22 JUL 2019 Result Update

CYIENT LTD.
IT SERVICES HOLD
Target Price : Rs 500

Q1FY20: Weak Quarter, Lack visibility

CMP : Rs 461
Cyient Ltd. reported weak results in terms of top line and on operating margins
Potential Upside : 8%
front in Q1FY20. Cyient posted degrowth in revenue of 5.2% on QoQ basis and
Relative to Sector : Neutral
2.6%on YoY basis in constant currency (CC) terms for the period of Q1FY20 at
$156.6 mn. The revenue was lower than our expectation due to delay in
execution of services examination. This may impact near term top line growth
MARKET DATA
momentum. The company management has ‘held on’ the guidance till Q2 FY20.
No. of Shares
The delay in the execution of the some key projects will likely to push executions : 10.99 Cr
in second half of the FY20. That may impact revenue growth in shorter period of FV (Rs) :5
time. The management is confident in gaining the momentum in the second half Market Cap (Rs Cr.) : 5,448.2
of the FY20. The management is also expecting the high EBIT margin to grow in 52-week High / Low : Rs 821/ Rs 468
double digits by the end of FY20. However EBITDA margin contracted by 180 Avg. Daily vol. (6mth) : 172,037 shares
bps on QoQ to 13.3% in Q1 FY20 owing to headwinds like weak revenue Bloomberg Code : CYIENT IN
momentum, wage increases, INR appreciation. We remain cautious on Reuters Code : CYIENT NS
development in Q2 FY20 and re-tweak our estimate by 6%. We assign 11.3x P/E BSE Code : 532175
multiple to its FY21E earnings of Rs. 44.2 per share which gives a target price NSE Code : CYIENT
of Rs. 500 per share, an upside of 8%.

Key Highlights
Slowing business drag top line and operating margins
Cyient Ltd., one of the leading Engineering and Research and development services, company reported revenue degrowth of
5.2% QoQ and 2.6% on YoY basis in CC terms at Rs. 1,089 crs. The EBITDA margin in Q1 FY20 has declined by 180bps to
13.3% from 15.1% in Q4 FY19. The Net income declined in Q1 FY20 at Rs. 90crs. Order intake for the quarter also remained
softer during the quarter at $155mn as compared to previous quarter. The major headwinds in the top line for Cyient are
because of delay in the project execution in main verticals such as communication & Aerospace and Defence. The delay may
push the execution in the second half of the FY20.So near term revenue growth may impact negatively. However
management is very optimistic in taking advantages of its investments like NBA from FY20 onwards.

FINANCIAL SUMMARY (Consolidated)

Y/E Sales EBITDA PAT EPS P/E RoE RoCE DPS
March (Rs Cr) (Rs Cr) (Rs Cr) (Rs) (x) (%) (%) (Rs)
FY18 3,918 549 433 38.6 15.1 16.1 16.4 16.8
FY19 4,618 644 490 43.6 12.7 18.5 18.6 17.5
FY20E 4,785 657 475 43.5 11.9 17.7 19.1 22.5
FY21E 5,455 730 520 44.2 11.2 17.2 19.2 24.9
Source: Company, Axis Securities, Consensus Estimates, CMP as on 22nd Jul, 2019
PRICE PERFORMANCE
120

100

80

60
Jul-18 Oct-18 Jan-19 Apr-19 Jul-19
OmkarTanksale Sensex Cyient
omkar.tanksale@axissecurities.in

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CYIENT LTD
IT

All Key business verticals slowing down momentum

Key verticals like Aerospace & Defense sector decline by 2.9% in Q1 FY20 sequentially at $1.4mn, Transportation
business vertical showed degrowth of 2.4% sequentially. Communication segment struggled in the Q1 FY20
because of the delay in the key accounts at $2.9mn. Semiconductor business showed a degrowth in Q1 FY20 of 7.9%.
Utilities vertical showed a degrowth of 11.9% in Q1 FY20. The Medical and Healthcare sector showed a growth of
7.9% in Q1 FY20 sequentially.
North America still remained major contributor to the top line, contributed around 55% of the revenue. North
America region remained soft for the quarter (9.1) % sequentially in Q1FY20. Europe region contributed around
28.0% to the top line and remained soft for the quarter. Client spending on

Revenues by Business segments Revenues by client geography

100% 100%
80%
80%
60%

40% 60%

20% 40%
0%
20%
Q3FY18
Q1 FY18

Q2 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20

0%
Q1 FY18

Q2 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20
Q3FY18
Aerospace and defence Transportation
I& ENR Semiconductor
Media & Healthcare Utilities & Geospatial
North America Europe APAC
Communications

Source: Company, Axis Securities

Concall Takeaways
 In Communication vertical, Cyient is facing some issues on key account customers.
on DLM side, which drove decline in segmental revenue.
 The management is expecting the EBIT margin to grow by double digit in FY20. NBA program will help
improve the efficiency in the operations.
 Cyient’s management expects slowdown to be short term and business to normalize towards the end of Q2.
The digital solutions offerings are gaining momentum and the management sees increased interest among
several of clients. The Outlook for Q2 remains positive, company expects a single digit growth through the
quarter driven by growth in key clients and manufacturing business.
 The cost optimization measures taken helped deliver a good margin growth through the quarter.
Management expects single digit growth in Q2 margin driven by growth in Europe and North America as it
continues to support large carriers in fibre network rollout.
 Service EBIT margin stood at 10.5%; DLM margin stood at -0.3%.
 Strategic Investment in Cylus (a rail cyber security company) – strengthened its focus on digitization and
cyber security solutions for the rail industry.
 Order intake stood at $155 mn, the order intake was lower than the previous quarter (196) due to slow

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IT

Valuations

The slowdown in the key business vertical may impact upcoming quarters in the near terms. Near term pressure
and lack of guidance we recommend HOLD on the stock. We assign 11.3x P/E multiple to its FY21E earnings of
Rs. 44.2 per share which gives a target price of Rs. 500 per share, an upside of 8%.

