MOSL: CYIENT (Buy)-Margins weak, expect notable pick-up only beyond FY20
CYIENT: Margins weak, expect notable pick-up only beyond FY20
(CYL IN, Mkt Cap USD0.7b, CMP INR446, TP INR600, 34% Upside, Buy)
- In-line Services revenue; beat in DLM: CYL's 2QFY20 revenue of USD164m was down 3% YoY (our estimate: -4.4%), EBIT of INR1.1b declined 17% YoY (our estimate: -8%) and PAT of INR0.97b came in lower by 22% YoY (our estimate: flat YoY). Services revenue increased 1.8% QoQ (in-line) to USD140.4m, while DLM revenue of USD23.8m was above our estimate of USD22m. Sequentially, revenue increased across verticals within Services, barring Aerospace (-1.7% QoQ) and Semiconductors (-9.6% QoQ).
- Expect Services revenue to be flat at best, slower growth in DLM: Despite good Services revenue prospects, growth for full year appears a far cry given the underperformance in the first half. The outlook on DLM is also tepid as the company looks to restructure the business.
- Meaningful margin benefit only beyond FY20: 2Q saw some uptick in the sequential margin. However, most of the benefit was offset by fixed and variable payment to the external consultant. Margin expansion hereon should be delta between the fees and the value created by optimization. Hence, the impact will be only gradual. Recovery is now expected to be in its full scale FY21 onward.
Cyient Limited, formerly Infotech Enterprises Limited, is engaged in providing software-enabled engineering and geographic information system (GIS) services. The Company's segments include Data & Network Operations (DNO); Engineering, Manufacturing, Industrial Products (EMI), and Product Realisation (PR). DNO vertical services industries, such as power, gas, telecom, transportation and local government, and offers data conversion, data maintenance, photogrammetry and information technology (IT) services to the DNO vertical. EMI vertical services customers in industries, such as aerospace, automotive, off-highway transportation and industrial and commercial products, engineering design, embedded software, IT Solutions, manufacturing support, technical publications and other strategic customers. PR vertical services is engaged in providing electronic manufacturing solutions in the fields of medical, industrial, automotive, telecommunications, defense and aerospace applications.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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