The ₹592 crore-initial public offering (IPO) of Cyient DLM, a subsidiary of Cyient, opened for subscription on Tuesday, June 27 and will close on June 30. The company has fixed a price band of ₹250-265 for the IPO.
Subscription status: The Cyient DLM IPO received a strong response and was fully subscribed on Day 1 of the issue. The IPO was subscribed 1.02 times at 1:05 pm on Day 1. Retail investors' portion was subscribed the most, 4.22 times, while the non institutional investors' (NII) quota was subscribed 100 percent. The part reserved for employees saw a 15 percent subscription whereas the qualified institutional buyers' (QIBs) portion did not see any bids.
GMP: Cyient DLM shares’ grey market premium soared 37 percent on Tuesday, commanding a premium of ₹98 over the upper end of the IPO price, implying a listing price of ₹363 per share.
However, one must note that grey market premium is only an indicator of how the company's shares are performing in the unlisted market and can change quickly.
Important dates: The date of allotment for the IPO is expected to be 5 July, following which, the issue is likely to list on the bourses on 10 July.
About the IPO: The issue is a full fresh issue of 2.23 crore shares. Post the IPO, Cyient DLM promoter Cyient Ltd will hold a 66.68 percent stake in the firm. The IPO has a lot size of 56 shares and retail investors can bid up to 13 lots.
Reservation: In the IPO, the company has reserved 10 percent of the shares for retail investors, 15 percent for non-institutional investors, and 75 percent of the shares for qualified institutional buyers (QIB). Also, it is giving its employees shares at a reduced price of ₹15 each.
Anchor investors: Ahead of the IPO, the firm raised ₹259.64 crore by allocation of 97,98,113 shares at an issue price of ₹265 crore from 20 anchor investors ahead of IPO on June 26. Anchor investors included Amansa Investments, Societe Generale, Catamaran Ekam, BNP Paribas and others.
Objective: 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.
About the firm: Incorporated in 1993, Cyient DLM is an integrated electronic manufacturing service (EMS) and solutions provider with a focus on the entire life cycle of a product, including design, build, and maintenance. It has over 22 years of experience in developing high-mix, low-to-medium volume highly complex systems. It is a qualified supplier to global OEMs in the aerospace and defence, medical technology and industrial sectors. The company enjoys long-term relationships with marquee customers such as Honeywell, Thales Global Services, ABB, Bharat Electronics and Molbio Diagnostics, having had an average relationship of over 11 years.
Financials: Cyient DLM's revenue has increased from ₹628 crore in FY21 to ₹832 crore in FY23 at a CAGR of 15 percent. Meanwhile, the net profit of the company has risen at a 64 percent CAGR from ₹11.8 crore in FY21 to ₹31.7 crore in FY23.
As of March 31, 2023, they had total borrowings of ₹314.5 crore and a D/E ratio of 1.8 in FY23. Post-IPO, the debt will be minimal, which will reduce financial costs and increase earnings in the future.
Book running managers: Axis Capital and JM Financial are the book-running lead managers to the issue, while KFin Technologies is the registrar.
What brokerages say:
Most experts have a ‘subscribe’ rating for the issue on the back of attractive valuations, niche business sector, strong promoter background and robust growth potential. Let's see what they say
Geojit Financial Services: Subscribe
At the upper price band of Rs.265, CDL is available at a P/E of 66.2x (FY23), aligning with industry peers' valuations. The electronics industry in India is poised for growth, supported by government initiatives like Make in India, the Production Linked Incentive (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. We assign a “Subscribe” rating for the issue on a short to medium-term basis.
Choice Broking: Subscribe
At a higher price band, CDLM is demanding a P/E multiple of 66.2 times, which is at a 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.
Domestic EMS provides complex EMS services to highly regulated sectors, which have stringent quality and qualification requirements. Over the period, it has developed expertise, which acts as an entry barrier for a new competitor. The order book is healthy and is largely from key clients, which demonstrates the client's stickiness.
Swastika Investmart: Subscribe
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 and we assign a ‘subscribe’ rating.
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 which is positive for the firm.
Reliance Securities: Subscribe
Considering the strong business prospects, healthy financials, diversified product mix, tailwinds on the back of a solutions-oriented approach, client-focused service, and track record of reliability, we recommend 'subscribing' to the issue
Canara Bank Securities: 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. We have a 'subscribe' tag for the issue.