Buy Cyient; target of Rs 913: Edelweiss

Edelweiss' research report on Cyient

Cyient reported Q1FY19 revenue of USD160.8mn (down 2.3% QoQ) versus Street’s estimate of a 1.3% decline. EBITDA margin at 12.2% (down 190bps QoQ) is lower than the expectation of 13.5%. Management attributed the miss to the anticipated slowdown in certain projects, but maintained the FY19 guidance for revenue and profitability amid robust demand outlook. Key highlights: 1) services revenue inched up 1.1% QoQ (in cc terms); 2) Aerospace & Defence (A&D) returned to double-digit growth; 3) the communication business faced a challenging quarter, but healthy growth is likely to return on the back of a strong pipeline; 4) margins undershot owing to certain one-offs and are likely to recover.

Outlook

Cyient’s superior services portfolio (ER&D) along with a robust demand environment and significant sector tailwinds underpin our higher target multiple of 18x (16x earlier). Maintain ‘BUY’ with a revised TP of INR913.