Rs 26/Share Dividend: IT Stock In Defence Sector At New Highs, Up 170% YTD; Opportunity To Buy Further?

IT company, Cyient in midcap basket has touched new high levels in the robust bull rally last week. The dividend-paying stock has touched a new 52-week high of Rs 2,246.85 and has gained by nearly 170% year-to-date. Brokerage Elara Capital has stated that the company's management shared a strong demand outlook for the next 3-5 years. And hence, the brokerage has recommended buying for a target price of Rs 2,450. Cyient has a huge deal in the aerospace segment as of the latest.

On BSE, last week, Cyient share price closed at Rs 2,198.75 apiece up by Rs 78.65 or 3.71% on Friday. On this day, the stock had touched a new 52-week high of Rs 2,246.85 as well.

Cyient ended last week with a whopping 11% upside. While its year-to-date performance is strong with over 160% upside, making this midcap IT stock a multibagger.

So far in 2023, Cyient has rewarded its shareholders with dividend payout up to 520% aggregating to Rs 26 per share. Currently, the stock has a dividend yield of 1.18%.

In its latest research note, Elara said, "Cyient (CYL IN) management held an analyst meet recently. It shared a strong demand outlook for the next 3-5 years due to robust traction for ER&D services, led by digital engineering. In the near to medium term, the outlook echoes our investment thesis and emphasizes on high growth in the aerospace & defense, auto & semiconductors, energy & mining verticals."

This will be offset by moderate growth in the connectivity, healthcare & life sciences, and rail transportation verticals, it said.

Despite economic uncertainty, the brokerage highlighted that Cyient has retained focus on its Top 50 clients, downplaying macroeconomic disruptions. It expects a muted performance in the wireless sector for the next few quarters. Management says strategic positioning in key aerospace projects, such as the F35 and the Airbus, is yet to unfold.

Also, Cyient is set to become a key collaborator for Boeing, chosen among 10 suppliers from a field of 12,000, underscoring its focal role in the aerospace giant's sourcing. Boeing's USD 200mn Bengaluru campus, featuring 3,000 engineers, is collaborating with CYL, and this showcases the depth of their partnership.

Moreover, the brokerage mentioned that Boeing's sourcing has grown from USD 250mn in CY15 with 120 suppliers to an anticipated USD 1bn with 300 suppliers in CY23, with 40% allocated to engineering & services and 60% outsourced for manufacturing. The future growth roadmap involves mapping five key suppliers, including CYL, and aims to double-sourcing to USD 2bn.

On the valuation, Elara's note said, "We prefer CYL based on: 1) revamped organizational structure, 2) balanced portfolio of industries for stable growth & margin expansion, 3) incentivized large deal pipeline, and d) diversification into fastgrowing verticals. We retain Buy with a higher TP of Rs 2,450 from INR 2,220 as we roll forward."

"Our new target multiple is 25x (from 23x) September 2026E EPS of Rs 98 with five-year average +0.5SD on strong demand for DET and DLM businesses. Key risk is a demand slowdown in the transportation business," lastly said.

Apart from global manufacturing and engineering technology solutions, Cyient also offers advanced aerospace & defense solutions. The company also has Design Approval from the Centre for Military Airworthiness & Certification (CEMILAC), a laboratory of the Indian Defence Research and Development Organisation (DRDO) under the following scope: "Design, Development of Aero Structures, Aero Interiors, Aero Engines Parts and Systems, Aero Systems, and Avionics for Military Airborne Applications." The company helps A&D OEMs and Tier 1 suppliers transform their product life cycle.

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