Cyient DLM Limited’s Q3FY26 performance reflected a transitional phase rather than a deterioration in business fundamentals. The quarter was marked by a sharp year-on-year revenue contraction following the completion of a large defense order in FY25, compounded by temporary shipment deferrals amid year-end holidays and tariff-related uncertainty in the US. Despite the headline weakness, the company reported a record order backlog of Rs 23.5 billion and a strong year-to-date book-to-bill ratio of 1.56x, reinforcing medium-term revenue visibility. Margin pressures remained manageable, aided by a favorable product mix and rising box-build contribution. Deven Choksey Research has rolled forward its valuation to Dec’27 estimates and reiterates an ACCUMULATE rating with a target price of Rs 421, implying a potential upside of nearly 15% from current levels.

Quarterly Performance: Revenue Decline Driven by Base Effect and Shipment Push-Outs

Cyient DLM reported Q3FY26 revenue of Rs 3,033 million, declining 31.7% year-on-year and 2.3% sequentially, undershooting expectations by about 9%. The steep year-on-year decline was primarily attributable to the completion of a large, cyclical defense program in FY25, which had created a high base effect.

Management clarified that part of the sequential softness was linked to temporary shipment deferrals caused by year-end holidays and uncertainty around US tariffs. Importantly, these shipments have not been cancelled but deferred, with revenue realization expected to normalize from Q4FY26 onwards.

Operating Margins: Near-Term Pressure, Structural Improvement Intact

EBITDA for the quarter stood at Rs 275 million, down 2.3% YoY and 11.9% QoQ, translating into an EBITDA margin of 9.1%. While this was below estimates, the margin expanded sharply by 273 basis points on a year-on-year basis, reflecting improved cost absorption and a superior revenue mix.

The sequential margin compression was driven by weaker operating leverage, one-off M&A evaluation expenses, and the impact of the new wage code. On a normalized basis, EBITDA stood higher at Rs 309 million, with margins of 10.2%, underscoring the underlying profitability of the business.

Bottom Line Performance: PAT Hit by Collapse in Other Income

Reported PAT came in at Rs 112 million, up marginally by 2.2% YoY but down sharply by 65.1% QoQ. The steep sequential decline was largely due to a sharp fall in other income, which dropped to Rs 43 million from Rs 227 million in the previous quarter, when earnings had benefited from one-off items.

PAT margin stood at 3.7%, improving 123 basis points year-on-year but contracting significantly on a quarter-on-quarter basis. Normalized PAT, however, remained resilient at Rs 138 million, supported by lower finance costs and improved operating efficiency.

Order Book Momentum: Record Backlog Anchors Future Growth

Cyient DLM closed the quarter with an order backlog of Rs 23,494 million, the highest in its history. Order intake during Q3FY26 stood at approximately Rs 3,871 million, driving the book-to-bill ratio to a robust 1.56x on a year-to-date basis.

The backlog is increasingly diversified, with growing contributions from industrial, medical electronics, aerospace, and automotive segments. Initial revenue realization from Build-to-Spec (B2S) programs has already commenced, with management guiding for accelerated ramp-up over the next few quarters.

Segmental Mix: Reduced Dependence on Defense Enhances Stability

Defense revenues declined sharply year-on-year due to the execution of large contracts in FY25. However, this was offset by continued scaling in industrial and MedTech segments, supported by new customer additions and increasing wallet share.

A notable structural shift was the rise in box-build contribution, which increased to 31% of revenues compared with 21% in Q3FY25. This shift has enhanced margin resilience and reduced cyclicality, marking a transition toward a more stable and diversified revenue base.

Geographic Exposure: Export-Led Model with Emerging Domestic Traction

Overseas markets continued to dominate, accounting for approximately 86% of revenues, while India contributed the remaining 14%. North America and Europe remain key growth engines, supported by new customer additions and deeper engagement with existing clients.

Despite macro headwinds and tariff-related uncertainties, management reported stable customer engagement levels with no material cancellations, reinforcing confidence in near-term demand visibility.

Strategic Levers: Sales Expansion and Build-to-Spec as Key Differentiators

Cyient DLM continues to invest in strengthening its sales engine, with several senior sales hires completed during the quarter and additional onboarding planned in Q4FY26. Early-stage engagement in customer design cycles is improving long-term stickiness and positioning the company for larger, multi-year programs.

Build-to-Spec (B2S) revenues contributed around 6–7% in FY26, with management guiding for double-digit contribution in FY27 and meaningful scale-up from FY28 onward. Four anchor customers are currently engaging with the company on next-generation product development across industrial, transportation, and defense verticals.

Financial Trajectory: Margin Expansion Expected as Volumes Normalize

According to Deven Choksey Research estimates, Cyient DLM’s revenue is expected to recover from Rs 13,419 million in FY26 to Rs 18,807 million by FY28. EBITDA margins are projected to improve steadily from 9.8% in FY26 to 12.0% by FY28, driven by operating leverage, cost discipline, and a favorable product mix.

PAT is forecast to grow at a CAGR of 25% between FY25 and FY27, supported by normalized profitability and declining finance costs.

Valuation and Investment View: Accumulate for Medium-Term Upside

Deven Choksey Research has rolled forward its valuation framework to Dec’27 estimates and values Cyient DLM at 26x Dec’27 EPS, arriving at a target price of Rs 421. At the current market price of Rs 367, the stock offers a potential upside of 14.7%.

Recommendation: ACCUMULATE
The near-term revenue softness appears transitory, while the expanding order backlog, improving mix, and strong strategic execution position Cyient DLM for a meaningful recovery in FY27 and beyond.