Buy Cyient; target of Rs 1096: Prabhudas Lilladher

Prabhudas Lilladher's research report on Cyient

Management provided consolidated revenue guidance of 13-15% YoY CC for FY23 with visibility for a high single digit growth in DLM, due to continued supply side challenges. This implies Services growth of 15.5%-17.5%. We believe that guidance is aggressive in terms of both 1) DLM growth – Semiconductor supply side challenges may persist for a longer period and 2) In Services, growth is not broad-based with Communication and Portfolio (Medical, mining, aerospace) expected to drive growth in FY23 while Rail transportation, Utility and Geospatial expected to pick in H2FY23. Services order intake is healthy at $630.9 mn, +13.7% YoY for FY23. We model 13% YoY USD growth for FY23. Our EPS estimates remain unchanged. We now value Cyient on 18x (earlier: 22x) given – 1) downside risk to revenue growth because of semiconductor supply challenges in DLM (17% of revenue), 2) Macro uncertainties likely to moderate ER&D spends, and 3) High exposure (~57% of revenue) to aerospace, rail transportation and utilities sectors where growth still remains muted.

Outlook

We arrive at a TP of INR 1096 (earlier INR 1258) on FY24 EPS (roll-over) of INR 60.9. Cyient is currently trading at attractive valuations of 15.4x/13.7x on FY23/24 earnings of INR 54/61 respectively at significant discount to ER&D sector trading at ~40x FY24 EPS. We anticipate 14.3% revenue CAGR & 14% EPS CAGR for FY22-24E. Maintain Buy!

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