Ladies and gentlemen, good day and welcome to the Cyient DLM Limited Q3 FY 2025 results conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Krishna Bodanapu, Non-Executive Chairman, Cyient DLM Limited. Thank you, and over to you, sir.
Thank you very much, and good evening, ladies and gentlemen. I am Krishna Bodanapu, Non-Executive Chairman of Cyient DLM. Welcome to Cyient DLM's earnings call for the quarter three of FY 2025. Present with me on this call are our Chief Executive Officer, Anthony Montalbano, and our Chief Financial Officer, Shrinivas Kulkarni. Before I begin, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in our investor update, which has been posted on our website. In the last quarter, we announced the acquisition of Altek Electronics, a leading EMS company based in Torrington, Connecticut in the U.S. The strategy behind this deal was clearly on leveraging synergy benefits.
I am excited to share an update that the process of integration is going exceptionally well and to plan. We are pleased to report our Q3 performance, including Altek Electronics this time. With the addition of the client base, the synergy conversations are increasing significantly, and I had the opportunity to have three synergy conversations last week when I was in the U.S. It is very encouraging to be a part of these discussions and expansion plans, and I am confident that we will see the synergy revenue coming in in the next quarters. The political developments in the U.S. are also going to be a significant opportunity since they create localization requirements, and Altek will benefit from these requirements. For those of you who heard his speech last night, President Trump was very aggressive in setting his intent of increasing manufacturing in the U.S.
His industrial policies will be aimed at strengthening domestic manufacturing, and it is perceived as an opportunity by many OEMs and Tier-1s in the U.S. to manufacture locally, and they are already reaching out proactively to us to manage this growth to manufacture components locally. The outcome will be several opportunities for Altek, and I am very happy, and I am very glad that the leadership team was able to proactively identify an opportunity to create significant manufacturing capability in the U.S., and that is going to benefit us as President Trump's industrialization policies start to take shape, and all indications are that made in U.S. will be a big part of that. On the other hand, our revenue mix is slowly changing, and this is having an impact on the medium-term. We are looking at it positively to, both on our profitability and cash flow.
Having said that, some of the large contracts that we signed during last year are starting to see traction, and we see this further increasing in the coming quarters. We are also gearing up to make sure that we are able to meet these requirements. With the industrial and medical science showing recovery and clients of Altek looking at our manufacturing capabilities in India for India requirements, I can assure you that the road looks quite or the future looks quite positive for us. I am confident that we are headed in the right direction and getting ready for the next phase of growth. I will hand it over to Anthony and Shrini to provide more updates to the business and finance in more detail. Anthony, over to you.
Great. Thank you, Krishna. As Krishna highlighted, Altek has been part of the business now for one quarter, and I thought it would be important just to highlight some of the key aspects of the business as well as the integration highlights thus far. Altek has been providing services in the EMS industry, based in Connecticut, for about 50 years. Primary sectors for the business include industrial, medical, and defense. This aligns with our current portfolio, allows us to expand and potentially take the ITAR programs into the U.S. defense sector and market. It also provides some overall business diversity in terms of business sectors that we operate in, giving us additional industrial and medical sector opportunities.
A lot of our clients within Cyient DLM are Western-based clients, and there are many opportunities that are now available to us by having U.S. manufacturing available that were not part of the discussion earlier. This geographic footprint aspect of the business will create growth opportunities for us and also complement the additional client access that we will get as part of Altek portfolio. The capabilities of the site are also very complementary and t He DNA of the business focusing on very high value, low volume, high mix, mission critical type of electronics are very complementary to the business that we have been operating under for many years and allows our clients to have a similar experience whether they are working with us in India or in the U.S., as we now are providing a global offering. On the integration progress, there has been considerable focus on the go-to-market aspects of that.
That includes integration of working with top key clients across both of our businesses, working with the go-to-market leaders that focus on these clients with both of our businesses. They are now integrated, and we look at opportunities. We now collectively plan and execute on how to take those opportunities that have transformed into the business. The operations integration and HR integration aspects are also underway, and the first quarter that we will be providing a consolidated view as well. This is a reflection of that. Supply chain synergies are also being mapped right now, which brings certain aspects in terms of what we can do with certain key aspects in the supply chain part of the business. That can include key components, distribution, and overall spend. We bring in certain aspects to help provide greater value to our clients in that regard.
And then also the financials have been integrated, and we will be discussing some of those here going forward. Some key wins for this quarter. We secured one leading global technology company focused on the energy services and solutions space, which we think falls under our industrial sector. This is a leading multinational OEM that we look to be a key growth and overall revenue client for us in the future. This is in addition to, I believe, the six new logos of similar scale that we have announced in earlier quarters. From a pipeline perspective, our pipeline is considerable with over INR 1 billion in TCV of opportunities that we aggressively need to try and convert. Also we are currently working on some specific large opportunities that are in advanced stages that we hope to provide more updates on coming quarters.
