Cyient DLM IPO opens today: Should you subscribe to the issue?

The Rs 592 crore-initial public offering (IPO) of Cyient DLM kicks off for subscription on Tuesday, June 27 as the company would sell its shares in the price band of Rs 250-265 apiece with a lot size of 56 equity shares. The three-day stake sale of up to 2,23,39, 623 fresh equity shares will conclude on Friday, June 30. Incorporated in 1993, Cyient DLM provides Electronic Manufacturing Services (EMS) as build to print (B2P) and build to specification (B2S) services including product design, and flexible manufacturing services tailored to meet their specific requirements. The company also undertook a pre-IPO placement of 40,75,471 equity shares to Amansa Investments at a price of Rs 265 apiece amounting to Rs 108 crore. A day before its IPO, Cyient DLM mopped up Rs 259.64 crore by allocation of 97,98,113 shares at an issue price of Rs 265 apiece to 20 anchor investors including Societe Generale, Catamaran Ekam, BNP Paribas and multiples mutual funds. Cyient DLM has reserved shares worth Rs 15 crore for its eligible employees, who will get a discount of Rs 15 apiece for the issue. Not more than 75 per cent of the net offer is reserved for qualified institutional bidders (QIBs), while non-institutional investors will get 15 per cent of the offer. Retail bidders will be allocated with the remaining 10 per cent of the offer. Net proceeds from the fresh issue will be utilised towards funding incremental working capital requirements of the company, funding capital expenditure of the company, repayment or prepayment, in part or full, of certain of the borrowings; achieving inorganic growth through acquisitions; and general corporate purposes. The core solutions provided by Cyient DLM encompass various key components, including printed circuit board assembly, cable harnesses, and box builds. These components play a crucial role in safety of critical systems. and its key customers include Honeywell International, Thales Global Services, ABB Inc, Bharat Electronics, and Molbio 152 Diagnostics among others. For the year ended on March 31, 2023, Cyient DLM clocked a net profit at Rs 31.73 crore with a total revenue at Rs 838.34 crore.  The company's net profit stood at Rs 39.80 crore with a total revenue at Rs 728.48 crore. Axis Capital and JM Financial are the book-running lead managers to the issue, while KFin Technologies has been appointed as the registrar. Shares of Cyient DLM will be listed on both BSE and NSE. The issue has majorly garnered positive rating from the analysts who have suggested subscribing to the issue citing niche business sector, strong growth outlook and sound promoter background. However, a few have flagged muted margins, dropping profits and dependence on key clients as the biggest concerns. Here's what a host of brokerage firms said about the issue:Reliance Securities Rating: Subscribe The EMS market globally is witnessing a strong growth trajectory. India’s EMS market contributes 2.2 per cent of the global EMS market in 2022 and it is the fastest growing among all countries at a CAGR of 32.3 per cent. It is expected to contribute 7 per cent of the global EMS market in 2026 which will aid the company to grow further, said Reliance Securities. "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 'subscribe' to the issue," it said.Geojit Financial Services Rating: Subscribe The electronics industry in India is poised for growth, supported by government initiatives like Make in India, the PLI scheme and the China + 1 Strategy adopted by OEMs. CDL has a bright future ahead considering its robust order book, reduced debt post IPO and strong promoter backing augurs well for the company, said Geojit Financial Services said with a 'subscribe' rating.Canara Bank Securities Rating: Subscribe Cyient DLM is an integrated manufacturing services provider, serving highly regulated industries with high entry barriers. The company plans to strengthen its core capabilities. 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, said Canara Bank Securities with a 'subscribe' tag.Hensex Securities Rating: Subscribe Cyient DLM has over 2 decades of experience in developing high mix, low-to-medium volume highly complex systems. The Company has shown fabulous growth post Covid, it witnessed negative Net Profit in 2020 in the last 3 years the company has sustained Positive Net Profits. The Company Generated almost 60 per cent of its revenue from India, said Hensex with a 'subscribe' rating.Choice Broking Rating: Subscribe Domestic EMS provides complex EMS services to highly regulated sectors, which has stringent quality and qualification requirements. Over the period, it has developed expertise, which acts as an entry barrier for a new competitor. Order book is healthy and is largely from key clients, which demonstrates the client stickiness, said Choice Broking. "At a higher price band, CDLM is demanding a P/E multiple of 66.2 times, which is at premium to the peer average. However, considering the robust order book, strong parentage and benefits of lower finance costs in the near-to-medium term, we feel the demanded valuation is attractive. Thus, we assign a 'subscribe' rating for the issue," it added.Stoxbox Rating: Subscribe "Post-IPO, the reduction in debt will save financial cost and increase the company’s earnings. We advise cash surplus investors to park funds for long-term rewards. On the upper end of the price band, the issue will be valued at 34.2x FY23 EPS which we believe is fairly priced. We, thus, recommend a 'subscribe' rating for the issue," said Stoxbox.Swastika Investmart Rating: Subscribe The EMS sector is growing globally, and India is expected to be a major beneficiary of this trend. The shift of global demand from China to India is creating new opportunities for EMS providers in the country. Cyient DLM is a leading EMS and solutions provider with a strong track record. The company has over 22 years of experience and is backed by Cyient, said Swastika. "Cyient DLM has a strong order book and enjoys high entry barriers due to its technical expertise, customer engagement, and focus on highly regulated industries. However, the company's financial performance has been slightly disappointing as profit and margin have declined but there has been growth in revenue. The IPO is fairly priced," it added with a subscribe rating.