Buy Cyient Ltd For Target Rs.1,095 By Choice Broking Ltd
Transition in progress; Near-term uncertainty persists
We believe Cyient is undergoing a strategic transition focused on margin recovery in its core DET business, scaling high-growth verticals such as Semiconductors, and restructuring underperforming segments. Near-term visibility remains constrained due to cautious demand environment, but improving order mix, strong aerospace traction, & cost actions provide early support. Further, recent leadership additions across HR, Connectivity, Healthcare, & Semiconductors aim to drive execution. Given execution risks & limited near-term revenue visibility with no guidance or TCV disclosures, we reduce our P/E multiple from 20x to 15x, reflecting declining confidence. As we roll forward our FY28 estimates, we value the stock on average FY27E & FY28E EPS of INR 73 to arrive at a Target Price of INR 1,095 & downgrade our rating to SELL.
Big miss on Q1FY26 performance vs estimates
* Revenue for Q1FY26 came at INR 17.1Bn, down 10.3% QoQ but up 2.2% YoY (vs CIE est. at INR 18.6Bn).
* EBIT for Q1FY26 came at INR 1.6Bn, down 30.7% QoQ and 18.3% YoY (vs CIE est. at INR 2.2Bn). EBIT margin was down 279bps QoQ and 238bps YoY to 9.5% (vs CIE est. at 12.1%).
* PAT for Q1FY26 came at INR 1.5Bn, down 15.6% QoQ but up 9.4% YoY (vs CIE est. at INR 1.7Bn).
Mixed segmental performance; Transportation leads growth:
In Q1FY26, Cyient group reported revenues at INR 17.1Bn, a decline of 10.3% QoQ while it remained flat YoY in INR terms. Cyient DET Revenue stood at USD 162.7 Mn, a sequential decline of 1.5% in CC terms. Cyient has reorganized its segments into: (1) Transportation & Mobility, (2) Networks & Infrastructure, & (3) Strategic Units. Transportation, driven by Aero & Rail, grew 2.5% QoQ & 7.3% YoY, & is expected to benefit from defence outsourcing tailwinds. Networks & Infra remained weak (- 2.9% QoQ), with management guiding a couple of quarters for stabilization. Strategic Units declined 1.9% QoQ, though Energy & Mining showed resilience. Cyient reported modest deal momentum in Q1FY26, with order intake up 5–10% QoQ & non-renewal mix improving to 21%. However, the company did not disclose TCV for the quarter, which we view as a cautious stance & a potential sign of limited large deal wins. While new client additions & select wins in Aerospace, Telecom, & Semiconductors offer early promise, visibility remains weak & conversions are yet to scale meaningfully.
Cyient targets 15% EBITM in medium-term: In Q1FY26, Cyient DET business EBIT margin declined 63 bps QoQ to 12%, primarily impacted by the first tranche of wage hikes. Cyient also continues to invest in sales & has launched Phase 2 of its cost optimization initiative affecting the margins. For Semiconductor vertical, margin recovery is expected once it scales to quarterly revenue run rate of USD 10Mn. Cyient maintains its no-guidance policy, reflecting its current focus on operational stabilization; however, it remains committed to its medium-term target of achieving 15% EBITM. Given ongoing execution risks, we anticipate a conservative margin expansion to 13.7% by FY28E. Stronger execution could enable earlier achievement of the guided margin range.
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