Prabhudas Lilladher's research report on Cyient
Management retained its organic revenue guidance of 13-15% YoY CC for FY23, 6-7% additional growth from acquisitions and contribution from Citec (expected to close in Q2FY22). We continue to believe that guidance is aggressive as 1) Macro headwinds will likely result in lower ER&D (discretionary) spends, 2) Semiconductor supply side challenges may persist for a longer period in DLM business and 2) In Services, growth is not broad-based with Communication and Portfolio (Auto, healthcare) expected to drive growth in FY23 while Aero, Rail and Utility expected to pick in H2FY23. We model 19%/12% YoY USD revenue growth for FY23/24. Steep decline of 298bps QoQ in EBIT margin was led by headwinds from wage hikes (spread across 3 quarters, 153 bps impact in Q1 and 250-300 bps impact for FY23), drop in utilization (80.9%, -530bps QoQ) and investments in SG&A. DLM EBIT margin declined by 560bps QoQ which had a one-time impact of accounting error in inventory valuation. Management expects DLM EBIT margin to be 7-9% and overall margins between 13-15% for FY23. However, higher employee costs, acquisition related integration costs, reversal of covid led cost savings will weigh down on margins. We model 12.8% margin for FY23.
Outlook
We downgrade Cyient to Hold from Accumulate, as we believe current valuations fully price in potential earnings growth. We continue to value Cyient on 13x (FY24 EPS) to arrive at a TP of Rs.776. (earlier: Rs. 798) Our EPS estimates decrease by 2%/3% in FY23/24 due to cut in revenue estimates.
More Info
At 17:30 Cyient was quoting at Rs 779.90, down Rs 17.70, or 2.22 percent.
It has touched an intraday high of Rs 789.90 and an intraday low of Rs 771.55.
It was trading with volumes of 15,448 shares, compared to its thirty day average of 12,258 shares, an increase of 26.03 percent.
In the previous trading session, the share closed down 0.14 percent or Rs 1.10 at Rs 797.60.
The share touched its 52-week high Rs 1,292.00 and 52-week low Rs 725.65 on 19 October, 2021 and 07 July, 2022, respectively.
Currently, it is trading 39.64 percent below its 52-week high and 7.46 percent above its 52-week low.
Market capitalisation stands at Rs 8,606.51 crore.
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