Result Analysis : Cyient - Q2 FY21

Result Analysis :  Cyient - Q2 FY21

CMP: 405 (As on 20-10-2020)

Total revenue from operations 1,003 Cr 

1,159 Cr (-13.71%) YoY | 991 Cr (1.21%) QoQ 

Half yearly revenue: 1,995 Cr Vs. 2,247 Cr (-11.24%)

Net Profit of 83.9 Cr 

97.5 Cr (-14.42%) YoY 81.4 Cr (3.07%) QoQ 

Half yearly Net profit: 165.3 Cr Vs. 187.4 Cr (-11.86%)

EPS (in Rs.) 7.63

8.95 YoY |7.40 QoQ 

Half yearly EPS: 15.03 Vs. 17.18

View: Result is overall good and improved. YoY revenue declined and profit also declined but improved from QoQ. EBITDA and margin both improved in this quarter as compare with QoQ. 

Business Updates & Highlights:

Q2FY21 EBIT was around INR 110.5 Cr Vs. 110.0 Cr in Q2FY20 Vs. 51.1 Cr in Q1FY21 therefore flat in YoY and up by 115% in QoQ. Consolidated EBIT margin stood at 11.0%; up 586 bps QoQ. 

Gross Margin was around 35.7% Vs. 34.4% in YoY Vs. 30.5% in QoQ. 

Services margin at 12.2%; higher by 542bps QoQ driven by improvement in operational metrics. DLM margins at 4.7%, compared to -4.6% in Q1 FY21. Improvement on account of higher absorption and change in revenue mix

Performance wise business vertical highly diversified portfolio but still major contributor is Aerospace & defense (A&D) which contributes around 31.6% in this quarter although dependence is continuously down for this vertical due to current business environment. Dependency in Q2FY20 39.9% Vs. 36.5% in Q1FY21 Vs. 31.6% in Q2FY21. 

A&D Aerospace & Defense BU witnessed a de-growth of 10.4% QoQ and 34.8% YoY. The full impact of the Covid crisis was witnessed in this quarter with most customers reducing their spends significantly. Q3 revenues are expected to see a decline due to business cyclicality. The outlook for the next few quarters remains uncertain driven by poor market demand for passenger travel.

Communication Communications BU witnessed a growth of 7.9% QoQ and 5.8% YoY and now main focus area which contributed around 24% of topline. The performance was driven by growth in key accounts. Benefit from rollout of broadband networks globally to support virtual collaboration (WFH) trends combined with accelerated rollout of 5G networks, and its about 11% of revenue portfolio. Communication segment increasing continuously Q2FY20 18.7% Vs. 23% Vs. Q1FY21 Vs. 24% in Q2FY21.

E&U Energy and Utilities BU has witnessed a growth of 0.1% QoQ and de-growth of 31.4% YoY due to project deferrals in the utilities business and decline in demand for the manufacturing business. Contributed around 10.7% of topline.

Transportation Transportation BU witnessed a growth of 21.3% QoQ and de-growth of 10.2% YoY. Growth in Q2 was driven by recovery in key accounts and ramp up of new engagements initiated in 2020. Contributed around 12.1% of topline. 

MTH The Medical and Healthcare business unit has grown by 49.4% in QoQ and 68.4 % YoY. Added one of the top 3 Med-Tech companies in their kitty. Contributed around 8.2% in this quarter. 

Portfolio Portfolio BU witnessed a growth of 5.4% QoQ and de-growth of 22.3% YoY. Cyient has joined an exclusive list of companies that have attained Esri Gold Partner status globally. Contributed around 8.9% of topline. 

In Geography business revenue USA Q2FY20 55.3% Vs. 52.3% Vs. Q1FY21 Vs. 49.9% in Q2FY21 (dependence from America continuously declining)

Europe, Middle east & Africa Q2FY20 26.5% Vs. 24% in Q1FY21 Vs. 28.9% in Q2FY21 

Asia Pacific (Includes India) Q2FY20 18.2% Vs. 23.7% in Q1F121 Vs. 21.2% in Q2FY21

Top 5 clients contributed 29.5% in Q2FY21 Vs. 31% in Q2FY20 Vs. 30.2% in Q1FY21. 16 new clients added in this quarter out of these 3 new clients added for 20 Mn+ and 7 new clients added fro 10 Mn+. 

Financial

ROE and ROCE is around 13.3% and 16.7% respectively and book value per share is around INR 250 and share is currently trading at 1.6x of its book value. Company is currently trading at PE of around 14 which is very good as per Industry benchmark. Promoter holding is around 23.2% in the company which is very low but stable. FIIs hold around 33% and mutual fund hold around 22.3% in June quarter. 

Strong cash flow from operating activities as of Sep 2020 was around INR 419.9 Cr Vs. 342.9 Cr in March 2020. Borrowing cost is decreasing trend as compare to Q1FY20. 

Share View: 

Share price high 514 (52 week) and now 390. Cyient is a global engineering and technology solutions company. As a Design, Build, and Maintain partner for leading organizations worldwide, Cyient takes solution ownership across the value chain to help customers focus on their core, innovate, and stay ahead of the curve. The company leverages digital technologies, advanced analytics capabilities, domain knowledge, and technical expertise to solve complex business problems

Position:Share support price is INR 350/250. Share has good to hold for long term investors. Short to mid-term target can be 450. 

Opportunities : 

Steady improvement in business risk profile driven by sustained revenue growth across geographies, reduced dependence on top customers and increasing market share across segments. Till 2019 company was mainly dependent upon A&D division and more than 40% revenue comes from segment and highly diversified and focusing on new business vertical and increasing their market share as well. Liquidity remains strong driven by cash and cash equivalents of Rs 1,244 crore as of Sep 2020 which is continuously increased on every quarter. Repayment obligations remain low at about Rs 55 crore over the next two years. Capex requirements are also expected to remain moderate at about Rs 175-200 crore per annum to fund the internal product development marketing and client acquisition costs. Significant improvement in Design Led Manufacturing (DLM) performance specially on improved margin. During fiscal 2020, Cyient completed its manufacturing facility expansion project (total project cost of about Rs 110 crore) for Cyient DLM in Hyderabad. Accruals are expected to remain healthy at Rs 350-450 crore per annum will remain adequate to meet incremental working capital and capex requirements over the medium term

Risk : Currently company is diversifying their business and focusing on high growth business but still company 32% revenue comes from A&D division and continues de growth on every quarter. Top 5 clients contributed around 30% of their top line. 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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