CMP (NSE) 15:43, 21 Jun
Last updated on
07 Apr, 2021
Consistent Earning Delivery - ReRating Possible!
Robust growth outlook for DLM; double-digit margins sustainable: Cyient announced a large deal win within DLM with a TCV of USD36mn, and is seeing healthy traction within the A&D and Medical segments. As a result, management expects the growth momentum to sustain over the next few quarters. DLM EBIT margins hit the double-digit mark in 3Q, with management indicating a boost of 300-400bps from reduced direct material costs, and better quality of revenues.
Strong earning visibility: We forecast robust revenue growth of 3.7% cc QoQ (+4.4% QoQ), with healthy growth in DLM and Communications offsetting weakness in Aerospace. We expect EBIT margins to expand 130bps aided by healthy operating leverage, improved profitability in DLM and focus on operational parameters
Valuations relatively attractive: Led by healthy margins and recovery in revenues in FY22ii/23ii, we forecast 19% EPS Cagr over FY21ii-23ii. Cyient trades at ~13.5x FY22ii P/E, at ~40% discount to mid-cap peers. With cash support and ~3% dividend yield, we see it as an attractive value play, especially for investors with a long-term horizon.
Technically, the stock is trading in a strong higher top higher bottom chart structure, indicating a positive bias according to the dow theory. The stock has given a flag pattern breakout on the daily chart and is showing positive signs on the ADX Index. If the current impulse move accentuates the way it should, we expect Cyient to trend higher and test our immediate target price of Rs787 during the next 1-Year. We recommend a Buy Rating on the stock.