Cyient - Welcome consistency in performance & outlook! - ICICI Securities

Revenue growth (+4.7% QoQ, CC) and normalised EBIT margin (12.6%) were ahead of our estimates. Sequentially, growth was driven largely by DLM while strong operational improvements in services business led ~140bps EBIT margin expansion. Within services, A&D and E&U fared well. Strong increase in order intake (US$238mn, ~22% QoQ) came as a surprise. This strength seems to reflect structural changes Cyient had undertaken in the recent past. For FY22, the outlook of double-digit growth in services and 20% in DLM was maintained. While the management has conservatively guided for ~200bps YoY improvement in EBIT margin, we see further upside risk (+150bps) to this guidance. To summarise, besides unit level changes in the right direction, Cyient has been showing welcome consistency in performance and outlook - for a few quarters now. In addition to scope for further earnings upgrades, possibility of a structural rerating is very likely, given the massive discount to midcap peers (up to 55%). Our FY22E-FY23E earnings trajectory remains largely stable. Cyient remains our TOP BUY idea across midcap / small-cap categories.

- Beat on both revenue growth and margins. Revenues grew 4.7% QoQ (CC), ahead of our estimate (3.3% QoQ, CC). As anticipated, growth was driven by DLM (+16.4% QoQ, USD) while services grew modestly (+2.2% QoQ, CC). Within services, A&D (+3.9% QoQ, USD), and E&U (+5.3% QoQ, USD) fared well.

Normalised Group EBIT margin (12.6%) was 40bps ahead of our estimate. Services segment delivered 230bps QoQ expansion in EBIT margin led by operational improvements and operating leverage. Change in revenue mix led to ~180bps QoQ contraction in EBIT margin of DLM. Overall, at group level, normalised EBIT margin expanded 140bps QoQ.

- Order intake momentum continues; stable outlook on growth and margins. Order intake was robust at ~US$238mn (+22% QoQ) on top of the strong order booking in Q3FY21 (~US$195mn, +53% QoQ). This came as a surprise and reflects the structural changes undertaken by Cyient in the recent past. For FY22, the company maintained its outlook of double-digit growth in services and 20% in DLM. While the management has conservatively guided for ~200bps YoY improvement in EBIT margin, we see further upside risk (+150bps) to this guidance. In addition to scope for further earnings upgrades, possibility of a structural rerating is very likely, given the massive discount to midcap peers (up to 55%). Our FY22E-FY23E earnings trajectory remains largely stable. Cyient remains our TOP BUY idea across the midcap / small-cap categories.

Shares of Cyient Limited was last trading in BSE at Rs.686.7 as compared to the previous close of Rs. 683.5. The total number of shares traded during the day was 10079 in over 633 trades.

The stock hit an intraday high of Rs. 695.05 and intraday low of 680. The net turnover during the day was Rs. 6954696.

Source : Equity Bulls

Keywords