Cyient's Q1FY20 revenue of USD 157 million de-grew by 5.2 per cent quarter on quarter (QoQ) and 3 per cent year on year (YoY) and was around 5 per cent below against analyst estimates. This is Cyient’s worst QoQ performance in the past 10 years.
In rupee terms, the information technology firm’s revenue stood at Rs 1,089 crore, a decline of 5.2 per cent sequentially and 2.6 per cent YoY. The company’s earnings before interest and tax (EBIT), which was Rs 100 crore, dropped over 32 per cent QoQ and 2.7 per cent annually. It reported lowest ever EBIT margin at 9.2 per cent for the quarter.
“Cyient has had a very slow start to the year led by multiple challenges. Q1FY20 has been the third consecutive quarter of disappointment. We expect Cyient's services business revenues to grow in low single digit in FY20. Revenue growth would be lower than most of it peers in FY20 and FY20 would be second consecutive year of single digit growth in services business. Led by Q1 miss on both revenues and margins we trim our EPS numbers by around 9/8 per cent in each of FY20/FY21,” analysts at Antique Stock Broking said in result review.
“Margin was impacted by revenue decline and wage hike (85bps). Margin will recover with growth and cost optimisation measures but double digit EBIT growth for FY20E appears an uphill task,” analysts at HDFC Securities wrote in an earnings review note.
Analysts at Motilal Oswal Financial Services, too, hope for a "robust recovery" in the coming quarters with expectations of a 5 per cent QoQ growth in Q2FY20.
"While Q1 was expected to be a weak quarter, Cyient misread the recovery in A&D and Communications, its two largest verticals (57 per cent of revenues) that were expected to offset the anticipated weakness in other segments. However, the recovery is now expected to be more robust, giving confidence of 5 per cent+ QoQ growth for Q2FY20," they said in a results' review note.
While they have revised their revenue estimates downwards for FY20/21 by 7 per cent/9 per cent, they maintain a 'buy' on the stock.
"We had upgraded our rating in the last quarter on favorable risk-reward due to acceleration of YoY growth from Q2FY20, upside risk to our margin estimates from the ongoing cost-optimization exercise, attractive FCF yield at 8 per cent, and potentially higher payout as management will assess a buyback every two years over and above the normal dividend of around 30 per cent. While other factors remain, the first factor gets pushed further out, given the low base of Q1FY20 revenue," they said.
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