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Last Updated : Jan 14, 2020 12:12 PM IST | Source: Moneycontrol.com

Cyient share price gains 3% after Geojit initiates buy

Company has initiated a cost optimisation program to achieve sustainable margins for the services business.

 
 
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Shares of IT company Cyient rallied 3 percent intraday on January 14 after Geojit Financial Services initiated coverage with a buy rating on the stock and target price of Rs 540, implying 21 percent potential upside from current levels.

The brokerage cited low valuations, expectations of stable revenue growth and likely improvement in margin.

The stock surged 17 percent in the last one month. It was quoting at Rs 453.65, up Rs 6.40, or 1.43 percent on the BSE at 11:35 hours.

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Cyient, formerly known as InfoTech Enterprises, is one amongst the leading players in the IT-enabled services space providing services to the engineering research and development segment.

"Growth in ER&D spends across the globe and in key services like aerospace and defence, communication and healthcare to propel order intake and improve the revenue from FY21 onwards," said Geojit.

The brokerage believes negative factors like client-specific concerns and low margins are already factored in the current valuation of 7.2x on FY22E EPS, which is at a discount of around 45 percent compared to the long-term average.

The research house expects an improvement in growth due to telecom and transportation vertical and value Cyient at 9x on FY22E EPS with a target price of Rs 540.

Cyient enjoys strong foothold among the listed Engineering and research development (ER&D) space and generates close to 65 percent of revenue. Company has been instrumental in providing services to the Aerospace and defence segment which has been reporting a soft set of numbers since the last 2 quarters due to client-specific concerns.

Company has initiated a cost optimisation program to achieve sustainable margins for the services business.

"The move is largely to curtail the sales and administrative expenses and boost margins. We believe the cost optimisation program to end in Q4FY21E, till the time improvement in margins due to a fall in sales expenses will be impacted by higher wage cost and one-time restructuring cost. Margins expected to be in the range of 14-15 percent once cost optimisation ends," Geojit said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Jan 14, 2020 12:10 pm
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