Buy Cyient; target of Rs 605: Reliance Securities

Reliance Securities' research report on Cyient

Cyient’s revenue grew by 6.8% QoQ and crossed US$150mn in 2QFY18, exceeding our estimate of 6.2% QoQ growth led by healthy 4.3% QoQ and 33.7% QoQ growth in core and DLM business, respectively. Consistency in core business growth metrics is heartening, in our view especially with 4.3% QoQ growth following 3% QoQ/3.3% QoQ growth in 1QFY18/4QFY17, respectively. While ENGG business grew by a solid 4.3% QoQ in USD terms (following 4% QoQ growth in 1QFY18), DNO business clocked a strong 4.2% QoQ growth in 2QFY18. The DLM business saw a robust 33.7% QoQ USD revenue growth, which is a healthy recovery after the steep 26% QoQ dip in 1QFY18. On a YoY basis, DLM rose by a strong 17.4%.

Outlook

At CMP, the stock trades at a PE of 12.1x FY19E EPS, which we believe to be reasonable given healthy core business metrics, margin expansion, strong traction in most verticals, strong client relationships, decent dividend yield, quality balance sheet and healthy EPS growth (18.9% CAGR) over FY17-FY19E. We retain our BUY recommendation on the stock with an upwardly revised Target Price of Rs605 (Rs565 earlier), as we slightly raise our FY19 EPS estimate by 5.6%.

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