* price as on January 01, 0001

India

Previous target:	1,204
Up/downside:	14.4%
Reuters
Bloomberg:	CYL IN
Market cap:	US$2,237m
	Rs162,427m
Average daily turnover:	US$9.1m
Current shares o/s:	110.0m
Free float:	78.0%

Key changes in this note

Raise FY23-25F revenue CAGR to 13.4%.

Raise FY23-25F EBIT CAGR to ~24%.

Raise FY23-25F PAT CAGR to 22.1%.

Price performance	1M	3M	12M
Absolute (%)	21.5	57.8	86.6
Relative (%)	19.3	44.7	55.7

Major shareholders	% held
Amansa Holdings Pvt Ltd	8.7
DSP Value Fund	6.6
ICICI Prudential India Opportunities Fund	3.5

Analyst(s)

Abhishek SHINDADKAR

T (91) 22 4161 1543
E abhishek.shindadkr@incredcapital.com

Tushar WAVHAL

T (91) 22 4161 1544
E tushar.wavhal@incredcapital.com

Consistent execution could drive upgrades

The aerospace segment’s recovery could aid revenue growth momentum.

Raise our EBIT margin estimate assuming better execution will continue.

Retain ADD rating with a higher target price of Rs1,68 vs. Rs1,204 earlier.

Cyient LimitedCyient Limited

Aerospace segment’s recovery could aid growth momentum

The aerospace segment’s (a part of the transportation vertical) outlook appears to be optimistic led by nearing of the design cycle, recovery in air travel leading to aircraft orders and aftermarket activity while the commercial aerospace market, led by military equipment, could drive an uptick in the defence market. Overall, after a soft FY23, we expect the aerospace segment’s momentum to continue in FY24F.

Raise our EBIT margin assumption

Cyient’s large acquisitions in FY23 (Celfinet, Citec and Grit Consulting) to strengthen its portfolio and geographic mix could aid its overall profitability too as the PAT margin of these three firms is above the company average margin. In FY23, Celfinet, Citec Europe, and Grit consulting contributed revenue of Rs1,519m, Rs3,704m, Rs843m, and a profit of Rs282m (18.6% margin), Rs721m (19.5%), Rs207m (24.6%), respectively. This, coupled with better execution aided by a sustained utilization (86.6% in 4QFY23) and an increase in the offshore mix from 43.9% in 4QFY23, driven by cost takeout deals and shift in the acquired entities, led to an increase in the conservative EBIT margin assumption made post 4QFY23. Deterioration in a recently acquired subsidiary’s performance, wage hikes in 1HFY24F (likely to be lower than in FY23) and higher replacement cost, if any, are key risks to our thesis.

Retain ADD rating with a higher target price of Rs1,681

We retain our ADD rating on Cyient with a higher target price of Rs1,68 (Rs1,204 earlier) as we increased our target PE/G multiple to 1x (vs. 0.8x earlier) to arrive at our target P/E multiple of 22x (vs. 16.3x earlier). A recovery in key verticals (including the aerospace segment of the transportation vertical) of services business (~84% of revenue), better order book conversion and better improved EBIT margin execution warrants narrowing of the PE/G discount to L&T Technology Services’ multiple to ~32% vs. ~38% earlier. We also adjusted our estimates and now model a 13.4% US$ revenue CAGR over FY23F-25F (12.2% earlier) and a 22.1% PAT (Rs) CAGR (20.3%). Strong cash conversion and stable dividend payout ratio provide a cushion, in our view. Any higher-than anticipated decline in the organic portfolio, and miss on integration of acquired entities and margin execution are key downside risks.

