Cyient Ltd.'s June quarter results may have come in better than feared, but Morgan Stanley believes investors should wait for clearer signs of a sustained recovery before turning constructive on the stock.
The brokerage maintained its 'Underweight' rating on Cyient with a target price of Rs 820, saying the company's efforts to revamp its go-to-market (GTM) strategy are beginning to show up in deal wins, though a broader recovery in growth is still some distance away.
ALSO READ: Cyient Q1 Results: Profit Soars 90% After One-Time Hit In Last Quarter; Revenue Up 8%
What Did Morgan Stanley Say?
- Maintained Underweight with a target price of Rs 820.
- Said the June quarter was ‘better than feared,' but would wait for a sustained growth recovery.
- Noted that Cyient is making the necessary changes to put its GTM strategy in motion with relevant offerings, which has started reflecting in deal wins.
- Highlighted that the company's large-deal pipeline is now the highest seen over the past 12 quarters.
- Flagged that the target of achieving 15% EBIT margin in the DET business has now been pushed to sometime in FY28, from the earlier expectation of Q4FY27.
- Added that a slowdown in discretionary spending and potential headwinds in the transportation segment could delay the pace of recovery.
Cyient Q1 Show
Cyient reported a 90% sequential jump in consolidated net profit to Rs 104 crore for the June quarter, compared with Rs 54.8 crore in the previous quarter.
Revenue rose 7.7% quarter-on-quarter (QoQ) to Rs 2,076 crore, while earnings before interest and taxes (EBIT) increased 20.1% QoQ to Rs 187 crore. EBIT margin expanded 90 basis points (bps) to 9% from 8.1% in the March quarter.
Other income, meanwhile, declined to Rs 7 crore from Rs 27 crore sequentially. The company noted that the March quarter had included a one-time loss of Rs 71 crore.
Krishna Bodanapu, executive vice chairman and managing director, said the quarter marked a strong start to FY27, supported by momentum across Cyient's businesses. He highlighted strong performance from Cyient Semiconductors, continued growth at Cyient DLM, healthy order intake in the Digital, Engineering and Technology (DET) business, and ongoing investments in AI capabilities.
He also said the successful completion of the company's share buyback, without participation from the promoter group, directors or key managerial personnel, reflected their confidence in Cyient's long-term prospects.
On the other hand, executive director and chief executive officer Sukamal Banerjee said the company delivered satisfactory growth across most business segments, with EBIT margin in the DET business improving to 13.2%, up 79 basis points from the previous quarter. He added that order intake grew 5.3% year-on-year, while Transportation and Mobility recorded its fifth consecutive quarter of growth.
Banerjee also said Cyient's large-deal engine is gathering momentum, with the strongest pipeline in the last 12 quarters. He added that the proposed acquisition of TAO Digital Solutions would strengthen the company's capabilities in data, software engineering and AI-led digital transformation.
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