DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 12 April 2017 Asia Pacific/India Equity Research Computer Services & IT Consulting Cyient Limited (CYIE.BO) Rating OUTPERFORM Price (10-Apr-17, Rs) 473.05 Target price (Rs) 625.00 Upside/downside (%) 32.1 Mkt cap (Rs/US$ mn) 53,250 / 824.55 Enterprise value (Rs mn) 46,361 Number of shares (mn) 112.57 Free float (%) 77.8 52-wk price range (Rs) 539-451 ADTO-6M (US$ mn) 0.8 Target price is for 12 months. Research Analysts Nitin Jain 91 22 6777 3851 [email protected]Anantha Narayan 91 22 6777 3730 [email protected]INITIATION Structurally well placed, with solid momentum Erratum: Due to an internal database error, our revenue and margin numbers were incorrect in the earlier version. All other numbers were correct. ■ We initiate coverage on Cyient with OUTPERFORM and TP of Rs625. ■ Structurally well placed in the fast changing industry. Cyient is among the few Indian companies with a large exposure to faster growing engineering services (or engg. svcs.) with 54% share, and has niche capabilities in rapidly expanding network engineering (telecom) and utility/GIS practices. These segments are relatively immune from the difficult transition that the traditional IT companies are undergoing. Cyient is also possibly the least H-1B/L-1 visa dependent among its Indian IT peers, with below 15% exposure. ■ Gearing-up for integrated offerings. Cyient has gone through several strategic changes in the last three years, including verticalisation, broadening of service portfolio (through several M&As) and venturing into design led manufacturing. The company is gearing-up to offer integrated services, ideation-design-prototype-maintenance in case of engineering, and plan- build-operate for telecom and utility verticals. Management has indicated a healthy pipeline build-up, and such deals can have higher margins. ■ Solid business momentum, some scope for margin expansion. The top clients' momentum is solid (high correlation with the overall growth), trends are stable to positive in all the key verticals, and order intake is healthy. We expect the company to report over 13% revenue CAGR (organic, constant currency) over FY17-19—among the best in the industry. Margins can expand too from the current 13.5% levels to 14.6% by FY19 (better G&A leverage, pyramid correction and recovery in acquired companies' margins). ■ Initiate with OUTPERFORM. We value Cyient at 14x FY19E P/E (over 15% FY17-19E EPS CAGR). Its engg. svcs. peers trade at 14-18x CY17E P/E (single to low double digit EPS CAGR), while the mid-cap Indian IT peers trade at 12-17x CY17 P/E (average EPS CAGR of 11%). Key risks include adverse currency moves, client-specific issues and acquisition indigestion. Share price performance The price relative chart measures performance against the S&P BSE SENSEX IDX which closed at 29,575.74 on 10/04/17. On 10/04/17 the spot exchange rate was Rs64.58/US$1 Performance 1M 3M 12M Absolute (%) 0.9 -4.3 3.4 Relative (%) -2.0 -14.1 -15.7 Financial and valuation metrics Year 3/16A 3/17E 3/18E 3/19E Revenue (Rs mn) 30,955.5 36,061.8 40,736.0 46,260.2 EBITDA (Rs mn) 4,247.0 4,896.5 5,683.3 6,735.3 EBIT (Rs mn) 3,353.8 3,949.3 4,650.8 5,640.4 Net profit (Rs mn) 3,348.6 3,631.6 4,335.2 4,885.1 EPS (CS adj.) (Rs) 29.06 32.33 38.72 43.63 Change from previous EPS (%) n.a. (0.0) 0.0 0.0 Consensus EPS (Rs) n.a. 32.41 38.43 43.34 EPS growth (%) (7.7) 11.3 19.8 12.7 P/E (x) 16.3 14.6 12.2 10.8 Dividend yield (%) 1.5 2.2 2.1 2.3 EV/EBITDA (x) 11.4 9.5 7.8 6.2 P/B (x) 2.78 2.44 2.13 1.86 ROE (%) 17.8 17.8 18.6 18.3 Net debt/equity (%) Net cash Net cash Net cash Net cash Source: Company data, Thomson Reuters, Credit Suisse estimates
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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
12 April 2017 Asia Pacific/India Equity Research
Computer Services & IT Consulting
Cyient Limited (CYIE.BO) Rating OUTPERFORM Price (10-Apr-17, Rs) 473.05 Target price (Rs) 625.00 Upside/downside (%) 32.1 Mkt cap (Rs/US$ mn) 53,250 / 824.55 Enterprise value (Rs mn) 46,361 Number of shares (mn) 112.57 Free float (%) 77.8 52-wk price range (Rs) 539-451 ADTO-6M (US$ mn) 0.8 Target price is for 12 months.
