Add Centum Electronics Ltd For Target Rs.3,875 by Choice Institutional Equities Ltd
Soft Q1, but BTS Recovery and Semiconductor Scale-up Ahead
Centum’s Q1 was below our expectation, with lower BTS execution weighing on revenue and margin. However, we believe the strong order momentum and ~INR 18 Bn order book (~1.9x FY26 revenue), indicate healthy underlying demand. With BTS order inflows growing sharply, we expect execution to improve in the next few quarters, supporting better revenue absorption and operating leverage. In our view, the key monitorable is the strong order pipeline conversion into revenue at improved margin as BTS execution normalises
More importantly, we believe Centum’s growth profile is gradually becoming less dependent on traditional EMS, with semiconductor equipment emerging as a meaningful growth engine. Revenue from the segment crossed INR 100 Cr in FY26 from virtually zero a year earlier, with products now in serial production and demand visibility for the next 2–3 years. We believe the semiconductor business can become an important incremental growth driver, while the completed overseas restructuring is expected to reduce the drag from legacy subsidiaries.
Management’s 25%+ revenue growth guidance for FY27–28 and >13% EBITDA margin for FY27 appears achievable, in our view, provided BTS execution improves. We expect the combination of BTS recovery and semiconductor scale-up to drive the next leg of revenue growth and margin expansion. We maintain our positive stance on CTE and maintain our ‘ADD’ rating on the stock, with an upgraded target price of INR 3,875 valuing the stock 35x FY28E EPS
Strong reported PAT masks weak operating performance
* Revenue for Q1FY27 up by 14.4% YoY and down by 40.4% QoQ at INR 2,041 Mn
* EBIDTA for Q1FY27 down by 16.3% YoY and down by 51.6% QoQ at INR 236 Mn. EBITDA margin stood at 11.6%, contracted by 425 bps YoY
* RPAT of INR 1,055 Mn looks strong, but is largely driven by INR 943 Mn from discontinued operations; PAT from continuing operations stood at only INR 112 Mn, 56% below our estimate
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SEBI Registration no.: INZ 000160131
