CYIENT POSTS STRONG Q2 REVENUE, MARGIN IMPACTED BY EXCEPTIONAL ITEMS

News:

 Cyient reported strong revenue growth for Q2F23. The group revenue was US$ 174.8 mn, up 10% QoQ, 20.4% YoY in CC terms while the growth in dollar terms was 8.2% QoQ, 16.5% YoY. IT services revenue grew 12.3% QoQ, 25.8% YoY in CC terms with organic contribution of 3% QoQ/11.5% YoY. DLM business declined by 3.3% QoQ in dollar terms. The company’s margins were impacted by exceptional & onetime M&A related expense. Adjusted services EBIT without acquisitions was up 112 bps QoQ to 13.2% despite the headwinds of wage hike (-154 bps) & increased SGA exp. (-60 bps). The tailwinds for the same were a) operational efficiency (+126 bps), b) volume impact on SG&A (+120 bps), c) higher billing days (+80 bps). DLM EBIT margin were 8.3% resulting in normalised adjusted EBIT margin of 11.9%, up 84 bps QoQ at group level. Region wise EMEA region led the growth with acquired companies (Citec & Celfinet) contributions helping to grow by 34% YoY in CC terms. The company added 1,423 net new employees in Q2 taking the total headcount to 15,004. Attrition increased 50 bps QoQ to 28.4. Order Intake was strong across Services & DLM and the company won five large deals with total contract potential of US$ 105 mn (four in services and one in DLM). The company maintained the revenue guidance for the group & DLM for FY23 but increased the contributions from acquisitions to 14-15% in FY23 from earlier guided 6-7%. The company has guided of the normalised EBIT margin of 13-14% for services business & normalized EBITDA for the group at 16-17% for FY23. The company declared an interim dividend of Rs 10 per share.

View:

 Cyient completed the acquisitions, which helped it to post a strong quarterly performance. We believe the company’s growth momentum will continue, going forward, in the services segment backed by strong order book. The company indicated the potential hiving off DLM business, which was impacting the overall group margins. We believe this along with the increased contributions from acquired business will help the company to achieve & along with operational efficiency will help the company achieve its EBIT target margins.

Impact:

Positive.