More Of The Same

Familiarity may breed contempt in ordinary relationships but in investing, familiarity seems to breed comfort. Akash Prakash-founded Amansa Capital recently upped its stake in Cyient Infotech from 3.69% to 6.43%. The Singapore-based Amansa recently bought 3.08 million shares of the IT and engineering-services company for Rs.146 crore in a bulk deal.

It bought in as United Technologies’ subsidiary Carrier International was exiting its strategic investment. Carrier off-loaded 13.6 million shares (12.16% stake) at Rs.475 a share netting Rs.650 crore. Along with Amansa, the other funds who bought in include Birla Sun Life, DSP BlackRock and Government Pension Global (Norwegian Sovereign Wealth Fund).

Investing in Cyient has produced positive results for Amansa in the past. Between June 2013 and September 2015, the fund trimmed its holding from 4.66% to 3.69% and pocketed Rs.142 crore by selling a million shares. His familiarity and comfort with the management might have prompted Prakash to bump up his holding.

Amansa’s latest purchase is also in the money as post the deal the stock is up 10% to Rs.522. Cyient’s business is divided into seven verticals — the top three being aerospace & defence, communications and utilities & geospatial. Over the past three years, the company has expanded its services through acquisitions and entered design-led manufacturing.

During this time, Cyient’s topline has compounded at 18% and profit at 9% respectively. The reason for the slower bottom-line is two-fold. One, the higher contribution of onsite revenue over the years from 50% in FY14 to 60% in FY17 has dented margins. Second, the Rangsons (entry into design-led manufacturing) and Softential (strengthening offerings in telecom and enterprise) acquisitions have had a negative impact of about 150-200 basis points.

However, over FY17-20, as Rangsons turns around, analysts expect profit growth (15%) to outpace topline growth (9%). The stock presently trades at a FY18 multiple of 15.7x and if the projected growth plays out, Amansa will churn out another profitable trade.