Surged 60.26% In 1-Year, This IT Stock Is A Good Bet To Buy For 33% Upside

Cyient Ltd is a mid-cap IT company with a market capitalization of Rs 10,573.12 crore. The stock has risen from Rs. 601.40 on January 22, 2021 to Rs. 963.80 on January 21, 3:30 pm IST, a return of 60.26 percent for shareholders. HDFC Securities has issued a buy call on the stock with a target price of INR 1,285, implying that the stock has a 33 percent upside potential from its current market price.

Q3FY22 highlights of Cyient Ltd according to the brokerage

HDFC Securities has said in a report that "USD revenue grew +5.2% QoQ (above our estimate of 3.9% QoQ; core services/DLM revenue grew +3.6/12.9% QoQ. Services EBIT margin improved 10bps QoQ to 15.6% (higher than our estimate of 14%), led by operational efficiency (+87bps), SG&A leverage (+139bps) and lower depreciation (+54bps), but was partially offset by furloughs (-107bps), change in revenue mix (-80bps), merit increase (-54bps) and travel (-25bps). DLM margin declined 81bps QoQ to 6%, impacted by supply-side challenges. The company won seven large deals of TCV USD 68.8mn, six of which were in services and one in DLM. Attrition inched up to 29.3% (the highest in mid-tier IT)."

Buy With A Target Price of Rs. 1,285

According to the brokerage "Cyient reported a good quarter; revenue was up 5.9% QoQ CC (higher than our estimate) and margin performed better than expected. The services segment reported double-digit YoY growth after thirteen quarters (+4.4/12.4% QoQ/YoY CC), led by a recovery in aerospace (+3.9/14.5% QoQ/YoY). The worst phase of commercial aerospace is over and, going ahead, growth will be led by Avionics and MRO revival. The management has maintained its double-digit growth guidance for services but lowered the DLM growth guidance (single-digit vs. 15-20% earlier), citing fulfillment challenges. Margin guidance has been upgraded by 50bps."

HDFC Securities has also claimed that "The deal pipeline was up 27% YoY and the company closed seven deals worth TCV of USD 69mn (+8% QoQ) in the quarter. Margin performance has been decent (over the past six quarters) but further expansion seems difficult due to rising attrition. We lower our EPS estimate by 3.5/4.6% for FY23/24E due to reduced DLM revenue guidance and a slight reduction in margin assumption. Our target price of INR 1,285 is based on 22x Mar-24E EPS. The stock is trading at 19.1/16.7x FY23/24E, a steep discount of ~55% to LTTS. Maintain BUY."

The brokerage has further highlighted that "We have factored in +10.1/+13.9/+13.4% USD revenue growth for FY22/23/24E respectively; FY22E implies +10.5/+8.2% growth in services/DLM. We have factored in a 13.6/13.5/13.6% EBIT margin for FY22/23/24E, resulting in an EPS CAGR of 14% over FY22-24E."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.