Cyient: On track to deliver sustainable growth

6 Apr 2023 , 10:40 AM

Recommendation: Buy

Target Price: Rs 1120

Management highlighted that efforts towards diversifying its vertical exposure to drive predictable and consistent growth, have started yielding results. Sharp recovery in Aerospace vertical will continue to aid growth in the near-to-medium term. Focus on large deals and deeper relationships provide improved growth visibility. Easing supply side combined with productivity improvement, is likely to continue driving margins higher in FY24. The stock is trading at ~13.5x FY25 P/E, at a significant discount to its ER&D and IT Services peers.

Aerospace demand outstripping supply:

Within verticals, Aerospace continues to be on a strong recovery path with demand outstripping supply. Energy transition towards sustainable energy is driving growth in Energy & Utilities; and investments in building capabilities around Auto & Mobility are yielding results. Management believes the company is on track to achieve the USD1bn revenue run rate in FY24.

Margin improvement likely to continue:

After bottoming out in Q1, CYL’s Ebit margins have improved by 140bps in the last two quarters. Management is confident about continuing the upward trajectory. Key levers include rate increases, de-focussing on lower-margin business consolidation of facilities, employee pyramid rationalisation and SG&A leverage. Management is confident of continuing on its path of improving profitability, going into FY24.

Focus on sustainable and predictable growth ahead:

Given the diversified vertical exposure, management is focussed on delivering sustainable and predictable growth over the medium term. Management is confident that its investments in senior leadership changes, have positioned them well to drive growth as well as enhance profitability.