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Cyient Ltd. experienced a significant drop in its stock price by 9% following a 15% reduction in net profit for the first quarter ending June 2024. This financial downturn led Nuvama to revise the target price for Cyient shares downward.
Profit Decline and Revenue Impact
Cyient’s net profit decreased to Rs 148 crore in the latest quarter, down from Rs 197 crore in the same period the previous year. Consequently, Nuvama downgraded the stock from ‘buy’ to ‘hold’ and set a new target price of Rs 1,840, a 3% decrease from the previous target of Rs 2,120. Revenue also took a hit, falling by 9.9% to Rs 1,676 crore during this period. Nuvama highlighted low earnings and a scarcity of new orders as key issues in their note dated July 25. With flat revenue guidance for fiscal 2025, Cyient needs to surpass a 3% compounded quarterly growth rate to meet expectations.
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Reasons Behind Cyient’s Profit Decline
The first quarter of 2024 saw Cyient grappling with project implementation problems. Delays and unexpected shifts in project execution, particularly in the connectivity segment, adversely affected both revenue and profit. As a result, Cyient’s total revenue for Q1 decreased by 0.6% year-on-year and 9.9% sequentially, landing at Rs 1,675.7 crore.
Challenges in the DET Segment
The DET (Digital, Engineering, and Technology) segment, a major revenue generator, saw a 5% decline in revenue quarter-on-quarter, while operating profit decreased by 2.8% year-on-year. Project implementation issues and revenue drops in specific segments significantly impacted Cyient’s overall financial performance, leading to a downward revision of its fiscal year 2025 revenue estimate.
Market Impact
Cyient shares initially surged by 8.99% during the day but later fell to Rs 1,748.6 apiece, a 7.69% decline. Despite this, the benchmark Nifty 50 saw a 0.47% increase. Over the past 12 months, Cyient’s stock has risen by 19.5%, though it has declined by 24% year-to-date. Among 22 analysts covering the firm, 17 are bullish, three are neutral, and two are bearish on the stock.
Analysts’ Views
Despite the recent downturn, a majority of analysts maintain a positive outlook on Cyient shares. The consensus is that while the short-term performance may be rocky, the company holds long-term potential, especially with its strategic initiatives and market positioning.
Long-Term Prospects of Cyient
Cyient DLM Limited, a newly listed firm under Cyient, has garnered attention due to its successful listing. Offering EMS (Electronics Manufacturing Services), Cyient DLM provides build-to-print and build-to-spec services, product design, and flexible manufacturing. The EMS segment is poised for continued growth, driven by increasing demand for digital manufacturing solutions.
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Strategic Initiatives
Cyient DLM is focused on reducing debt levels and expanding operations, positioning itself well for future growth. Analysts are optimistic about its prospects, recommending holding onto the stock for long-term gains. New investors might find this an opportune time to enter the market, while existing investors should consider retaining their shares.
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Conclusion
Cyient is currently facing challenges in maintaining revenue growth, leading to a cautious stance from investors. The downward revision of the target price reflects the company’s current financial health and the need for strategic adjustments to regain momentum.
FAQs
What caused Cyient’s profit decline in Q1 2024?
Cyient faced project implementation delays and shifts, particularly in the connectivity segment, impacting both revenue and profit.
How did the market react to Cyient’s Q1 profit fall?
Cyient shares initially rose but later fell by 7.69%, reflecting investor concerns over the profit decline.
What is the new target price set by Nuvama for Cyient shares?
Nuvama downgraded the target price to Rs 1,840 from Rs 2,120, reflecting a 3% downside.
What are the long-term prospects for Cyient?
Despite short-term challenges, Cyient DLM’s strategic initiatives and growth in digital manufacturing solutions indicate strong long-term potential.
Should investors buy or hold Cyient shares?
Most analysts recommend holding the shares for the long term, while new investors might consider entering the market during corrections.
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