Cyient Shares Pare Gains Even As Most Analysts Suggest ‘Buy’ After Q3
Here's what analysts have to say about Cyient's December-quarter results...
Shares of Cyient Ltd. reversed course to end with losses as analysts expect chip shortage pressures for design-led manufacturing business to sustain. That even as its high-margin services for communications, utilities and medical devices are seen to grow.
The technology company focused on engineering, manufacturing, data analytics, and networks and operations saw its revenue and net profit increase over the preceding three months in the quarter ended December.
While EBIT margin contracted 20 basis points, analysts said it was well managed despite scheduled wage hikes and lower billing days.
Cyient Q3 FY22 (Consolidated, QoQ)
Revenue up 6% at Rs 1,183.40 crore.
Net profit up 9% at Rs 131.8 crore.
EBIT up 5% at Rs 163.20 crore.
Margin stood at 13.79% against 13.99%.
Shares of Cyient rose as much as 3.54%, the most in almost three weeks in intraday trade, but pared all of the gains to end with 1.78% losses. The stock's trading volume was nearly 3.5 times the 30-day average volume at the time of market close.
Of the 23 analysts tracking the company, 19 maintain a 'buy', three suggest a 'hold' and one recommend a 'sell', according to Bloomberg data. The 12-month price target implies an upside of 27.7%.
Here's what analysts have to say about Cyient's December-quarter results...
Motilal Oswal
Reiterates 'buy' but cuts target price to Rs 1,310 from Rs 1,390, still an implied upside of 34%.
Design-led manufacturing and services segment aided revenue growth with portfolio, aerospace and communication segment driving services growth.
Management retained double-digit growth guidance in FY22 in services business, while DLM growth saw a significant cut due to supply snags.
Expects adverse impact on the DLM business due to chip shortage to continue for the next 12-15 months.
Expects continued outperformance in services business to compensate for any impact on earnings due to supply issues in DLM business.
Increases EPS estimates for FY23 due to expectations of a better margin performance.
Expects Cyient to deliver 15% U.S. dollar revenue CAGR over FY22-24.
Expects growth momentum in verticals such as communications, utilities, semi-conductor, automotive, medical devices and mining to continue for the next two-three years.
Expects aerospace business to bounce back to pre-Covid levels in FY23.
Strong rebound in ER&D spending and increased focus on large deal wins bode well for growth prospects.
Prabhudas Lilladher
Maintains 'buy' but reduces target price to Rs 1,293 from Rs 1,301; an implied return of 32.46%.
Lost revenue due to the adverse impact on DLM business due to chip shortage is expected to be realised in future quarter, however, it may take 12-15 months for supplies to normalise.
Pricing, pyramid optimisation and automation aided margin growth in services segment.
Upgrade in EBIT margin guidance despite the supply side pressure is impressive.
Sequential revenue decline in DLM business in Q4 will not impact margins as the company is prioritising delivery to high margin business.
Anticipates 16% revenue CAGR and 19% EPS CAGR for FY22-24E.
EPS estimates change by -1.9%/0.6% for FY23/24 due to decrease in revenue estimates to account for the expected weakness in DLM business in FY23 and subsequent recovery in FY24.
Morgan Stanley
Maintains 'underweight' with a price target kept of Rs 900, a downside of 7.80%
EBIT margin growth was well managed despite scheduled wage hikes and lower billing days.
Management trimmed its revenue growth guidance as DLM revenue are expected to grow in low single digits due to chip shortage.
Expects Cyient's revenue growth to continue to lag most of the other mid-cap peers in FY23 as the recovery in the company's largest verticals (aerospace and rail transportation) are likely to be gradual.
Expects FY23 margins to be stable.
Attrition rates remain uncomfortably high at 29.3% and wage hike interventions could be higher than usual.
Utilisation rates have to come down from the near-peak levels of 86% for growth to remain unimpacted.
Lowers price target to take into account the longer-term revenue growth forecasts.
Valuation remains cheap but only limited re-rating triggers seem available.
IDBI Capital market
Maintains 'buy' with the target price cut to Rs 1,205 from Rs 1,345; an implied return of 23.44%
Large deal wins (7) with total contract potential of $68.8 million augurs well for growth prospects in the coming quarters.
Order book in IT services has improved significantly in the quarter.
Chip shortage in DLM is expected to impact revenue in the near term.
Revises revenue estimates downwards for FY23E and FY24E by 1.4% and 4.6%, respectively.
Expects company's margins to improve 416bps over FY21-FY24 mainly led by lower DLM revenues, higher pricing, pyramid rationalisation and revenue growth.