Net debt/equity (%) (26.2) (31.2) (35.7) (39.6) Net debt/EBITDA (x) (1.19) (1.39) (1.57) (1.68)
Company Background
Cyient is a leading player in engineering services (large presence in aerospace/defence, transportation), network engineering (communication vertical) and operations management (verticals such as utilities).
Blue/Grey Sky Scenario
Our Blue Sky Scenario (Rs) 740.00
Stronger momentum in the top accounts supplemented by significant new account additions, and synergies from the recent acquisitions. EBITDA margins expand beyond the management's target of 14-15%. There can be upgrades to the earnings estimates and stock can re-rate significantly.
Our Grey Sky Scenario (Rs) 430.00
Issues in the top accounts drag the growth and acquisitions do not yield the desired results. Margins fall below tne target range. This can lead to earnings estimate downgrades and derating in the stock
Share price performance
The price relative chart measures performance against the S&P BSE SENSEX
IDX which closed at 29,575.74 on 10-Apr-2017
On 10-Apr-2017 the spot exchange rate was Rs64.58/US$1
Source: Company data, Thomson Reuters, Credit Suisse estimates
12 April 2017
Cyient Limited (CYIE.BO) 5
Structurally well placed in the fast changing IT industry With an exposure in niche segments—engineering services (about 54% of revenue),
network engineering (20% of revenue) and utility/geospatial (15% of revenue)—Cyient is
structurally well placed in an otherwise fast changing IT industry. Engineering services is a
large and relatively underpenetrated market and is expected to grow slightly faster than
the Indian IT and BPO exports. Cyient has leadership positioning in the aerospace and
transportation verticals (together, they account for 75% of the engineering services
revenue), with some very strong client relationships. Indeed, it is among the few Indian IT
companies with such a large exposure to engineering services. In communications, there
are opportunities in the new network roll-out/upgradation and Cyient has built some strong
capabilities in this area, with an expanding client base and increasing wallet share. In
utilities and geospatial, Cyient's business has been growing in areas such as smart
grid/smart meters, analytics and asset utilisation.
Each of these segments are relatively immune from the transition that the traditional IT
companies are undergoing (deflationary impact of cloud and automation, and shifting client
spends towards new areas). Cyient has been witnessing new opportunities driven by IoT
and digital in its communication and utility business. Also, with less than 15% of the US
employees on visa, Cyient has possibly the least exposure to the H-1B/L-1 visa (the IT
services companies have visa dependency in the range of 45-65%). This makes Cyient
relatively immune from the regulatory overhang in the US.
Among the few players with a large exposure to the
Source: Thomson Reuters, Credit Suisse estimates. * Not covered stocks. Used consensus estimates for these stocks. For the covered stocks, used CS estimates.
Figure 34: Our TP of Rs625 implies reasonable assumptions for the DCF model
Cyient is a leading player in engineering services (presence in aerospace/defense,
transportation, semiconductor, and industrial, energy and natural resources verticals)
network engineering (communication vertical) and operations management (verticals such
as utilities). With Rangsons acquisition in 2014, the company also ventured into design led
manufacturing business (small scale prototype manufacturing), with an intention to provide
services through-out the value chain to the clients.
The company was initially formed as a GIS service provider (map digitisation services) in
1991 by Mr. BVR Reddy. The company ventured into engineering services in 2000's, with
its first contract with Pratt and Whitney, which is now the company's largest client and also
a strategic investor in the company. The company expanded its engineering services
capabilities to other industries as well, including transportation (with Bombardier as a key
client), semiconductors (through Time to Market acquisition, and IBM as a key account -
IBM later sold its semiconductor business to Global Foundry), industrial, energy and
natural resources (with clients such as Caterpillar). Over the years, the company also
moved up the value in the GIS business with services around asset utilisation to the utility
industry, and networking services to the communication industry.
Cyient went through a strategic restructuring in 2014. It rebranded itself (from erstwhile
Infotech Enterprises), appointed Krishna Bodanapu (son of the founder—he spent several
years in the company in sales, marketing, account manager, and recently as COO) as MD
and CEO (the founder and then CEO BVR Mohan Reddy assumed the role of Executive
Chairman). The company moved to a vertical (business unit) organisation structure (from
earlier service line driven structure), with a focus on further building domain specific
capabilities.
