ADD on Cyient - Better visibility in core business - HDFC Securities

Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities and Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities

We maintain ADD on Cyient, based on improving growth outlook in the services business and better than expected margin performance. The services segment (~83% of revenue) grew 2.2% QoQ CC led by ENU (+5.3% QoQ), A&D (+3.9% QoQ) and Communication (+2.2% QoQ). The aerospace vertical (25% of rev) which was dragging services growth has stabilised, and the recovery will be gradual in FY22E. Management has guided for double-digit services growth driven by Transportation, Utilities, and Communication. The focus will be on winning large deals (won 8 deals worth TCV of USD 91mn) and mining Top-30 clients. Margin performance was impressive, expanded 230bps QoQ vs an expectation of +50bps. DLM (+16.4% QoQ) is driving growth and is expected to grow 20% YoY in FY22E. The FCF generation is strong (FCF/EBITDA at 113%) led by higher collections and net cash stands at INR 15bn (~20% of Mcap). We increase our EPS estimate by +2.2/5.0% for FY22/23E based on better visibility in the core business. Our target price stands at INR 765, based on 16x FY23E EPS. The stock trades at 17.7/14.4x FY22/23E, a discount of ~44% to LTTS.

4QFY21 highlights: (1) USD revenue grew 6% QoQ vs. expectation of 3.0% QoQ. (2) Services EBIT margin improved 230bps QoQ to 13.6% (estimate 12%) supported by operational efficiency (+209bps), higher volume (+96bps), partially offset by an increase in SG&A (-71bps). (3) DLM margin was at 8.9% (vs expectation of 10.1%) declined -156bps QoQ. (4) Management expects a decline in DLM revenue which implies an overall revenue decline in 1QFY22E. However, expect double-digit growth in FY22E.

Outlook: We have factored in +11.4/+11.3% USD revenue growth for FY22/23E respectively; FY22E implies +9.5/+20.2% growth in Services/DLM. We have factored in a 12.1/12.8% EBIT margin for FY22/23E resulting in EPS CAGR of 19% over FY21-23E.

Shares of Cyient Limited was last trading in BSE at Rs.688.1 as compared to the previous close of Rs. 687.95. The total number of shares traded during the day was 36306 in over 2402 trades.

The stock hit an intraday high of Rs. 720 and intraday low of 670. The net turnover during the day was Rs. 25133560.

Source : Equity Bulls

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