Cyient DLM shares crash 12% despite Q2 profit growth: 3 reasons, brokerages set targets; should you buy?
Cyient DLM share price plunged 12.24% on Friday, 16 October, even as the electronics manufacturing services company reported double-digit revenue growth, higher normalised profit and a record order book for the September quarter. The sell-off came amid concerns over margin pressure, continued growth investments and mixed brokerage views on the stock's valuation and earnings outlook.
The stock's sharp decline followed its Q2 FY27 results, with investors appearing to focus on the pressure on operating margins despite healthy business momentum. While Motilal Oswal remained bullish on the stock, PL Capital maintained a 'Reduce' rating, highlighting the differing views on its growth prospects and valuation.
Despite Friday's sharp correction, Cyient DLM has delivered strong returns over the longer term. The stock has gained 53.41% over three months and 167.12% over six months, while its year-to-date return stands at 117.53%.
Cyient DLM reported revenue of ₹393.1 crore in Q2 FY27, up 26.5% year on year. EBITDA increased 9.5% to ₹34.2 crore, but the EBITDA margin contracted by around 130 basis points year on year to 8.7%.
The slower growth in operating profit compared with revenue points to cost pressures even as the business expands. PL Capital attributed the margin contraction primarily to higher sales and marketing expenses and continued investments in product development.
Motilal Oswal also flagged gross margin compression due to the expensing of product development costs. The brokerage expects upfront growth investments to keep FY27 EBITDA margins in the 9–10% range, with operating leverage and double-digit margins expected from FY28.
Cyient DLM's reported profit after tax rose to ₹34 crore in Q2 FY27, including a one-off gain of ₹18.2 crore from an earnout reversal. Normalised PAT, which better reflects underlying performance, increased 25.8% year on year to ₹15.82 crore.
The difference between reported and normalised profit is important when assessing the quality of the quarterly earnings. Although the company delivered underlying profit growth, the reported PAT was substantially higher due to the exceptional gain.
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