Figure 38: Revenue break- up by business units Figure 39: Revenue break-up by service lines
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Aerospace/Defense32%
Communication20%
Utilities and Geospatial
15%
Design Led Manufacturing
11%
Transportation8%
Industrial and ENR8%
Semiconductor4% Medical and
Healthcare2%
Engineering services, 54%
Communication (networking) and Utility & GIS, 36%
Design led manufacturing,
11%
12 April 2017
Cyient Limited (CYIE.BO) 28
Board composition and management team
Figure 40: Cyient: Board composition
On Board
since
Designation Background
Mr BVR Mohan Reddy Since inception Founder, Chairman He founded the company in 1991. He served as the Chairman of NASSCOM (National Association of
Software & Service Companies) in FY16, as the Vice Chairman in FY15, and has been a member of the
Executive Council. He has also served as the Chairman of the Confederation of Indian Industry (CII),
Southern Region (2008-2009)
Mr Krishna Badanapu 2014 MD and CEO Krishna Badanapu initially joined Cyient as a Sales Manager, engineering services in Europe. He later held
the dual roles of marketing manager for the company's aerospace vertical and key account manager. Before
being elevated as CEO in 2014, he worked as the COO. Prior to Cyient, Mr Badanapu was with Altera
Corporation, a leading semiconductor manufacturer in California. He holds a bachelor's degree in electrical
engineering from Purdue University and a master's degree in business administration from the Kellogg
School of Management.
Mr Alain De Taeye 2010 Non-executive Director He is the member of the Management Board at Tom Tom. He serves as a Supervisory Board Member of
Telematics Cluster/ITS Belgium and of the Belgium/Indian Chamber of Commerce & Industry. He has served
as a Director of Nemerix SA since March 2006. Mr De Taeye holds a university degree in civil engineering
and architecture from the State University of Ghent, Belgium, and the Business School of Antwerp.
Mr Tom Prete 2013 Non-executive Director Tom Prete is Vice President of Engineering at Pratt & Whitney. He leads Pratt & Whitney's Global
Engineering organisation. Mr Prete joined Pratt & Whitney in 1988 and has served as chief engineer for
Operational Military Engines, director for Global Services Engineering, and chief engineer of Hot Section
Engineering.
Mr John Wiedemer 2016 Non-executive Director
(Alternate Director to
Tom Prete)
John Wiedemer is the Vice President of Engineering for Module Centers at Pratt & Whitney. He leads an
organisation of approximately 1,600 engineers with primary responsibility for the technology development,
design, analysis, production support, and field support of the components and modules that make up Pratt &
Whitney engines.
Independent Directors
Ms Andrea Bierce 2014 Independent Director Andrea Bierce has over 30 years of industry and consulting experience in the financial services. Currently,
Andrea works with some of the world's largest financial institutions in the areas of governance, enterprise risk
management, compliance and reporting. She is also a member of the Board, UBS Bank USA as a Director.
Mr Harsh Manglik 2012 Independent Director Harsh Manglik served as Chairman & Geography Managing Director, Accenture India, and was a member of
Accenture's global Executive Leadership Team. Mr Manglik was Chairman of NASSCOM and continues as a
member of its Executive Council. He was an invited member of the Confederation of Indian Industry (CII) and
has served as director on the board of the National Skills Development Corporation (NSDC).
Mr John Paterson 2014 Independent Director John Paterson retired as President - Marine & Industrial Power Systems at Rolls-Royce. In this role he also
had responsibility for chairing the Supervisory Board of Tognum, a 50/50 joint venture with Daimler, covering
all the reciprocating businesses within Rolls-Royce.
Mr K Ramachandran 2009 Independent Director He is currently engaged with the Aditya Birla Group as Advisor to the Chairman for the group's Higher
Education Projects. He spent 17 years with Voltas (a TATA Group company) in the electrical power industry
and spanned manufacturing, marketing, sales and project management. He eventually headed the Electrical
Business Group as Business Head and General Manager (Operations).
Mr M M Murugappan 1997 Independent Director He is Vice Chairman of the Murugappa Corporate Board. He is also the Chairman of Tube Investments of
India Limited, Carborundum Universal Limited, Wendt India Limited, and Murugappa Morgan Thermal
Ceramics Limited. He holds a master's degree in chemical engineering from the University of Michigan.
