Buy Cyient; target of Rs 785: Edelweiss

Edelweiss' research report onCyient

Cyient’s Q4FY18 revenue, at USD164.6mn (up 8.3% QoQ), beat Street’s 7.5% growth estimate. EBITDA margin, at 14.1% (down 50bps QoQ), came below the 14.4% estimate. Key highlights: 1) services revenue grew by a 2.0% QoQ; 2) DLM revenue jumped 80.6% QoQ/32.6% YoY growth; and 3) management guided for double digit revenue growth in services business and ~20% growth in DLM segment with flat operating margins; however, we expect FY18-FY20 earnings CAGR to be 11.1% due to 200-300bps lower tax rate.

Outlook

We believe Cyient’s superior service offerings, led by ER&D and IoT, will help it clock revenue CAGR of 13.0% over FY18-20E. Further, strong execution and lower tax rate will drive EPS CAGR of 13.5%. At CMP, the stock trades at 13.2x FY20E EPS. We maintain ‘BUY/SP’ with revised TP of INR785 (16x FY20E EPS).

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