Shares of Cyient DLM, a prominent electronic manufacturing services (EMS) and design-led manufacturing (DLM) company, experienced a significant downturn on Friday, plummeting 19% in intraday trade. The sharp decline followed the company's September quarter earnings report and its revised FY27 margin guidance, both of which fell short of market expectations, prompting several analyst downgrades.
Cyient DLM lowered its Ebitda margin guidance for FY27 to a range of 9-10% from its previous projection of 10-11%. The company now anticipates achieving double-digit margins only from FY28 onwards. Despite this, the company projects revenue growth exceeding 30% year-on-year in the second half of FY27, with this momentum expected to continue into FY28. Quarterly order intake is forecast to remain robust, exceeding Rs 600 crore over the next two quarters.
Analyst Reactions and Downgrades
Brokerages reacted swiftly to the disappointing figures. Antique Stock Broking noted that Cyient DLM's Q2 revenue of Rs 393 crore was below its Rs 400 crore estimate. The Ebitda margin also dropped by 135 basis points to 8.7%, missing Antique's 10.4% estimate. This miss was attributed to continued investments in sales organization and expensed product development costs.
"We cut FY27/28 EPS estimates by 10 per cent/2 per cent and downgrade the stock to 'HOLD' from 'BUY', revising our target to Rs 1,025 from Rs 1,031," Antique stated in its report.
JPMorgan issued an 'Underweight' recommendation for Cyient DLM shares, setting a target price of Rs 530, which implies a potential downside of 48% from current levels. Similarly, Kotak Institutional Equities advised a 'Sell' rating, with a target price of Rs 790 on the stock.
Margin Pressures and Future Outlook
Analysts highlighted that Cyient DLM's gross margins for the quarter decreased by 380 basis points year-on-year to 37.4%. This reduction was primarily due to an adverse revenue mix and increased product development purchases. They emphasized that while a record order book of Rs 2,810 crore and a book-to-bill ratio of 1.6 times provide strong revenue visibility, ongoing investments in sales and product development will likely keep FY27 margins in the high single digits.
However, not all outlooks were entirely negative. Motilal Oswal Financial Services (MOFSL) maintained a more optimistic stance, noting Cyient DLM's sustained strong growth in Q2 and the record order book, which reinforces visibility for H2FY27 and beyond. MOFSL believes the company is entering a multi-year growth phase, driven by continued momentum in the aerospace sector, a growing contribution from box-build operations, a ramp-up in semiconductor equipment, and four Electronic Products programs expected to scale significantly from FY30.
"We estimate a CAGR of 30 per cent/41/63 per cent in revenue, Ebitda and adjusted PAT over FY26-29E. We reiterate our BUY rating on the stock with a target of Rs 1,320," MOFSL affirmed.
The mixed analyst views underscore the current market sentiment towards Cyient DLM, balancing short-term margin pressures with long-term growth potential.