Some other aspects of the business from a recognition perspective, some of our largest customers this year. BEL has recognized us as a valued partner. Just another testament to the services we provide and quality in these types of applications. Also some other aspects on the business highlights. Focusing on our environmental and initiatives. We did announce a strategic partnership with Arcedo for basically a solar power plant that we have applied to our Mysore facility. This will be a key aspect to help our ongoing commitment to renewable energy. We have also received some awards. A specific award from the state of Karnataka for overall export and business growth in that sector. Those are some of the key highlights for this quarter. Excuse me. I will turn it over to Shrinivas for some of the finance updates.
Thanks, Anthony. Thank you, ladies and gentlemen, for joining the call today. I will walk you through the Q3 financials. This will be a consolidated financials for us, including Altek. I will also follow some of the key aspects of this particular quarter, which are the one-off expenses we have incurred for concluding the M&A. We have sort of shown an adjusted EBITDA and a PAT number so that the sustainable performance becomes clear to you. We have also showed you what the reported numbers are in the comments. To start with, we did a revenue of INR 444.2 crores, which is a 38.4% growth year-on-year. This, of course, includes Altek number as well, and the standalone revenue for the period was INR 357.3 crores, which is a growth of 11.3% year-on-year.
From an EBITDA perspective, INR 359 million is the adjusted EBITDA, which translates to a margin of 8.1%. This is lower year-on-year by 109 basis points due to a few reasons, and we will talk about that in detail. But the reported number is about INR 8 crores lower than this because of the one-off expenses we have incurred in terms of the banker fees and the lawyer fees, et cetera, that were used up to conclude the M&A contracts. Similarly, the Q3 reported PAT after adjusting for these expenses is about INR 108 million, but the correct number to look at, which is the adjusted number, is INR 166 million . It started to 3.7% growth and also it is a de-growth year-on-year of about 10%. Order backlog now includes the Altek numbers. So it stands at INR 2,142.9 crores. And the number from Altek that is included in this is INR 291.5 crores.
The standalone order backlog is the difference between those. Looking at now the key KPI trends, and this again, the Q3, the latest numbers in this chart are all the consolidated numbers, which includes Altek numbers and it just gives a trend for you in terms of how we have performed on the important metrics of the revenue, EBITDA, and PAT over a period of time, over last several quarters. The non-P&L metrics, we will take a look at how we have done on the net working capital. In terms of DSO, we are at 76 days. This is a drop quarter-on-quarter as well as from a year-on-year as well. There is improvement that we are seeing in the DSO metrics. In DIO, we are at 129 days.
Again, this is a little bit higher than the last quarter, but we have a roadmap to get to about between 90 and 100 days, and we are still at a level which is slightly elevated more than we would like to be. DPO has improved to about 69 days and customer advances as the nature of the business has dropped to about 16 days in this quarter. As we consume some of the revenue from the customers who have given advances, this number will continue to drop. We are not expecting any new advances in the near future. This is something that we will see as a trend. All in all, the net working capital is about 120 days, which is an improvement from previous quarter as well as it is almost in line with where we were last year in the same quarter.
I am also happy to report that at the consolidated company level, we have had free cash flow which is positive for the quarter. This slide gives a trend of the industry mix, the product categories, and the mix between the rest of the world and India revenue. You will find this interesting in terms of the industry mix. This is significantly different from how we have shown in the past, in terms of being very heavy on aero and defense. Now you see a big chunk coming from industrial and med tech as well. This was one of the reasons why we did the acquisition. It diversifies our industry base very nicely and this has led to growth of 47% year-on-year on industrial and about 166 on medical. This chart looks more balanced now and with the acquisition of Altek.
The mix of the PCBA box build and cable has not changed significantly, but we continue to see a large portion of our business coming from PCBA. The box build growth now stands at 16% year-on-year. Similarly, on the mix between geography, now the Altek business is all counted in the rest of the world, which is at 61%, and the India business is at 39%. We will continue to watch this trend going forward as well. The chart just gives a tabular view of the financials we just reviewed. Basically, it has more granular details in terms of the various cost elements. You can go through it in detail. As you know, the financial footprint of a U.S. company is different from an Indian EMS company.
The ratio of material and employee costs is different there, and therefore, you see some changes as we go forward. The employee mix cost will be higher, material cost will be a little bit lower as we consolidate. The other thing you will see in the financials here is also the depreciation and amortization. As you know, when you make an acquisition, there is a purchase price allocation and the intangibles start getting amortized over a period of time. That is discussed with the auditor. This number is not really a cash expenditure. It is just allocation of the intangibles and write-off of the same. So with all of that, I think you see a profit which is adjusted and reported here for the quarter.
