Buy Cyient DLM with Target Price of Rs 830: Strong Performance and Positive Outlook

Buy on Cyient DLM with Target Price of Rs 830: Strong Performance and Positive Outlook

Overview:

Motilal Oswal, a renowned financial institution, expresses a bullish stance on Cyient DLM (CYIENTDL) and recommends a ‘Buy’ rating on the stock. The target price set for CYIENTDL is Rs 830, as indicated in Motilal Oswal’s research report dated January 23, 2024. The report provides insights into CYIENTDL’s recent performance, key highlights from the management commentary, and the overall outlook.

Key Insights:

1. Strong Quarter Performance: Cyient DLM reported another robust quarter, achieving a remarkable revenue growth of approximately 50% Year-on-Year (YoY) in the third quarter of the fiscal year 2023-24. The substantial traction is attributed to the Aerospace and Defense verticals.
2. Margin Decline: Despite the strong performance, margins experienced a slight decline, decreasing by 40 basis points YoY to 9.2%. The primary factor contributing to this decline is higher Selling, General, and Administrative (SG&A) expenses.

Outlook and Valuation: Motilal Oswal maintains its earnings per share (EPS) estimates for FY24, FY25, and FY26. The research report retains a ‘BUY’ rating on the stock with a target price of INR 830. The valuation is based on 35 times the FY26E EPS.

Management Commentary Highlights:

1. Margin Expectations: Cyient DLM has completed its investments in SG&A and anticipates improvements in margins from the next quarter. The company is expecting margins of approximately 10-10.5% in the near term and around 11-12% in the long term.
2. Order Intake: The order intake for the third quarter of FY24 stood at approximately USD 41.8 million (INR 3.3 billion). Additionally, the company has secured new awards, apart from the order intake, worth USD 10 million, to be spread over the next three to four years. The average order execution period is over 12-18 months.
3. Working Capital: Cyient DLM anticipates a decline in inventory and debtors days in the fourth quarter of FY24. The company aims to bring net working capital down to around 100 days in the short term and approximately 90 days in the medium term.

Conclusion:

Investors are encouraged to consider Cyient DLM as a potential investment opportunity, given its strong quarter performance, positive outlook, and the various strategic initiatives highlighted in Motilal Oswal’s research report.

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