Cyient DLM Ltd. IPO

Published by Sharekhan Education | June 28, 2023

Company Overview :

The Cyient DLM Ltd IPO positions the company as a reliable and innovative electronics manufacturing services provider. Their comprehensive offerings include Build to Print (B2P) and Build to Specification (B2S) services, catering to diverse customer needs. The company specializes in developing high-mix, low-volume complex systems, with a focus on printed circuit boards (PCBs), cable harnesses, and box builds. In addition to its manufacturing expertise, Cyient DLM provides value-added services such as obsolescence management, new product introduction, value engineering, sustenance engineering, and logistics & supply chain management. With a strong reputation as a qualified supplier to renowned global OEMs like Honeywell, ABB, and Molbio Diagnostics in sectors like defense, medical technology, and industrial, Cyient DLM is poised to experience further growth The company operates three state-of-the-art manufacturing facilities in Mysuru, Hyderabad, and Bengaluru.

Cyient DLM Ltd IPO Details and Objectives:

Cyient DLM Ltd is set to raise ₹592 crores through a fresh issue of equity shares in its IPO. The company plans to utilize the funds generated for several strategic purposes, including incremental working capital requirements, capital expenditure, inorganic growth through acquisitions, and debt repayment. Investors can participate in this IPO by applying for a minimum of 56 shares and in multiples thereafter. Following allotment, the stock exchanges will list the shares, further enhancing the brand’s visibility and recognition.

Industry Outlook:

The electronic manufacturing services industry in India has witnessed remarkable growth and transformation. Initially focused on contract manufacturing services, many companies have now expanded their offerings to include design services as well. In the post-pandemic era, global OEMs are actively seeking to diversify their sourcing strategies, with a particular interest in the “China +1” approach. Additionally, Indian OEMs are increasingly demanding locally sourced components to reduce their dependence on foreign suppliers.
With the establishment of semiconductor manufacturing in India, the printed circuit board (PCB) market, a vital component of the semiconductor industry, is poised for significant opportunities. According to Frost and Sullivan, the EMS industry in India is projected to grow at a CAGR of 41.1% from FY22 to FY26E, highlighting the immense potential in this sector.

Competitive Strengths :

In the EMS landscape, Cyient DLM Ltd possesses several competitive strengths that set it apart. Leveraging the sectoral expertise of its Promoter and the association with the renowned ‘Cyient’ brand, the company enjoys an advantage in attracting talent, practicing effective corporate governance, and offering a comprehensive value proposition along the entire ‘design, build, and maintain’ value chain. Its diverse clientele comes from industries with high entry barriers and stringent quality requirements, resulting in higher customer stickiness. By engaging with clients from the early stages of the product life cycle and capitalizing on their expertise across multiple industries, Cyient DLM delivers exceptional value addition to its customers.

Business Strategy:

Focusing on expansion and diversification, Cyient DLM has laid out a clear business strategy. The company plans to expand its geographical footprint through inorganic growth in key markets like North America. Investments in design and engineering competence enhancement are on the horizon, along with the exploration of new offerings across cable harnesses, precision mechanics, and the semiconductor value chain. Cyient DLM will also concentrate on strengthening its repair, maintenance, and sustenance engineering capabilities, further solidifying its position as a trusted partner to its clients.

Key Concerns :

While Cyient DLM Ltd. exhibits significant strengths, it’s important to consider potential challenges. One notable concern is that its Promoter currently holds the registration for the Cyient trademark, and the company lacks ownership over it. Additionally, the company’s business operations require the renewal of accreditations, licenses, and permits from regulatory authorities. Any delays or failure to renew these authorizations in a timely manner may have adverse effects on the business. Furthermore, factors such as increased raw material costs, supply chain disruptions, and intense competitive pressures pose potential risks to the company’s operations.

Financial Performance :

Cyient DLM Ltd. has demonstrated robust financial performance, positioning itself as a promising investment opportunity. With a revenue compound annual growth rate (CAGR) of 15% from FY21 to FY23, the company has showcased steady growth. Its overseas market revenue accounted for approximately 60% of total revenues in FY23, reflecting a global footprint. In terms of verticals, the defense sector constituted 37.6% of the business, followed by industrials (25.1%), aerospace (20%), and medical technology (16.3%). Notably, Cyient DLM has a concentrated customer base, with its top 10 customers contributing 91.1% of total revenue in FY23. The company’s profit after tax (PAT) experienced an impressive 63.9% CAGR from FY21 to FY23. However, it’s important to note that at the upper end of the price band (₹250-265), the issue appears fully priced at 66.2x FY23 EPS. Source: SEBI Red Herring Prospectus

Conclusion :

The Cyient DLM Ltd, with a strong reputation, diverse offerings, strategic objectives, and robust financial performance is poised for growth in an industry with immense potential. However, investors should carefully evaluate the risks and consider their investment goals before making any decisions.

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