Just to give further clarity on how those one-off expenses are treated between EBITDA and PAT, this slide gives you more color in terms of how we have treated the M&A expenses and one-time transaction related. This will not repeat going forward. So that's why it's called out as an exceptional item. A slide on the IPO proceed utilization. As we had stated in the objects of the issue, we had earmarked 10% of the entire issue proceeds towards inorganic. So we have used that and a part of the general corporate proceeds to make the current acquisition. We have repaid all the external borrowings, and the trend of the working capital and CapEx is lower than what we had expected. We have used up only INR 135 crores so far.
We'll roughly use up about INR 190 crores by the end of the year, and we'll have another INR 100 crores left for the next financial year in terms of the working capital requirements. But on CapEx, we have excess capacity right now, so there is no need for a substantial expansion of CapEx at the moment. So we have enough capacity to even run next year. There will be incremental CapEx additions during the year, and we will call that out as we use the funds for it. There are some more annexures in there in the presentation. I will not go through that right now. These give a better color on the difference between the standalone and the consolidated numbers. We also have a slide on the nine months performance. We'll go through those and if you have any questions, we can address them.
With that, I conclude the financial presentation and we can go to Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Deepak Krishnan from Kotak Institutional Equities. Please go ahead.
Yeah. Hi, sir. Am I audible?
Sir, you are audible. You may proceed.
Yeah. Just wanted to check. Essentially, if we look at the order book number, adjusting for the INR 2,915 million, which is the Altek impact, we've again sort of seen an order book decline, comes to a number of INR 18,514 crores or somewhere close to that. Essentially, in terms of new order wins, or we've indicated we are at final stages of negotiation. But when do we start seeing large orders coming in? Plus obviously whatever comes from Altek, maybe just an outlook in terms of what is the U.S. growth that you're expecting for the next maybe two years? Essentially because of all the potential impacts due to the localization of manufacturing there.
Yeah, I think on the order backlog, I think we have seen some organic business. Yes, we have seen a decline this quarter as well. The pace at which the large order from one of the key customers is being consumed is higher than where we are seeing the growth. Look, it is a little hard to call what the outlook will be. We are definitely working on several large opportunities. As Anthony also highlighted, the pipeline is huge large. There are several deals and at least three large deals where there is active conversation at an advanced stage. As those convert, I think we will one, see the order book going up from where we are today. Altek has a shorter sales cycle compared to Cyient DLM, so they will fill a lot of orders even during the year.
We start with, let us say, 90% visibility. They start with 50%-60% visibility, just to give some perspective of how that business runs. We definitely see a growth in North America, I think for two reasons. One is the acquisition. I think it gives us a footprint of having manufacturing presence in North America, and a lot of clients have been demanding the sort of proximity to their centers. The other is what Krishna mentioned, there are just the sort of political changes that have happened in the U.S. and the outlook that is there in terms of keeping America first and manufacturing in the U.S. I think we will definitely see much higher growth in North America compared to what we have seen in the past.
Sure. Maybe just a second question. If I just look at the difference between the standalone and the consol and adjust for the INR 80 million sort of one-off expense. I think Altek this quarter reported an EBITDA margin of 27.6 versus standalone about 8.3 prior to other income. Is Altek EBITDA margins more in the 7%-8% range or do we also see that this segment can potentially help us get to 10% EBITDA margin that we have indicated that is sort of the stated goal that we want to reach out to?
Yeah. First of all, look, Altek's EBITDA margins are similar to ours in this particular quarter. But they have a roadmap for getting to over 10% at least. Even when the acquisition was made, and we have seen the historical performance, I think they have operated at around 10%. We have a few expenses which are sort of just immediately after the acquisition that have taken place this quarter. But we have a clear line of sight to get to 10% on a sustainable basis in Altek.
Maybe just wanted to understand, do we still stand by the 30% CAGR guideline for a three-year timeframe and any particular revenue guidance that you want to give for this particular year, given that organic growth this quarter has slowed down to about 11%? I just wanted to understand these two points.
Yeah. Regarding the 30% figure that we've discussed, that's just been as more of a guidance, as more of a CAGR year-on-year. I think you're going to find some variability. I think the first year we delivered over 40%, then we find, I think we delivered into 20s. That's going to vary. I think that is still a healthy number to consider on just the mid to long term of our business. But as we look at certain programs transferring out and as we ramp other businesses up, there definitely could be some lag on years in that number. It's not meant to be a firm.
Sure, sir. We just wanted to understand the strong free cash flow generation that we had this quarter, given that there's only a slight decrease in net working capital days. Anything else that aided this INR 478 million of free cash generation because it's only about a seven-day decline quarter-over-quarter in NWC.
