Cyient zooms 9% on better-than-expected Q1 performance, positive outlook

The company's Ebit came in at Rs 50.2 crore, up 10.6 per cent than Rs 45.4 crore reported in Q4FY20

Shares of IT firm Cyient Limited surged 9.27 per cent to Rs 310.50 on the BSE on Friday after the company's net profit grew 76.2 per cent on a quarter-on-quarter (QoQ) basis to Rs 81.4 crore. Besides, the management's positive outlook regarding the company's growth also lifted investor sentiment.

On a year-on-year (YoY) basis though, the Hyderabad-based company's net profit declined 10 per cent from Rs 90.5 crore reported in the year-ago period while revenue decreased 8.9 per cent from Rs 1,089 crore in Q1FY20. Sequentially, revenues slipped 7.6 per cent to Rs 991.7 crore.

"Q1 FY21 results were better than our expectations, where we recorded a revenue of USD 130.6 million which was lower by 11.6 per cent quarter-on-quarter and 15.1 per cent year-on-year in constant currency," Cyient Managing Director and CEO Krishna Bodanapu said.

He added that the company saw some significant wins in both new business and existing clients in June 2020 quarter that will help strengthen Cyient's revenue outlook in the coming quarters.

"Our outlook for Q2 is positive and we expect growth to return in all industries except aerospace, which will de-grow further in Q2. For the year, we expect a de-growth in revenue in double digits," he said.

On the operational front, the company's Ebit at Rs 50.2 crore was 10.6 per cent higher than Rs 45.4 crore in Q4FY20 while margin expanded 90 basis points (bps) to 5.1 per cent.

Bodanapu said margins in the second half of the fiscal will be "back to the steady state margin of H1 of last year". "This will continue to be underpinned by strong free cash flow generation and prudent capex spend," he added.

In dollar terms, net profit fell 17.6 per cent to USD 10.7 million, while revenue was lower by 16.6 per cent at USD 130.6 million in the quarter under review from the year-ago period.

At 10 AM, the stock was trading 5.97 per cent higher at Rs 301.10 as compred to 0.37 per cent gain in the S&P BSE Sensex. Around 19.3 lakh shares have changed hands on the NSE and BSE combined so far.

After the results announcement, Axis Capital upgraded the stock from 'ADD' to 'BUY' while also raising the target price from Rs 230 to Rs 390.

"Q1FY21 performance was better than expected on all counts. Management expects weakness in A&D vertical to continue in Q2FY21. Moreover, the growth is expected to accelerate from H2FY21. The company has increased focus on large deals which will further improve visibility in FY22. Cost saving initiatives in Q1 and automation would drive margin uptick to low teens by FY22. Our revised TP stands at Rs 390 (11x Jun-2022E EPS) vs Rs 230 earlier," the brokerage said.

Motilal Oswal also raised its target price, saying the company's restructuring costs were behind and that margins should expand sharply, going forward.

"Cyient’s 1QFY21 performance suggests revenue impact was not as bad as anticipated earlier. While demand-side challenges persist in some verticals, management indicated supply-side issues should not be a bottleneck going forward. Outlook on growth from 2QFY21 is much better than previously expected. As growth recovers and some of the restructuring costs are

behind, margins should report sharp expansion over 2HFY21," the brokerage said.

"We upgrade our FY21/FY22E EPS estimates by 25% on a better-than-expected revenue and margin outlook," it said.