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Cyient DLM Ltd. (EMS arm of Cyient Ltd) witnessed a bumper listing at ₹401 per share on bourses on Monday. The stock was listed at a huge premium of around 51 per cent against the IPO price of ₹265.
While the overall IPO was subscribed 67.3 times, the retail segment was subscribed 49 times. The portions reserved for HNIs and institutional investors’ were subscribed 45 times and 90 times, respectively.
The current price at the bourses has taken its steep valuation to the next level.
The stock at the time of publishing this article (price ₹ 407.5 per share) trades at a PE of 102 times (based on FY23 EPS). Its peers Syrma SGS is trading at 69 times, Kaynes Technology (81 times), Avalon Technologies (66 times) and DCX Systems is trading at 31 times.
In our IPO note dated June 27,2023, we recommended a wait and watch approach. We continue to maintain this stance.
Investors who received shares during the IPO may book profits now as these returns do not look sustainable due to steep valuation, low PAT margins, potential risks from global economic slowdown and client concentration.
Business
Cyient DLM offers comprehensive solutions throughout the product life cycle. The company leverages the design capabilities of its parent company, Cyient, and provides build to print (B2P) and build to specification (B2S) services to its clients. Its solutions include PCB assembly, cable harnesses, and box builds used in critical systems such as cockpits, inflight systems, and medical diagnostic equipment.
Within the EMS sector, Cyient DLM is a high-mix and flexible volume player. It produces a variety of products in defined quantities. In other words, it follows make-to-order approach.
The company’s notable clients are Honeywell International Inc., Thales Global Services S.A.S, ABB, Bharat Electronics Ltd and Molbio Diagnostics Private Ltd.
Financials
Cyient DLM has been reporting a decent set of numbers over the past few years, despite higher costs denting its profits.
Its revenues grew at a CAGR of 15 per cent between FY21 and FY23, while its EBITDA grew at a CAGR of 31 per cent and PAT grew at a CAGR of 64 per cent during the same period.
The higher PAT growth is also due to the base effect. Its EBITDA margin for FY23 was 11.2 per cent, lower than 12.6 per cent recorded in FY22. In FY23, its PAT margin was 3.8 per cent lower against that of FY22.
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