Buy Cyient; target of Rs 623: Axis Direct

Axis Direct's report on Cyient

Services business posted a strong revenue growth(up 3.2% QoQ), but a seasonally weak DLM(Design Led Manufacturing) business led to a flat quarter. Margin defense (down only 50 bps QoQ) was robust despite headwinds of currency and wage increase.

Guidance intact: Cyient expects double-digit revenue growth in its Services business and maintained 20% YoY growth outlook for DLM in FY18. The growth will be driven by momentum in Transportation, Communications and Utilities and Geospatial verticals in the Services business. In DLM business, momentum is likely to pick up on strong order back log and healthy outlook in Communications, Defense and Transportation segments.

Outlook

Aerospace & Defense (32% of revenue): Growth is likely to be driven by Avionics segments (driven by the acquisition of Certon) and the after-market and MRO (Maintenance Repair and Overhaul) segment. DLM is likely to grow faster at +10% YoY in FY18 while the Services segment will be growing at slightly lower than 10% CAGR which has been seen in the past several years.

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