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IDBI Capital
Target: ₹1,265
CMP: ₹1,159.40
Cyient has reported strong organic growth in services revenues in Q4FY23 led by transport vertical.
Going forward, the company has guided services revenue growth of 15-20 per cent and 100-200 bps improvement in margins. We have conservatively built in revenue growth of 17 per cent due to macro uncertainty and possible delay in revenue conversion.
The growth in revenues is expected to be driven by strong double digit growth in aerospace, communication and inorganic contribution. We expect services revenues to grow 13.3 per cent CAGR over FY23-FY25. The growth is expected to be driven by double digit growth in aerospace, communication, and sustainability segments.
Further, we have taken lower end of margin expansion of about 100 bps improvement in services margins on normalised basis up 136 bps QoQ led by price hikes and volume impact.
However, we have conservatively built in 100 bps improvement in FY24 EBIT margins to 13.7 per cent in FY24 and then further improvement of 30 bps to 14 per cent in FY25 led by higher utilisation, pyramid and automation.
Despite this conservative assumption our EPS has been upgraded by 5 per cent in FY25E. Hence we maintain BUY rating on the stock with a revised target price of ₹1,265 (17x FY25E EPS).
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