Cyient DLM, a subsidiary of software services firm Cyient, will be the second public issue to open for subscription this week, after ideaForge Technology.
The initial public offering will be open from June 27 till June 30. The anchor book, where institutional investors record their bids, launched for a day on June 26.
2) Price band
The price band for the offer has been fixed at Rs 250-265 per share.
3) Offer size
The electronic manufacturing services and solutions (EMS) company is planning to raise Rs 592 crore via a public issue of 2.23 crore equity shares, at the upper price band.
The offer comprises only a fresh issue. Hence, all the funds, barring issue expenses, will be received by Cyient DLM.
The company has reserved Rs 15 crore worth of shares for its employees. Eligible employees will get those shares at a discount of Rs 15 per share to the final issue price.
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Prior to filing the RHP with the Registrar of Companies, the company had mopped up Rs 108 crore via private placement (pre-IPO placement) of 40.75 lakh equity shares. Along with this, the total funds raised by the company will be Rs 700 crore.
4) Objectives of the issue
Cyient DLM will utilise the proceeds from the issue for incremental working capital requirements (Rs 291 crore), and capital expenditure (Rs 43.57 crore).
Repaying certain debts (Rs 160.9 crore) and inorganic growth through acquisitions (Rs 70 crore) are other key objectives of IPO.
5) Lot size
Investors can apply for a minimum of 56 equity shares and in multiples of 56 shares thereafter. Retail investors can invest a minimum of Rs 14,840 for one lot and a maximum of Rs 1,92,920 for 13 lots, as they are allowed to invest up to Rs 2 lakh in an issue.
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High net-worth individuals with an investment budget of up to Rs 2-10 lakh can apply for a minimum of 14 lots worth Rs 2,07,760 and a maximum of 67 lots, worth Rs 9,94,280. HNIs bidding more than Rs 10 lakh can invest a minimum Rs 10,09,120 lakh for 68 lots.
Up to 75 percent of the offer size is reserved for qualified institutional buyers (QIB), 15 percent for high net-worth individuals (non-institutional investors), and the rest for retail investors.
6) Company profile
Incorporated in 1993, the company is a supplier to global OEMs (original equipment manufacturers) in the aerospace, defence, medical technology, and industrial sectors.
Cyient DLM, which leverages the design capabilities of its promoter Cyient, provides contract manufacturing services such as build-to-print (B2P) and build-to-specification (B2S) to its clients. Its solutions primarily comprise printed circuit board assembly (PCBA), cable harnesses, and box builds, which are used in critical safety systems such as cockpits, in-flight systems, landing systems, and medical diagnostic equipment.
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The company has long-term relationships with several marquee customers such as Honeywell International Inc, Thales Global Services SAS, ABB Inc, Bharat Electronics, and Molbio Diagnostics, which together contributed 56.67 percent to company’s revenue in FY22-23.
The aerospace division contributed 20 percent of the revenues, defence 37.6 percent, medical technology 16.3 percent, and the industrial segment 25 percent.
It has three manufacturing facilities in India — at Mysuru, Hyderabad, and Bengaluru — with a workforce of 656 skilled personnel as of March 2023, besides a new products and engineering team of 67 persons.
The Indian EMS industry contributed 2.2 percent ($20 billion) to the global EMS market in 2022, and is expected to contribute 7 percent ($80 billion) by 2026, given the strong push from the government to make India a hub for electronics manufacturing.
Cyient DLM, which compares itself with listed companies like Syrma SGS Technology, Kaynes Technology India, and DCX Systems, has asked for a market cap of Rs 2,101 crore, which is lower than that of its peers Syrma SGS (Rs 7,658 crore), Kaynes Technology (Rs 8,843 crore), and DCX Systems (Rs 2,444 crore), per June 26 closing prices.
7) Financial metrics
Cyient DLM continued to see double-digit growth in its topline but there was a weakness in its profitability and operating performance. Net profit for the year FY22-23 fell 20.3 percent to Rs 31.7 crore, but revenue increased 15.5 percent to Rs 832 crore, compared to previous fiscal.
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Gross profit for the year, at Rs 129.4 crore, increased by 14.5 percent over the year prior, but the gross margin fell 14 bps to 15.55 percent during the same period.
At the operating level, EBITDA (earnings before interest, tax, depreciation and amortisation) rose by 4.4 percent to Rs 87.8 crore, but the EBITDA margin dropped 111 bps to 10.55 percent in FY22-23 over FY21-22. The net profit margin fell significantly by 171 bps to 3.81 percent.
Even return on capital employed slipped to 13.48 percent for the year ended March FY22-23, from 17.56 percent in FY21-22.
The company had 35 customers at the end of March FY22-23, down from 50 customers as of March FY21-22.
However, it has a robust order book of Rs 2,432.55 crore as of March 2023, increasing significantly from Rs 1,202.98 crore in FY21-22.
8) Promoters and management
Promoter Cyient has 92.84 percent stake in the company, while Amansa Investments, owned by investor Akash Prakash, has the rest.
Rajendra Velagapudi is the Managing Director of the company, and Ganesh Venkat Krishna Bodanapu is the Chairman, Non-executive and Non-independent director.
Venkat Rama Mohan Reddy Bodanapu is also a Non-executive, Non–independent director, while Vanitha Datla, Jehangir Ardeshir, and Pillutla Madan Mohan are independent directors on the board.
Anthony Montalbano is the Chief Executive Officer and Business Head of Cyient DLM, while Shrinivas Appaji Kulkarni is the Chief Financial Officer. Parvati K R is the Company Secretary and Compliance Officer.
9) Risks and concerns
Here are key risks and concerns highlighted by HDFC Securities and Choice Broking:
a) Cyient DLM’s top 10 customers constituted 91.08 percent of its total revenues for the year ended March 2023.
b) A significant portion of the revenues is derived from B2P solutions (99.80 percent), and from the manufacture and sale of PCBAs (62.62 percent). Any decrease in the sales of PCBAs or in the volume of its B2P orders will adversely affect the business.
c) CDL depends on third-party suppliers for raw materials and components, which are on a purchase order basis and not tied up through long-term contracts. This could make it susceptible to cost / supply shocks (added).
d) Changing laws and rules, and legal uncertainties, including the adverse application of tax laws and regulations, may affect the business.
e) Foreign exchange fluctuations may adversely affect its earnings and profitability.
f) Any general slowdown in the global economy may affect the business.
g) The capacity utilisation over the last three years is lower in comparison to other manufacturing companies.
10) Allotment and listing dates
Cyient DLM will finalise the share allotment by July 5 and transfer shares to the demat accounts of eligible investors by July 7. Unsuccessful investors will get refunds in their bank accounts by July 6.
The listing of equity shares on the BSE and NSE will take place on July 10.
At the time of writing this article, the shares traded at more than a 35 percent premium to the upper end of the price band (Rs 265) in the grey market, analysts said on condition of anonymity. Investors generally use the grey market to gauge the sentiment and the likely listing price of any IPO.
The merchant bankers to the issue are Axis Capital and JM Financial, while KFin Technologies is the registrar to the offer.
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