IGI Logo

Stabilization underway

But broad-based recovery yet to emerge

* Cyient’s (CYL) DET business reported 2QFY26 revenue of USD164.4m, up 0.5% QoQ in constant currency (CC) terms, in line with our estimate of 0.5% growth. Transportation & Mobility grew 3.9% QoQ CC, while Network & Infrastructure rose 3.6% QoQ CC. EBIT margin of DET business at 12.2% missed our estimate of 12.6%. DET PAT was down 16% QoQ/22.4% YoY at INR1,370m (est. 1,455m).

? For 1HFY26, DET revenue grew 1.3% YoY, while EBIT/PAT fell 8.9%/0.7% YoY. In 2HFY26, we expect revenue/EBIT/PAT to grow by 3.1%/6.9%/15.9% YoY. We reiterate our Sell rating with our SoTP-based TP of INR1,050, implying an 11% potential downside.

Our view: Margins still catching up

* Stabilization in progress: DET revenue grew by a modest 0.5% QoQ in CC, indicating early signs of stabilization after several weak quarters. Management highlighted improved client engagement and a marquee aircraft OEM win, suggesting that demand momentum is gradually recovering in key verticals. While 2H is expected to show better traction than 1H, ramp-ups in aerospace, utilities, and communications are progressing steadily, and a broad-based acceleration across all segments will likely take time.

* Vertical performance mixed: Transportation & Mobility sustained momentum through rail and aerospace programs, while Networks & Infrastructure and Mining/Healthcare showed gradual improvement. Semiconductor business rebounded in 2Q, yet continued investment led to EBIT loss in 1H, and breakeven is only expected by FY27.

* Deal execution remains key monitorable: Large-deal ramp-ups and new logo acquisitions remain a key focus for 2HFY26. The qualified pipeline expanded ~10% QoQ, reflecting improving traction across aerospace, utilities, and semiconductors. Earlier ramp-downs are largely behind, and while deal closures are expected to progress gradually, the pipeline provides a foundation for relatively better growth through 2H.

* Margin expansion still a work in progress: EBIT margin improved by modest 20bp to 12.2%, supported by operational efficiency and a better service mix. However, partial wage hikes in 3Q and ongoing investments in ramp-ups may make it difficult to achieve medium-term margin targets. We estimate EBIT margins of 12.8%/13.4% for FY26/FY27, indicating limited near-term upside.

Valuation and changes to our estimates

* We maintain our Sell rating on Cyient, as 2QFY26 reflects a gradual stabilization. While deal activity and vertical performance are improving, growth momentum remains uneven across key segments such as Networks & Infrastructure and Energy, and margin expansion is still a work in progress. We lower our FY26/FY27 estimates by ~1-2%, factoring in recalibrated margin expectations and the gradual pace of deal ramp-ups through 2H.

* Based on SoTP, we value the company’s stake in DLM at a market valuation with a holding company discount of 20%. In our P/E-based valuation, we value the DET business at 17x Jun’27E EPS. Our SoTP-based TP of INR1,050 implies an 11% potential downside.

In-line revenue and miss on margins; Transportation & Mobility up 3.9% QoQ CC

*  DET revenue stood at USD164.4m, up 0.5% QoQ CC, in line with our estimate of 0.5% growth. Consolidated revenue came in at USD203m, down 8.4% YoY CC.

* Transportation & Mobility grew 3.9% QoQ CC, while Network & Infrastructure rose 3.6% QoQ CC.

* DET margins came in at 12.2% (est. 12.6%), up 20bp QoQ/150bp YoY.

* Added seven new logos in 2QFY26. ? DET PAT was down 16% QoQ/22.4% YoY at INR1,370m (est. INR1,455m).

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412