JMFL

Cyient (Buy)

CMP: ₹696.3

Target: ₹820

Cyient (CYL) 1QFY19 results underpin the typical volatility in ER&D services due to the low share of annuity-centric revenues. Thus, a disconnect between completion of legacy projects and the start of new projects has an amplified impact on the q-o-q revenue growth and margin movement as was the case for CYL in the utilities and communication verticals in 1QFY19 leading to both revenues and margins coming below our estimates. However, the order book addition was modest ($170 million) and a healthy backlog ($740 million addition over the last four quarters) lends support to the management’s confidence in meeting the double-digit revenue growth + stable margin targets for FY19; flow-through of rupee weakness into margins over 2Q-4QFY19 is a possibility. OCF/EBITDA was stable at 53 per cent. Thus, while we have lowered our FY19/FY20 EPS estimates post the 1QFY19 miss, we still find risk-reward attractive at <1x PEG. Maintain ‘buy’ with a price target of ₹820 (₹830 earlier).

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