Accumulate Cyient; target of Rs 621: Prabhudas Lilladher

Prabhudas Lilladher's research report on Cyient

Cyient delivered mixed bag results, with weak revenue & margin beat. Services business (accounts for 89% of total revenues) increased 1.4% QoQ in constant currency. EBITDA margin expanded 34 bps QoQ at 15.1% (PLe:14.6%, Consensus:14.8%) in Q4FY19 led by operational efficiencies, incremental bill days & lower SG&A expenses. Services margins are stable at 16.4% but DLM business still operates a low 4.1% margins. Cyient delivered 14% EBITDA margin in FY19, flat YoY. Cyient's margin trajectory has remained weak and is likely to remain at the lower end among mid-sized IT peers. Cyient expects services business to grow in high single digit (cc terms) and 15% YoY growth in DLM. We expect Cyient to deliver 8.1% USD revenue growth for FY20E (7.3% growth in Services business and 14% growth in DLM business). Cyient has missed either revenue guidance or margin guidance over past 4-5 years. We remain watchful on margin trajectory & expect margins to remain flat inFY20E-21E.

Outlook

We value Cyient at 13x FY21E EPS & arrive at an unchanged target price of Rs.621. Maintain Accumulate. Expect near term pressure on stock due to lower guidance.

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