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Propelled by robust services segment

Cyient Ltd., formerly known as Infotech Enterprises, is one of the leading players in the IT-enabled services space, providing services to the Engineering Research and Development segment.

• In Q1FY24, consolidated revenue grew by 34.9% YoY due to strong growth in the services segment. The revenue from digital engineering & Technology (DET) grew by 37.1% YoY, driven by Transportation and Sustainability verticals.

• EBIT margin improved by 326bps to 14.7% due to cost optimisation measures, and PAT improved by 46% YoY at Rs.169.1cr.

• The company's deal wins remain strong, and it secured 6 large deals with a total value of $48.8 million.

• Despite concerns over global uncertainties, strong growth scenarios across segments, healthy deal wins, and promising FY24 revenue guidance growth could bolster the company’s future performance. The margin is expected to improve in FY24/FY25E on automation and costcontrol measures.

• Following the listing of Cyient DLM, henceforth, the company is valued on SOTP. Therefore, we maintain our Accumulate rating with a target price of Rs. 1,813.

Strong demand pumps revenue growth

Cyient started Q1 with positive results with a revenue of Rs. Rs.1,686.5cr, up by 34.9% YoY, driven by growth in the services segment (reclassified as DET). The revenue from digital engineering & Technology (DET) was Rs. 1,455cr, which grew by 37.1% YoY. The growth in DET was propelled by Transportation, Connectivity, Sustainability and New growth areas. Transportation segment reported 17.7% YoY growth, and Connectivity witnessed 10.9% YoY growth, while Sustainability and New growth areas witnessed strong 109% and 9.9% YoY growth, respectively, in dollar terms. However, Connectivity & New growth Areas observed a milder degrowth on a QoQ basis in dollar terms. Cyient DLM successfully listed on two Indian exchanges with an overwhelming response from investors in the Electronic manufacturing industry. Moreover, the company's deal wins remain strong, having secured six large deals with a total value of $48.8 million. The order intake stood at $193.2 million, up 32.5% YoY.

Margin improving on cost optimisation measures

EBIT margin improved by 326bps to 14.7% due to cost optimisation measures, and thereby PAT improved by 46% YoY at Rs.169.1cr. The DET hired 130+ employees, adding to a total headcount of 15,306, and attrition declined 270bps QoQ to 23% with a steady utilisation rate of 86%. The company continued to witness legal charges of 11.1cr in Q1FY24 and closed the riskier case.

Promising revenue outlook

The company anticipates a revenue growth rate of 15% to 20% YoY in CC terms for DET in FY24, along with an improvement in EBIT margins of 150-250 bps. During FY24, the management hopes for continued growth in Transportation and Sustainability businesses. This is driven by the resumption of strong global air travel, commercial & defense spending, upgrades from older aeroplane platforms, and the shift towards hybrid fuel models. In the sustainability segment, green energy (Ammonia & Hydrogen) and investment in carbon capture are emerging demand areas. The company foresees an upturn in the connectivity segment (Wireless) in H2FY24, whereas the U.S. wireline business remains resilient.

Valuation

Despite concerns over global uncertainties, strong growth scenarios across segments, healthy deal wins, and promising FY24 revenue guidance growth could bolster company’s future performance. The margin is expected to improve in FY24/FY25E on automation and cost-control measures. Following the listing of Cyient DLM, henceforth, the company is valued on SOTP (Cyient DLM’s stakes are valued separately, - holding discount of 15%). Therefore, we maintain our Accumulate rating with a target price of Rs. 1,813.

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