Cyient - Challenges Ebbing Steadily, Re-Rating On The Cards: Motilal Oswal

Motilal Oswal Report

Cyient Ltd.’s operating performance has inherently been subdued over the past several years as a few of its growth engines remained weak and underperformed that of its peers. In addition, execution challenges have marred the company’s overall topline growth.

According to the management, the challenges under aerospace and communications segments (~50% of service revenue) have bottomed out and these segments are likely to improve and stimulate overall organic growth (guided at 13-15% in constant currency terms) in FY23E.

Additionally, its revenue growth should also amplify led by the inorganic components (~14-15% of FY23E revenue) and gradual recovery in its design led manufacturing business (guided high single-digit CC growth).

Management aspires to reach $1 billion revenue run-rate for the consolidated entity with 15.0-15.5% margins by Q4 FY24 exit. With the given aspiration, it requires Cyient to deliver ~5% compound quarter growth rate over the next five quarters along with ~200 bps margin improvement at Q4 FY24 exit versus 12.9% in Q3 FY23.

We consider this as a bull case scenario that has an upside risk over our base case.

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