighteen to twenty four months. Each of the contracts or the orders depends on various customers. Some of them give for three or six months, some of them for twelve months. So it varies across. So we don't have the number in between individually. We don't publish the numbers of what is for each year, okay? But I think it's good to say that the overall average execution period is anywhere between eighteen to twenty four months. Okay, sir. And sir, what concrete customer engagement of products and programs are progressing in India in data center infrastructure, semiconductor equipment, robotics and other emerging electronic applications?

57:59 When could these opportunities become material to the industry? I think for the semiconductor capital equipment, as I said, we're already working out on that and probably you'll be seeing the growth in that area. Now onwards, you'll be seeing the growth every quarter on the in that area. And on the AI data center and on the robotics, as I said, we just started exploring that those two distinct sectors, which probably even we have to wait for till end of the year, so that probably we'll come back and share more of the news at that time, where we stand and what opportunities we have and what pipeline we have in those areas. Thank you, sir. Sir, one more, sir. In last Q2, there is other income of INR 23 crore.

58:47 And in this Q2 also there is other income INR 23 crore. So then we should understand that in Q2 there will be other income or this is one off? Other income this time, obviously, it's a mix of a couple of things, okay. There are ForEx variations, which also contributes to other income and few other one off items in terms of some export incentives also part of it, okay. So every quarter it keeps varying. Okay. Thank you, sir. All the best and good set of years. Congratulations. Thank you. Thank you. Thank you. Would now like to hand the conference over to Mr. Krishna Bodhanapu for closing comments. Over to you, sir. Thank you very much, and thank you, everybody, for participating this evening.

59:37 As we said, we're very confident on where the business is headed. Backlog is strong. We're converting that to revenue. Yes, there is a there was a little bit of a hiccup with margin for the reason that we said. It's just that we consciously invested in both product development, which as RMS clarified is not capitalized. It's completely in the P and L. So there's no surprises in the future. And it's a full sales team that is now operating. So if nothing just with as we execute the revenue from the backlog into FY 'twenty eight, that itself will take our margins into 10 plus percent. That's without even doing any further additional effort. It's just the and the sales team, I'm very happy to say, the signs are very good. I mean, not just early signs, I think we're ready to convert some large orders from the new sales team, especially in the areas that Rajendra also talked about. So if I put all this together, I think we're in a great spot. I think we're over some of the challenges that we had we're over all the challenges that we had last year. We're in a great spot even if we just execute in steady state, which is absolutely not our intent. Our intent is to really increase the operational excellence and the conversion.

1:00:52 But even in steady state, we're in a great shape. So I'm very excited about the business. Thank you for the support, and we will speak either during the course of the quarter, but definitely at the end of the quarter. Thank you. Thank you. Thank you, Arthur. Thank you. On behalf of CYIENTDLM Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.