MOSL: CYIENT (Upgrade to Buy)-In line with scaled-down estimates; Upgrading to Buy on favorable risk-reward
CYIENT: In line with scaled-down estimates; Upgrading to Buy on favorable risk-reward
(CYL IN, Mkt Cap USD0.9b, CMP INR586, TP INR730, 24% Upside, Upgrade to Buy)
- Weak exit to FY19, as expected: For FY19, CC revenue grew 10.1% YoY - contributed by Services (88% of revenue) growth of 7.6% YoY CC and DLM growth 29.3% YoY (13% organic), EBITDA increased 17.3% YoY and net income rose 14% YoY. Including INR2b worth of buyback, the payout for FY19 stood at 82% of net profit. For 4QFY19, revenue was flat YoY (our estimate: +1% YoY) at USD165m, EBITDA increased 17% YoY to INR1.75b (our estimate: INR1.83b) and PAT grew 50% YoY to INR1.8b (our estimate: INR1.25b). EBITDA margin expanded 30bp QoQ to 15.1%, in line with our estimate of 15.3%. EBITDA margin in Services was at 16.4% and in DLM at 4.1%. Significant net income beat was driven by INR521m of other income, which came outside forex and cash yield.
- Guidance for FY20 - lowballing after FY19 miss? CYL guided for FY20 Services revenue growth in high-single-digits and DLM revenue growth of 15%. It expects EBIT to grow in double-digits, implying some margin expansion. High-single-digits growth outlook in FY20 is a function of a weak exit and a soft 1Q. CYL expects double-digit YoY revenue growth in Services over 2Q-4Q. Management alluded to an element of conservatism in its guidance, after missing its stated targets in FY19.
- Supply constraints marred 4Q: CYL's earlier 4Q guidance was based on project orders that were in place, but supply constraints came in the way of execution. This accounted for nearly 75% of the impact on weak 4Q, while 25% was demand softness - deferral of some work. On the profitability front, CYL has initiated a cost-optimization exercise with an external agency, which should conclude by 4QFY20. It expects a strong exit to the Services margins this fiscal (18%+), which should bode well for FY21 profitability.
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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