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00:00 It's been a great quarter for Scient actually.
00:02 They've managed to pull it off.
00:04 The management had committed to a 40% growth YY.
00:08 They've actually beaten that by growing 43% in F524.
00:13 We have the management with us joining in to give us a sense of what lies ahead for
00:17 the company.
00:18 Anthony Montalbano, CEO of Scient DLM now joins in.
00:22 Anthony, very good morning.
00:24 Thank you for joining us.
00:25 This is the very first time we are talking to you and be interesting to hear from you
00:29 of how things are looking at Scient.
00:32 You've guided or rather had guided for a 40% growth in F524.
00:36 You've beaten that quite well, clocking in 43% in this current year.
00:41 We are entering F525 on a higher base.
00:46 What is the growth that we can expect?
00:48 Do you think a 40% in F525 is likely from your stable?
00:53 Yes.
00:54 So, Sami, it's very nice to be here.
00:56 Yes, this was a very strong year for us in terms of overall business growth.
01:04 The guidance that we have given and continue to provide is we anticipate over a three-year
01:14 CAGR term about an average of around 30%.
01:19 That can vary a bit year on year.
01:22 We are pleased with the results of this last year and then Outlook as well is in line with
01:29 delivering that CAGR over a three-year period.
01:31 Okay.
01:32 So, fair to assume that your guidance largely remains the same with a little bit of an upside
01:36 bias on what we've already seen in F524.
01:40 In terms of revenue growth, where does it largely come from?
01:43 I know aerospace and defense has been growing significantly over the last couple of quarters,
01:49 but you have maintained that medical and medtech and industrial is a space that you're pushing
01:55 hard on.
01:56 So, in terms of revenue split up, what led to this growth this quarter?
02:00 Yes.
02:01 So, this quarter and even a lot of this fiscal year, we did have a very high percentage of
02:08 aero and defense business.
02:10 And this is a core competency and it's an area that we excel in the industry at.
02:18 Now, we have had a higher percentage in medical in prior years and we see that shifting where
02:28 we expect medical and industrial segments to start to gain larger share.
02:35 And so, we are quite happy, to be honest, with the concentration in aero and defense
02:43 because those have been very good sectors in general and the outlet for those sectors
02:48 remains very strong.
02:50 So, there is a focus to diversify, but we're not shy about aero and defense being a prominent
02:58 area for us.
02:59 You know, staying with aero and defense in Israel is a prominent market for you.
03:04 With everything that's happening on that front, I know there were, let's say, because of the
03:09 RETC, there was some delays as well, but you managed it pretty well at a company level.
03:13 But the flip of it, right, with the uncertainty rising in Israel around the geopolitical tension
03:19 there, has it impacted your order book positively in any way?
03:23 Has it led to more conversations?
03:25 Has it led to existing customers and clients increasing their allocations to you?
03:30 Yes.
03:31 So, you know, when this initially broke out, and actually it was not long after I even
03:38 made a trip to the region myself for the first time, and so there was initial concern about
03:44 supply chain potential disruptions.
03:47 We immediately reached out to our top partners in that area.
03:51 And we've seen very little, if any, disruptions in that regard, which has also allowed us
03:59 to deliver the results that we have.
04:01 So, you know, from a stability standpoint, we have been seeing very solid reassurance
04:09 in that regard.
04:11 As far as to your question regarding the outlook, we have seen an increase as well in demand
04:18 on these types of programs from our clients in that region.
04:22 So there is an upside on that side of the business as well.
04:29 And that is something that will continue to grow here in the coming years.
04:34 Will you quantify that upside and also tell me that is this transitional?
04:39 Because once, of course, the geopolitical stress is behind us, hopefully sooner than
04:43 later, what does it then do to your orders of revenue?
04:47 Yeah, it's – so, you know, we only have a couple of key clients in that region, right?
04:53 So it's hard to really get a trend.
04:56 So in general, we were executing a couple of large programs in that region.
05:02 And we expect that those programs will continue.
05:06 And then we've also had some newer clients where we started the business, and that is
05:11 accelerating more rapidly, right?
05:14 So when I say, you know, upside, you know, we had a certain value budgeted for a particular
05:21 client and we ended up exceeding that.
05:24 And then even as we do our budgeting and outlook for this, you know, the next fiscal year that
05:28 we've already begun, you know, we see – we've made the appropriate adjustments in that regard.
05:35 So yeah, so it definitely is having some movement there.
05:38 But again, it's – you know, relative to our overall business, I would call it a – not
05:47 even a modest, you know, a little bit more than minor, but not even a modest impact.
05:50 Because again, that's just, you know, a couple of clients in one region.
05:53 Okay.
05:54 Let's move on to margins.
05:55 Q1Q, there's an improvement.
05:58 Margins had dipped to levels of 9%.
06:00 You're back at 10.5%.
