Buy Cyient Ltd For Target Rs. 1,200 - ICICI Direct
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DLM impacted, services to drive growth…
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%
Q3FY22 Results: Cyient reported strong Q3FY22 results.
* Services revenue grew 3.6% QoQ (4.4% in CC) while DLM revenues grew 12.8% QoQ. This resulted into overall revenue growth of 5.2% QoQ
* Group EBIT margins came in at 13.9%. Services margins were up 14 bps QoQ while that of DLM came in at 6%
* DLM growth guidance revised downward from 15-20% in FY22 to low single digit growth
What should investors do? Cyient’s share price has grown by ~2.3x over the past five years (from ~| 408 in January 2017 to ~| 963 levels in January 2022).
* We continue to remain positive and retain our BUY rating on the stock
Target Price and Valuation: We value Cyient at | 1,200 i.e. 18x P/E on FY24E EPS
Key triggers for future price performance:
* Improving outlook on aerospace vertical
* Improved demand from large deals, healthy order book, rebound in 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 Infosys.
* Strong revenue guidance prompts us to be positive
* BUY with a target price of | 2,300
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