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Flattish guidance for FY25E; recovery expected from Q2

Cyient Ltd. reported weak group revenues for Q1FY25 at $200.9mn, de-growth of 1.5% YoY in cc. In USD terms, reported revenue was down 10.3% QoQ and 2.1% YoY. Cyient INR revenue for the quarter stood at INR16,757mn, down 9.9% QoQ and 0.6% YoY. Cyient’s DET business delivered revenue at US$169.6mn, degrowth of 5.0% QoQ and 3.6% YoY in cc. Softer than expected performance was due to the 4-5 projects to be ramped up and completed in Q1 in Connectivity segment got shifted by 6 weeks. PAT for the quarter stood at INR1,476mn (-12.2% YoY) with EPS at INR13.1.

* Amidst a challenging Q1, company is confident of achieving growth in the mid-tolong term backed by a strong order book (includes double digit growth in order backlog), engagement across top customers and addition of new clients in previous quarters. It secured five large deals this quarter across Connectivity, Aerospace and Sustainability with a total contract potential of $52.4mn. The pipeline for the year remains strong, while it is committed to delivering Intelligent Engineering solutions for its customers. Management has taken steps to align the supply to the demand in Aerospace. Under connectivity, company has the highest order intake and hence it expects strong recovery in upcoming quarters. New growth areas has the highest order backlog and it is expected to grow at double digits at the end of the year. Cyient has made significant progress on GenAI and has won about 15+ projects in Q1 covering various elements of product data management, engineering, information management, AI assisted PMO, customer experience, customer support and product support. For FY25E, it continues to invest in technology and capabilities for growth while equally focusing on cash conversion and cost efficiency levers. It expects DET revenue growth for FY25E to be flattish YoY cc due to the Q1FY25 impact.

* Cyient announces set up of a subsidiary to strengthen its decades old expertise in ASIC and Semiconductor space. The announcement of Cyient’s Semiconductor subsidiary marks a significant step forward in its commitment to innovation and excellence across the global semiconductor landscape. Its dedicated approach to turnkey ASIC design and chip sales positions them well to capitalize on the opportunities within the global semiconductor. Going forward, company shall report it as a separate segment.

* Company reported DET EBIT margins at 13.5% (-260bps YoY) driven largely by absorption impact from QoQ revenue movement and investments in sales and technology. Management intends to sharpen its focus on further strengthening of investment towards growth. The management expects FY25E DET EBIT margins to be in the range of 16% i.e. similar range as of FY24.

Valuation: On the back of weak macros, management guidance does not look appealing for FY25E. However, company shall continue to focus on efficiency levers and to invest in growth and in strengthening its current platform of offerings across its balanced portfolio of chosen industries. We downgrade our rating to SELL and arrive at a revised target price of INR1,810 implying a PE of 22x on FY26E EPS of INR82.

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