06:01 Last year, of course, in the same quarter, you clocked 11.5% margins.
06:07 You did say a lot of that was also transitional.
06:09 So things will get better as we go into FY25.
06:12 Is it a fair assumption for us to make that over the next couple of quarters, you will
06:15 return back to 11%, 12% margins?
06:18 Yeah, you know, the – our goal from a margin perspective is to operate the business at
06:25 double-digit margins, right?
06:27 And I think the – you know, what that means is that can mean a – somewhere of 10% to
06:34 12% is ideal.
06:38 There can down the road be upside beyond that.
06:41 But, you know, we've also in parts of this last fiscal year have come in in the nines.
06:48 And so, you know, part of that is really due to a couple of main things.
06:53 You know, one is your business mix.
06:55 We've had a – some larger defense programs that were a little bit lower margins.
06:59 So that business mix kind of brought down the margins a bit.
07:05 And then we also made some investments, right?
07:07 We've made announcements.
07:08 You know, we opened a new facility in Mysore that we announced just a couple weeks back.
07:14 We also opened a new facility in Bangalore.
07:17 And then we've also made investments in supply chain and also in our chief technology
07:22 office.
07:23 So, you know, these types of investments as well kind of get timed throughout the year.
07:28 So as we finish Q4, you see that we are back into double-digit margins.
07:34 And, you know, you will see Q1 Q variability in that range.
07:40 But that just kind of gives you a view on this.
07:43 And then as I think as we go down a couple of years and as we, you know, continue to
07:46 have the growth rates, there'll be more absorption.
07:49 And then we can look at further upside at that point.
07:53 I want to talk about the international business.
07:56 I know you've talked about inorganic acquisitions and I'll get an update from you on that.
08:01 But just before we go to that, what is the percentage contribution coming in from the
08:05 international business and back home as well with the government's trust on defense, infrastructure,
08:11 railways, tech, which are a few segments that you focus on pretty significantly.
08:19 What is working for you in India?
08:21 Do you expect that to be a multi-year sort of growth story which you would be able to
08:25 benefit from in India and of course globally as well where things stand?
08:29 Yeah, so I would kind of break that down in two ways.
08:34 One is just from a revenue perspective.
08:36 You know, right now it's about one third is, you know, within India and two thirds are
08:40 outside, you know, primarily Europe and U.S.
08:44 And that one third within India is largely made up of some defense programs, key defense
08:51 programs that we have going right now.
08:53 And so as those programs, you know, ramp down, other business ramps up, you know, we kind
08:58 of maybe see, you know, that shift as far as where the clients are to maybe be a little
09:06 bit more two thirds, you know, a little heavier going, you know, outside of India.
09:13 That being said, we have invested in go to market and focus on clients in region to grow
09:22 that.
09:23 And so we will see some of that impact.
09:26 But if you also just look at our client count, you know, if you take like our top 10 clients,
09:31 even top 20, most of them are from Western countries, from U.S. and Europe.
09:38 And we anticipate that a large portion of our business will be grown from, you know,
09:44 those regions, those clients.
09:46 But of course, we'll deliver that, you know, revenue and business from India, right?
09:52 Today we are contained within India operationally.
09:55 And even as we, you know, look to expand outside of India, you know, India will still be, you
10:00 know, our core.
10:02 And as we look outside, that would then bring additional opportunities that we might not
10:06 have sight of today within India.
10:11 Makes complete sense.
10:13 And you mentioned this last quarter as well, where you were very keen on inorganic expansion
10:17 and you were eyeing, you know, opportunities to acquire outside the country.
10:23 Any update on that the last quarter?
10:24 You I mean, you were pretty clear that those conversations are fructifying.
10:28 You want to bring us up to speed with what's the latest?
10:31 How will that deal?
10:32 Yeah, yeah.
10:33 So what I can what I can disclose is that there can we are actually quite pleased with
10:38 the progress.
10:40 And we will be making we're planning to make some announcements and updates in that regard
10:47 as soon as we get through some key milestones.
10:50 So our strategy overall is to provide that expansion, not just not just from a geography
10:59 perspective, but also from a capabilities perspective.
11:02 Right.
11:03 So, you know, for us, especially outside of India, when you look at the inorganic piece,
11:11 it's important to have the top line and bottom line performance aligned with our type of
11:16 business mix.
11:17 So it's not dilutive.
11:19 And so getting those stars to align, you know, it takes a bit of work.
11:24 But we have what I will say is that we are very pleased with the progress we've made.
11:30 This is not just a one off type discussion as well.
11:33 This will be a continual part of our inorganic strategy.
11:38 And I hope to provide some more details here, most likely by next quarter on on specifics,
11:44 which I'd love to share with you and our clients as well.
11:47 Thank you.
11:48 Thank you.
11:49 Thank you.
11:49 (dramatic music)
11:51 [music]