Shares of Cyient DLM Ltd declined 3.75% on Tuesday, January 21, even as the Electronic Manufacturing Services (EMS) player reported a year-on-year rise in net profit for the December quarter. The stock reaction was largely driven by sharp revenue contraction and segment-specific weakness, which overshadowed margin improvement.
Revenue fall weighs on sentiment
Cyient DLM’s Q3 revenue dropped sharply by 31.7% YoY to ₹303.3 crore, compared with ₹444.2 crore in the same quarter last year. The company attributed this decline to the completion of a large order, which created a high base in the year-ago period. The steep fall in topline was a key concern for investors, triggering selling pressure in the stock.
Defence segment collapse a key drag
The defence segment recorded an 88% YoY degrowth, again due to the completion of a large order. Given defence has been a high-visibility and high-value segment, the sharp contraction raised concerns over near-term order flow visibility, despite management’s efforts to diversify across aerospace, industrial, and med-tech segments.
Profit growth modest and supported by base effect
Net profit rose 2.7% YoY to ₹11.2 crore, but investors noted that the previous quarter (Q2) included a one-off income of ₹19.58 crore, making comparisons less straightforward. While profit growth was positive, it was seen as muted relative to the scale of revenue decline.
Margins improved, but not enough to offset topline worries
EBITDA declined 3.3% YoY to ₹27.3 crore, though the EBITDA margin improved sharply to 9% from 6.3% a year ago. The margin expansion was driven by a better business mix, supply chain improvements, and efficiency gains. However, the market appeared to focus more on volume and revenue sustainability rather than margin recovery alone.
One-offs and business mix adjustments
The company reported normalised EBITDA after adjusting for:
- One-off M&A costs of ₹1.78 crore
- Wage code impact of ₹1.64 crore
PCBA remained the largest revenue contributor, while mechanical and other segments grew 50% YoY. The box build share increased to 31% from 21% last year, indicating gradual portfolio diversification, though this was not enough to counterbalance the defence slowdown.
Other factors
Finance costs declined 38% due to lower interest rates and reduced working capital loans, while other income fell due to lower fixed deposit income and exchange losses. The effective tax rate (excluding one-offs) stood at 24.65%.
Bottom line
Despite profit growth and margin improvement, Cyient DLM shares fell as investors reacted to:
- Sharp YoY revenue decline
- Severe contraction in the defence segment
- Limited near-term visibility after completion of a large order
These factors outweighed operational efficiency gains, leading to the nearly 4% drop in the stock on Tuesday.
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