Cyient - Strong print, favourable valuations - ICICI Securities

Cyient has reported group revenue of US$156.7mn in Q4FY22. Although revenue declined 0.8% QoQ US$ and 0.4% QoQ CC, it was slightly better than our estimate. Services revenue stood at US$130.6mn, up 1.1% QoQ (1.6% in CC), while DLM revenue declined 9.3% QoQ. C&U witnessed sequential growth of 3.8% and portfolio was relatively flat; marginal decline in transportation growth was due to rail transportation. Margin performance was strong at 14.5% (+60bps, +180bps YoY) vs our estimate of 12.8% and services margin was 15.4% (23bps QoQ, 179bps YoY). PAT stood at Rs1,542mn for the quarter with growth of 17.1% QoQ and 39.3% YoY, ~30% higher than our estimates, primarily led by higher other income. Offshore mix for Q4 at 51.6% is the highest ever.

Management guided for revenue growth in the range of 13-15% CC in FY23 for group and high single digit for DLM. We expect Cyient to deliver group growth of 14% YoY US$, 15% YoY in services business and 9% YoY US$ in DLM. EBIT margin guidance stands at 13-14% and we forecast it at 13.3% for FY23. Guidance for tax rate stands at 27% for FY23.

We believe the drag on the overall performance on account of semi-conductor issue in the DLM business should be offset by an outperformance in the services segment. Post management / strategy change, improved performance in the company is noteworthy and continued execution of the same should make Cyient a good turnaround story. Management's confidence to sustain an elevated level of margin in services segment is a key positive given supply-side cost pressures. Services margin above 15% in FY23E should be aided by improved pricing, pyramid rationalisation and automation.

We build in revenue/EPS CAGR of 13%/10% over FY22-FY24E. Cyient currently trades at 17/14x FY23/24E P/E, PEG of ~1x vs the ER&D sector trading at 40x FY24E for FY22-FY24E EPS CAGR of 20% and PEG ratio of 2x. We upgrade the stock to BUY from ADD as the stock has fallen 12% in the last one month and the risk-reward ratio looks very attractive to us at just 14x PE on FY24 EPS of Rs58. We value the stock at 18x target PE multiple (unchanged) to arrive at a revised TP of Rs1,037 (prior: Rs1,025). Cyient remains our only pick in the ER&D sector as valuations are highly reasonable.

Shares of Cyient Limited was last trading in BSE at Rs. 831.15 as compared to the previous close of Rs. 806.60. The total number of shares traded during the day was 25199 in over 2550 trades.

The stock hit an intraday high of Rs. 840.75 and intraday low of 814.75. The net turnover during the day was Rs. 20972512.00.

Source : Equity Bulls

Keywords

Cyient INE136B01020 Q4FY22 FY2022 ResultUpdate ICICISecurities