Kotak initiates coverage on Cyient DLM with sell call, cautious of weakening profit margins

Cyient DLM reported a 26 percent year-on-year (YoY) rise in net profit to Rs 18 crore for the quarter ending December 31, 2023. Revenue for the reporting period also rose 10 percent to Rs 321 crore against Rs 291.8 crore in the previous fiscal.

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Cyient DLM will be in focus at the open on April 15 as Kotak Institutional Equities initiated coverage on the stock with a "sell" call and a target price of Rs 570.

At the close on April 12, the electronics manufacturer's stock was trading at Rs 705.

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Bangalore-based Cyient DLM offers electronics manufacturing services for "mission-critical applications" in industries such as aerospace, defence, medical tech and industrials.

While the brokerage expects the company to see strong revenue growth over FY24 to FY26, they remain cautious on the stock due to the weakening margin profile and deteriorating working capital cycle. Over the last year, the stock has gained around 67 percent.

Also read: Buy Cyient DLM; target of Rs 810: Motilal Oswal

Cyient DLM reported a 26 percent year-on-year (YoY) rise in net profit to Rs 18 crore for the December quarter.  Revenue also rose 10 percent to Rs 321 crore against  Rs 291.8 crore in the previous fiscal. These gains were driven by the aerospace and defence segment.

In an April 8 report, brokerage Motilal Oswal analysts said among its peer, Cyient DLM was  better placed to grab the growing EMS opportunity by leveraging its strong client relation and multi-decade experience in the aerospace and Defence sector (both domestic and exports).
The brokerage also noted that in order to align with the nation’s focus on the indigenisation of defence, the company had hired key personnel with robust backgrounds in defence and deep connections to drive the company’s domestic defence growth story.

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