Can you please repeat that question?
Yeah. Just wanted to understand the INR 478 million of free cash that we've generated this quarter, because working capital is not really changed that much. It's gone from 127 to 120 days. Any other factor that led to such a strong free cash generation?
No, the release of working capital is significant. Even though it looks like seven days, I think that does translate to a big number, right? You will see the I mean, INR 478 million crores also includes some of the cash generation that is coming from Altek. But yeah, I mean, that seven day release is a big number. And that does translate to the numbers in this quarter.
Yeah. Maybe just a final question from my end. Wanted to understand, last quarter we had an FX loss. This quarter, we had an FX gain. But the other income has not really jumped. Any other factors that are sort of causing the other income to be lower this particular quarter?
No, I think there are two aspects. I think that there also is an aspect of the sort of the interest yield on the deposits that we have, right? I think even that number may have come down in the current quarter. I don't have the specific number in front of me. But yes, that also has a bearing. We don't see other income going up because of the interest yield. As we consume the cash from the IPO, I think that number is going to sort of shrink, right? Unless we have surplus cash and start generating interest income, that number will go down. And exchange fluctuation impact will be there. There is realized and unrealized gain both coming up in the other income. And that's something we can't really predict.
Sure, sir. Those were my questions and best of luck for future quarters.
Thank you.
Thank you. Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, you are requested to please restrict your questions to three per participant. For follow-up questions, you may rejoin the queue. We have the next question from the line of Vipraw Shrivastava from PhillipCapital. Please go ahead.
Hi, sir. I am audible, right?
Yes. You are audible, sir. Please go ahead.
Firstly, on the standalone margin, why is other expenses as a percentage of sales relatively higher? Because revenue has de-grown QoQ, but other expenses have gone up. So any thoughts on that?
Yeah, so other expense this time includes other expenses of Altek, right? And like I said, I think the financial footprint, while at EBITDA level, the businesses are comparable, I think the mix between the two businesses are different.
No, sir. On a standalone level, I am talking, sir. There, you do not have Altek, right?
Yeah. On standalone level, there are a few operational expenses that have gone up this time. Namely, the sort of the bad debt provisions and some of the other provisions that we have taken in the business. That is more on a, we now take provisions on an expected credit loss, which is basically on the aging of receivables. Some of our receivables have moved to the right, which as per policy, we have to take it. This is recoverable next quarter as we collect those amounts. But for the quarter, we have taken a conservative view and provided as per the policy.
Okay. What was the quantum of the receivable number, if you can give? INR 8 crores? That is the number?
What is that? Sorry. What is the number you wanted?
What is the quantum of that expected credit loss you have taken in receivables?
No, I will not quantify that separately.
Okay. Sure, sir. On a gross margin level, you have maintained a gross margin. That is commendable. But going forward, how do you see your EBITDA shaping up? This quarter, we were expecting EBITDA to ramp up, but again, because of this other expense, it has again come down. How do you see EBITDA progressing in coming quarters?
Yeah. The mix of the business is a big bearing, Vipraw . We have discussed this in the past as well. As we get into Q4, I think the one large deal, which is likely a drag on the margins, is going to ramp down significantly. Therefore, I think our margins will improve in Q4 and beyond. So you will see a substantial improvement in the margins for the Q4 quarter.
Right. Fair enough, sir. And sir, on a standalone level, they have only grown at 11%. This order book you were mentioning, these few large deals you are in discussions with, what will be the quantum of these orders? Will they be big enough to move the needle on a console level? Anything on that? Any quantum you can give? Rough quantum, anything on that?
Yeah. These programs do have impact on our next two fiscal years, and so definitely some on FY 2026. They really are dependent on the. A couple of these are transfer programs and a couple of programs. So there is some variability there as to how fast they come in. But again, we do see the impact on new deals starting next fiscal year.
So you are saying by FY 2026, these deals will be converting into full-time orders, right?
Yes. We will definitely start to recognize them as part of our backlog as soon as we get those closed. Then as far as impacting the revenue and all the other aspects of it, that would come in the quarters following.
Right. A question for Shrini. Sir, obviously you mentioned about the ECL, expected credit loss on receivables, which resulted in higher other expense. But going forward, do we see such a surprise because is it a one-time thing, or is there further receivables which can have ECL in future? What are your thoughts on that?
No, this is a one-off thing. I think we have had some of the receivables not getting collected during the December quarter, going into holidays and a few other factors like that. Definitely a one-off thing. We will see substantial improvement going forward. Also, look, the provision that we have created is more on a conservative basis as we just do not want to release
Right.
But as we collect those, we made a habit of collecting those.
