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.

The sharp decline also came against differing brokerage assessments of Cyient DLM's earnings trajectory and valuation.

PL Capital maintained its 'Reduce' rating and lowered its target price to ₹873 from ₹878, valuing the stock at 45 times estimated September 2028 earnings. The brokerage acknowledged the company's growth prospects but flagged margin pressure and ongoing investments.

Motilal Oswal, in contrast, retained a bullish view with a 'Buy' recommendation and a target price of ₹1,320 in its report dated 15 October 2026. It said the growth outlook remained intact, supported by aerospace demand, a record order book and a rising contribution from box-build manufacturing.

The divergence highlights the debate over whether Cyient DLM's growth opportunities justify its valuation despite near-term pressure on profitability.

Cyient DLM reported revenue of ₹393.1 crore for Q2 FY27, up 26.5% year on year. EBITDA rose 9.5% to ₹34.2 crore, with a margin of 8.7%, while normalised PAT increased 25.8% to ₹15.82 crore.

The company's order book reached an all-time high of ₹2,813.7 crore, increasing by ₹214.8 crore sequentially. Order intake rose 11% quarter-on-quarter and 15.4% year-on-year, while the book-to-bill ratio stood at 1.6.

Aerospace and industrial businesses led growth, with defence and medical also contributing. The company added three new customer logos during the quarter and completed the integration of Altek Electronics in Connecticut, US, now renamed Cyient DLM Electronics Inc.

Managing Director and CEO Rajendra Velagapudi said the company maintained strong growth momentum, supported by execution across key business segments and a record order book, providing revenue visibility.

Cyient DLM is also targeting opportunities in AI infrastructure, data centre technologies, robotics and semiconductor capital equipment to diversify its growth drivers over the longer term.

Rajesh Bhosale, Technical Analyst at My Advisor Alpha, said Cyient DLM had rallied sharply from its April swing low of around ₹250 to nearly ₹1,000 before witnessing a sharp gap-down opening and subsequent selling following its results.

He noted that the decline was accompanied by strong trading volume, indicating significant profit-booking. With momentum turning negative and the relative strength index (RSI) slipping below 50, the stock could face further downside pressure.

Bhosale identified ₹820 as the next key support level, while the bearish gap in the ₹950– ₹1,000 zone could act as resistance.

Cyient DLM's long-term growth outlook remains supported by its record order book, aerospace demand and expansion into newer technology segments. However, the immediate stock performance will likely depend on how investors assess the trade-off between strong revenue visibility and near-term margin pressure.

The key monitorables are the pace of order execution, the conversion of revenue growth into operating profit, and whether the company delivers the margin improvement expected in FY28.

Friday's sharp correction underscores that strong headline profit growth and a record order book may not be enough to support a stock when investors are concerned about operating margins, earnings quality and valuation.

Dhanya Nagasundaram works as a Content Producer at LiveMint, specializing in news related to financial markets, stocks, and business. With over eight years of experience in journalism and content creation, she has honed her skills in data-driven reporting and market analysis. Her focus is on monitoring stock trends, initial public offerings (IPOs), corporate news, policy shifts, and larger economic trends that affect investors and market players. <br><br> At LiveMint, Dhanya consistently writes and produces articles that make complex financial topics accessible to readers. She keeps a close eye on equity markets, commodities, and macroeconomic indicators, assisting audiences in comprehending how global and domestic events influence investment perspectives. Her stories frequently underscore emerging trends within sectors, the IPO market, company earnings results, and market strategies pertinent to both retail and institutional investors. <br><br> Before her tenure at LiveMint, Dhanya accumulated a wealth of professional experience at various companies, including MintGenie, Informist, Cogenics, Chary Publications, KPMG, and the Royal Bank of Scotland. These positions allowed her to establish a solid foundation in financial research, reporting, and content creation. <br><br> Throughout her career, she has explored numerous subjects such as trading strategies, commodities, IPOs, wealth generation, corporate profits, and macroeconomic indicators. Her background in both financial journalism and corporate settings has given her the ability to tackle stories with analytical rigor while ensuring clarity for her audience. Through her contributions, Dhanya strives to deliver insightful, trustworthy, and investor-centric financial content.

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