Niche positioning driving growth CYIENT’s 3QFY15 results were above our estimates on all fronts :: HDFC Securities

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Niche positioning driving growth
CYIENT’s 3QFY15 results were above our estimates
on all fronts (USD revenues, EBIDTA margin and
PAT). Higher revenue booking in Softential for 3Q,
which included planned revenue for 4Q, led to the
revenue beat.
CYIENT continues to deliver steady growth among
midsized IT players. Company’s USD revenues grew
by 5.5% CQGR over the past five quarters driven by
organic growth and the Softential acquisition. Niche
positioning in the Engineering Design Services and
Data Transformation, Network and Operations
(DNO) segments is boosting the growth trajectory.
We see growth drivers in aftermarket and
manufacturing services in the Aerospace vertical. The
acquisition of Rangsom could further strengthen its
footprint in the engineering business value chain.
With net cash on balance sheet at Rs7.6bn, we see
scope for further inorganic initiatives which could
accelerate growth. Retain BUY with revised TP of Rs
638/sh (15x FY17EPS).
 3QFY15 Highlights : CYIENT reported revenues of US$
114.7mn, up 3.5% QoQ and above our estimates (USD
110.7mn). Growth was driven by higher revenue
booking from Softential, which came at USD 9mn (vs.
USD 5.3mn for 2QFY14). Engineering design was flat
QoQ in constant currency terms. DNO (up 15.7% QoQ
in constant currency and 7.1% excluding Softential)
aided growth for the quarter. Strong traction in the
Utilities vertical in North America is abetting growth in
DNO. EBIDTA margin of 16.3% was up 20bps QoQ and
above our estimates (14.5%). PAT was at Rs 1008mn,
20% above our estimates, driven by revenue and
EBIDTA margin beat.
 View : We expect CYIENT to deliver 22.7% USD revenue
growth for FY15 (16.7% organic and the rest owing to
the Softential acquisition). Management remained
bullish with regards to growth outlook for FY16 which
is a key positive. However, EBIDTA margins for FY15
could be softer (~15.9% down 290bps YoY) owing to a
steep increase in subcontracting expenses. We see
scope for margin expansion in the core service business
(excluding Rangsom electronics integration) in FY16E.
Our TP is upgraded by 19% to Rs 638/sh driven by P/E
multiple upgrade and rollover to FY17. Maintain BUY.


LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010734