Hold Cyient; target of Rs 500: ICICI Direct

Cyient’s $ revenues grew 2.6% QoQ to $124.0 million (Our estimate:  $121.7 million and 0.7% sequential) while constant currency (CC) revenues grew 2.0% QoQ. Its services business at $114.6 mn grew 5.4% sequentially, which is highest in last six quarters. In terms of verticals, the key verticals such as Aerospace (5% QoQ), Transportation (9.3% QoQ), Medical & Healthcare (16% QoQ) and Communication (13% QoQ) reported strong growth. In terms of geographies, while North America (6.9% sequential) and Asia Pacific (20.6% QoQ) reported strong growth, EMEA and India region declined 11.5% sequentially due to de-growth in Utilities & Geospatial and Design Led Manufacturing customers. Going ahead, Management continue to expect at-least 10% revenue growth in FY17E excluding Rangsons which could grow 50% YoY. We expect FY17E $ revenues to grow 13% YoY to $ 533.6 million led by Rangsons (50%), Softential (20%) and helped by organic business. We also expect FY18 $ revenues to grow 14.3% YoY to $ 610 million.        

We cut our EPS estimates by 10-12% to reflect lower margin profile of 13.7% in FY17E and 14.0% in FY18E, largely in line with management commentary. We now anticipate Cyient to report rupee revenue, PAT CAGR of 15% each during FY16-18E (average 13.9% EBITDA margins in FY17-18E), vs. 21%, 18.5% CAGR reported during FY11-16 (average EBITDA margins 16.3%). We continue to maintain our HOLD rating mainly on account of company’s uneven growth and margin profile. We value the stock at Rs. 500 (13x FY18E EPS). For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.