Mr Som Mittal 2014 Independent Director Som Mittal is the former Chairman and President of NASSCOM (2008-13). He has held corporate leadership
roles in the IT industry at companies such as Wipro, Digital India, Compaq and HP. He is on the governing
board of several educational and social organisations and is also a board member of Axis Bank, EXL Service
Holdings, Inc. and IIT, Indore.
Source: Company data, Credit Suisse estimates
12 April 2017
Cyient Limited (CYIE.BO) 29
Figure 41: Cyient: Senior leadership team
Year of
joining
Designation Background
Mr John Renard 2000 President - Utilities &
Geospatial BU &
President EMEA
In his previous role, John Renard served as geography and sales head for the EMEA and India regions. Before
that, he managed the worldwide business operations of the utilities, telecom, and data transformation, and
analytics business units. Prior to Cyient, Mr Renard ran his own consulting practice in France. He lives in London
and has a Master's Degree in Geography and Management Studies from the University of Cambridge
Mr Anand
Parameswaran
2008 Sr. Vice President -
Aerospace & Defense
BU
Anand Parameswaran has earlier led Global Sales and Delivery for the heavy equipment, transportation, hi-tech,
consumer, and medical business unit. Before Cyient, he worked in various leadership roles at companies such as
Wipro and Cognizant. He received a degree from Birla Institute of Technology and Science (BITS), Pilani, India.
Mr Brian Wyatt 2009 Sr. Vice President -
Medical Tech BU
Brian Wyatt joined Cyient as Vice President, Strategic Initiatives for North America in engineering services. Prior
to that, he was Vice President, Business Development at TopCoder Inc (crowdsourcing software development).
He also spent over ten years as a strategy consultant. He has a bachelor's degree in economics from Boston
College and a master's degree in business administration from the Kellogg School of Management.
Mr NJ Joseph 1998 Sr. Vice President -
Strategy & Marketing
He currently heads the Corporate Strategy (including S3 strategy execution) and Marketing functions. He also
plays an active role in assessing opportunities for inorganic growth and post-merger integration. Prior to this role,
Mr Joseph was strategy head for the Networks, Operations, and Data Transformation businesses. He has a
bachelor's degree in electronics and communication engineering from Kerala University.
Mr PNSV
Narasimham
2016 Sr. Vice President -
Global Human
Resources
He has extensive experience of over 25 years human resources. In his previous role, he served as the Chief
People Officer and Executive Vice President at Microland Limited. Mr Narasimham holds an MBA degree in
Human Resources.
Mr Prabhakar Atla 2004 Sr. Vice President - Rail
Transportation BU
Prabhakar Atla has over 20 years of experience spanning sales, product management, client relationship
management, and business leadership. He is a graduate in engineering and holds a master's degree in business
administration.
Mr Rajendra
Velagapudi
1999 Sr. Vice President -
Business Excellence
Prior to Cyient, Rajendra Velagapudi designed and analysed powertrain systems for commercial and off-highway
equipment. He began his career in 1987 at Ford's Truck Division, later transitioning to Bajaj Tempo and Bharat
Earth Movers Limited. Mr Velagapudi holds a degree in mechanical engineering from Siddhartha Engineering
College (India) and master's degrees from Madras Institute of Technology (India) in automobile engineering and
Cranfield University (UK) in design.
Mr Sanjay Krishna 2000 Sr. Vice President -
Communications BU &
President - APAC
Sanjay Krishna has over 19 years of international business experience. Mr Krishna is on the advisory board of
Deakin School of Engineering, Australia and is also an esteemed member of Engineers Australia. He has been
awarded a Fellowship for his contribution in the field of engineering. In the past, he has held offices as Director of
Geospatial Informational Technology Association (GITA, ANZ). Mr Krishna has a degree in international marketing
from IIM (Bangalore, India). He has also studied strategic thinking and action at Melbourne Business School.
Mr Suman Narayan 2017 Sr. Vice President –
Semiconductor BU
Suman Narayan has over 20 years of experience in the high-tech electronics and semiconductor industry and
has served in various leadership roles at ON (Fairchild) Semiconductor and Texas Instruments. Mr Narayan
holds a degree in Electrical Engineering from PSG Tech, Coimbatore India, a Master’s degree in Electrical and
Biomedical Engineering from the Iowa State University, and an MBA from the University of Texas.