Right
We will see accounting standard is you show efficiency in your collections, the provision automatically goes down.
Right.
We will obviously, as we target our DSO to be between 60 and 20 days, currently at 76 days, I think we will start seeing that that will go.
All right. And sir, last question. This ECL is from a foreign client or domestic client?
It is from the domestic client.
Okay, sir. Thank you. Thanks a lot.
Thank you. The next question is from the line of Arafat Saiyed from InCred Research. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. My first question is on your order book. Despite adding Altek on your order book, it still tilted towards more about defense and aerospace, around 66%-68%. In the future, do you expect this should grow more towards the medical industrial, or will this remain as it is on the book?
If I understood the question correctly, I think you're asking regarding which business sectors the order book is aligned towards. If I got that correct, we do continue to see strong aero and defense as part of that order book. That being said, that still is more dominant. But we still do have some new opportunities in this regard that will impact our medical and industrial as well.
And sir, the second question is on your recent case, the order from Honeywell, and that is for 15 years.
You do sound a little muffled on your line. We request you to please check the mode that you're using on your handset.
Yeah. Hi. Am I audible now?
Yes, it is slightly better, sir. Please go ahead.
My question is on your order book, which you recently got from Honeywell. Order inflow of around $550 million. That is for 15 years. What is the status of that, sir? Have you executed anything on that, or this will remain, let us say, in the long-term only?
Yeah. Regardless of that deal, that is a very strategic opportunity that we have commented on and are planning to continue to support that. Regarding getting into more specifics of that would compromise client information in that regard.
Okay, fine, sir. That's it from my side.
Great. Thank you.
Thank you. The next question is from the line of Deval Shah from RBSA Investment Managers. Please go ahead.
Hello. Good afternoon. Am I audible?
You are audible, sir. You may proceed.
Yeah. It is more of a clarification first. What I understood is that the margin profile of Altek is very much similar to Cyient DLM and Altek as well as we both are aspiring to go for 10% margin. Is my understanding correct?
No, Altek is already at around 10%. This is a one-off quarter, right? I think we should also look at these businesses on a full year basis, not on one quarter. Quarters have some seasonalities in the cost, et cetera. On an annual basis, I can assure you that Altek is more like a 10% business.
Okay. That is what my understanding. I was also asking for the full year basis only, not on the quarter basis. If the margin profile of Altek is very much similar to what Cyient DLM is aspiring. We are also aspiring for the 10% margin, right?
Yes. We will also end with higher margin on a full year basis this year as well. 10% is just a starting. It is one milestone. It is not something that stops at 10%, right? I think our aspiration is bigger than that. But I think the first milestone for us is to consistently deliver 10% and then grow from that point on.
Okay, fair enough. My next question is to Krishna. While he alluded about the U.S. opportunity for Altek, which is a good deal for us, just wanted to understand how the Altek business in the EMS is different from Cyient DLM's, what are doing it right now. How the billing profile are different. If I want to break it down the ROE, how is it different? What is the Altek's ROE looks and Cyient DLM's?
See, I think from a ROE perspective, both businesses will end up being quite similar. If you look at the advantage that Altek brings, two things. One is Altek works in some very sophisticated sectors like safety-critical industrial or safety-critical medical, which is a complement to what Cyient DLM does. Because, of course, we do some work in those sectors, but a significant portion of our work is also concentrated in aerospace and defense. So the first element of what Altek brings to the table is some very sophisticated work in these safety critical industrial and medical sectors. The second thing is the defense angle that Altek brings to the table.
Now, by law, anything manufactured for U.S. defense has to be made in the U.S., which means that so far, while we've had some big customers, and as you know, in the wider Cyient ecosystem, aerospace and defense is a critical industry, and we've worked with pretty much all the large aerospace OEMs who also happen to be defense OEMs. We're now seeing manufacturing opportunities from these customers because they also need equipment to be made in the U.S. We already do a lot of design in the U.S., as you know, for in Cyient, but now we can also make in the U.S. So in that sense, the Altek business is a great complement to the Cyient DLM business. It's, again, I'll say complement, not supplement, in the sense that it's very unique, it's very adjacent. Therefore, we believe that there's a good growth opportunity.
Again, from a metrics perspective, over a period of time, we believe that both from a margin perspective, ROCE perspective, and cash generation perspective, by the nature of the businesses, both will be very similar.
Okay. Thank you. All the best.
Thank you. The next question is from the line of Jinesh Shah from RSPN Ventures. Please go ahead.
Yeah, hello. Am I audible?
Yes, you are audible, sir.
Yeah. Okay. My first question was, I think a previous participant already asked. I just wanted to understand that we have a couple of one-off expenses like ECL provision for debt and M&A expenses in this quarter. It will be helpful for me if you will be able to quantify, cumulatively, that amount.
