Accumulate Cyient Ltd For Target Rs. 1,360 - Motilal Oswal Financial Services
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Propelled by strong services revenue...
Cyient Ltd., formerly known as Infotech Enterprises, is one of the leading players in the IT-enabled services space, providing services to the Engineering Research and Development segment.
• In Q4FY23, consolidated revenue grew by 48.3% YoY due to sturdy growth in the services segment. The revenue from consolidated services grew by 47.3% YoY, driven by Transportation and Sustainability verticals.
• EBIT margin lowered by 21bps to 14.2% due to amortisation costs of acquisitions, but was partially offset by favourable revenue mix and price hikes, and PAT improved by 5.8% YoY at Rs.163.2cr.
• The company's deal wins remain strong, and its full-year order intake of $720.5 million enhances revenue visibility for FY24.
• Healthy growth prospects across verticals, strong deal wins, promising FY24 revenue guidance growth could bolster company’s future performance. The margin is expected to improve in FY24E on automation and cost-control measures.
• However, given the concern over global uncertainties and fear of recession, we downgrade our rating to "Accumulate" with a target price of Rs. 1,360 based on 18x FY25E EPS.
Healthy Deal Wins ... Foundation for Sustainable Revenue Growth
Cyient ended up with positive Q4 results with a revenue of Rs.1,751.4cr, up by 48.3% YoY, driven by growth in Consolidated services segment. The revenue from Consolidated services was Rs. 1,449cr which grew by 47.3% YoY. The growth in Consolidated services segment was driven by Transportation, Connectivity, Sustainability and New growth areas. Transportation segment reported 10.4% YoY growth and Connectivity witnessed 23.9% YoY growth, while Sustainability and New growth areas witnessed strong 120.7/27.4% respectively, YoY basis in dollar terms. During FY24, the management hopes continued double-digit growth in aerospace revenue. This is expected to be driven by the resumption of domestic travel to pre-COVID levels, the reopening of China, defense spending, upgrades from older airplane platforms, and the shift towards hybrid fuel models to reduce global carbon emissions. The company signaled connectivity segment is expected to experience a surge in FY24. Cyient has received approval from SEBI to enter the global electronic manufacturing industry by divesting its DLM business through an IPO. Moreover, the company's deal wins remain strong, having secured 18 large deals with a total value of $412.3 million in FY23. The company's $720.5 million full-year order intake enhances revenue visibility for FY24.
Attrition Rate Stabilizes, But Utilization Takes a Hit
EBIT margin lowered by 21bps to 14.2% due to amortisation costs of acquisitions, but was partially offset by favourable revenue mix and price hikes, and PAT improved by 5.8% YoY at Rs.163.2cr. The company hired 500+ employees, adding to a total headcount of 15,864 and attrition declined 150bps QoQ to 25%. However, utilisation rate decreased by 430bps to 86.6%. The company continued to witness legal charges of 167cr in Q4FY23.
Promising Revenue outlook
The company anticipates a revenue growth rate of 15% to 20% YoY in CC terms for Consolidated services in FY24, along with an improvement in EBIT margins of 100-200 bps. Cyient has established a partnership with Thingtrax to strengthen its focus on digital ER&D, enabling customers to enhance efficiency and reduce operational costs, and has collaborated with iBASEt to lead digital innovation in the aerospace and heavy engineering sectors.
Valuation
Healthy growth prospects across verticals, strong deal wins, and promising FY24 revenue guidance growth could bolster company’s future performance. The margin is expected to improve in FY24/FY25E on automation and cost-control measures. However, given the concern over global uncertainties and fear of recession, we downgrade our rating to "Accumulate" with a target price of Rs. 1,360 based on 18x FY25E EPS.
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