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Surged 60.26% In 1-Year, This IT Stock Is A Good Bet To Buy For 33% Upside

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Cyient Ltd is a mid-cap IT company with a market capitalization of Rs 10,573.12 crore. The stock has risen from Rs. 601.40 on January 22, 2021 to Rs. 963.80 on January 21, 3:30 pm IST, a return of 60.26 percent for shareholders. HDFC Securities has issued a buy call on the stock with a target price of INR 1,285, implying that the stock has a 33 percent upside potential from its current market price.

 

Q3FY22 highlights of Cyient Ltd according to the brokerage

Q3FY22 highlights of Cyient Ltd according to the brokerage

HDFC Securities has said in a report that "USD revenue grew +5.2% QoQ (above our estimate of 3.9% QoQ; core services/DLM revenue grew +3.6/12.9% QoQ. Services EBIT margin improved 10bps QoQ to 15.6% (higher than our estimate of 14%), led by operational efficiency (+87bps), SG&A leverage (+139bps) and lower depreciation (+54bps), but was partially offset by furloughs (-107bps), change in revenue mix (-80bps), merit increase (-54bps) and travel (-25bps). DLM margin declined 81bps QoQ to 6%, impacted by supply-side challenges. The company won seven large deals of TCV USD 68.8mn, six of which were in services and one in DLM. Attrition inched up to 29.3% (the highest in mid-tier IT)."

Buy With A Target Price of Rs. 1,285
 

Buy With A Target Price of Rs. 1,285

According to the brokerage "Cyient reported a good quarter; revenue was up 5.9% QoQ CC (higher than our estimate) and margin performed better than expected. The services segment reported double-digit YoY growth after thirteen quarters (+4.4/12.4% QoQ/YoY CC), led by a recovery in aerospace (+3.9/14.5% QoQ/YoY). The worst phase of commercial aerospace is over and, going ahead, growth will be led by Avionics and MRO revival. The management has maintained its double-digit growth guidance for services but lowered the DLM growth guidance (single-digit vs. 15-20% earlier), citing fulfillment challenges. Margin guidance has been upgraded by 50bps."

HDFC Securities has also claimed that "The deal pipeline was up 27% YoY and the company closed seven deals worth TCV of USD 69mn (+8% QoQ) in the quarter. Margin performance has been decent (over the past six quarters) but further expansion seems difficult due to rising attrition. We lower our EPS estimate by 3.5/4.6% for FY23/24E due to reduced DLM revenue guidance and a slight reduction in margin assumption. Our target price of INR 1,285 is based on 22x Mar-24E EPS. The stock is trading at 19.1/16.7x FY23/24E, a steep discount of ~55% to LTTS. Maintain BUY."

The brokerage has further highlighted that "We have factored in +10.1/+13.9/+13.4% USD revenue growth for FY22/23/24E respectively; FY22E implies +10.5/+8.2% growth in services/DLM. We have factored in a 13.6/13.5/13.6% EBIT margin for FY22/23/24E, resulting in an EPS CAGR of 14% over FY22-24E."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Saturday, January 22, 2022, 15:30 [IST]
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