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Cyient reported steady operating performance in Q3. DET revenue grew 0.4% QoQ (CC: 1.1%) to USD179.2mn, largely in line with estimates. Adjusted EBIT margin for the DET segment declined by 50bps QoQ to 16%. Deal wins for Q3 grew 61.7% QoQ to USD297.3mn (book-to-bill: 1.7x). Management highlighted that while the overall environment remains challenging, there are signs of some green shoots, which can potentially accelerate growth in H2CY24. Sustainability BU is expected to maintain growth momentum, as it is a multi-year growth opportunity. Connectivity BU is bottoming out and expected to retrace growth in Q4. Citing right-shifting of projects, Mgmt has cut FY24 DET revenue growth guidance to 13-13.5% CC (earlier 15-20%), broadly in line with expectations; this implies 0.5-3% QoQ growth in Q4,. It has also narrowed down DET EBITM improvement guidance to 200-250bps from 150-250bps. We incorporate provision for the civil class action anti-trust lawsuit settlement in FY24 and largely retain FY25-26 estimates. We maintain BUY, with unchanged TP of Rs2,700 (valuing the DET business at 27x Dec-25E EPS; Rs259 for DLM).

Results Summary

Cyient’s DET revenue grew 0.4% QoQ (1.1% in CC) to USD179.2mn, broadly in line with consensus/our estimate. Among business units, sustainability reported strong growth of 8.2% CC QoQ, connectivity grew 0.2%, while transportation (-2.2%) and new growth areas reported a decline (-3.4%). Americas and EMEA reported growth of 2.6% and 5.3% QoQ, respectively, while APAC declined 10.2% QoQ. For DET, adj. EBITM declined by 50bps QoQ to 16%, impacted by lesser working days (seasonal impact of payday vs billed day gap) and investments to support future growth. Reported profit was impacted by settlement of the civil class action antitrust lawsuit amounting to USD7.4mn (provision of USD6mn recorded in Q3). Deal wins remain strong at USD297.3mn in Q3 (9MFY24 deal intake grew 33% YoY; book-to-build at 1.2x). Total headcount increased 1.5% QoQ to 15,678. What we liked: Strong deal wins, continued momentum in sustainability. What we did not like: Guidance cut, weakness in transportation, and new growth areas.

Earnings Call KTAs

i) Cyient won 8 large deals with potential TCV of USD136.8mn (4 in Aerospace, 2 in Communications, and 1 each in Sustainability and New-growth areas). ii) Sustainability led the growth in Q3 (up 8.2% CC QoQ), across energy, utilities, and mining. It is seeing demand in cost reduction, asset management, and alternate energy sources, and expects it to be a multi-year growth segment for the company. iii) Transportation declined 2.2% CC QoQ, but grew 16.9% YoY (like-to-like growth excluding Engineering Parts at 14.8% growth). Growing travel demand is likely to provide opportunities for MRO and manufacturing production rate improvement of aircraft engines. Mgmt expects continued momentum in Aerospace, with softness persisting in Rail. iv) Communications grew 0.2% QoQ CC after experiencing weakness in previous quarters, supporting Mgmt outlook on recovery. Investments in Fiber, supported by US government spending on RDOF and BEAD programs, can enable growth along with the need for Virtualization, Autonomous Network, SDN, cost reduction and premium customer experience, which can create more demand. v) New growth areas declined 3.4% CC QoQ. Auto is likely to be soft in Q4, but growth is likely to rebound from Q1FY25. Challenges are visible in the semi-conductor and hi-tech segments. Management expects Semiconductor to turnaround in H2, as it continues to see momentum in the form of high-performance computing and GenAI. vi) It has entered into an agreement to settle and dismiss the Civil Class Action Antitrust Lawsuit for USD7.4mn. It will utilize the insurance amount to the extent available towards settlement, for which it has also taken a provision of USD6mn in Q3. It expects this provision to be adequate and does not anticipate any further provision. vii) Management expects double-digit growth over the next 12 months.

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