Look, it will not be fair to call out specific amounts like that. What I will tell is these are one-offs and they will not repeat, right? I think on the M&A, we have already quantified that this is an INR 8 crore expenditure, because it was very straightforward on a few line items. Some of the other operating expenses are one-off this quarter. They will not repeat in Q4. The other operating expenses have not been called out as one-offs. What you will see is the operating performance itself showing a better number next quarter. From Altek's perspective or the M&A integration perspective, there is a one-off cost that was incurred, and that has been called out.
Okay. Fair enough. As you mentioned in last call that overall margin for the entire year should be flat as compared to the previous year. If I take consideration the hit of this quarter, then for this quarter at least, we will be earning little bit less margin than 9%-9.5%, right? Then we will be able to try to achieve milestone of 10% probably in the next year. That is what the outlook is from your end?
Yeah. As I mentioned, I think the margin has several factors which take into account. The business mix is one of the largest factors that can influence the margin. When you look at our current business mix, it has a certain mix of low-margin business, which is going to drop in Q4 and further substantially drop in Q1. Okay. Both these will lead to better margins in Q4, leading to a full-year margin being closer to being flat year-over-year in margin terms. But the exit quarter for the current year in margin terms will be good, which will argue well for the next year, that is, the next financial year as we go into it. Of course, there is another factor to consider here, that the first half of next financial year may not be high on growth.
It will be a soft-ish first half, given where we are in terms of our overall order book and the large order coming down. There might be some absorption impact, et cetera, that we will see in the first half of next year. Having said that, overall from a full-year perspective, the margin is likely to improve from where we are today, and the first demonstration of that will be in Q4.
Okay. I understood. Got it. My last question would be if you can talk about the macroeconomic environment, like do you anticipate any headwinds based on the talks with the customers or the opportunities that you see in the market? If you can talk a little bit more about that. In couple of one or two years you can see.
Yeah. It's an important question. This is something that we talk to all our top clients about, on kind of what we're seeing and what they're seeing. On one aspect, if you take the one large contract that we'll be seeing next quarter, if you kind of take that one out of the equation and you look at really our top three or four clients, we've seen pretty strong favorable outlook in that regard. Those tend to be a little bit more aero and defense focused. But then as you go down from there and start getting into the following clients, that follow those, it's a little bit more of a mixed feedback. We're seeing some softness in certain areas there from some clients. Specifically in the industrial and medical segments. It does get a little bit more mixed there.
It's not that they're guiding down, but I think it's just client by client outside of aero and defense. This is something we do have our thumb on the pulse on and outside of aero and defense, it gets a little bit more mixed.
Okay, got it. That's it from my side. Thanks a lot.
Thank you.
Thank you. We have the next question from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead.
Yeah. Hi, thanks for giving the opportunity. I wanted to understand this difference between consolidated and standalone. Is that difference completely attributable to Altek, or is there any other subsidiary where the numbers will also go?
No, it is completely attributable to Altek, Mihir. The standalone means the traditional Cyient business, which we have been reporting till last quarter. The consolidated numbers just include that.
Okay, sure. Understood. Second question was on this order book. This is like almost seven, eight quarters we have seen order book remaining largely flat or going down. I wanted to understand, what is the reason that the discussions are not fructifying into order booking? Because the pipeline has remained over that number, billion dollar kind of a number. But why is it not converting into order book? Some color around that will be helpful.
Yeah, I think one key aspect is that we have been consuming the backlog. As orders come in, you kind of have to try and offset that. These programs as well, they are larger, longer term programs. The award on them can shift in terms of timing. They can even shift a quarter or maybe even more times. We also have announced some large contracts as well in prior quarters. I think it is just more of a timing issue as those orders come in. It is just the nature of those types of programs, especially on the A&D side. I think you will find a little bit more consistency when you start to look at medical and industrial, similar to the profile that was highlighted earlier where that business had kind of a quicker churn on the deals and on the business compared to the other sectors.
No, sure. I understand that this is a lumpy business. It becomes difficult to guess it from a quarter to quarter perspective. I mean, is not the case that the client has decided to defer this program, or he is evaluating an alternate vendor, or is the rate negotiation going on, or are the supply chain issues there which are resulting into these problems? So what exactly is it leading to? Because these are lumpy orders, I understand, but there should be some specific reason around it.
I do not think there is really a specific reason. I think it really comes down to, there are several deals that we are working, and we are not going to win all of them, but we have announced the ones that we have closed and that we do plan to close more. There can be various considerations as to why one may or may not come our way. I would not try and categorize any specific trend or anything in that regard. Our clients really align to us on these types of programs based on our capability and the strong track record we have in these sectors with these clients.
