Artificial Intelligence Stock Cyient Keeps Rising. Why the Rally is Far from Over...

Artificial intelligence (AI) has evolved remarkably over the years, seamlessly integrating into our world. It has been reshaping the way we interact with technology.

From voice-activated virtual assistants like Siri and Alexa to personalized recommendations on streaming platforms, AI has become an indispensable part of our daily lives.

It's safe to say the use of AI is increasing all over the world by the day at a fast pace. It's the next big thing. In the coming years, AI will transform the way we live and work even more.

In India, this has raised the question of AI's potential in every industry. Indian firms have already developed uses for AI in healthcare, finance, e-commerce and manufacturing.

AI usage is expected to increase even more in fast growing sectors such as healthcare, finance, e-commerce and manufacturing.

Moreover, the shift towards electrification, autonomous and connected vehicles will bring in more opportunities for engineering services in the areas of design and development of EV components, battery technologies, charging infrastructure, electric drivetrains.

And this is where midcap IT stock Cyient comes into the picture.

An AI with a multibagger potential, Cyient seamlessly fits into the evolving AI puzzle, poised for its next growth phase.

Cyient - How This AI Stock is Gearing up for Growth

Formerly Infotech Enterprises, Cyient has come a long way from humble beginnings as a GIS data conversion vendor (the process of translating spatial data from one format or type to another within a Geographic Information System) to a formidable engineering player.

The company operates in critical sectors such as transportation, sustainability, communications and other new growth sectors.

Within the transport sector, the company caters to the aerospace and the railway segments. It software services to enhance aircraft performance, safety, and efficiency.

It operates in the railway sector by partnering with specialized tech providers and startups, contributing to the global rail industry's rapid increase in digital capabilities.

Apart from aerospace and railways, the company also partners with digital map developers to help solve real-world issues in the automotive sector and make self-driven vehicles safer and smarter. Baidu, China's leading search company, envisions that smart maps for self-driving vehicles will emerge as a more significant business than web search in the future.

This is where Cyient aims to drive its future business growth.

Targeting High-Potential New Age Sectors for Expansion

AI in self-driving cars can identify real-time changes in the environment, updating maps instantly. The navigation aids created by Cyient assist autonomous vehicles in steering clear of collisions.

Apart from this, the company aims to strategically diversify its portfolio, with a keen eye on the expanding healthcare sector.

The healthcare sector, with its continuous investments in predictive, proactive and personalized patient care, connected devices and digital platforms, in tandem with a shift to value-based care and the need for accelerated testing, is a great market for the company.

Cyient is also eyeing further growth in the sustainability sector, confident of gaining from the massive transition to sustainable sources of energy.

Suffice to say, the company has strategically positioned itself, effectively catering to a bunch of the new growth sectors in the country with the help of the new age techonology.

Cyient is investing heavily in the AI space, actively constructing AI powered platforms and integrating them in it's products and services. Recently, the company announced a strategic collaboration with Microsoft to create a groundbreaking product named 'Engeener'. Leveraging Azure OpenAI Service and Generative AI technologies, this product aims to revolutionize engineering practices across industries, enhancing agility in the engineering lifecycle.

Cyient has been expanding organically and inorganically, having acquired over 20 firms till date. In fiscal 2023, the company bolstered its presence in the sustainability and communications business segments with new acquisitions. The company acquired Citec and Grit in the sustainability sector, Celfinet in communications and a strategic purchase in the automotive segment.

The acquisition of Citec stands out as the largest in terms of revenue, valuation, workforce size and geographic reach, highlighting the company's growing commitment to expand in the sustainability sector.

Past Victories Fuel Future Confidence

In the past, Cyient has transformed its business significantly, expanding into diverse areas since the fiscal year 2020.

Previously, with over 40% of its revenue attributed to transportation, the company has now achieved a substantially more diversified revenue model.

Cyient's Evolving Revenue Mix

	2019-2020	H1 2023-2024
Transportation	46%	31%
Sustainability	24%	28%
Communication	23%	23%
New growth areas	7%	1800%

Data source - Company Presentation

This shift instils confidence in the company's ability to adapt, evolve and successfully navigate different business segments, showcasing a commitment to ongoing growth and diversification.

The top 20% of the customers contributed 55% of the total revenues in fiscal 2023, down from 71% in fiscal 2020, indicating further diversification and mitigating the risk of dependence on a few clients.

Between 2019-2023, the business has performed admirably. The company's sales and net profit have grown at a CAGR of 8.4% and 4.9%, respectively over the past five years.

Cyient Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	17.33%	-3.87%	-6.25%	8.09%	31.26%
Operating Profit Margin (%)	16.61%	15.97%	17.30%	20.51%	18.03%
Net Profit Margin (%)	10.33%	7.71%	8.80%	11.52%	8.55%
Return on Capital Employed(%)	23.47%	17.49%	16.65%	21.96%	19.92%
Return on Equity (%)	19.56%	13.36%	13.25%	17.31%	15.80%

Data Source: Ace Equity

The returns have been strong, with the Return on Equity and Return on Capital Employed averaging at 15.9% and 19.9% over a 5-year period.

The company boasts a healthy balance sheet, which allows it to reward its shareholders with hefty dividend payments. The 5-years average dividend yield stands at a commendable 3%.

Cyient Stock Price Performance

Cyient has been a huge wealth creator since its listing. From Rs 12 in 1998, the stock is now trading at Rs 2,303, clocking in a whopping 200x return. So, Rs 100 invested in 1998 would amount to Rs 20,000 today.

In the past year itself, the stock price has moved up sharply, more than doubling in value from Rs 886 in January 2023 to Rs 2,236 at present.

The stock has surged following the strong half-yearly results reported by the company. While the sales are up 31%, the net profit is up 81% in comparison to the same period last year.

At present, the stock is trading at a price-to-earnings ratio of 36 times, a premium to its 5-year median PE.

Cyient Share Price - 5 Year Performance

Conclusion

With its expertise in AI, strategic diversification, and a proven track record of successful transformation, Cyient is well-positioned to ride the AI wave.

For investors seeking exposure to high-growth sectors, Cyient deserves a closer look.

However, the recent run-up in the stock price indicates that investors may have already factored in the bright outlook, possibly limiting the upside in the stock price in the near term.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...