Target: ₹1,250
CMP: ₹910.10
Cyient’s Services at $131 million (up 1.2 per cent q-o-q, 9 per cent y-o-y) had its ups and downs in the year, but grew 9.2 per cent in FY22. The company is now aiming at 15-per cent growth in FY23, catching up with peers like LTTS (guided to 15.5 per cent).
Services order intake was $188 million, taking trailing 12 months (TTM) to $632 million, up 14 per cent y-o-y. DLM at $26 million (down 14 per cent y-o-y) continues to face challenges, expected to grow over 10 per cent in FY23 (FY22: 9 per cent). The company expects aerospace, communications and portfolio to be strong, while rail may continue to be weak in H1.
The 14.5 per cent EBIT margin was up 59 bps q-o-q, 180 bps y-o-y, with attrition softening a bit to 27 per cent. The company resumed hiring with Services headcount up 13 per cent in FY22 (-14 per cent in FY21). It expects to more-than-average wage hikes in FY23 to further cool attrition.
Overall, FY23 margins are likely at FY22 levels. Tax rates will be higher in FY23, but we expect the company to shift to a lower tax regime by FY24.
No meaningful change in estimates, but we revise our target to ₹1,250 (from ₹1,460), at 21x FY24e EPS, a discount to peers reflecting patchy growth.