Buy Cyient Ltd For Target Rs. 1,140- ICICI Direct
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Healthy revenue, margin trajectory…
About the stock:
Cyient Ltd (Cyient) offers engineering & development services to aerospace & defence, transportation, E&U, communication and others.
*( Cyient has 300 customers across 14 countries
* Net debt free and healthy cash flow with OCF/EBITDA ~80%
Q1FY22 Results:
Cyient reported weak Q1FY22 results.
* Services revenue declined 0.3% QoQ to US$119.3 mn
* However, margins came in at 13.1% (highest in six years) on savings in SG&A expenses
* Expect revenues to increase in double digits for services and 20% for DLM in FY22E with increase of 200 bps margins
What should investors do?
Cyient’s share price has grown by ~2x over the past five years (from ~| 473 in July 2016 to ~| 963 levels in Jul 2021).
* We remain further positive and retain our BUY rating on the stock
Target Price and Valuation: We value Cyient at | 1,140 i.e. 22x P/E on FY23E EPS
Key triggers for future price performance:
* Increased outsourcing in ER&D a key positive
* Improved demand from verticals, large deals, healthy order book, traction DLM business, and organisation restructuring to accelerate growth
* Margins to improve led by improved revenue growth and SG&A rationalisation
Alternate Stock Idea: Apart from Cyient, in our IT coverage we also like Mindtree.
* Industry leading growth & healthy margins prompt us to be positive
* BUY with a target price of | 3,065
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