Buy
Motilal Oswal’s research report on Cyient
We recently met the management of the company to get a sense of the demand amid emerging macros. The management was quite optimistic on sustaining the growth outlook and margin profile, while emphasizing its commitment to deliver within the guided range. Overall, we remain constructive on the growth story of CYL and its current positioning across verticals. We believe that a) CYL’s core service business has stabilized and has joined the upward trajectory with 12.1% YoY CC growth in FY23. b) FY23 robust Book-to-Bill of 1.3x (Core service) provides strong revenue visibility for FY24. c) The company’s strategic investments in strengthening capabilities should contribute meaningfully in terms of growth for FY24E/FY25E, and d) it is doubling down on its costrationalization efforts to improve service margin, while flexing some of the key levers to achieve 100-200 bp YoY improvement in FY24. We have not made any changes to our estimates and building in 18% YoY and 14% YoY CC growth with an operating margin of 13.9%/14.1% for FY24/FY25.
Outlook
Given that the valuation is currently at 17x/15x FY24E/FY25E (~40% discount to LTTS), it gives us more comfort to assign a higher multiple of 17x (16x earlier) to its FY25E EPS with a target price of INR 1,450.
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