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Guides 13-15% CC growth for FY23; acquires Citec

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%

Q4FY22 Results: Cyient reported muted Q4FY22 result

Services revenue grew 1.2% QoQ (0.4% in CC) while DLM revenues declined 9.4% QoQ. This led to overall revenue decline of 0.8% QoQ

Services EBIT margin came in at 15.4% while DLM margins came in at 9.8%, resulting in EBIT margins of 14.5%, up 59 bps QoQ Cyient acquired Citec for EV of €94 mn, 1.2x price to 2021 sales

What should investors do? Cyient’s share price has grown by ~2.3x over the past five years (from ~| 408 in April 2017 to ~| 905 levels in April 2022)

We change our rating on the stock from BUY to HOLD

Target Price and Valuation: We value Cyient at | 1,000 i.e. 18x P/E on FY24E EPS

Key triggers for future price performance:

Improving outlook on aerospace vertical and utilities (with Citec acquisition)

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 | 2,000

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