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Degrowth Across All Fronts; Stable Outlook Est. Vs. Actual for Q1FY26: Revenue – MISS ; EBIT margin – MISS; PAT – MISS

Recommendation Rationale

• Macro environment outlook: The high uncertainty and lack of decision-making observed in March and April have eased, particularly in May and June, as customers have adapted to the new reality. Nonetheless, global uncertainty still affects the business at a group level.

• Deal wins/pipeline: The company secured a nearly $23 Mn deal with an impact-based communication service provider for wireless infrastructure rollout. The non-renewal business (new deals) increased from 18% of order intake in Q4 to 21% in Q1FY26.

• AI implementation: Cyient is sharpening its focus with three core tech-driven offerings: asset life cycle management, AI-driven engineering, and quality and regulatory assurance. These are supported by four strategic technology bets: 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 Current Valuation: 19x FY27E P/E Current TP: 1,315/share Recommendation: With a deal pipeline across business verticals, new partnerships, and higher adoption of new-age technologies, the company is expected to recover at a gradual pace. Hence, we resume our coverage with a HOLD rating on the stock.

Financial performance

In Q1FY26, Cyient reported revenue of Rs 1,712 Cr vs Rs 1,676 Cr (Q1FY25), up 2.2% YoY and down by 10.3% QoQ. EBIT stood at Rs 163 Cr vs Rs 199 Cr (Q1FY25), down 18.3% YoY and 30.7% QoQ. Net Income came in at Rs 157 Cr vs Rs 148 Cr (Q1FY25), up 6.6% YoY and down by 15.6% QoQ. However, in CC terms, overall revenue fell by 1.2% YoY and 0.4% QoQ. Attrition levels increased by 90 bps YoY to 16.9% vs 16% (Q1FY25).

Valuation & Recommendation

The management remains optimistic for a stable growth in FY26, led by slow execution and deal wins. We are constructive on the long-term outlook of the company. Hence, we resume over coverage with a HOLD rating on the stock and assign a 19x P/E multiple to its FY27E earnings to arrive at a TP of Rs 1,315/share, implying an upside of 6% from the CMP.

Outlook

From a long-term perspective, we believe Cyient is a stronger ER&D player with an improved outlook and better deal wins. The recent recovery is expected to be sustainable over a two to three-year horizon. However, rising concerns over uncertainties from large economies and supply-side constraints may impact the company’s growth prospects.

Key highlights

• DET Business Performance: Cyient’s DET business grew by 0.9% QoQ and 1% YoY in USD terms. However, it declined 1.5% QoQ and remained flat YoY in CC terms. The segment’s EBIT margin stood at 12%, down 63 bps QoQ and 61 bps YoY, primarily due to the first tranche of wage hikes.

• Transportation and Mobility: In CC terms, the Transportation and Mobility business within DET grew 2.5% QoQ and 7.3% YoY, driven by strong performance in transportation segments such as aerospace, rail, auto, and mobility. Aerospace remains a key growth driver.

• Networks and Infrastructure: The networks and infrastructure vertical declined by 2.9% QoQ and remained nearly flat YoY with a 0.2% decline. This segment is expected to stabilise and resume growth in the coming quarters.

• Strategic Units: Strategic units declined by 1.9% QoQ and 6.3% YoY. According to the company, two out of the three business units within this segment—healthcare and life sciences, mining and minerals, and energy—grew, with one registering double-digit sequential growth. A large project nearing completion in the energy segment impacted overall performance.

• Deal Wins: During the quarter, Cyient secured a nearly $23 Mn deal with an impact-based communication service provider for wireless infrastructure rollout. Additionally, it won a contract to digitise technical publications for a private jet manufacturer and added 14 new logos.

• Aerospace Opportunities: The company is seeing global opportunities in the Aerospace segment, especially in modernising processes like technical publications and documentation through digital solutions.

• Annuity Revenue Model: A significant portion of Cyient's revenue is annuity-based, reflecting strong customer dependence on its domain and engineering expertise.

• Business Environment: Management highlighted elevated uncertainty and delayed decision-making in March and April. However, some stabilisation was observed in May and June as customers adjusted to the new environment. Nonetheless, uncertainty persists, and a cautious outlook remains.

• Semiconductor Outlook: Cyient expects its semiconductor business to return to at least DET-level margins by Q3FY26, targeting revenue of around $10 Mn per quarter, supported by a strong order book.

• FY26 Guidance and Strategic Focus: Management refrained from providing formal guidance for FY26, citing the current phase as one of business stabilisation. However, the company remains confident in its positioning, backed by focused tech investments, a well-diversified industry mix, a robust customer base, and strong delivery capabilities. The long-term aspirational margin target of 15% for the DET business remains unchanged.

Key Risks to our Estimates and TP

• The demand environment is uncertain because of the potential threat of recession from the world’s largest economies.

• The rising subcontracting cost and cross-currency headwinds may impact operating margins negatively

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