The initial public offer (IPO) of Cyient DLM Limited, a subsidiary company of Cyient Limited, is set to open for public bidding on June 27. The issue has received favourable views from analysts across the board given its growth potential and cheap valuations.
Cyient DLM is an integrated manufacturing services provider, serving highly regulated industries with high entry barriers. It serves the entire value chain with solutions through service delivery models such as Build Specification (B2S) and Builds to Print (B2P) and products such as PCB assembly, box build and cable harness.
“The company plans to strengthen its core capabilities by taking more B2S contracts that would help Cyient deepen the expertise thereby maintaining long-term relationships, creating a high barrier to entry to the competitors,” said Akshay Pradhan, a research analyst at Canara Bank Securities.
“As the company caters across the value chain, it also would help diversify its capabilities in the future. As per FY23, the company is attractively valued and we recommend subscribing for listing gains and long-term,” he added.
Analysts noted that the company’s financial performance has been decent. During FY21-23, its revenue, EBITDA and PAT grew at a CAGR of 15 percent, 18 percent and 4 percent, respectively. For FY23, its revenue was at Rs 832 crore while EBITDA stood at Rs 87.8 crore. EBIDTA margin has consistently remained in the 10-12 percent range over FY21-23. Return ratios are strong with average RoE (return on equity) and RoCE (return on capital employed) of 48 percent and 13.4 percent, respectively, during FY21-23.
Cyient DLM is a qualified supplier to global Original Equipment Manufacturers (OEMs) in the aerospace and defence, medical technology and industrial sectors. It implements a ‘low volume, high mix’ contract manufacturing setup – unlike several others who play a volume game – which typically has a very high emphasis on quality and customization.
The company plans to raise Rs 592 crore from the public issue by issuing 2.23 crore shares in a proposed price band of Rs 250-265 per share. The issue proceeds will be utilised for incremental working capital requirements (Rs 291 crore), capital expenditure (Rs 43.57 crore), repaying certain debts (Rs 160.9 crore), and inorganic growth through acquisitions (Rs 70 crore). It has already raised Rs 259.64 crore from 20 anchor investors ahead of the IPO, which included names such as Societe Generale, BNP Paribas Arbitrage and Amansa Holdings.
Cyient DLM IPO opens today: 10 key things to know
On FY23 annualised financials, the IPO is valued at 66.2x P/E, at the upper price band. In comparison, Syrma SGS, Kaynes Tech and DCX Systems trade at 66x, 80x and 31x their earnings, respectively.
What is also working for the company is the fact that the electronic manufacturing services (EMS) market globally is witnessing a strong growth trajectory. India’s EMS market contributes 2.2 percent ($20bn) of the global EMS market in 2022 and it is the fastest growing among all countries at a CAGR of 32.3 percent.
“Considering the strong business prospects, healthy financials, diversified product mix, tailwinds on the back of solutions-oriented approach, client-focused service and track record of reliability, we recommend subscribing to the issue,” said Sumeet Shah, Research Analyst at Reliance Securities.
Some analysts believe that the company will also benefit from government initiatives like Make in India, the Production Linked Incentive (PLI) Scheme, and the China + 1 Strategy adopted by OEMs.
“Cyient DLM has a bright future ahead considering its robust order book, reduced debt post IPO and strong promoter backing augurs well for the company. We assign a “Subscribe” rating for the issue on a short to medium-term basis,” said Rajeev T and Mithun Joseph of Geojit Financial Services in a note.
Among the risks that analysts cite are heavy reliance on the top 10 customers – 91 percent of total revenue from operations in FY23 and a reduction in the number of customers that went from 50 in FY22 to 35 in FY23.
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