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Cyient reported a robust Q2FY15 with revenue of USD110.8mn, up 6.6% QoQ, which surpassed our and Street’s estimate of 4.0%, while EBITDA margin at 16.1% was in line with estimates. This strong growth was driven by data network & operations (DNO), (10.5% QoQ growth) while the engineering (Engg) segment grew 4.2%. Resolution of client-related issues and strong order book resulted in the company posting organic CQGR of 4.8% for the past four quarters. A strong H1FY15 leads us to raise our FY15/FY16 revenue estimates to 24%/16% (20%/14% earlier). This, along with USD/INR revision to INR60/59 from INR58/56 for FY15/16, leads to 3%/9% upward revision in our FY15/FY16 EPS estimates. The healthier revenue traction along with improving margin trajectory leads us to revise our target P/E multiple to 12x from 10x earlier.
All engines firing
Cyient, riding robust growth in DNO and Engg segments, reported robust QoQ growth of 6.6%. US geography posted strong 11.7% growth. Further, the company remains confident of achieving CQGR of 3-4% over the next few quarters drawing from stronger deal pipeline and order book across segments.
Revenue traction looking up, margin improvement to follow
Q2FY15 saw EBITDA margin improve by 200bps QoQ post the 400bps decline in Q1FY15. While onsite component and sub-contracting costs are expected to remain at current levels due to ramp up of new projects, we believe it has levers like utilisation and pyramid rationalisation which will lead to margin improvement in near term while sub-contracting dip, and offshoring will aid margin in the near to medium term. The company expects margins to be 100-150bps lower in FY15 (18.6% in FY14) We have built in EBITDA margin of 17.2% and 18.2% for FY15 and FY16, respectively
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