Cyient Limited


CMP (NSE) 15:59, 18 Jun

862.10 6.50.76%




Information Technology

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Last updated on

16 Oct, 2020

Cyient provides engineering, manufacturing, geospatial, network and operations management services to a diversified base of 300 clients across eleven industries, which include aerospace & defence (A&D), communications, rail transportation, heavy equipment & industrial, navigation and semiconductors. 
Revenues rebound, barring A&D: Services grew 1.7% QoQ, due to sharp rebound in Communications (8%) and Transportation (22%), largely offset by 12% QoQ decline in Aerospace (A&D). Management expects A&D to bottom out in 2H, while most other verticals would show positive momentum. Order wins were at US$127m (-14% YoY TTM). DLM grew 14% QoQ, the third consecutive quarter of strong growth. We forecast 14% revenue decline in FY21ii, followed by 8% growth in FY22ii.  
Revenues stabilising, margins see sharp improvement: EBIT margins were up 590bps QoQ to 11%, led by operational leverage (330bps), lower restructuring & other costs (220bps) and better DLM margins (40bps). FCF generation has remained strong (at Rs2bn+) for a 2nd quarter now, on improved working capital and reduced capex.  
Deep value: We raise FY21ii-23ii EPS by 4-11%, valuing the company at 12x 2YF P/E. The stock is currently trading at 9.7x FY22ii P/E, 50% discount to its mid-cap peers and has gross cash of Rs13.5bn (34% of market cap).With  5% dividend yield, we see this as a value play from a two-year horizon. Hence, we maintain BUY despite a sharp decline in revenues in FY21ii.
Technically, the stock is has given a strong recovery from its recent low by forming a rare bullish harami candlestick pattern on the quarterly chart. Tracking the shorter timeframe, the stock is trading around the lower end (support zone) of a channel pattern and is expected to bounce back from its 200DEMA support placed at ~350. We expect the stock to continue to trade with a higher top higher bottom chart structure on the monthly chart and test our immediate target price of ~440.

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