Cyient LTD.: Q1FY20: Weak Quarter, Lack Visibility
Cyient LTD.: Q1FY20: Weak Quarter, Lack Visibility
Cyient LTD.: Q1FY20: Weak Quarter, Lack Visibility
CYIENT LTD.
IT SERVICES HOLD
Target Price : Rs 500
Key Highlights
Slowing business drag top line and operating margins
Cyient Ltd., one of the leading Engineering and Research and development services, company reported revenue degrowth of
5.2% QoQ and 2.6% on YoY basis in CC terms at Rs. 1,089 crs. The EBITDA margin in Q1 FY20 has declined by 180bps to
13.3% from 15.1% in Q4 FY19. The Net income declined in Q1 FY20 at Rs. 90crs. Order intake for the quarter also remained
softer during the quarter at $155mn as compared to previous quarter. The major headwinds in the top line for Cyient are
because of delay in the project execution in main verticals such as communication & Aerospace and Defence. The delay may
push the execution in the second half of the FY20.So near term revenue growth may impact negatively. However
management is very optimistic in taking advantages of its investments like NBA from FY20 onwards.
100
80
60
Jul-18 Oct-18 Jan-19 Apr-19 Jul-19
OmkarTanksale Sensex Cyient
omkar.tanksale@axissecurities.in
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CYIENT LTD
IT
100% 100%
80%
80%
60%
40% 60%
20% 40%
0%
20%
Q3FY18
Q1 FY18
Q2 FY18
Q4 FY18
Q1 FY19
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Q1 FY20
0%
Q1 FY18
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Q1 FY19
Q2 FY19
Q3 FY19
Q4 FY19
Q1 FY20
Q3FY18
Aerospace and defence Transportation
I& ENR Semiconductor
Media & Healthcare Utilities & Geospatial
North America Europe APAC
Communications
Concall Takeaways
In Communication vertical, Cyient is facing some issues on key account customers.
on DLM side, which drove decline in segmental revenue.
The management is expecting the EBIT margin to grow by double digit in FY20. NBA program will help
improve the efficiency in the operations.
Cyient’s management expects slowdown to be short term and business to normalize towards the end of Q2.
The digital solutions offerings are gaining momentum and the management sees increased interest among
several of clients. The Outlook for Q2 remains positive, company expects a single digit growth through the
quarter driven by growth in key clients and manufacturing business.
The cost optimization measures taken helped deliver a good margin growth through the quarter.
Management expects single digit growth in Q2 margin driven by growth in Europe and North America as it
continues to support large carriers in fibre network rollout.
Service EBIT margin stood at 10.5%; DLM margin stood at -0.3%.
Strategic Investment in Cylus (a rail cyber security company) – strengthened its focus on digitization and
cyber security solutions for the rail industry.
Order intake stood at $155 mn, the order intake was lower than the previous quarter (196) due to slow
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IT
Valuations
The slowdown in the key business vertical may impact upcoming quarters in the near terms. Near term pressure
and lack of guidance we recommend HOLD on the stock. We assign 11.3x P/E multiple to its FY21E earnings of
Rs. 44.2 per share which gives a target price of Rs. 500 per share, an upside of 8%.
1000 25
900
800 20
700
600 15
500
400 10
300
200 5
100
0 0
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250 20%
1,400 25%
18%
1,200 200 16%
20%
1,000 14%
150 12%
800 15%
10%
600 10% 100 8%
6%
400
5% 50 4%
200 2%
0 0% 0 0%
Q3 FY19
Q4 FY19
Q1 FY18
Q2 FY18
Q4 FY18
Q1 FY19
Q2 FY19
Q1 FY20
Q3FY18
Q3FY18
Q1 FY18
Q2 FY18
Q4 FY18
Q1 FY19
Q2 FY19
Q3 FY19
Q4 FY19
Q1 FY20
Net Revenues (Rs . Crs) YoY ( In %) NPAT Margin ( Rs. Crs) Margin (%)
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IT
600 20%
600 25%
18%
500
500 16%
20%
14%
400
400
12%
15%
300 300 10%
10% 8%
200 200
6%
5% 4%
100 100
2%
0 0% 0 0%
FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19
Order Intake
Q1 FY20 Q4 FY19 Q1 FY19 QoQ YoY
Cyient Services 134 185 153 -28% -12%
DLM 21 11 17 91% 24%
Total 155 196 170 -21% -9%
Client matrix
Q1 FY20 Q4 FY19 Q1 FY19 QoQ YoY
Top 5 0.323 0.318 0.337 2% -4%
Top 10 0.441 0.43 0.46 3% -4%
Employee Metric
Q1 FY20 Q4 FY19 Q1 FY19 QoQ YoY
Technical & Pool 13912 13916 13851 0% 0%
Non- Technical 373 393 419 -5% -11%
Support Functions 758 775 786 -2% -4%
Total 15043 15084 14125 0% 6%
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IT
Results Update
Quarterly Performance
% Change % Change
(Rs.Cr.) Q1FY20 Q4FY19 Q1FY18
(QoQ) (YoY)
Tax Expenses 25 32 30
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22 JULY 2019 Result Update
CYIENT LTD
IT
DEFINITION OF RATINGS
Ratings Expected absolute returns over 12-18 months
BUY More than 10%
HOLD Between 10% and -10%
SELL Less than -10%
NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events
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