Cyient Ltd – Stock Analysis

Cyient is a company which provides “software-enabled engineering & GIS services” to its customers. Some of its top customers are Boeing, Alstom Transportation, Hamilton Sundstrand etc. The company has more than 15,000+ employees based in India, USA, Australia, and Europe.

The company was founded in 1991, and has come a long way since. It became a public limited company in 1997, and got listed in the Indian stock exchanges. In last 18 years (since Mar’00) its net worth has grown at ~25% p.a. (from Rs.37 Cr to Rs.2060 Cr). It is one of those mid-cap stocks which has a good future potential.

In order of market capitalisation, it is ranked as 12th in moneycontrol (IT Software Cos). First in this list is TCS.

Recos

In Jan’19 ICICIdirect and HDFC Securities both issued a BUY rating for this stock.

Stock Analysis…

The current price of Cyient is trading at Rs.580 levels. This is way below the price at which the Recos report has been issued by HDFC Sec and ICICIdirect. Hence I thought to double check the fundamentals of Cyient using my stock analysis worksheet.

As it is an election year (Lok Sabha – May’19) in India, I thought adding this stock in my watch list will be worth it. Why? Because in election times, stock market corrections happen, and it might offer some good buying opportunity. Another reason being, Cyient is showing decent business fundamentals.

The result of my study can be accessed from here…click here (pdf copy).

I provide you few key insights from my report…

#1. Quality of Stock

The growth trajectory of Cyient has been good. In last 10 years, it has been able to increase its FCF, Reserves, PAT, Dividend, and EPS at a good rate. Moreover, Cyient has been mainly debt free in last 10 years.

Compared to income growth of 11.3% p.a. in last 10 years, its expense growth has been lagging at 9.46% p.a.. This means that its gross margins has increased with time. This is a great sign of its improving economic moat.

#2. Price Valuation

In last 12 months, the market price of Cyient has fallen from 685 to 590 levels. A stock with such decent fundamentals, offers a good buying opportunity during such price corrections.

It is also interesting to see the P/E and P/B ratios of Cyient. In terms of PE ratio, Cyient is looking undervalued. Sensex PE and Industry PE, both are higher than Cyient’s PE.

In terms of P/B ratio, Cyient looks slightly overpriced compared to the market. Currently, Sensex’s P/B is 3.02, compares to Cyient’s P/B of 3.23. But the last 5 years average P/B of Cyients (3.24) is almost at par with its current P/B (3.23).

The intrinsic value of Cyient is where it looks more poised. Compared to current market price levels of Rs.590, my stock analysis worksheet is estimating its intrinsic value as Rs.437.

But The Residual Income Model of intrinsic value estimation is suggesting an intrinsic value of Rs.669. Generally, residual income model suggests very low valuations. But in Cyient’s case its value is higher than even DCF, and Ben Graham’s models. This factor cannot be ignored. Hence, I’m looking at Cyient more intently than I would have looked otherwise.

Overall Score…

The overall scoring of Cyient is encouraging. My stock analysis worksheet is giving a 90%+ rating for Cyient. Generally a 85%+ rating is good enough.

Though according to my worksheet, Cyient is still not undervalued, but as its other business fundamentals are strong, hence it is able to muster a higher overall rating.

According to me, Cyient is a must watch stock for next few months.