MOSL: CYIENT (Downgrade to Neutral)-Striding toward achieving long-term goals-but valuations already capturing operational outperformance

Cyient: Striding toward achieving long-term goals; but valuations already capturing operational outperformance

(cyl IN, Mkt Cap USD1.3b, CMP INR807, TP INR800, 1% Downside, Downgrade to Neutral)

• We attended Cyient’s (CYL) analyst meet, where the company elaborated on its aim to become a major tier-I supplier. It expects to achieve this goal by addressing the design-build-maintain value chain through its S3 (Services, Systems, Solutions) strategy.
• CYL has taken several steps to facilitate successful execution of this strategy, especially around building/acquiring various capabilities. While these capabilities now exist in isolation, the vision will be achieved on being able to successfully integrating these and providing solutions to customers.
• The stock is trading at 19/17x FY19/20E earnings for 14/11% USD revenue/earnings CAGR over FY18-20. We remain positive on the long-term prospects of the company and its structural transformation. However, we find little room for further re-rating and believe that current valuations already factor in its superior growth. The valuation gap with peers has been bridged post 4Q earnings, and we reckon a premium to peers isn’t warranted for a comparable performance. Pegging CYL at 17x forward earnings, we derive a price target of INR800, implying no upside from current levels. We, thus, downgrade the stock to Neutral.