Cyient shares at Rs 1,100? Motilal Oswal sees 20% upside potential for IT stock

Shares of Cyient climbed 4 per cent in Friday's trade after the company reported a strong set of quarterly results. Cyient on Thursday reported a 23.6 per cent year-on-year (YoY) rise in normalised profit at Rs 163 crore on a 36.7 per cent growth in revenues at Rs 1,618 crore. The IT firm maintained its Ebit margin guidance at 13-14 per cent for the organic business.

Motilal Oswal Securities has suggested a target of Rs 1,100 on the stock, which at Thursday's closing price suggested a 25 per cent upside ahead. Following the quarterly results, Cyient shares rose 3.9 per cent to hit a high of Rs 917.65 on BSE. At this price, the target still suggests a 20 per cent potential upside.

Cyient reported a 13.4 per cent growth in revenues sequentially in constant currency terms, largely coming through the full-quarter consolidation of Citec. Excluding the inorganic impact, its Services business grew 3.7 per cent QoQ CC against Motilal Oswal's estimates of 3.1 per cent. DLM business grew at 22.8 per cent QoQ, beating Motilal Oswal's estimate of 18.1 per cent growth QoQ.

Managing Director and CEO Krishna Bodanapu said key accounts grew 22 per cent YoY, and  that the company added two Fortune 500 companies to its customer list during the quarter.

"Our focus on the five growth pillars has contributed to over 40 per cent of our services pipeline. It is also encouraging to be continually positioned in the leader's quadrant by analyst groups such as Zinnov, ISG, and Everest across capabilities in multiple industries. This progress strengthens the conviction that our strategy and investments continue to contribute to the company's growth trajectory,"  Bodanapu said.

Motilal Oswal Securities noted that Service order intake was strong at $237 million for the quarter, up 83 per cent  QoQ and 18 per cent YoY. The deal pipeline also remains healthy, adding to confidence in management’s guidance of delivering better QoQ Service revenue growth in 4QFY23, the brokerage said.

"The challenges in the A&D and Rail segments are behind, and the verticals are expected to reverse the trend to stimulate growth going forward. Rail Transportation bottomed out in Q3 and should aid top line growth in coming quarters," Motilal Oswal said.

Subsidiary IPO

Motilal Oswal said  Cyient DLM transaction, the proposed IPO, is expected to get executed by FY24.

The DLM carve-out is another trigger that will release enough resources and management bandwidth currently occupied in running the business, Motilal Oswal said, adding that such a transaction should be positive for the service segment and it should unlock value for both the entities.

"We have slightly tweaked our estimates to account for better growth. We maintain our Buy rating on the stock on attractive valuations. Our target multiple of 16 times FY24E EPS implies a target price of Rs 1,100, with a potential upside of 25 per cent," Motilal Oswal said.

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