Cyient, a global engineering and technology solutions company, recently released its Q1 results for FY25, and the numbers have left investors reeling. Founded in 1991 and headquartered in Hyderabad, India, Cyient specialises in providing innovative solutions in geospatial, engineering design, IT solutions, and data analytics.
Over the years, the company has built a reputation for delivering top-notch services across various industries, including aerospace, defence, healthcare, telecommunications, and transportation.
The company’s performance this quarter has been marked by significant declines across various financial metrics, causing a sharp drop in its stock price and prompting a mixed response from analysts.
Let’s dive into the details and understand what these results mean for Cyient and its investors.
A deep dive into the numbers
On 25th July 2024, Cyient announced its Q1 results, revealing some concerning figures. The company reported a 0.64% decrease in revenue and a 14.4% decline in profit year-over-year. Comparing these results to the previous quarter, the drop is even more pronounced, with a 9.95% fall in revenue and a 23.94% decrease in profit.
Operating income also took a hit, down 25.7% sequentially and 15.91% year-over-year. The Earnings Per Share (EPS) for Q1 was reported at ₹12.98, marking an 18.74% decrease year-over-year.
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Cyient market reaction
The market’s reaction to Cyient’s Q1 results was swift and severe. On July 26, 2024, Cyient shares fell over 9% as investors were left disappointed by the company’s performance. At 11:38 am, Cyient shares were trading nearly 8.2% lower at ₹1,739.25 on the NSE.
The stock had slipped to ₹1,724 on the BSE from the previous close of ₹1,894.35, bringing the market capitalisation down to ₹19,434 crore.
Analyst opinions about Cyient
The analyst community had mixed reactions to Cyient’s Q1 performance. Emkay Global cut its FY25E-27E earnings per share (EPS) estimates by 5-13%, factoring in the Q1 miss, sharp guidance cut, and gradual recovery in DET margin.
The brokerage cut the target multiple to 25x (from 27x), given the sharp guidance cut within only a quarter, raising concerns about growth predictability. Despite this, Emkay retained a ‘buy’ rating on the stock but lowered the target price to ₹2,300 per share.
Nuvama Institutional Equities, on the other hand, was more critical. Calling the Q1 results shocking, Nuvama noted that only reasonable valuations could save the day for Cyient.
The IT firm now requires a 3%+ Compound Quarterly Growth Rate (CQGR) to achieve FY25 flat YoY revenue guidance, a tall ask given the broad-based weakness. Nuvama maintained a ‘hold’ rating on the stock but cut the target price to ₹1,840 from ₹ 2,120 earlier.
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Cyient key performance highlights
- Revenue and profit: Cyient’s Q1 revenue was down 0.6% YoY and 9.9% sequentially at ₹1,675.7 crore. Net profit fell 23.8% sequentially to ₹144 crore and declined 18.6% YoY.
- Expenses: Selling, general & administrative expenses saw a 0.45% increase quarter-over-quarter and a 3.2% rise year-over-year.
- Operating income: Operating income decreased by 25.7% sequentially and 15.91% year-over-year.
- Earnings Per Share (EPS): EPS for Q1 stood at ₹12.98, marking an 18.74% decrease year-over-year.
- Market performance: Over the past week, Cyient’s stock gained 2.4%, but it has declined by 6.21% over the past six months and by 17.4% Year-to-Date.
Cyient quarterly performance (Rs. Cr):
| Quarterly | Jun 2024 | Mar 2024 | Dec 2023 | Sep 2023 | Jun 2023 |
| Sales | 569 | 611 | 597 | 628 | 624 |
| Other Income | 14 | 15 | 47 | 4 | 7 |
| Total Income | 583 | 626 | 645 | 632 | 631 |
| Total Expenditure | 471 | 466 | 462 | 471 | 459 |
| EBIT | 112 | 160 | 182 | 161 | 172 |
| Interest | 4 | 6 | 7 | 3 | 5 |
| Tax | 27 | 39 | 38 | 40 | 39 |
| Net Profit | 79 | 115 | 137 | 117 | 127 |
What led to the poor performance of Cyient?
Several factors contributed to Cyient’s disappointing Q1 performance. Unlike the previous quarter, when the firm saw significant deal wins from Airbus and Deutsche Aircraft, this quarter was impacted by greater-than-anticipated delays and right shifts in project execution in the connectivity segment.
The DET (Digital, Engineering, and Technology) segment, which accounts for more than 80% of Cyient’s revenue, reported revenue of ₹1,414 crore, down 5% QoQ and 2.8% YoY. DET’s EBIT margin stood at 13.5%, down 260 basis points YoY. Additionally, the headcount declined to 15,083 at the end of the June quarter, down by 378 from the previous quarter.
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Management’s perspective
Executive vice chairman and MD Krishna Bodanapu expressed confidence in the company’s future despite the Q1 setbacks. He highlighted that Cyient’s top customer engagement grew double-digit YoY, and their FY24 exit order intake was also double-digit higher YoY.
The company won five large deals in DET with a total contract potential of $52.4 million in this quarter. Bodanapu believes these steps will align supply with demand, translating into improved revenue realisation and driving a sharp recovery of growth through the coming quarters.
Should you buy the dip?
With Cyient’s shares down 9%, the question on many investors’ minds is whether to buy the dip. Analysts have mixed opinions on this. Emkay Global sees the current valuations as fairly undemanding and retains a ‘buy’ rating despite lowering the target price. Nuvama, however, remains cautious, citing broad-based weakness and the challenge of achieving FY25 flat YoY revenue guidance.
Factors to consider
- Valuations: Cyient’s valuations are relatively cheap, which could limit the downside potential.
- Growth predictability: The sharp guidance cut within a quarter raises concerns about growth predictability.
- Market conditions: Broader market conditions and sector-specific challenges could impact Cyient’s recovery trajectory.
Conclusion
Cyient’s Q1 results for FY25 have been disappointing, with significant declines across key financial metrics. The company’s stock price has reacted negatively, and analysts have mixed views on its future performance. While some see potential in the company’s current valuations, others remain cautious about its growth prospects.
As an investor, it’s crucial to weigh the risks and opportunities carefully. Consider the broader market conditions, Cyient’s strategic initiatives, and analyst recommendations before making any investment decisions.
Staying informed and keeping an eye on future quarterly results will be key to navigating Cyient’s journey through these challenging times.