Financial Summary	Mar-21A	Mar-22A	Mar-23A	Mar-24F	Mar-25F
Revenue (Rsm)	41,324	45,344	60,159	71,373	80,678
Operating EBITDA (Rsm)	5,750	8,178	10,031	12,920	14,764
Net Profit (Rsm)	3,640	5,223	5,143	7,260	8,365
Core EPS (Rs)	33.1	47.5	50.0	66.0	76.0
Core EPS Growth	(1.6%)	43.6%	5.2%	32.0%	15.2%
FD Core P/E (x)	44.38	30.91	29.38	22.25	19.31
DPS (Rs)	17.0	24.0	26.0	35.0	41.8
Dividend Yield	1.16%	1.63%	1.77%	2.39%	2.85%
EV/EBITDA (x)	26.09	18.48	16.14	12.46	10.75
P/FCFE (x)	26.45	37.02	19.95	32.74	22.96
Net Gearing	(38.8%)	(33.0%)	1.2%	(1.3%)	(6.6%)
P/BV (x)	5.46	5.18	4.66	4.24	3.86
ROE	13.2%	17.2%	16.7%	20.0%	20.9%
% Change In Core EPS Estimates				0.77%	2.96%
InCred Research/Consensus EPS (x)

Figure 1: Change in our estimates

Y/E Mar (Rs m)	FY24F			FY25F
Y/E Mar (Rs m)	New	Old	% change	New	Old	% change
US$ revenue	860	848	1.4	960	940	2.2
Revenue	71,373	70,361	1.4	80,678	78,936	2.2
EBIT	9,961	9,873	0.9	11,456	10,893	5.2
EBIT Margin (%)	14.0	14.0	(8) bp	14.2	13.8	40 bp
Net PAT	7,260	7,205	0.8	8,365	8,124	3.0
EPS (Rs)	66.0	65.5	0.8	76.0	73.8	3.0

BY THE NUMBERS

Profit & Loss

(Rs mn)	Mar-21A	Mar-22A	Mar-23A	Mar-24F	Mar-25F
Total Net Revenues	41,324	45,344	60,159	71,373	80,678
Gross Profit	20,045	23,048	30,505	37,080	41,791
Operating EBITDA	5,750	8,178	10,031	12,920	14,764
Depreciation And Amortisation	(1,945)	(1,922)	(2,566)	(2,959)	(3,308)
Operating EBIT	3,805	6,256	7,465	9,961	11,456
Financial Income/(Expense)	25	93	(701)	(682)	(645)
Pretax Income/(Loss) from Assoc.
Non-Operating Income/(Expense)	943	635	514	518	484
Profit Before Tax (pre-EI)	4,773	6,984	7,278	9,797	11,296
Exceptional Items			(467)
Pre-tax Profit	4,773	6,984	6,811	9,797	11,296
Taxation	(1,133)	(1,761)	(1,668)	(2,537)	(2,931)
Exceptional Income - post-tax
Profit After Tax	3,640	5,223	5,143	7,260	8,365
Minority Interests
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit	3,640	5,223	5,143	7,260	8,365
Recurring Net Profit	3,640	5,223	5,496	7,260	8,365
Fully Diluted Recurring Net Profit	3,640	5,223	5,496	7,260	8,365

Cash Flow

(Rs mn)	Mar-21A	Mar-22A	Mar-23A	Mar-24F	Mar-25F
EBITDA	5,750	8,178	10,031	12,920	14,764
Cash Flow from Invt. & Assoc.
Change In Working Capital	4,100	(973)	(3,485)	(2,838)	(2,014)
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow
Net Interest (Paid)/Received
Tax Paid	(1,292)	(1,652)	(1,288)	(2,537)	(2,931)
Cashflow From Operations	8,558	5,553	5,258	7,545	9,819
Capex	(985)	(647)	(675)	(2,610)	(2,784)
Disposals Of FAs/subsidiaries	36	21	23
Acq. Of Subsidiaries/investments
Other Investing Cashflow	(58)	(3,197)	(9,675)	884	887
Cash Flow From Investing	(1,007)	(3,823)	(10,327)	(1,726)	(1,896)
Debt Raised/(repaid)	(1,466)	(545)	3,511
Proceeds From Issue Of Shares	37	121	79
Shares Repurchased
Dividends Paid	(10)	(2,952)	(2,630)	(3,860)	(4,600)
Preferred Dividends
Other Financing Cashflow	(1,087)	(2,069)	(2,053)	(1,048)	(1,048)
Cash Flow From Financing	(2,526)	(5,445)	(1,093)	(4,908)	(5,648)
Total Cash Generated	5,025	(3,715)	(6,162)	911	2,274
Free Cashflow To Equity	6,107	4,361	8,094	4,935	7,035
Free Cashflow To Firm	7,551	1,730	(5,069)	5,818	7,923