Mr Sunil Kumar
Makkena
1991 Sr. Vice President -
Utilities & Geospatial BU
Sunil Kumar Makkena was one of the first three associates of Cyient Ltd. He executed and led various general
management functions across operations and delivery, business development, marketing, and account
management, including the integration of a captive unit. He holds a bachelor's of technology in engineering and
communications from Andhra University and completed an executive management program in business
management from the IIM, Kozhikode.
Mr Tom Edwards 2010 Sr. Vice President - UTC
Account & President -
North America
Prior to Cyient, Tom Edwards had a 26-year sales career at IBM, where he rose to global Channel Sales Leader
in the System Technology Division. Mr Edwards graduated from Clarkson University in Potsdam, NY, with
degrees in management and marketing.
Ms Katie Cook 2010 Sr. Vice President -
Industrial, Energy &
Natural Resources BU
Prior to the current role, Katie Cook led the North American sales and account management. Prior to Cyient, Ms Cook
spent 16 years at IBM, where she guided clients in improving supply chain efficiency and customer experience. She
received a bachelor's degree in both mathematics and education from the University of Idaho (USA).
Mr Ajay Aggarwal 2011 Chief Financial Officer Before joining Cyient, Ajay Aggarwal was Chief Corporate Controller with Tata Chemicals. Prior to that, he was
associated in various capacities with reputed organizations such as Reliance Industries, Kirby Building Systems,
P T Polysindo and J K Synthetics. Mr Aggarwal is an FCS, FICWA, and holds an engineering degree from BITS,
Pilani, India. He completed the corporate finance program at Euromoney, UK.
Source: Company data, Credit Suisse estimates
12 April 2017
Cyient Limited (CYIE.BO) 30
Shareholding structure
Figure 42: Cyient Limited: Shareholding structure
Dec-14 Dec-15 Jun-16 Dec-16
Founders 22% 22% 22% 22%
First Carlyle Ventures (aggregate holding) 15% 15% 15% 15%
Carrier International Mauritius (UTC group) 14% 14% 14% 14%
Analyst Certification Nitin Jain and Anantha Narayan each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities . As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
12 April 2017
Cyient Limited (CYIE.BO) 33
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 45% (64% banking clients) Neutral/Hold* 39% (61% banking clients) Underperform/Sell* 14% (54% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit-suisse.com/sites/disclaimers-ib/en/managing-conflicts.html . Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Cyient Limited (CYIE.BO)
Method: Cyient is likely to have the best in class earnings CAGR over the next two two years, in our view, and given the structurally strong positioning, and solid business momentum, we value the company at 14x FY19E P/E (price-to-earnings). Cyient's engineering services peers trade in the range of 14-18x CY17E P/E, with single digit to low double digit earnings growth expectations. Though not exactly comparable, the mid-cap Indian IT peers trade at 12-17x CY17E P/E, with an average growth expectation of 11% EPS (earnings per share) CAGR. We thus have an OUTPERFORM rating on the stock with a target price of Rs625.
Risk: The key risks to our target price of Rs625 and OUTPERFORM rating for Cyient Limited include any significant appreciation in INR or adverse cross-currency moves, client-specific issues (given high client concentration), acquisition indigestion and execution risks on the new outcome based projects.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names The subject company (UTX.N, HEXT.BO, TCS.BO, IBM.N, BBDb.TO, TLS.AX, HCLT.BO, INFY.BO, WIPR.BO, TEML.BO) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (HEXT.BO, IBM.N, BBDb.TO) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (TCS.BO, IBM.N, WIPR.BO, TEML.BO) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (IBM.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (HEXT.BO, IBM.N, BBDb.TO) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (UTX.N, HEXT.BO, TCS.BO, IBM.N, BBDb.TO, TLS.AX, MINT.BO, HCLT.BO, INFY.BO, WIPR.BO, TEML.BO) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (TCS.BO, IBM.N, WIPR.BO, TEML.BO) within the past 12 months A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (CYIE.BO, HEXT.BO, TCS.BO, IBM.N, BBDb.TO, TLS.AX, MINT.BO, HCLT.BO, WIPR.BO, TEML.BO) within the past 12 months. Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014 Credit Suisse may have interest in (PERS.BO, LRTI.NS, MBFL.BO, LTEH.NS, CYIE.BO, HEXT.BO, TCS.BO, MINT.BO, HCLT.BO, INFY.BO, WIPR.BO, TEML.BO)
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