This Multibagger Small Cap IT Stock Trading Near 52 Week Low, Buy For 28% Upside, Says Anand Rathi

Anand Rathi has placed a "BUY" call on Cyient Limited with an unchanged Target Price of Rs 1,030 per share. According to the brokerage's given target price, the stock is likely to surge 28% from its current level. Cyient is a small-cap IT-Software sector company having a market cap of Rs 8,924.26 crore.

The brokerage in the report has stated that to reduce concentration and thus raise expectations of steady organic revenue growth, Cyient diversified its services portfolio in FY23 via acquisitions. It is working toward building a sharper sales organization to benefit from its wider services.

Stock Outlook & Returns

The share price of Cyient closed at Rs 807.80 apiece on 28 November 2022, 1.39% up compared to its previous close on NSE. The stock is trading 12.19% up from its 52 week low level, which is Rs 720, recorded on 26 May 2022. Its 52 week high level is Rs 1,127.65, recorded on 25 November 2022. 

The stock in the past 1 week moved up by 0.91% and in the past 1 month by 8.14%, respectively. However, the stock in the past 3 months and 1 year has fallen by 5.3% and 24.86%, respectively. It has given 104.38% multibagger returns in 3 years and 43.61% positive returns in the past 5 years, respectively.

15% Services growth with 15% EBIT margins to be the yardstick

Cyient believes its 5x5 (five industry verticals and five service lines) operating model, reduced portfolio drags (Rail down 24% y/y as in Q2), brighter outlook in Aero (up 8% y/y) and investments in large deals ($530m won in H1, $1bn+ pipeline) should help it grow 15% organically. Besides, it believes it can operate at 15% EBIT margin with ~3% gains expected in operational efficiency (50% offshore offers opportunity). In Q2, Cyient had 12.5% (adj.) Services margins (15.3% in FY22).

DLM to be growth driver ahead, closes large deals in Q2

Cyient has not seen growth in DLM in the last three quarters. However, improvement is likely as it has signed large orders in Q2. TTM order intake in Q3 FY22 was $150m, which came down to $104m in Q1. However, in Q2, it rose to $189m, with Q2 intake of $118m. This will accelerate growth to a ~17% FY23-25 CAGR. The company has decided to carve out this division to capture better scale-up opportunities and sharpen management's focus on the Services division. DLM's EBITDA margins are likely to be ~11-12%.

Buy, with unchanged target of Rs.1,030

The stock quotes at 12x FY25e EPS of Rs.68, attractive, given expectations of rising organic growth, potential value creation opportunities in the DLM carve out, and after factoring in some risks due to the company's acquisitive nature. "Cyient is currently net-debt, which restricts its ability to wade through in a tough environment. Therefore, we value the stock at 15x FY25e EPS," the brokerage has said.

Risk to the buy call would be M&A-integration-related, according to the brokerage.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.