In a recent analysis, Morgan Stanley has unveiled an optimistic outlook for Cyient, an IT midcap stock, elevating its status to ‘Overweight.’ This upgrade is rooted in a series of compelling factors, with a focus on burgeoning clientele and sustained investments within the engineering sector. Notably, key contributors to this growth surge emanate from the aerospace industry and the resurgent rail vertical.
Cyient’s stock has witnessed a remarkable ascent, boasting an impressive 100% annual gain. Despite already surpassing its historical averages, the stock is poised for further upward momentum. This buoyancy can be chiefly attributed to the portfolio vertical that consistently generates growth rates surpassing the company’s overall average.
Morgan Stanley has outlined a conservative base target of Rs 2,000 and an even more bullish scenario of Rs 2,700 for Cyient. These projections take into careful consideration Cyient’s bottomed-out EBIT margin for the fiscal year 2023. Furthermore, the financial services powerhouse predicts a robust 16.4% Compound Annual Growth Rate (CAGR) in services revenue and an astonishing 31.2% CAGR in EBIT over the period spanning fiscal years 2023 to 2025. This anticipated growth trajectory is underpinned by substantial wins in large deals and is calculated by applying a 20% discount to Cyient DLM’s market capitalization.
The forecasts also incorporate an assumed cost of equity pegged at 10.5% and a terminal growth rate of 4%. The cost of equity is a particularly noteworthy metric, reflecting the return that investors expect to garner by holding the stock. A higher cost of equity can signal heightened perceived risk or the anticipation of more robust growth prospects.
In summary, Morgan Stanley’s upgraded ‘Overweight’ rating for Cyient underscores its faith in the company’s resilience and growth potential, driven by a confluence of favorable factors within its core sectors. Investors are now eyeing Cyient with renewed enthusiasm as it embarks on an exciting trajectory of expansion and value creation.