The mid-sized IT firm Cyient on Thursday reported strong March-quarter earnings on the back of higher-than-expected tax incentives and few one-off gains. The stock has a good potential to rally considering its improving earnings and service to niche segments like aerospace, defence, medical and others.
The Hyderabad-based company reported a 54.7 per cent rise in net profit to Rs 1,88.1 crore for the March 2019 quarter. Its revenue increased 9.5 per cent to Rs 1,162.9 crore.
At the end of the March 2019 quarter, Cyient had 15,084 employees with voluntary attrition rate at 19.9 percent and involuntary attrition at 4.6 percent.
Cyient, whose board of directors in February had approved buyback of shares worth about Rs 200 crore, said about 2.6 million shares had been bought back till March 31, 2019, for Rs 167 crore.
JM Financial maintained "buy" on the stock with a price target of Rs 740. The brokerage said, "While the management is admittedly building a cushion in FY20 guidance after the miss in FY19, the subdued Q1FY20 outlook limits the possibility of significant outperformance, in our view. Thus, we expect the stock to remain range-bound in the near-term."
Morgan Stanley maintains "overweight" with the target price of Rs 720 per share. It believes that the operating performance was better than expectations. The brokerage also raised FY20 EPS (earnings per share) estimate by 2 percent and maintained margin assumption for FY20 at 11.4 percent v/s 11.5 percent in FY19.
Reliance Securities had "buy" recommendation on Cyient with a price target of Rs 780 per share. The research house said, “While Cyient continues to face revenue headwinds owing to several business disruptions, we are encouraged by its margin performance and outlook for FY20E."
Furthermore, expect Q2FY20E to be the critical quarter for revenue acceleration aided by decent order book. The stock has corrected by a steep 23 percent over the past year, which we believe has discounted the potential negatives, said the brokerage.
According to the technical charts, the stock has been consolidating in the range of Rs 600-575 since April 2 when it fell 20 percent in a day. The company's revenue since the last 4 quarters has also been stagnant in the range of $160-168 million. This highlights that improved earnings in the next quarter will trigger the stock price to escalate.
Coming to valuations, the stock is available at a cheap price with P/E of 16.59x. Its return on equity stands at 18.16 percent which is more than its peer NIIT Technologies.The company's business of engineering, manufacturing, geospatial, digital, networks, and operations management solutions to global industry leaders is very attractive.