• Going forward, Cyient is expected to cross the ₹1,000 mark as Anand Rathi expects the company's comprehensive services and sales investments to improve growth in FY24 next fiscal. The stock brokerage has a buy recommendation on Cyient.
IT-enabled services provider, Cyient is currently trading at a little over ₹800 on the stock exchanges. The company maintains a good track record of paying dividends to its shareholders, and the latest will be 200% interim dividend for fiscal year 2023. In Q2FY23, Cyient gained traction in the services business, while increasing its margins across various businesses. Going forward, Cyient is expected to cross the ₹1,000 mark as Anand Rathi expects the company's comprehensive services and sales investments to improve FY24 growth next fiscal. The stock brokerage has a buy recommendation on Cyient.
At around 9.34 am, Cyient shares were trading at ₹811, up ₹3.25 or 0.40%. The stock touched a day's high of ₹815.15 in early deals. The market cap of the IT firm is approximately ₹8,948.57 crore.
So far in November, the midcap scrip has gained nearly 9 per cent on Dalal Street.
In its latest report dated November 28, Anand Rathi said, "To reduce concentration and thus raise expectations of steady organic revenue growth, Cyient diversified its services portfolio through acquisitions in FY23. It is working towards building a faster sales organization to benefit from its comprehensive services. Order numbers (in Q2) are yet to see significant improvement, but large deal pipeline ($1 billion+) reflects early gains With operational rigors (mostly high offshore), services margins are likely to reach 15% and capex is likely to be low. , convergence with peers, thus increasing FCF. DLM will be an additional value driver, in growth With bullishness, suggested by Q2 orders.
In addition, the stock brokerage said, Cyient believes its 5x5 (five industry verticals and five service lines) operating model, reduced portfolio drag (rail down 24% y/y in Q2), brighter outlook in Aero ( 8% y/y) and investments in larger deals ($530 mn in H1, $1bn+ pipeline) should help it grow 15% organically. Furthermore, it believes it can operate on a 15% EBIT margin, with an expected ~3% gain in operational efficiency (50% offshore offer opportunity). In Q2, Cyient had a 12.5% (adj.) services margin (15.3% in FY22).
Highlighting that the company has not seen growth in DLM in the last three quarters, Anand Rathi's note said that however, there is scope for improvement as it signed large orders in the second quarter.
It said, “The TTM order intake in Q3 FY22 was $150m, down from $104m in Q1. However, in Q2, it increased to $189m, up from $118m in Q2. This represents a growth of ~17% FY23-25 CAGR. The company has decided to carve out this division to capture better scale-up opportunities and sharpen the management's focus on the Services division. EBITDA margin of DLM ~ 11-12 % is likely to be.
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