Cyient Limited is focused on engineering, manufacturing, data analytics, and networks and operations. Infotech Enterprises was established in 1991 in Hyderabad and was re-branded as Cyient in 2014. It is featured among the top 30 outsourcing companies in the world as of 2018.
The company’s shares have 52 weeks price band of INR 513-184 and a total market capitalization of INR 42.81 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 12.82 and a dividend yield of 3.86%
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.
- Economic Moat
- Business Model and Management
- Growth Ratios
- Profitability Ratios
- Cash Flow Ratios
- Liquidity and Solvency Ratios
- Efficiency Ratios
- Valuation Ratios
- ROE (Du Pont Analysis)
- Future Prospects
(All units are INR Millions except ratios and per share data)
You can get the complete excel model used for this analysis from below:
1.Economic Moat (★ ★ ★ ☆ ☆)
The company operates in the engineering, consulting and outsourcing industry where market dominance is achieved through scale, clientele, technical know-how, digital infrastructure and workforce. Cyient delivers their services and solutions to a diversified base of over 300+ customers, including 29+ Fortune 500 companies, across multiple industries. This shows a well diversified revenue stream for the company.
They also have 13,000+ associates in 14+ countries who work across different verticals and at both team and client locations across the globe. The company was named supplier of the Year from The Boeing Company and is also as featured among the top 30 outsourcing companies in the world in 2014. However, the scale of the company is smaller as compared to other engineering and consulting giants and the market is also highly specialized. Thus the company does not have any significant economic moat in the industry. Therefore this category gets 3 stars Cyient fundamental analysis.
2. Business Model and Management (★ ★ ★ ★ ☆)
The company mostly works in the field of engineering and technology solutions. They engage with customers across their value chain and help them to design, build, operate, and maintain the products and services. Cyient has proven capabilities across engineering, manufacturing, digital, semiconductor and Geospatial systems. This overall shows a well diversified business model and good client distribution across industries ranging from Aerospace to Utility.
The company is also in forefront of innovation and have partnered with ANSYS to set up a simulation lab at Cyient’s Experience Centre in Hyderabad. The Cyient-ANSYS Simulation Lab will develop proofs-of-concept (POC) for Cyient and its clients across the globe. In 2015, Cyient acquired Pratt & Whitney Global Services Engineering Asia and Rangsons Electronics. In 2017, they acquired Certon Software Inc. This strategic acquisition has helped them to increase their customer base and service offerings.
Mr Krishna Bodanapu is the Managing Director and CEO of the company. He joined Cyient as a Sales Manager for engineering services in Europe. He later moved to India, where he held dual roles as Marketing Manager and Key Account Manager for the company’s aerospace vertical. Mr Karthikeyan Natarajan is the President and Chief Operating Officer. He is responsible for global business operations, including sales, delivery, and business development. Overall the management has been stable and has been able to give a direction of sustainable growth to the company. Therefore this category gets 4 stars Cyient fundamental analysis.
3. Growth Ratios (★ ★ ★ ★ ★)
The revenue has shown a growth of 19.31% CAGR over the last 10 years. The operating income and net income has also grown at double-digit CAGR. This also shows stability in the profitability of the company. The working capital is also positive and has shown a linear growth. Capital expenditure has increased with an increased scale. Therefore this category gets 5 stars Cyient fundamental analysis.
4. Profitability Ratios (★ ★ ★ ★ ☆)
The gross margin has been stable over the years even with stable wage inflation. This indicates that the company has increased its cost of services delivered and is able to pass it down to customers. The other margins along with return on assets have been stable. However, the margins can decline due to the Covid-19 effects on global businesses. Therefore this category gets 4 stars Cyient fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ★ ☆)
The net income margin has seen a slight decrease over the years along with the Cap-Ex as a percentage of sales. The free cash flow as a percentage of net income has been positive over the years. The free and operating cash flow growth has been fluctuating but this is the nature of the business. Overall the company has shown a good cash flow position. Therefore this category gets 4 stars in Cyient fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ★ ★)
The company does have small debt in its capital structure and the financial leverage and debt to equity ratio have been increasing slightly over the years. The profitability margins have also been stable over the years hence there is no significant concern to the solvency of the company. The current and quick ratio has decreased over the years and is way above the minimum threshold which shows a good liquidity position. Therefore this category gets 5 stars in Cyient fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ★ ☆)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Overall the business efficiency has improved significantly over the years and this is because of the nature of the business. The payables period has increased from 38 to 55 days and the receivables days have almost remained stable due to the nature of contracts. The cash conversion cycle has seen a steady decrease from 74 days to 38 days but it remains positive. Therefore this category gets 4 stars in Cyient fundamental analysis.
8. Valuation Ratios (★ ★ ★ ★ ☆)
The company traded at a declining valuation since 2018 even with improving growth prospects. Cyient has managed to sustain the multiples over the years due to prudent cash generation and deployment along with expansion into new verticals. The multiples, however, can see increased growth in the near future as well. Therefore this category gets 4 stars in Cyient fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ★ ★ ☆)
The leverage ratio has been increasing along with asset turnover has improved steadily over the years. The interest burden ratio has remained at almost 100% due to low interest-bearing debt in the capital structure of the company. The operating margin has seen a slight decline and the tax efficiency has remained stable. Overall the Return on Equity has been stable for the company even with increased equity base. Therefore this category gets 4 stars in Cyient fundamental analysis.
10. Future Prospects (★ ★ ★ ☆ ☆)
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The company will suffer from Covid-19 related disruption but can expect a recovery on the back of fieldwork restrictions being eased and expected recovery in Communications and other verticals.
- For important verticals likes Aerospace, Defense and Transportation the outlook remains weak. Due to the expected decline in volumes of fleet delivery by clients and the resultant trickle-down effect, the management expects this vertical to remain weak over the next couple of years.
- The management remains focused on cost reduction in several areas including reducing sub-contractor based expenses, reduced travel by managers, facilities running cost cuts and deferral of wage hikes. This is likely to improve the margins in the near term.
Overall the future outlook for the company remains positive for the long term due to good growth prospects and solid financials. The medium-term outlook, however, is lukewarm for the company. Therefore this category gets 3 stars in Cyient fundamental analysis.
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
CYIENT SHARES (4.0/5)
Therefore it is a 4-star stock
★ ★ ★ ★ ☆
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|Economic Moat||★ ★ ★ ☆ ☆|
|Business & Management||★ ★ ★ ★ ☆|
|Growth Ratios||★ ★ ★ ★ ★|
|Profitability Ratios||★ ★ ★ ★ ☆|
|Cash Flow Ratios||★ ★ ★ ★ ☆|
|Liquidity & Solvency||★ ★ ★ ★ ★|
|Efficiency Ratios||★ ★ ★ ★ ☆|
|Valuation Ratios||★ ★ ★ ★ ☆|
|ROE (Du Pont Analysis)||★ ★ ★ ★ ☆|
|Future Prospects||★ ★ ★ ☆ ☆|
|Overall Fundamental Rating||★ ★ ★ ★ ☆|
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)