Prabhudas Lilladher has upgraded Cyient to a BUY with a target price of Rs 2,120, representing a 19% upside from the current price of Rs 1,778. Following a recovery in Q2FY25 after a weaker Q1, Cyient's consolidated revenue grew nearly 10% QoQ, driven by strong segment performance in Transportation and Connectivity. Despite a slight dip in order intake, the company maintains a healthy balance sheet and is focusing on high-growth areas, notably the semiconductor subsidiary, Cyient Semiconductors. The report anticipates revenue growth supported by broad-based segment recovery and strategic investments.

Quarterly Financial Overview

Revenue Growth: Cyient’s consolidated revenue for Q2FY25 stood at $220.7 million, reflecting a 9.9% QoQ increase, with the DET segment contributing $173 million—a modest QoQ growth of 1.3% in constant currency (CC).

EBIT Margin Improvement: The DET segment saw an EBIT margin rise by 70 basis points QoQ to 14.2%, supported by revenue growth and operational efficiency gains. Meanwhile, the consolidated EBIT margin rose to 12.5%, up 60 basis points.

Profit After Tax (PAT): PAT for Q2FY25 reached Rs 1.79 billion, a 24.7% QoQ increase, aided by higher other income. Cyient also declared an interim dividend of Rs 12 per share, underscoring its commitment to shareholder returns.

Vertical and Geographic Performance

Broad-Based Recovery in Verticals: All segments, except Sustainability, which experienced seasonal weakness, contributed to growth. Notably:

Transportation grew 3.7% QoQ after three quarters of decline.
Connectivity posted a 5.1% QoQ increase, benefiting from improved demand.
New Growth Areas saw a strong 10.2% QoQ boost, led by Healthcare, Life Sciences, and Semiconductors.
Geographic Trends: The Americas and APAC regions demonstrated resilience with 4.8% and 9.6% QoQ growth, respectively, while EMEA was down by 6.4% due to seasonal impacts in Citec's operations.

Strategic Investments and Subsidiary Expansion

Cyient Semiconductors Initiative: Cyient has directed recent proceeds from its stake sale in Cyient DLM towards its semiconductor subsidiary, establishing Cyient Semiconductors. A recent acquisition of a 27.3% stake in Azimuth AI for $7.25 million has strengthened its portfolio in ASIC development for edge computing applications.

Middle East Expansion: Cyient entered into an agreement to acquire Abu Dhabi & Gulf Computer Est., expanding its footprint in the Middle Eastern technology consulting and energy sectors. This acquisition aligns with Cyient’s strategy to penetrate high-growth markets.

Order Intake and Margin Outlook

Soft Order Intake in Q2FY25: Order intake decreased by 14.2% QoQ to $156.8 million. Despite the decline, Cyient’s trailing twelve-month order intake remains strong with a book-to-bill (BTB) ratio of 1.2x, reflecting a stable pipeline. The management is actively broadening the annuity component in the order book to reduce dependency on project-based contracts.

Margin Expansion Goals: Management aims for a 16% EBIT margin run rate by Q4FY25, leveraging recent cost rationalization efforts. The Q2 performance and a stronger outlook for H2FY25 suggest favorable conditions for margin growth.

Valuation and Target Price

Prabhudas Lilladher values Cyient’s stake in Cyient DLM with a 20% holding discount and its DET services at a P/E multiple of 23x FY27E EPS, setting a target price of Rs 2,120. With anticipated strong performance in H2FY25, Cyient is well-positioned for sustainable growth, making this an attractive BUY opportunity.