HDFC Securities Institutional Research Report on Cyient - Organic growth impressive

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

Cyient reported a strong quarter, with core services organic growth of 3.7% QoQ CC (reported +11.9% QoQ CC) and better-than-expected margin expansion of 100bps. The services growth in the quarter was led by aerospace, MEU and new growth areas like automotive and healthcare. The company is gearing to hit double-digit growth, led by (1) investments in new areas (EV and mobility), (2) strong growth in Aerospace led by top client, (3) a healthy deal pipeline (+1.5x YoY) comprising ~70% of large deals, (4) strong order intake of USD 237mn (+18% YoY, 15-quarter high), and (5) expected recovery in communication and rail transport verticals. The proposed listing of the DLM (DRHP filed) will lead to value unlocking. For FY23E, the management expects double-digit organic growth, ~14-15% inorganic and EBIT margin of ~13-14%. We increase our FY24/25E EPS estimate by ~2-4%, led by improving visibility. We maintain our BUY rating with a target price of INR 1,030, based on 16x Sep-24E EPS. The stock is trading at 15/13x FY24/25E, a steep discount of ~50% to ER&D peers.

Q3FY23 highlights: (1) Revenue, at USD 197mn, improved by +12.7/24.8% QoQ/YoY (vs. estimate of USD 195.4mn), led by growth in core services (+11.2% QoQ, ~USD 30mn from acquisitions, Citec 2M contribution), while DLM revenue grew ~23% QoQ; (2) EBIT margin improved 100bps QoQ to 12.9% (estimate of 12.3%) due to higher utilisation (~91%), operational improvement (+152ps), and higher volume (+139bps), but the same was offset by lower capacity (-130bps) and SG&A spend (-51bps); (3) Won five large deals with TCV of USD 59.2m; (4) LTM attrition dropped by 190bps QoQ to 26.5%, while quarterly annualised attrition was at 22.1%; (5) USD 20mn+ account increased to six (doubled YoY); (6) the exceptional item of INR 89mn includes legal payment related to lawsuit and it will continue for a few more quarters.

Outlook: We have factored in +20.7/11.3/9.2% USD revenue growth for FY23/24/25E, implying growth of +25/11/9% in services and +2/16/13% in DLM respectively. The EBIT margin is estimated at 12.4/12.9/13.4% for FY23/24/25E, resulting in an EPS CAGR of 13% over FY22-25E.

Shares of Cyient Limited was last trading in BSE at Rs. 876.35 as compared to the previous close of Rs. 883.20. The total number of shares traded during the day was 60884 in over 4212 trades.

The stock hit an intraday high of Rs. 917.65 and intraday low of 872.15. The net turnover during the day was Rs. 54676047.00.

Source : Equity Bulls

Keywords

Cyient INE136B01020 Q3FY23 ResultUpdate HDFCSecurities