Buy Cyient DLM; target of Rs 753: KR Choksey

KR Choksey's research report on Cyient DLM

Cyient DLM reported a 38%/14% year-over-year (YoY) revenue growth during Q3FY25, driven by INR 870 million in revenue from the recently acquired Altek. However, on a standalone basis, revenue grew by only 11%. Net profits were significantly impacted due to acquisition-related costs. The reported EBITDA stood at INR 281 million, reflecting a decline of 11% YoY and 4% sequentially, primarily due to higher employee and other expenses. This was further exacerbated by higher depreciation stemming from the amortization of goodwill and increased finance costs. The order book declined YoY due to the fulfillment of a major client order and subdued standalone inflows. Despite this, we remain positive on the company’s strategic positioning, noting sequential improvement in Q3FY25 order inflows, even after excluding inorganic contributions. We have revised our EPS estimates downward to INR 8/14/22 (from INR 12/19/27) to reflect changes in the expense ratio mix arising from the integration of Altek and the extended timeline for margin expansion.

Outlook

Despite these revisions, we reiterate our BUY rating with a forward P/E multiple of 35x (previously 45x on FY26E EPS) on FY27E EPS, resulting in a target price of INR 753 per share. This is supported by an improving portfolio mix, a recovery in the Industrial and Medical segments, and the company’s strong positioning in the U.S. defense market, particularly under the new regime.

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