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Business News/ Markets / Stock Markets/  Cyient is Axis Securities' ‘pick of the week’ – 4 key reasons why
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Cyient is Axis Securities' ‘pick of the week’ – 4 key reasons why

Following a multibagger surge in the stock in the last 1 year, domestic brokerage house Axis Securities has picked IT stock Cyient as its 'top pick of the week'.

Following a multibagger surge in the stock in the last 1 year, domestic brokerage house Axis Securities has picked IT stock Cyient as its 'top pick of the week'.Premium
Following a multibagger surge in the stock in the last 1 year, domestic brokerage house Axis Securities has picked IT stock Cyient as its 'top pick of the week'.

Following a multibagger surge in the stock in the last 1 year, domestic brokerage house Axis Securities has picked IT stock Cyient as its 'top pick of the week'. This is on the back of accelerating demand for ER&D services, new growth areas, and robust order intake for core services (DET).

The brokerage has a ‘buy’ call on the stock with a target price of 2,460, implying a potential upside of 13.5 percent from its current market price of 2,166.40 (as on February 13, 2024).

Cyient Ltd. (Cyient) is a global digital engineering and technology solutions company established in 1991 in Hyderabad India. Cyient collaborates with its customers to design digital enterprises, build intelligent products and platforms and solve sustainability challenges. The company has a strong presence in Europe, the US and other geographies.

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Stock Price Trend

The stock has surged over 144 percent in the last 1 year and 6.5 percent in February so far after a 14 percent drop in January.

Currently trading at 2,166.40, the stock is 12 percent away from its record high of 2,457.00, hit on December 22, 2023. Meanwhile, it has soared over 144 percent from its 52-week low of 887.00, hit on February 13, 2023.

Earnings

In the December quarter, Cyient reported a lower-than-expected quarterly profit, which is a drop of 2 percent to 153 crore. The firm said the drop in the company's consolidated net profit is due to higher employee costs and narrowed the revenue growth outlook for its largest business unit. Consolidated revenue from operations for Cyient rose 12.5 percent to 1,821 crore for the quarter on the back of growth in the sustainability and transportation verticals. Cyient also narrowed its full-year outlook for revenue growth in its digital, engineering and technology (DET) unit to 13-13.5 percent from 15-20 percent.

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Investment Rationale

Accelerating demand for ER&D services: Axis Securities noted that digital engineering spending is accelerating across industries, and companies moving from traditional to digital engineering will quickly adopt digital engineering. As per the brokerage, major industries such as Manufacturing, BFSI, Media & Technology, Retail, Healthcare Payers & Providers, and Travel & Hospitality are developing new products and services to differentiate themselves in their respective industries, thereby creating remarkable opportunities for the company.

Capitalising on growing investment in the transportation vertical: Axis further pointed out at aerospace seeing a sixth consecutive quarter of growth, growing 27.5 percent YoY in Q3FY24. As air travel expands, Cyient capitalises on aerospace digitalisation and advanced tech for aircraft performance. Growth drivers include defence spending, manufacturing efficiency, supply chain and Urban Air Mobility. Additionally, the global demand for aircraft is likely to double in the next 15 years which took 23 years to double last time around, explained Axis. The aerospace industry is poised for a decadal Supercycle, driven by sustainability pressures and a pending platform upgrade, leading to increased ER&D spending. The growth in the rail segment would be moderate and growth should be driven by a focus primarily on software-driven growth, it added.

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New growth areas see strong traction: The outlook from auto remains strong growing 30 percent YoY and Cyient is uniquely positioned to address the increased demand from Infotainment, Connected, ADAS, Autonomous, Hybrid & Electric Mobility. Semiconductor sector - there has been recent softness due to macro issues. However, management expects demand to recover in the latter part of the year, driven by high-performance computing, AI, and automotive segments, said Axis. The growth in the medical vertical was paused for the last couple of quarters but the opportunities in Predictive, Proactive, and Personalized patient care, connected devices, digital platforms, shift to value-based care and the need for accelerated testing, should help it grow in H2 of FY24, it added. However, hitech was weak and is expected to remain weak in FY24.

Robust order intake for core services (DET) during the quarter stood at $183.9 Mn: Additionally, management stated that it won 5 large deals with a total contract potential of $51.4 million in Q3FY24. 3 deals from sustainability as a result of focus on digital factory and plant engineering and asset management, 1 deal in healthcare & life sciences on patient health monitoring, and 1 deal from a North American OEM for certification support. The pipeline for the year looks robust, informed the brokerage.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Published: 13 Feb 2024, 11:29 AM IST
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