By Shares of IT services firm Cyient saw a significant drop of 9% in intra-day trading on Friday after the company posted disappointing financial results for the quarter ended June 2024 (Q1FY25). The company’s earnings missed estimates across all metrics, leading to a cautious market sentiment and prompting brokerages to lower their target prices and earnings forecasts.
Cyient reported a sequential decline of 23.8% in net profit, bringing it down to ₹144 crore. On a year-on-year basis, this represents an 18.6% drop. Revenue for the quarter decreased by 0.6% YoY and 9.9% sequentially, amounting to ₹1,675.7 crore. In US Dollar terms, revenue fell by 10.3% from the previous year, reaching $200.9 million. Despite the overall weak performance, Cyient’s EBIT margin improved to 15.8%, up from 14.4% in the same quarter last year.
The company’s management drastically reduced its FY25 DET (digital, engineering, and technology) revenue growth guidance from high single-digit growth to flat YoY. This adjustment was primarily due to delays in project ramp-ups in the telecom sector and ongoing weakness in the railway business.
Following the release of these results, Cyient’s stock dropped sharply, hitting a day’s low of ₹1,724.00, marking a 30% decline from its record high of ₹2,457.00 set in December 2023. However, the stock has risen 21% from its 52-week low of ₹1,424.30, recorded in July last year. Over the past year, Cyient’s stock has gained nearly 30% but has lost 22% so far in 2024.
The DET segment, which accounts for over 80% of Cyient’s revenue, recorded ₹1,414 crore for the quarter, reflecting a decline of 5% quarter-on-quarter and 2.8% year-on-year. The segment’s earnings before interest and tax margin stood at 13.5%, down 260 basis points YoY.
Karthikeyan Natarajan, Cyient’s executive director and chief executive officer, acknowledged the challenging quarter but expressed confidence in the company’s long-term growth prospects.
We had a challenging Q1, but we remain confident that with our balanced portfolio and investment in technology solutions, we will achieve growth in the mid-to-long term to deliver value to stakeholders.
Karthikeyan Natarajan
The management indicated that the DET revenue growth for FY25 in constant currency terms would remain flat due to the impact of Q1 FY25. However, they are optimistic about a turnaround in the second half of the current fiscal year. Krishna Bodanapu, executive vice chairman and managing director of Cyient, highlighted positive signs, including double-digit YoY growth in top customer engagement and an increase in FY24 exit order intake.
We won five large deals in DET with a total contract potential of $52.4 million in this quarter. With this, we are confident that we have taken steps to align the supply to the demand. We believe this will translate into improved revenue realization and drive a sharp recovery of growth through the coming quarters.
Bodanapu
Despite the recent underperformance and weak Q1 results, brokerage houses have maintained their ‘buy’ ratings on Cyient’s stock, albeit with revised target prices and earnings estimates. Motilal Oswal retained its ‘buy’ call, citing the company’s undemanding valuations and its exposure to structurally strong verticals such as aerospace and sustainability. The brokerage set a target price of ₹2,070, implying a 9% upside. However, they noted that the recent underperformance was surprising given the company’s portfolio and sectoral tailwinds.
Kotak Institutional Equities also maintained its “buy” rating on Cyient’s stock, citing medium-term growth opportunities and reasonable valuations, though it cut its price target to ₹2,050 from ₹2,275. Emkay followed suit, retaining its ‘buy’ call but reducing its target price to ₹2,300.
In summary, while Cyient’s Q1 results have dampened short-term expectations, the company’s strategic positioning in high-growth sectors and brokerages’ continued confidence suggest potential for medium to long-term recovery and growth.
