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Cyient posted a strong operating performance in 2Q. DET revenue was up 7.2% qoq (7.5% CC; 1.6% organic CC) at $174.2mn, above our expectations. DET EBITM expanded by ~100bps qoq to 14.2%, exceeding our expectations. Semiconductor revenue grew ~8% qoq, partly aided by growth in Kinetic, with operational loss of Rs300mn. Semicon revenue growth is expected to soften in coming quarters due to supply constraints, higher wafer prices, and memory shortage; but Management maintains confidence on medium-term growth prospects with strong underlying demand. It remains on track to see breakeven in FY28. Order intake stood at $158.4mn, excluding a multi-year framework agreement with a global consumer products leader, with potential value of up to €50mnpa and ramp-up expected from 2H. Management expects cost savings to offset wage hikes (in 3Q/4Q) and sustain DET margins, with 2H organic growth supported by Tao Digital integration. We tweak FY27-29E EPS by -0.5% to 3.7%, factoring in the strong 2Q performance. We upgrade CYL to ADD from Reduce, while raising SoTP-based TP by 30% to Rs1,300 from Rs1,000, considering the expected rebound in operating performance of the DET business, value accretion from significant appreciation in Cyient DLM’s share price (~2x in last 6M), and continued strong momentum and growth prospects for the semicon business. We value the DET business at 12x Sep-28E EPS, the DLM business at 20% discount to its CMP, and the semicon business at 50% discount to its last funding round valuation.

Results summary

Cyient’s DET revenue was up 7.2% qoq (7.5% CC) to $174.2mn, above our expectation of $170.4mn. DET EBITM expanded by ~100bps qoq to 14.2%, exceeding our expectation of 13.5%, driven by cost optimization. Net profit stood at Rs1.5bn in the DET segment. Order intake in 2Q came in at $158.4mn (down 6.1% qoq/up 20.8% yoy), with net new in the range of mid-30s. Total headcount was down 0.2% qoq at 14,151. Attrition grew by 20bps qoq to 14.6%. Cyient has declared interim dividend of Rs12/share. What we like: Revenue and margin beat; continued momentum in Transportation & Mobility. What we do not like: continuous decline in Strategic Units

DET revenue growth led by Transportation & Mobility

DET reported 1.6% qoq CC organic revenue growth in 2Q. Sequential organic revenue growth in the DET business was driven by Transportation & Mobility (4.5% CC), while Networks & Infrastructure and Strategic Units declined 0.3% and 1.5%, respectively. Management expects growth momentum to sustain in Transportation & Mobility, on the back of traction in automotive/mobility and continued momentum in commercial aviation aftermarket on higher aircraft volumes. The Networks & Infrastructure business remains soft due to completion of certain project-based engagements and weakness in utilities. Growth is likely to rebound in Strategic Units, led by recovery in the Energy segment.

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