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Transformation Gaining Traction; Execution Key to Re-Rating

CYL is navigating a strategic reset, focusing on DET margin recovery, semiconductor scale-up and DLM momentum, supported by operational efficiencies and technology acceleration. Q2FY26 highlighted 12% QoQ semiconductor growth, steady traction in transportation and networks and resilient margin despite cost pressure. While near-term macro uncertainty persists, leadership depth and strategic initiatives support medium-term growth. We value the company using a SoTP approach, arriving at a TP of INR 1,190, based on a target multiple of 15x applied to FY27–FY28E DET EPS (Refer Page 2). We upgrade the stock to REDUCE from SELL, noting a potential re-rating if execution sustains.

Revenue In Line with Estimates, EBITM and PAT under Pressure

* Revenue for Q2FY26 came in at INR 17.8Bn, up 4.0% QoQ but down 3.7% YoY (vs CIE est. at INR 17.3Bn).

* EBIT for Q2FY26 came in at INR 1.6Bn, up 2.7% QoQ but down 27.5% YoY (vs CIE est. at INR 1.9Bn). EBIT margin was down 12bps QoQ and 308bps YoY to 9.4% (vs CIE est. at 11.2%).

* PAT for Q2FY26 came in at INR 1.2Bn, down 17.2% QoQ and 28.9% YoY (vs CIE est. at INR 1.7Bn).

Stronger Pipeline and Tech Focus Signals Mid-Teen Growth Potential: 

management has outlined its transformation agenda built around 3 core pillars — Marketplace Impact, Technology Acceleration and Organisational Effectiveness. The company has streamlined its go-to-market model, sharpened sales accountability for new business and introduced performance-linked sales incentives focused on deal wins and revenue growth. We believe enhanced focus on large deals and deeper account mining could drive sustainable mid-teen growth and improve client stickiness over the medium term. Concurrently, CYL is scaling up AI and digital engineering capabilities, with new leadership hires and focused investments in data-led automation.

Diversified Growth across Verticals; Semiconductor Rebounds, DLM Scales:

Growth in revenue was led by Transportation & Mobility (+3.9% QoQ) and Network & Infrastructure (+3.6% QoQ), supported by focused account mining and demand for design-led solutions. Meanwhile, Strategic units witnessed a temporary decline (-6.0%) due to European seasonality and program rampdowns. We believe, Transportation offers near-term visibility, while CYL’s network automation pivot via VISMON AI should enhance business mix and overall margin. CYL Semiconductor rebounded sharply in Q2 with 12% QoQ growth. Semiconductor business is rebuilding on a stronger foundation with over USD 100Mn pipeline, high revenue mix from turnkey ASIC solutions and strong partnerships. While EBIT remains negative due to upfront investments in sales and IP, management targets EBIT to break even by FY27E. Further, CYL DLM business reported a strong momentum with order book growing by 130% YoY and marquee client additions.

15% EBITM Target Remains Intact:

DET EBITM improved 20bps QoQ to 12.2%, despite wage hikes and one-off restructuring cost (~200bps impact), offset by one-off insurance reimbursement along with cost optimisation and operational efficiencies. Management remains confident of achieving 15% EBIT by Q4FY27E through its ongoing margin and efficiency improvement program, focused on process simplification and new business leadership initiatives.

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