Kotak Securities is bullish on Cyient and has recommended accumulate rating on the stock with a target of Rs 357 in its July 18, 2014 research report.
"Cyient, while revenues came in higher than estimates, operating profits fell sharply, impacting margins. Organically, revenues grew by 3.6% in CC terms v/s our expectations of a 1.5% growth. Softential added 3.6% to the revenues in 1Q. Revenues grew on the back of scale ups in various accounts, which had got pushed over to FY15. We note that, Cyient's growth rates had lagged most peers in the first three quarters of FY14. We would watch out for further scale ups in these accounts, going ahead. EBIDTA margins were sharply lower QoQ due to salary hikes and rupee appreciation. Higher subcontractor spends in a new project also impacted margins. This was disappointing. We had expected one off expenses in 4QFY14 to cushion the impact of salaries / rupee."
"The management has indicated a general pick-up in sentiments and a good pipeline. We have been uncomfortable with the projects-based nature of revenues and the attached quarterly volatility in revenue growth. Margins have also disappointed in 1Q. Our earnings estimates for FY15 stand at Rs.28 (Rs.30.6) per share and for FY16 at Rs.32 (Rs.33.8) per share. Our FY16 - based PT stands revised to Rs.360 (v/s Rs.366). At our TP, FY16E earnings will be discounted by 11x. The stock has underperformed post 4QFY14 results. We maintain ACCUMULATE. We believe CYIENT has to bring in more consistency in revenue growth for sustained valuation gains. CYIENT had reported a 6% revenue growth in FY13 and 5% growth in USD revenues in FY14. Expected cash / cash equivalents of Rs.66 per share by FY15 end, may provide cushion to the stock," says Kotak Securities research report.
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