IGI Logo

Degrowth Across All Fronts; Upbeat Outlook

Est. Vs. Actual for Q2FY26: Revenue – INLINE; EBIT margin – MISS; PAT – MISS

Change in Estimates YoY post Q2FY26:

FY26E/FY27E: Revenue: -1%/5%; EBIT: -4%/7%, PAT: -8%/7%

Recommendation Rationale

* Macro environment outlook: The high uncertainty and lack of decision-making have persisted so far. However, the core Digital Engineering & Technology (DET) business is showing early signs of stabilization and recovery. Nonetheless, global uncertainty continues to impact the business at the group level.

* Deal wins/pipeline: During the quarter, the company secured a major deal to establish an AI Center of Excellence for a healthcare client and a digital transformation project for a leading aircraft OEM’s manufacturing plant, winning against a Tier-1 IT player.

* AI implementation: The focus remains on a "domain-first and AI-infused" strategy rather than being purely "AI-first". The company is leveraging its deep domain expertise in engineering data to address complex digital transformation challenges for clients. These initiatives are supported by four strategic technology pillars: data engineering, AI platform software, embedded systems, and product security.

Sector Outlook: Cautiously optimistic

Company Outlook & Guidance: The company is well-positioned to capitalise on emerging opportunities due to focused tech investments, strong industry mix, robust customer base, and delivery efforts. The management expressed high confidence for H2FY26 to be stronger than H1FY26 in both revenue and margins.

Current Valuation: 19x FY27E P/E (Earlier Valuation: 19x FY27E P/E)

Current TP: 1,280/share (Earlier TP: 1,315/share)

Recommendation: Hence, we maintain our HOLD rating on the stock.

Financial performance

In Q2FY26, Cyient reported revenue of Rs 1,781 Cr vs Rs 1,849 Cr in Q2FY25, down 3.7% YoY and up 4% QoQ. EBIT stood at Rs 147 Cr vs Rs 231 Cr in Q2FY25, a decline of 36.5% YoY and 9.9% QoQ. Net income came in at Rs 143 Cr vs Rs 187 Cr in Q2FY25, down 23.4% YoY and 9.2% QoQ. In CC terms, overall revenue fell by 8.4% YoY, while in $ terms it declined by 7.8% YoY. Attrition levels rose by 190 bps YoY to 16.8% vs 14.9% in Q2FY25.

Valuation & Recommendation

The management remains optimistic about stable growth in H2FY26, supported by robust execution and healthy deal wins. We remain constructive on the company’s long-term outlook. The company is valued at 19x FY27 EPS, and we maintain our HOLD rating on the stock with a target price of Rs 1,280/share, implying an upside potential of 9% from the CMP.

Relative Performance

For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home

SEBI Registration number is INZ000161633