Sell Cyient Ltd For Target Rs. 1,120 by Motilal Oswal Financial Services Ltd
Muted quarter
Expect short-term growth and margin challenges
* DET business reported 4QFY25 revenues of USD170m, down 1.9% QoQ in CC vs. our estimate of flat revenue. Connectivity revenue was down 4% QoQ in CC terms. Transportation/new growth areas declined 1.1%/5.9% QoQ CC. EBIT margin of the DET business contracted 50bp QoQ/300bp YoY to 13%, below our estimate of 13.5%. Service order intake was muted at USD181m, down 19% YoY. DET PAT was up 31% QoQ/down 6% YoY at INR1,631m (est. INR1,579m). For FY25, DET revenue/EBIT/PAT declined 1.6%/17.5%/12% YoY in INR terms. In 1QFY26, we expect DET revenue EBIT/PAT to grow by 5%/10%/19% YoY. Our SOTP-based TP of INR1,120 implies a downside of 10%.
Our view: 1Q to remain muted, margin defense seems challenging
* Revenue trends remain soft; 1Q to stay weak: DET revenue declined 1.9% QoQ in CC, with broad-based softness and Mar’25 deferrals weighing on performance. Management has flagged spillover weakness in 1QFY26 as well, and continues to face challenges around revenue predictability and deal closure timelines.
* Margin expectations revised down: EBIT margin stood at 13.0%, down 48bp QoQ. Management now aims to stabilize margins at ~15% over the next 24 months (vs. 16% earlier), citing continued macro pressure and investment prudence. While cost control remains a strength, the margin reset reflects ongoing structural challenges.
* New CEO focuses on execution stability: New CEO Mr. Sukomal Banerjee has acknowledged past volatility and is prioritizing rhythm in sales and delivery. While no major overhaul is planned, targeted leadership additions and a temporary pause on guidance signal a reset phase. Management remains hopeful of rebuilding confidence, but near-term visibility remains limited.
Valuation and change in estimates
* We maintain our sell rating on the stock as we believe a weak 4Q and seasonally weak 1H could lead to lower revenue growth for FY26E, and margins could be impacted in a similar vein. We cut our estimates by ~5% for FY26E/FY27E, largely on recalibration in margin expectations and industry-wide uncertainties for key growth areas such as sustainability and aerospace. 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 FY27E EPS. Our SOTP-based TP of INR1,120 implies a 10% downside.
Miss on revenues and margins; deal TCV down -41% QoQ
* DET revenue stood at USD170m, down 1.9% QoQ CC vs. our estimate of flat revenue. Consolidated revenue came in at USD220m, up 0.1% YoY CC. For FY25, revenue stood at 687.7m, down 3% YoY CC (below our expected decline of 2.7% YoY CC).
* Connectivity revenue was down 4% QoQ in CC terms. Transportation/new growth areas declined 1.1%/5.9% QoQ CC, while Sustainability revenue grew 1.1% QoQ CC.
* DET margins came in at 13% (est. 13.5%), down 50bp QoQ/300bp YoY. DET 4QFY25 margins were also lower than the guidance of 13.5%.
* The order intake came in at USD184.2m, down 41% QoQ/19% YoY.
* DET PAT was up 31% QoQ/down 6% YoY at INR1,631m (est. INR1,579m). For FY25, PAT was INR6b, down 12% YoY.
* Cyient declared a final dividend of INR14/share.
Key highlights from the management commentary
* Macro headwinds impacted performance in Mar’25. Management expects this uncertainty to persist in the near term.
* New CEO commented –The company needs to work on the execution side. It is building leadership team and has hired a few industry veterans as vertical leaders. Cyient is sub-segmenting the Sustainability vertical into Utilities, Energy and minerals and mining verticals.
* The company has taken GCC-focused view, going into FY26. It has created a new team in India and has realigned its existing clients. GCC deals will not be EBIT dilutive. Cyient will take steps to ensure overheads are lower in GCC deals.
* Aerospace client issued profit warning, but no major impact yet on Cyient.
* There could be some impact in the future; however, since the work related to MRO is based on flight hours, the business has not been significantly affected so far.
* Cyient has signed a large deal for green hydrogen for a marine company in Norway. Ramp-up is in process. It is a meaningful deal for overall business.
* A former employee has joined the company and will lead the energy division in Germany.
* Cost controls helped cushion the margin decline amid revenue pressure.
* It aims to stabilize margins at 15% over the next 24 months.
Valuation and view
We maintain our Sell rating on the stock as we believe a weak 4Q and seasonally weak 1H could lead to lower revenue growth in FY26, and margins could be impacted in a similar vein. We cut our estimates by ~5% for FY26E/FY27E, largely on recalibration in margin expectations and industry-wide uncertainties for key growth areas such as sustainability and aerospace. 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 FY27E EPS. Our SOTP-based TP of INR1,120 implies a 10% downside.
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