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Margin guidance revised upward…

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%

Q2FY22 Results: Cyient reported strong Q2FY22 results.

* Services revenue grew 4.5% QoQ while DLM revenues grew 5.4% QoQ. This resulted into overall revenue growth of 4.6% QoQ

* EBIT margins came in at 14.0% (highest in seven years), as both services and DLM margins improved 90 bps QoQ each

* Guided for double digit revenue guidance for the next two years. Margin guidance has been revised upward

What should investors do?

Cyient’s share price has grown by ~2x over the past five years (from ~| 440 in October 2016 to ~| 1,185 levels in October 2021).

* We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value Cyient at | 1,420 i.e. 24x P/E on FY23E EPS

Key triggers for future price performance:

* Improving outlook on aerospace vertical.

* Improved demand from 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 Infosys.

* Strong revenue guidance prompts us to be positive

* BUY with a target price of | 2,060

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