Sure. This number of INR 2,142.9 crores, does it include the aircraft tooling technology contract which you declared on 5th or 6th of November? Does this number include that or it does not include?
I don't think it includes it.
Okay, sure. What would be the value of this deal? Because it's like a 16-year deal. At least the press release mentions that. Is it a large contract or it is not a large contract?
Which program are you referring to, just to clarify?
Yeah, this is the aircraft tooling technology. I mean, a press release you have given on 6th of November.
It's a large OEM.
Sorry?
It's a large OEM.
Yeah, sure. It's a large OEM firm. Very true. But for you, is it a large contract or it is not a large contract?
No, it's a large award, right? From a total contract value perspective, that value is high. We have not received specific purchase orders which are large yet. I think the cycles are very long in this industry. You have to get through the MPI and then get to the main production. But once you are there, you will get that order. But right now, we are not counting any significant deal from that program into our order book. As they're coming, we will include that. But the award letter is there, and that quantifies the total contract potential for that award.
Okay, understood. Second question was just on the depreciation side. We are paying roughly $30 million for this acquisition. So what would be attributable to goodwill customer purchase and how to read the incremental depreciation? I believe the incremental depreciation is close to INR 4 crore-INR 5 crore, right? So should we take this as a ballpark number for the coming quarters as well?
Yeah, look, I think we will record the balance sheet next quarter. That's the balance sheet reporting period, and we are still going through the purchase price allocation process. But approximately, We will have a million dollars every year coming in from the additional amortization, and the remaining will be goodwill. As you know, in manufacturing companies, the sort of inventory and other assets that come along with an acquisition are high. The goodwill tends to be low, right? And we are in line with the rest of the acquisitions that happen in this industry. So we will have a goodwill which will be substantially lower than the purchase price we have paid.
So it also means the amortization might be a little bit higher. So if you net out the amortization, even with that amortization, it's PAT accretive really on a full year basis. Therefore, from the financial perspective, it's a good acquisition. But if you actually net out the amortization, it's an extremely good deal. It's not a cash expenditure, it's just the reporting, and so we are okay with whatever the purchase price allocation [inaudible] .
Okay, sure. Just one last question on the order book side. I mean, let's assume if our order book goes up in first quarter, does it translate to higher revenue in second quarter itself, or will that take time?
Again, specific to the industry, I think it is very hard to quantify and say which order converts how fast. I think certain industries and with certain clients, it is a very quick turnaround. I think there are orders where the conversion is less than three months also. But with most of the A&D contracts, these tend to be longer. I think the order comes in, and by the time you see a meaningful revenue, it is at least 9 to 12 months. So it is hard to generalize and answer that question. So it is very client specific and industry specific.
Sure. That is it from my side. Thank you very much.
Thank you. The next question is from the line of Deepak Lalwani from Unifi Capital. Please go ahead.
Hello, sir. Thank you for the opportunity. Sir, in the standalone business, you have only grown 11%. What is the reason for this execution being low despite H2 being the seasonally stronger quarter? Any reason for this? How are we looking at Q4, that is this January to March quarter in terms of execution?
Yeah. One key element is one top key client did have inventory that had built and that caused a reduction in demand. That did provide some of this. Then it comes down as well to just when you look at the overall mix of the program. Again, as we have a very large percentage of our growth coming from a key program that we have been executing over the last several quarters, providing the new business to offset that as those programs ramped at different rates. Again, one big part was a reduction in that one top program.
Sure. Has the issue of inventory been solved, and how are we looking at Q4 execution?
That is being worked through, and again, we do expect demand there to return in the coming quarters. Again, that is specific to end markets of that client. Again, it is very much in line as well with kind of the industry sector outlook I gave earlier and kind of where we are seeing some strength and where we are seeing some mixed results.
Okay. And sir, if we look at the standalone order book, it's standard about INR 1,850 crore. So what is the execution timeline for this? And if you can tell us what should one work with for the next year's revenue?
The execution timeline is between 18 and 24 months, depending on client specific needs and scheduling. We are still undergoing the budgeting process for next year, so we have no commentary on next year's number. I think we will revisit this question at the end of next quarter.
Sure. Got it. And sir, this delay in order book, I understand the client understands our capability and will come. But is there any specific reason for this with regards to the end user industry having some issues or any macro headwinds mentioned in the previous comments also? If you can give more granular sense on it, that will be helpful.
I think it would be difficult to start to give much bigger trends when you look at. If you are looking at a large part of your business coming from 10, 12 clients, it's kind of hard to start to draw trends in that regard. But I think the level of response I gave earlier is probably the best guidance that we can give. Otherwise, it starts to become really speculation on just probably not enough data points.
