IPO: Cyient DLM

In a nutshell

• Quality: Cyient DLM's three-year average ROE and ROCE are 43.3 and 14.2 per cent, respectively. It has maintained healthy cash flow from operations in the last three years.
• Growth: In the last three years, its topline and net profit grew at an annual growth rate of 15.1 and 63.9 per cent, respectively. Rising demand for wireless electronics and higher per capita electronic consumption will be key growth drivers going forward.
• Valuation: The stock will be priced relatively lower than its peers in terms of both P/E and P/B.
• Overview: A strong demand for wireless technology and India's growing share in global electronics manufacturing augur well for the company. However, its high exposure to international players (almost 60 per cent of total revenue) also makes it sensitive to adverse macro conditions.

About the company

Cyient DLM is an electronic manufacturing service (EMS) provider. Its offerings primarily include printed circuit board assembly (about 63 per cent of FY23 revenue) and box builds (32 per cent; used in safety-critical systems). The remaining portion comes from manufacturing cable harnesses and other manufacturing solutions.

Strengths of Cyient DLM

• Cyient DLM has long-standing relationships (an average of over 11 years) with its key clients.
• It is the largest supplier of electronic manufacturing services to the aerospace and defence industry (in terms of value) in India.
• Existing client relationships, robust R&D services, and the technical expertise of its MNC parent, Cyient, gives it an edge over its peers.

Weaknesses of Cyient DLM

• Revenue concentration: Cyient DLM's top 10 clients accounted for over 91 per cent of the total revenue in FY22. The departure of any of its top clients will impact its operations significantly.
• The EMS segment is highly competitive. As of 31st March 2022, it had a market share of only 0.5 per cent in the Indian EMS market.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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