Buy Cyient; target of Rs 810: Prabhudas Lilladher

Prabhudas Lilladher's research report on Cyient

Cyient delivered a steady performance for 2QFY19 with a marginal beat on revenues and margins. Revenues came at USD 169mn up 5% QoQ and marginally above our estimates (PLe: USD167.8mn). Constant Currency growth for the quarter was 6.5% QoQ. Services business revenues at USD146mn were up 2.3% QoQ in USD (3.5% QoQ growth in constant currency). ANSEM contributed to additional USD1.4mn for the quarter owing to full impact of consolidation. Hence, Services business revenues have grown by 1.3% QoQ in USD (2.5% in cc). Design Led Manufacturing (DLM) business revenues for the quarter came at USD22.9mn for 2QFY19 (compared to USD18mn in 1QFY19). Management retained double digit revenue growth in Services business for FY19. However, considering the soft start (1HFY19), Cyient would need to deliver 4.5% CQGR over next two quarters to achieve 10% USD revenue growth in Services business. This is a tough ask considering that management has also guided that 3Q could see some softness in its key vertical (Aerospace vertical). Management also cited that 3Q revenues will be impacted by seasonality.

Outlook

We downgrade our TP by 6% to Rs 810/share (16.5x FY20E EPS vs 17.5x earlier) led by modest EPS downgrade. Retain Buy.

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