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Welcome consistency in performance & outlook!

Revenue growth (+4.7% QoQ, CC) and normalised EBIT margin (12.6%) were ahead of our estimates. Sequentially, growth was driven largely by DLM while strong operational improvements in services business led ~140bps EBIT margin expansion. Within services, A&D and E&U fared well. Strong increase in order intake (US$238mn, ~22% QoQ) came as a surprise. This strength seems to reflect structural changes Cyient had undertaken in the recent past. For FY22, the outlook of double-digit growth in services and 20% in DLM was maintained. While the management has conservatively guided for ~200bps YoY improvement in EBIT margin, we see further upside risk (+150bps) to this guidance. To summarise, besides unit level changes in the right direction, Cyient has been showing welcome consistency in performance and outlook – for a few quarters now. In addition to scope for further earnings upgrades, possibility of a structural rerating is very likely, given the massive discount to midcap peers (up to 55%). Our FY22E-FY23E earnings trajectory remains largely stable. Cyient remains our TOP BUY idea across midcap / small-cap categories.

* Beat on both revenue growth and margins. Revenues grew 4.7% QoQ (CC), ahead of our estimate (3.3% QoQ, CC). As anticipated, growth was driven by DLM (+16.4% QoQ, USD) while services grew modestly (+2.2% QoQ, CC). Within services, A&D (+3.9% QoQ, USD), and E&U (+5.3% QoQ, USD) fared well. Normalised Group EBIT margin (12.6%) was 40bps ahead of our estimate. Services segment delivered 230bps QoQ expansion in EBIT margin led by operational improvements and operating leverage. Change in revenue mix led to ~180bps QoQ contraction in EBIT margin of DLM. Overall, at group level, normalised EBIT margin expanded 140bps QoQ.

* Order intake momentum continues; stable outlook on growth and margins. Order intake was robust at ~US$238mn (+22% QoQ) on top of the strong order booking in Q3FY21 (~US$195mn, +53% QoQ). This came as a surprise and reflects the structural changes undertaken by Cyient in the recent past. For FY22, the company maintained its outlook of double-digit growth in services and 20% in DLM. While the management has conservatively guided for ~200bps YoY improvement in EBIT margin, we see further upside risk (+150bps) to this guidance. In addition to scope for further earnings upgrades, possibility of a structural rerating is very likely, given the massive discount to midcap peers (up to 55%). Our FY22E-FY23E earnings trajectory remains largely stable. Cyient remains our TOP BUY idea across the midcap / small-cap categories.

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