Buy Cyient; target of Rs 620: Cholamandalam Securities
Cholamandalam Securities is bullish on Cyient has recommended buy rating on the stock with a target price of Rs 620 in its research report dated October 13, 2017.
Cholamandalam Securities' research report on Cyient
In 2QFY18, Cyient reported a health revenues growth of 6.4% QoQ to INR 9,654mn. In dollar terms, revenues grew by 6.7% QoQ to USD 150.1mn (highest ever). Cyient’s services business grew by 4.2% QoQ ,while DLM business grew by 33.7% QoQ. EBITDA margin improved by 181 bps QoQ to 14.6% led higher utilization, and cross currency tailwinds (160 bps QoQ), however, margins were partly impacted by wage hike (70 bps QoQ) and higher SG&A. Effective tax rate stood at 28.1% (-302 bps QoQ). ETR was lower owing to higher income from lower tax region and tax benefit from SEZ. Management guided tax rate to be between 26% - 28% for FY18E. Net Income grew by 26.9% QoQ to INR 1,114mn led by higher other income. Cyient declared interim dividend of INR 5/share (highest ever), and revised the divined policy to dividend payout of up to 40% from current payout of up to 30%. Utilization improved by 180 bps QoQ to 75.9%. Attrition stood at 14.2%. Management has maintained its double digit growth guidance for FY18 with 50 bps EBITDA margin expansion on the back of strong pipeline and order backlog. DLM business is expected to grow ~20% in FY18. Higher off off-shoring and operational efficiency are key levers for margin expansion.
At CMP, the stock trades at 13.0x/11.4x of FY18/19E EPS. We assign a target P/E of 13.5X FY19E EPS with a target price of INR 620. We rate the stock BUY. Risks: Unfavorable cross currency movement & further delay in deal closures.
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