Buy Cyient Ltd for Target Rs.1,250 by Choice Institutional Equities
Key Conference Call Highlights
Growth and Margin Outlook
* FY27 Guidance: For the DET segment, management expects mid-to-high single-digit organic growth. They maintain an aspiration to reach a 15% EBITM by Q4FY27, supported by price hikes, automation and structural cost interventions
* Strong Order Intake: While Q4 revenue was softened by delayed budget deployments from 3 major customers, order intake grew 23% YoY. The pipeline for large deals is strengthening, particularly in connectivity and healthcare
Segment Performance
* Transportation and Mobility: This was a standout vertical, growing 13.2% YoY in CC for FY26. This growth was driven by aerospace volume surges and Cyient's ability to work across the entire product lifecycle
* Network and Infrastructure: This segment saw a 1.6% YoY decline. However, management is pivoting toward autonomous networks and expects sustained fiber build-out spending in North America and EMEA over the next 3 to 5 years
* Energy Vertical: This vertical faced headwinds due to the geopolitical situation in West Asia, leading to project delays. While direct exposure is not significant, the project-based nature of this business causes quarterly volatility
Semiconductor & Kinetic Technologies
* Acquisition & Strategy: Cyient successfully closed a 74% majority stake in Kinetic Technologies, which specialises in power products. The goal is to become a leading power silicon manufacturer
* Operational Milestones: With Kinetic, the company shipped over 250 Mn silicon chips last year
* Fundraising Rationale: Management is exploring a small fundraise (initially 10–12% dilution) for the standalone semiconductor business to establish an independent valuation and cover working capital as it scales toward a USD 100 Mn run rate in FY27
Strategic Transformation & AI
* AI Strategy: Management views AI as a major growth driver rather than a structural threat, noting it is already providing 20% to 30% productivity improvements in software development
* Leadership Rejuvenation: Significant leadership changes were finalised to drive the Next Orbit strategy, including a new CFO (Mr. Srinivas Kulkarni), COO (Mr. Prabhakar Atla) and Chief Growth Officer (Mr. Rajkumar Ravindranathan)
* Project Astro Update: This transformative acquisition was paused because management wanted to reassess its value in the context of rapid AI evolution. The resulting INR 710 Mn charge covers extensive financial, legal and commercial due diligence
* Engineering Intelligence Platform: Cyient is rolling out this platform to codify fragmented engineering data (CAD, PLM, ERP) into an agent-driven foundation. This allows them to target the USD 3 Tn lifecycle management market, which is significantly larger than the traditional USD 100 Bn ER&D outsourcing market
Capital Returns
* Significant Share Buyback: The Board approved a buyback of up to 6.4 Mn shares (~5.76% of capital) at INR 1,125 per share, totaling INR 7,200 Mn. Notably, promoters and key management will not participate, signaling their conviction in the company’s intrinsic value
* Dividend Policy: The company remains committed to a 40% to 50% payout ratio, which will now be fulfilled through a combination of dividends and buybacks
For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131