Sure. Sir, these three large deals that you are talking about, what are the milestones that are pending to fructify these deals into conversions? What are the milestones left? If you can just indicate broadly what would the quantum of these deals be? Will it be in a INR 500 crore range, or will it be smaller deals worth INR 200 crore? Just a ballpark number would be helpful.
Yeah. The typical sales cycle aspects associated with the deal, it could be finalizing pricing, it could be further negotiations, it could be various aspects of the business award. Yeah. All these types of factors kind of come in. There is no really one or two clean answers there. As far as just the specific value of the deal, those we really try and limit providing those types of specific numbers. Again, just for client data integrity and setting appropriate expectations.
Sure. Okay. Thank you, sir. Those are my questions.
Thank you.
Thank you. Ladies and gentlemen, we will now take one last question, which will be from the line of Praveen Sahay from Prabhudas Lilladher Capital. Please go ahead.
Thank you for taking my question. My first question is related to the current order book. Can you clarify that you had given one that 9 to 12 month execution timeline or 18 to 24-month execution timeline?
No, 9 to 12 is the execution timeline of a new PO. When a new PO comes on board. I would say when a new prospect, I would not even say PO. From PO to revenue, it is a shorter cycle. But from when a new client comes on board and you win an award, by the time it converts to meaningful revenue, it could be 9 to 12 months. The execution timeline for order backlog is different. That is more on the current orders. The scheduling between the two years is what is 18 to 24 months.
Okay. Got it. The next question is related to the Altek. As you had mentioned that the consolidated and the standalone difference is only Altek. Altek has a very high gross margin that is in the range of around 45%-46%. Is something different?
No, it is not that high. You may be referring to the contribution margin. Their gross margin is not definitely higher, more in the 18%-19% range when you take the other direct costs in that. But their SGA also will be higher. It is a different kind of a business. That is what I said. While at the EBITDA level, the business was comparable. I think it is all the optics between the line items, between, like I said, material and labor, et cetera, are different there in that business. I think it is best to look at EBITDA levels because there are also definition issues between companies here and how they classify the process.
Okay. Second clarification on the ECL. Previously also, you had accounted such kind of incidences in the business?
No, not in the recent past. I am sure there have been some instances in the long history of the company, but not in the recent past, not at least for the last 24 months, where there has been a substantial increase in the ECL. Like I said, a one-off event for this quarter. It will correct for itself for next quarter.
Actually, I am trying to understand what is the probability of, as you have also mentioned, in the coming quarters it is also get added back. What is the probability of that actually?
No, the probability is extremely high. That is the reason why I am confidently telling you that this is one-off.
Mm-hmm. Okay. Last clarification on the segment. That is A&D, I believe, have a very high margin as compared of the other industrial or railway. Is it understanding right?
Not necessarily. The sectors between A&D, medical, and industrial, at least within our client base, we seem to actually find very similar margins. The variability is really more client-specific or program-specific. But as far as if you were to generalize new business in any one of these three sectors, they actually deliver very similar profit margins for us.
Okay, fine. Last clarification related to your three large deals which you are in talk. Those are domestic or rest of the world?
More rest of the world. I think the three we called out are more rest of world. There are definitely quite a few domestic opportunities that we are working, but I don't know if we would necessarily highlight those as a standout large deal. There's definitely more of those that we will be announcing later, but not necessarily the three that we chose to highlight for this quarter.
Okay. Thank you for answering my question. All the best.
Thank you.
Thank you. I would now like to hand the conference over to Mr. Krishna Bodanapu for closing comments. Over to you, sir.
Thank you very much, and thank you everybody for participating in the Q3 conference call. As you see, things are going okay. Things are going well in many cases. There are areas that we need to improve in others. Overall, I would say we are executing to a plan, which we feel very confident about. I am very excited for what the business holds, and I also want to compliment the Cyient DLM leadership team on identifying, acquiring, and now integrating the Altek opportunity. We are one of the few, if not one of the only ones, EMS company in the world that has this capability, especially at our scale, which is essentially to do safety-critical, highly reliable, highly complex, engineering-centric electronics from India, from the U.S., and we will of course de-risk, further de-risk or further expand on our manufacturing base to create a truly global EMS.
There are two elements to that we are working on. One is a truly global EMS capability, and secondly, a truly integrated design and manufacturing capability. It is hard work, but I think I am incredibly proud of the team for the work that they are doing, and I think you will continue to see the results. Obviously, many great things have happened this quarter, and things will continue to get much, much better. I am very excited for the business. Thank you for the support, and if there is any further questions, I am sure Shrini will be happy to answer them. Otherwise, we will speak next week. Next quarter, sorry. Obviously, as you can tell, I am very excited to speak next week, but thank you very much.
Thank you. On behalf of Cyient DLM Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.