Cyient DLM Limited IPO

Incorporated in 1993, Cyient DLM Limited provides Electronic Manufacturing Services (EMS) and solutions. The company provides Electronic Manufacturing Services such as Build to Print (B2P) and Build to Specification (B2S) services. B2P solutions involve clients providing the design for the product for which the company provides agile and flexible manufacturing services. B2S services involve designing the relevant product based on the specifications provided by the client and manufacturing the product. Cyient DLM’s solutions primarily comprise Printed circuit board (PCB) assembly (PCBA), Cable harnesses, and Box builds which are used in safety-critical systems such as cockpits, inflight systems, landing systems, and medical diagnostic equipment. The company’s client list includes Honeywell International Inc. (Honeywell), Thales Global Services S.A.S (Thales), ABB Inc, Bharat Electronics Limited, Molbio 152 Diagnostics Private Limited, and so on. As of March 31, 2023, the company has an order book of Rs. 24.32 bn.

Key Highlights

• Ability to provide integrated engineering solutions with capabilities across the product value chain: The Company is complete, end-to-end integrated EMS and solutions provider with robust capabilities providing both B2P and B2S services. As an integrated manufacturing partner providing ‘design-led-manufacturing’ solutions to its customers, it provides design through the design team of its Promoter and, manufacturing, testing and certification support to ensure that its customers’ products meet robust standards in reliability, safety and performance.
• Company’s clients are primarily engaged in industries such as aerospace and defence, medical technology and industrials which are typically highly regulated industries. Their engagement with the client commences at the early stages of the product life cycle right from the design stage, which also leads to higher customer stickiness.
• High entry barriers: Its position as one of the few EMS companies in India offering electronics solutions for safety and mission-critical applications in highly regulated industries acts as a significant entry barrier to new entrants
• Robust and industry leading order book with marquee customers: It believes it has built a diverse customer base with marquee clients over 22 years of its presence in the EMS industry. The company has an industry leading order book amounting to Rs. 24.32 bn as of March 31, 2023 and a pipeline of prospective projects for which the contracts are currently at various stages of negotiation.
• The company has derived significant advantages and a strong competitive edge from the sectoral expertise of their Promoter, their association with the ‘Cyient’ brand and the domain experience of their promoter gives them an advantage in attracting talent, corporate governance practices, and together with their promoter’s design team, allows them to offer a larger value proposition on the ‘design, build and maintain’ value chain.

Key Risks

• Delay, shortage, interruption, reduction in the supply of or volatility in the prices of raw materials including electronics components such as semi conductors may affect the operations of the company.
• Slowdown and reduced spending in the industries in which customers of the company operate.
• The capacity utilization of the Mysuru and Hyderabad facility in FY23 for PCBA was 38.43 pct and 7.61 pct, respectively, which is lower in comparison to other manufacturing companies.
• In FY23 about 90.75 pct of its total revenue from operations was contributed by its Mysuru facility.
• Does not own the Cyient trademark, which is registered in favour of its Promoter but has entered a Trade-Name License Agreement, dated December 13, 2022, with its Promoter.
• Trade receivables as end of March 31, 2023, stood at Rs 161.78 crore, which is about 19.4 pct of FY2023 revenue.

Valuation The company has created a niche place in EMS and solutions-providing segment. A strong order book, focus on safety-critical electronics in highly regulated industries and a strong customer base are key positives. At the upper end of the price band, the issue is quoting at a PE of around 66.25x. Thus, the issue appears fully priced. Cash rich, risk takers May Subscribe for a longer-term perspective.

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.