Q4FY23 Review: Cyient: Consistent delivery making case for rerating

21 Apr 2023 , 11:13 AM

Cyient’s (CYL) Q4FY23 Services revenues grew 3.2% cc QoQ — above estimates of IIFL Capital Services of 2.2%. Within verticals, growth was led by Transportation (+12.9% cc QoQ) and Sustainability (+3.1%) segments. DLM continued its strong trajectory with 26.5% QoQ growth in USD, as supply-side challenges eased. EBIT margin expanded by 140 basis points QoQ to 14.2% — above IIFL Capital Services’ estimate of 13.5%. Services order intake were up 14% TTM YoY at USD213 million. CYL won five large services deals with USD185 million potential. 

CYL guided for FY24 Services revenue growth at 15-20% cc, factoring in the macro uncertainty via a wider guidance range. Normalized EBIT margins to improve by 100-200 basis points YoY in FY24. Analysts at IIFL Capital Services have raised their FY24-25 EPS estimates by 7-9% on higher margins, and their 12-month Target Price to Rs 1,280 (from Rs 1,120), valuing it at 16x 2 year forward EPS (from 15x). 

Stock is trading at 13.7x FY25 estimated P/E, at a significant discount to its ER&D and IT services peers. Hence, analysts at IIFL Capital Services have reiterated their Buy rating, and believe that consistent delivery in Services and DLM restructuring will continue to drive rerating in the stock.