BY THE NUMBERS…cont’d

Balance Sheet

(Rs mn)	Mar-21A	Mar-22A	Mar-23A	Mar-24F	Mar-25F
Total Cash And Equivalents	14,650	13,532	8,912	9,823	12,097
Total Debtors	10,285	10,319	15,394	17,990	20,335
Inventories	1,586	2,790	4,358	5,280	5,968
Total Other Current Assets	1,997	2,331	3,249	3,249	3,249
Total Current Assets	28,518	28,972	31,913	36,341	41,649
Fixed Assets	7,294	6,921	7,278	6,929	6,405
Total Investments	344	3,582	3,463	3,463	3,463
Intangible Assets	7,191	6,662	21,413	21,413	21,413
Total Other Non-Current Assets	1,581	1,736	1,414	1,414	1,414
Total Non-current Assets	16,410	18,901	33,568	33,219	32,695
Short-term Debt	2,731	3,241	4,397	4,397	4,397
Current Portion of Long-Term Debt
Total Creditors	4,532	5,259	7,142	7,822	8,841
Other Current Liabilities	3,846	4,123	8,692	8,692	8,692
Total Current Liabilities	11,109	12,623	20,231	20,911	21,930
Total Long-term Debt	453	23	4,939	4,939	4,939
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities	3,825	4,093	5,676	5,676	5,676
Total Non-current Liabilities	4,278	4,116	10,615	10,615	10,615
Total Provisions
Total Liabilities	15,387	16,739	30,846	31,526	32,545
Shareholders Equity	29,573	31,166	34,667	38,067	41,831
Minority Interests	(32)	(32)	(32)	(32)	(32)
Total Equity	29,541	31,134	34,635	38,035	41,799

Key Ratios

(Rs mn)	Mar-21A	Mar-22A	Mar-23A	Mar-24F	Mar-25F
Revenue Growth	(6.7%)	9.7%	32.7%	18.6%	13.0%
Operating EBITDA Growth	(2.4%)	42.2%	22.7%	28.8%	14.3%
Operating EBITDA Margin	13.9%	18.0%	16.7%	18.1%	18.3%
Net Cash Per Share (Rs)	104.24	93.44	(3.85)	4.42	25.10
BVPS (Rs)	268.85	283.60	315.12	346.03	380.24
Gross Interest Cover	8.79	15.92	7.47	9.51	10.93
Effective Tax Rate	23.7%	25.2%	24.5%	25.9%	25.9%
Net Dividend Payout Ratio	39.2%	37.7%	39.3%	39.4%	40.7%
Accounts Receivables Days	67.52	61.82	56.44	62.82	64.08
Inventory Days	33.05	35.82	43.99	51.29	52.79
Accounts Payables Days	70.85	80.14	76.32	79.63	78.20
ROIC (%)	12.3%	21.7%	26.9%	19.8%	21.3%
ROCE (%)	9.4%	13.9%	14.7%	16.2%	17.2%
Return On Average Assets	11.0%	14.9%	13.8%	15.3%	16.4%

Key Drivers

(Rs mn)	Mar-21A	Mar-22A	Mar-23A	Mar-24F	Mar-25F
Outstanding Orderbook	N/A	N/A	N/A	N/A	N/A
Order Book Depletion	N/A	N/A	N/A	N/A	N/A

(Please link your key drivers and assumptions from EFA Sheet here) - Delete this line once done	N/A	N/A	N/A	N/A	N/A

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