Buy Cyient Engineering Ltd For Target Rs.1,080 by Choice Institutional Equities Ltd
DET Growth Muted; Margin Trajectory Intact; 15% DET EBITM Target Shifted to H1FY28:
Cyient DET reported Q1FY27 revenue of USD 162.5 Mn, declining 0.5% QoQ (CC) as gains in most segments were offset by weakness in the Energy business within Strategic Units. Mobility remained the primary growth driver, while Network & Infrastructure showed modest improvement. Strategic Units fell due to the completion of a legacy Energy project. Order intake strengthened, supported by robust new business wins and a strong pipeline, with Semiconductor and Cyient DLM providing healthy medium-term growth visibility. Normalised EBITM improved to 13.2% through costoptimisation and favourable foreign exchange, although the 15% margin target has been deferred to H1FY28. Growth is anticipated to recover from H2FY27, aided by acquisitions, Energy recovery and stronger deal conversions
View & Valuation:
Cyient DET's recovery remains slower than expected due to geopolitical uncertainty, delayed discretionary spending and weak Strategic Business Units. However, strong order momentum, Semiconductor growth, improving margin through cost-optimisation and the TAO Digital acquisition are expected to support a gradual recovery from H2FY27. Reflecting slower revenue ramp-up, continued weakness in SBU, we lower our FY27/FY28 earnings estimate by 2.4–2.9% and reduce our DET multiple to 10x FY28EPS (earlier 14x). We value the Semiconductor business at a 50% discount to its recent USD 300 Mn fund-raise valuation, balancing its long-term strategic potential against execution and profitability risks. We value the company on a SOTP basis to arrive at a TP of INR 1,080 and assign ‘BUY’ rating.
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SEBI Registration no.: INZ 000160131
