I agree there are headwinds but one of their customers is Pratt & Whitney which is a division of United Technolgies Company (a $54 bn business).
What is the probablity of business such as Boeing (they do some work for them) and P&W going bankrupt (maybe low)? I mean Boeing is raising $25bn of debt funding (as opposed to government bailouts). ALthough I admit that P&W also oursources work to various other folks so compeition is tough!
I would imagine there would be a reduction in the R&D orders issued for vendors but that’s true for all players in the industry such as LTTS (more diversified than Cyient) and Belcan Tech (unlisted) as well. My estimate is that all of that is already factored in the price. The entire market knows is pricing that. Unless we beleive that the entire Aerospace industry is finsihed and we will all evolve into using technology such as Zoom. I would assign a low probablity to that.
I have two fold questions a) will this company go bankrupt? generally, uneleverd firms have a tough time going bankrupt.
b) if it survives will it make more money in the next cycle (Fy 22 onwards) and that’s where i do not have a clear answer on. I just read Dr Vijay Malik’s on Cyient and there are defintely some concerns regarding the falling GM%, supporting unprofitable business such as DLM, customer stickiness etc. That’s where a core part of my research is now focused on.
I am trying to figure out the intrinsic value of this business and at 1200 crores of EV if you get a biz which had trailing revenues of 4600 crores there might be reasonable Margin of Safety.
“If there is enough margin of safety, you might as well go have a look and learn something.” Liu Liu
Will share my findings. 