Cyient 12M forward PE Band chart Cyient 12M forward PE

1000 25
900
800 20
700
600 15
500
400 10

300
200 5

100
0 0

Jul-14
Jul-13
Oct-13

Oct-14

Jul-15
Oct-15

Apr-16
Jul-16
Oct-16

Jul-17
Oct-17

Jul-18
Oct-18

Jul-19
Apr-13

Apr-14

Apr-15

Apr-17

Apr-18

Apr-19
Jan-18
Jan-14

Jan-15

Jan-16

Jan-17

Jan-19
Nov-13

Nov-14

Nov-15

Nov-16

Nov-17

Nov-18
Jul-13

Mar-14
Jul-14

Mar-15
Jul-15

Mar-16
Jul-16

Mar-17
Jul-17

Mar-18
Jul-18

Mar-19
Jul-19

Price 5x 10x 15x 20x PE Mean Mean+1Stdev Mean-1Stdev

Source: Company, Axis Securities

Revenue growth Net Profit growth

250 20%
1,400 25%
18%
1,200 200 16%
20%
1,000 14%
150 12%
800 15%
10%
600 10% 100 8%
6%
400
5% 50 4%
200 2%
0 0% 0 0%
Q3 FY19

Q4 FY19
Q1 FY18

Q2 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q1 FY20
Q3FY18
Q3FY18
Q1 FY18

Q2 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20

Net Revenues (Rs . Crs) YoY ( In %) NPAT Margin ( Rs. Crs) Margin (%)

Source: Company, Axis Securities

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CYIENT LTD
IT

Net Profit to ROE Net Profit to ROCE

600 20%
600 25%
18%
500
500 16%
20%
14%
400
400
12%
15%
300 300 10%

10% 8%
200 200
6%

5% 4%
100 100
2%

0 0% 0 0%
FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19

NPAT( Rs. Crs) ROE(%) NPAT( Rs. Crs) ROCE (%)

Source: Company, Axis Securities

Order Intake
Q1 FY20 Q4 FY19 Q1 FY19 QoQ YoY
Cyient Services 134 185 153 -28% -12%
DLM 21 11 17 91% 24%
Total 155 196 170 -21% -9%

Client matrix
Q1 FY20 Q4 FY19 Q1 FY19 QoQ YoY
Top 5 0.323 0.318 0.337 2% -4%
Top 10 0.441 0.43 0.46 3% -4%

No.of Million Dollar Clients

Q1 FY20 Q4 FY19 Q1 FY19 QoQ YoY
20 Mn+ 4 4 4 0% 0%
10 Mn+ 12 13 11 -8% 9%
5 Mn+ 28 29 25 -3% 12%
1 Mn+ 86 86 66 0% 30%
Total 130 132 106

Employee Metric
Q1 FY20 Q4 FY19 Q1 FY19 QoQ YoY
Technical & Pool 13912 13916 13851 0% 0%
Non- Technical 373 393 419 -5% -11%
Support Functions 758 775 786 -2% -4%
Total 15043 15084 14125 0% 6%

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CYIENT LTD
IT

Results Update

Quarterly Performance

% Change % Change
(Rs.Cr.) Q1FY20 Q4FY19 Q1FY18
(QoQ) (YoY)

Net Sales 1,089 1,163 4% 1,080 20%

Cost of sales 714 752 6% 710 22%

As % of net sales 65.56% 64.70% 86 bps 65.74% (2) bps

Gross Profit 375 411 1% 370 16%

Margin 34.44% 35.30% (86) bps 34.26% 2 bps

Selling and marketing expenses 61 64 66.2

As % of net sales 5.61% 5.53% 6.13%

General and administrative expenses 169 171 172

As % of net sales 15.55% 14.71% 15.94%

Total Operating expenses 230 235 5% 238 26%

As % of net sales 21.16% 20.24% 22.06%

Operating Profit 101 149 -1% 103 12%

Margin 9.23% 12.81% (358)bps 9.55% (3)bps

Other Income 28.2 78.9 17

One off items 0 11.2 0

PBT 115 208 8% 112 6%

PBT margin 10.58% 17.89% 70 10.36% -316

Tax Expenses 25 32 30

PAT ( before Minority Interest) 91 188 13% 83 11%

PAT margin 8.31% 16.17% 7.64%

Minority Interest 0.6 0.7 - 1

Net Profit for the Period 91 188 83

PAT margin 8.31% 16.17% (786)bps 7.64% 7bps

EPS (Rs.) 8.2 16.7 7.3

Source: Company, Axis Securities

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IT

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the
Regulations).

1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as
defined in the Regulations, is engaged in the business of providing Stock broking services, Portfolio Management Services, Depository
participant services & distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed
public company and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management,
NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are available on www.axisbank.com.
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 22 JULY 2019 Result Update
CYIENT LTD
IT

DEFINITION OF RATINGS
Ratings Expected absolute returns over 12-18 months
BUY More than 10%
HOLD Between 10% and -10%
SELL Less than -10%
NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

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