Cyient shares decline 9% on weak Q1 results. What should investors do?

Engineering service provider Cyient shares plunged 9% to Rs 1724 in Friday's trade after the company posted a drop in June-quarter profit due to delays in project execution.

The company reported a 23.8% sequential drop in its first-quarter net profit at Rs 144 crore. On a year-on-year (YoY) basis, the profit for the Hyderabad-based firm declined 18.6%.

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Unlike the previous quarter when the firm saw deal wins from Airbus and Deutsche Aircraft, the ER&D (engineering and research and development) firm’s revenue was impacted by greater-than-anticipated delays and right shifts in project execution in the connectivity segment. Its Q1 revenue was down 0.6% YoY and 9.9% sequentially at Rs 1,675.7 crore.

The company's DET (Digital, Engineering, and Technology) segment, which accounts for more than 80% of the firm’s revenue, clocked Rs 1,414 crore in revenue, down 5% quarter on quarter (QoQ) and 2.8% YoY.

Revising its annual revenue forecast downward, Cyient said that for FY25, it expects DET revenue growth to be flattish on year in constant currency terms. In April, the ER&D company projected DET revenue to grow in the high single digits for FY25.

Following the Q1 results, global brokerage firm Morgan Stanley downgraded the stock to 'Underweight' from 'Overweight' and cut the target price to Rs 1,550 from Rs 2,250.

Q1 was a miss on all counts and post a sharp miss, the global brokerage firm sees a reset in growth for Cyient but expects risk to the revised revenue guidance given the high ask rate and weak track record. Morgan Stanley sees EPS CAGR for F24-26 at 1.6% and expects the stock to inch closer to the last five-year average P/E.

Meanwhile, domestic brokerage firm Kotak Equities retained its 'Buy' rating on the stock with a lowered target price of 2,050 (earlier: Rs 2,275).

"Cyient (DET) reported a miss on moderated expectations. The top-line performance was uninspiring (5% QoQ decline) with revenue decline across verticals and flowed through the P&L, resulting in a 250 bps QoQ EBIT margin decline. The company expects flat revenues in FY2025E (high single-digit growth earlier), which is still aggressive, in our view. We cut our earnings estimate by 14-18% over FY2025-27E. The foundational strength of the model remains though we take cognizance of a few headwinds in our revised estimates," Kotak said.

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