Sell Cyient Ltd for the Target Rs.1,120 by Motilal Oswal Financial Services Ltd
Still in reset mode
Soft DET performance and margin recalibration continue
* Cyient (CYL)’s DET business reported 1QFY26 revenue of USD162.7m, down 1.5% QoQ in constant currency (CC) terms. Transportation and Mobility (T&M) rose 1.2% QoQ in CC, while Network and Infrastructure (earlier connectivity vertical) dipped 5.2% QoQ in CC. The carve-out of Cyient Semiconductors, initiated in FY25, has been completed as planned and will now be reported as a separate segment.
* On a like-for-like basis (DET + Semicon), revenue was USD168m, broadly in line with our estimate of USD170m. However, the EBIT margin at 10.3% missed our estimate of 12.9%. DET PAT rose 7.4% QoQ/30% YoY to INR1,632m.
* For 1QFY25, DET reported a 3.6% YoY increase in revenue, flat EBIT, and a 30% YoY rise in PAT in INR terms. We reiterate our SELL rating with a SoTPbased TP of INR1,120, implying a 10% potential downside. This was due to recalibrated margin expectations and growth uncertainty in verticals such as Networks & Infrastructure and Energy, alongside delayed deal ramp-ups.
Our view: Stabilization in progress
* Too early to call a turnaround: DET revenue declined 1.5% QoQ in CC, and deal ramp-ups remain staggered. While CYL highlighted early demand recovery with 14 new logos, we believe it is premature to extrapolate this into a sustained upcycle. Management continues to describe this phase as “business stabilization,” with revenue predictability still a work in progress.
* Margin reset continues: EBIT margin contracted further to 12%, due to wage hikes and volume softness. While a cost optimization plan is underway, the medium-term 15% margin target appears challenging given ongoing investments and restructuring. We estimate a 12.8%/14.0% margin for FY26/FY27.
* Vertical performance diverges; only Transportation holds up: The carveout of Cyient Semiconductors was completed during the quarter and will now be reported as a separate segment. Within DET, only T&M delivered sequential growth (+1.2% QoQ cc), driven by strong Aerospace momentum and increased defense-led outsourcing. N&I declined 5.2% QoQ cc amid portfolio restructuring, with management guiding for stabilization ahead. Semiconductor revenue remained soft, leading to margin pressure. While management expects a recovery from 3QFY26–targeting DET-like margins and a USD10m quarterly run-rate–we believe visibility remains limited in the near term.
* Leadership changes encouraging: Recent top-level additions in DET and continued tech investments suggest a sharper strategic focus, especially in newer verticals like semiconductors and connectivity. However, these bets are still in the early phase. With sustained growth uncertainty persisting and margin normalization deferred, we stay cautious.
Valuation and changes to our estimates
* We reiterate our SELL rating on the stock, as we believe the seasonally weak 1H could lead to lower revenue growth for FY26E, and margins could be affected in a similar vein. We cut our estimates by ~4-5% for FY26/FY27, broadly on recalibration in margin expectations and continued growth uncertainty in key verticals such as Networks & Infrastructure and Energy, with some deal rampups deferred during the quarter.
* 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% potential downside.
In-line revenue but miss on margins; added 14 new logos in 1Q
* DET revenue stood at USD162.7m, down 1.5% QoQ CC vs. our estimate of a 2.0% QoQ CC decline. Consolidated revenue came in at USD200m, down 0.4% YoY CC.
* T&M rose 1.2% QoQ in CC, while Network and Infrastructure (earlier connectivity vertical) dipped 5.2% QoQ in CC.
* DET margins came in at 12% (est. 12.9%), down 63bp QoQ/61bp YoY.
* CYL added 14 new logos in 1QFY26. ? DET PAT was up 7.4% QoQ/30% YoY to INR1,632m.
* The carve-out of Cyient Semiconductors, initiated in FY25, has been completed as planned and will now be reported as a separate segment. Accordingly, DET business figures no longer include the semiconductor business and are therefore not directly comparable to our prior estimates.
* On a like-for-like basis (DET + Semicon), revenue stood at USD168m, broadly in line with our estimate of USD170m. However, the EBIT margin at 10.3% missed our estimate of 12.9%.
Key highlights from the management commentary
* Global uncertainty has eased compared to Apr’25. Clients have adapted to the new environment and are no longer in a "freeze mode" as seen in March–April.
* Recent leadership changes in the DET segment have laid the foundation for stable and sustainable growth.
* Early signs of recovery are visible, supported by key deal wins and 14 new logo additions during the quarter.
* Non-renewal/new business bookings are witnessing healthy order intake and will remain a key monitorable.
* New deal wins typically start in project mode and gradually transition into annuity streams.
* The company views the current phase as a business stabilization period.
* Signs of recovery are visible, aided by 14 new logo additions in 1QFY26. Some deal ramp-ups were deferred during the quarter.
* Won a USD20m deal with a leading APAC-based CSP (Vodafone Idea) to expand their wireless infrastructure.
* A cost optimization program is underway to improve margins, with a mediumterm target of achieving a 15% EBIT margin.
* Aerospace remains the primary driver, with opportunities across tech publications and documentation.
* Energy faced a headwind due to a one-off project completion, which may be a growth headwind for the next few quarters.
Valuation and view
* We reiterate our SELL rating on the stock, as we believe the seasonally weak 1H could lead to lower revenue growth for FY26E, and margins could be affected in a similar vein. We cut our estimates by ~4-5% for FY26/FY27, broadly on recalibration in margin expectations and continued growth uncertainty in key verticals such as Networks & Infrastructure and Energy, with some deal rampups deferred during the quarter.
* 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% potential downside
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