Cyient soars 15% on expectation of margin improvement in March quarter

The management said it expects sequential improvement in margins in Q4FY21 driven by the increase in volume and improvement in operational efficiencies

Cyient shares soared 15 per cent to Rs 584 on the BSE on Friday in intra-day trade on the back of heavy volumes after the company's management said it expects sequential improvement in margins in the January-March quarter (Q4FY21), driven by the increase in volume and improvement in operational efficiencies. The stock of the information technology (IT) & software company was quoting at its fresh 52-week high level.

In the October-December quarter (Q3FY21), Cyient reported 13.8 per cent quarter on quarter (QoQ) growth in consolidated net profit at Rs 95.40 crore on the back of higher other income. Consolidated revenue grew 4 per cent sequentially at Rs 1,044 crore.

Consolidated EBIT (earnings before interest and tax) margin stood at 11.2 per cent; up by 14 basis points (bps) QoQ. Services EBIT was lower by 88 bps QoQ after taking into account the wage hike and furlough impact, while design-led manufacturing (DLM) margins up 594 bps QoQ driven by better revenue mix. There were improvements in operational metrics, favourable volume impact and lower spend on selling, general and administrative expense (SG&A) and depreciation which offset the headwinds, the company said.

Going forward, the company expects healthy QoQ growth in Q4FY21E (Q4FY20 revenues in Q4FY21E), mainly led by traction in services and DLM business. ICICI Securities believes this will lead to high single digit (~5.5 per cent) growth in Q4FY21E. In addition, margins are expected to improve by around 150 bps QoQ in Q4FY21E leading to 80 bps YoY increase in FY21E EBIT margins to 10 per cent.

“Further, the company has also won 5 multi-year deal with total contract potential of $106 million in the quarter and its order book has increased by 7 per cent year on year (YoY) which we believe will drive company’s long term revenues. This coupled with restructuring of organisation to drive growth and reasonable valuation prompts us to be positive on the stock,” the brokerage firm said in a note.

At 11:24 am, Cyient was trading 11 per cent higher at Rs 565 on the BSE, against 1 per cent decline in the benchmark S&P BSE Sensex. The trading volumes on the counter jumped 6-fold with a combined 3.22 million equity shares changing hands on the NSE and BSE, till the time of writing this report.