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Focus on B2S & new-age electronics to drive growth

We visited Cyient DLM’s (CYIENTDL) manufacturing facility and met the management. The visit reinforced our positive view, with a strong order pipeline, growing B2S capabilities and increasing shift toward annuity-based programs providing visibility for sustained growth. The company has strong order visibility with rolling 12-month orders that provide ~18 months of weighted-average visibility, with some programs having visibility of up to 2 years. Increased focus on the annuity business from Aerospace and Industrial segments, B2S business with revenue share targeted to reach double digits by FY28 from 6-7% in FY26, and semiconductor capital equipment, will drive growth in the medium to long term. With ~55% capacity utilization across facilities and existing capacity supporting ~2x current revenue, the company has significant operating leverage before requiring major expansion capex. We believe emerging opportunities across semiconductors, AI, robotics and data centers, along with increased wallet share, particularly in B2S, from existing Defence and Aerospace clients, could further expand its addressable market. Key monitorable remains the pace of commercialization and ramp-up of B2S and new-logo programs.

The company indicated revenue growth of 25–30% for FY27/FY28, with EBITDA margin expected to remain at ~10% and improve to 11–13% over the next 2–3 years. Operating leverage and increasing contributions from newer sectors are expected to support margin expansion. B2S programs are expected to expand margins by 300– 400bps, with higher B2S contribution from FY30 potentially becoming a meaningful margin driver. We estimate FY26-29E revenue/EBITDA/PAT CAGR of 30.9%/35.9%/35.0%, with EBITDA margin expansion of 120bps. We roll forward our TP to Sep’28 and introduce FY29 earnings. We maintain our ‘HOLD’ rating with TP of INR871 (INR635 earlier), based on 45x Sep’28 earnings.

Key Takeaways

Business model moving up the value chain

CYIENTDL is progressively moving up the value chain from B2P to B2S, with increasing direct engagement with OEMs and a higher contribution from box-build solutions. Box-build contribution increased to 41% in Q1FY27 from 31% in FY26. The company’s focus on building annuity business by working on increasingly complex products is a key competitive advantage, as higher customer qualification requirements and product complexity create greater switching costs, resulting in stronger customer stickiness and recurring business.

The management indicated that ~90% of CYIENTDL’s customers do not source their electronics manufacturing components from China, creating a relatively strong opportunity for India-based outsourcing. In addition, <1% of CYIENTDL’s suppliers are based in China, limiting its direct exposure to China-linked supply chains, with sourcing increasingly diversified across Southeast Asia, the US and Europe. The management expects continued customer momentum, particularly in complex and mission-critical electronics, where qualification requirements and reliability are critical considerations

Growth is being pursued through 2 distinct channels: EN (existing customers–new business/programs) and NN (new customers/new logos). Dedicated account-management teams focus on expanding business within existing accounts, while separate sales hunter teams focus on acquiring new customers and new logos. This dual-channel approach supports both higher wallet share from existing customers and incremental growth through new customer additions.

Order visibility remains strong

CYIENTDL maintains strong order visibility, with rolling 12-month orders providing ~18 months of weightedaverage visibility, while certain programs offer visibility of up to 2 years. The company ended Q1FY27 with a record order book of INR26.0bn, >90% export exposure and a healthy 1.5x book-to-bill ratio, supporting strong revenue visibility ahead. The management indicated that the typical time to secure an order is around 2 quarters, with Aerospace programs having relatively longer lead times, while industrial programs generally ramp up faster.

The management aims to sustain ~1.5x book-to-bill ratio through healthy order inflows. The addition of a new customer/logo typically represents the beginning of a new PO program, providing scope for incremental revenue as the program ramps up. The company has also appointed a chief growth officer and strengthened its US presence through a senior hire, which should support new customer acquisition and order inflows going forward.

Aerospace and Defence remain key growth drivers

The Aerospace segment, which accounts for ~40% of revenue, is expected to maintain its momentum, with the company working on 4 new programs—2 at the prototype stage and 2 in the design phase. These programs have potential 7–10-year lifecycles, with meaningful revenue contribution expected from FY30. Importantly, these are B2S programs, which should drive the B2S revenue contribution to double-digit levels by FY28, from 6–7% in FY26, further supporting the company’s transition toward higher value, more sticky business. B2S programs are expected to expand margins by 300–400bps, with higher B2S contribution from FY30 potentially becoming a meaningful margin driver.

The management indicated that new Aerospace & Defence customers can take ~6 months from enquiry to PO, followed by another 6–12 months for prototype/product execution, highlighting the relatively long gestation period for these programs.

The management also indicated that one of its existing aerospace customer has an outsourcing opportunity involving 2 suppliers, including CYIENTDL. The broader program has an estimated outsourcing spend of ~US$500mn. While CYIENTDL is not factoring any potential upside from this opportunity into its current estimates, successful program expansion could provide additional order-pipeline opportunities over the coming years.

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