Buy Cyient; target of Rs 570: HDFC Securities

HDFC Securities’ research report on Cyient

Cyient 1QFY18 numbers were muted led by steep fall in Design Led Manufacturing (DLM) business (~9% of revenue, -26% QoQ), however revival in core IT services (+3.3% QoQ) was encouraging. Management remains optimistic about Cyient’s growth prospects. It has reiterated its guidance for double-digit growth in the core business, 20% YoY growth in DLM and a 50bps margin expansion despite rupee appreciation.

Outlook

We expect USD revenue to grow 13.2/15.5% in FY18/19E. We expect margins to expand ~60bps in FY18E to 14.0%, led by a break-even in DLM margins (currently loss at operating level). In view of sustained recovery in core business, gradual pick-up in DLM, reiteration of double digit growth guidance we remain positive on the stock. We maintain BUY with a TP to Rs 570, implying 13x FY19 earnings.

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