MOSL: CYIENT (Buy)-Double-digit growth guidance for FY18 cemented by strong momentum and order book

​CYIENT: Double-digit growth guidance for FY18 cemented by strong momentum and order book

(CYL IN, Mkt Cap USD0.9b, CMP INR503, TP INR620, 23% Upside, Buy)

• Continued traction in Services: Cyient’s (CYL) 4QFY17 revenue grew 3.8% QoQ (+3.6% QoQ in constant currency) to USD141m, marginally above our estimate of USD140m. Services business grew 3.3% QoQ and included USD0.8m in revenue from recently acquired Certon, implying organic growth of 2.7%. Rangsons grew by 8% QoQ to USD16m, falling short by USD4m on its 50% growth target of USD59m for FY17.
  
• Margins led lower by Rangsons: CYL’s EBITDA margin during the quarter contracted by 10bp to 13.3%, against our expectation of 12.8% (-60bp). While margins in the Services business expanded by 20bp, those in Rangsons shrunk by 230bp. Led by improvement in operational efficiencies, and stable profitability in Rangsons, overall EBITDA margins are guided to expand by 50bp in FY18. Adjusted PAT was INR1b (+11.2% QoQ). The quarter included an exceptional item of INR261m, which relates to the impact of additional costs led by its RSU program.
  
• Double-digit growth guidance for FY18: CYL guided for double-digit growth in its Services business for FY18, similar to that achieved in FY17 (13% YoY CC). Revenue in Rangsons is expected to grow by 20% YoY. Achievement of guidance does not seem far-fetched given [1] the required CQGR for Services is 3% (v/s 4% achieved in FY17), [2] the health and prospects of top clients have been intact and [3] order book has grown by 32% YoY to USD751m.