Cyient Ltd. share price target

Cyient Ltd, formerly known as InfoTech Enterprises is one amongst the leading players in the IT enabled services space providing services to the Engineering Research and Development segment. Stable revenue growth with 16% CAGR in the last 5 years from FY14. Fresh order intake in the services division to propel revenue growth to 14.2% in FY21E from 3% in FY20E. Expansion of its R&D; facility in Warangal with net addition of 600...

Cyient Ltd., one of the leading Engineering and Research and development services, company reported revenue growth of 6.4% QoQ and degrew by 2.4% on YoY basis at Rs. 1,158 crs. The EBITDA margin in Q2 FY20 has improved sequentially by 35bps to 13.8% from 13.2% in Q1FY20.

Consolidated revenue at USD 164.2 Mn is up by 4.9 percent sequentially.

CYL's Q2FY20 result was in-line with our forecast. Consolidated revenue grew by 4.9% QoQ in US$ but still lower YoY by ~3.8%. The QoQ growth was largely led by DLM (14.5% of revenue) which grew by ~28% QoQ. Services business (85.5% of revenue) continued to see muted growth of +1.8%/-3.8% QoQ/YoY. Consolidated EBIT margin...

Cyient is struggling with issues such as (1) Stress in services business, (2) Challenges in top accounts (3) Issues in core vertical (Aerospace and Communication), (4) Focus on lower margin DLM business, (5) Margin stress due to higher investments, and (6) Higher other income (~30% of PAT). There could be some recovery in performance (both revenue and margins) but concerns related to slowdown in decision making, accelerated trade war risks and higher mix of legacy services remain. Cash generation and collections have improved. We expect USD revenue growth of -0.4/6.9% and EBIT% of 10.4/10.7% for FY20/21E. The stock trades at reasonable valuation of 10.6x FY21E which is ~38% discount to LTTS. Risk to our thesis includes better US/Europe macro and INR depreciation. We maintain NEU on Cyient post in-line revenue and margin miss in 2QFY20. Growth challenges remain in core verticals and margin recovery is slow. We have lowered EPS est. by 1.2/1.4% for FY20/21E and our TP of Rs 485 is based on 11x Sep-21E EPS.

Our revised TP of INR600 discounts forward earnings by 12x, instead of 13x, due to expectations of a slower margin expansion and also the risk in longer- Revenue grew by 4.9% QoQ versus our estimate of +3.1% QoQ. Growth was soft in the verticals of Aerospace (-1.7% QoQ) and In the Services business, revenue declined by 15% sequentially from clients in the range of Top 6-10; also CYL lost two clients in USD5m+ category. Even though Q3 is seasonally weak, CYL expects growth in services businesses. This is because the expected uptick in margins from cost rationalization will likely be largely offset by external consultant fees in FY20. This is because the expected uptick in margins from cost rationalization will likely be largely offset by external consultant fees in FY20.

Cyient reported a soft quarter (Q1FY20) with consolidated revenue at USD 156.6 Mn (down by 5.2% sequentially and -2.6% on yearly basis).

Background: Cyient is a mid cap IT company with revenue of INR 46.2bn (FY20) specializing in engineering solutions, including product development and life cycle support, process, network & content engineering. In 1QFY20: revenue share from Americas (49.6%), Europe, Middle East, Africa (22.6%), and Asia Pacific (27.8%). Revenue share by business unit: Aerospace and Defense (36.4%), Transportation (11.7%), Semiconductor (5.0%), Medical & healthcare (3.3%), Utilities & Geospatial (13.5%), Communication (20.0%), I&ENR; (9.2%). Revenue contribution from Top 5 clients (31.8%), and Top 10 clients (43.0%), Total employees stood at 15,084....

Cyient Ltd. reported weak results in terms of top line and on operating margins front in Q1FY20. Cyient posted degrowth in revenue of 5.2% on QoQ basis and 2.6%on YoY basis in constant currency (CC) terms for the period of Q1FY20 at $156.6 mn.

CYL's Q1FY20 result was a miss across all parameters. Consolidated revenue declined by 5.2%/2.6% QoQ/YoY in US$. It was mainly impacted by the 6.1%/3.4% QoQ/YoY decline in the services business (88.1% of revenue). As a result, EBIT margin came off sharply by...