About the Company

Cyient DLM Limited is an integrated Electronic Manufacturing Services (EMS) and solutions provider.

It is a qualified supplier to global OEMs in the aerospace and defence, medical technology and industrial sectors and has vast experience in making low volume, high mix (LVHM) products as well. LVHM is a type of a contract manufacturing setup which typically has a very high emphasis on quality and customization which changes according to the requirements of the customer.

1. Printed Circuit Board (‘PCB’) Assembly (‘PCBA’);
2. cable harnesses; and
3. box builds, which are utilized in safety critical systems like cockpits, inflight systems, landing systems, medical diagnostic equipment etc.

The company offers these products to their clients as either ‘Build to Print (B2P)’ model or ‘Build to Specification (B2S)’ model.

1. Build to Print (B2P) model: In the B2P model, the company receives the project design from the client and manufactures the product adhering to the customer's specifications. The customer usually supplies the bill of materials and drawings, while the company takes responsibility for producing the part to meet the customer's defined specifications. Some notable products and projects produced under the B2P model include:
a. Natural gas analyzers: These are flow monitoring systems used in oil and gas applications;
b. Airport lighting switch system circuit and assembly;
c. Magnetic Resonance (MR) system &
d. Cockpit electronics.

2. Build to Specification (B2S) Model: In the B2S model, the client provides the company with their requirements and specifications for the product or project. The Company's group design team then designs the product or project based on such requirements and specifications. Once the design is approved by the client, the company proceeds to manufacture the product based on the approved design. In this model, the company offers engineering design and build services, from concept to qualification, with system-level ownership in respective domains. Some of the key products and projects developed under the B2S model are:
a. Cargo door control units
b. USB drives.

The B2P business accounts for 99% of the company's total revenue, while the B2S business represents only 1% of the company's total revenue.

The company works with several clients, including well-known names like Honeywell International Inc. ("Honeywell"), Thales Global Services S.A.S ("Thales"), ABB Inc., Bharat Electronics Limited, and Molbio 152 Diagnostics Private Limited. The company was incorporated on June 30, 1993.

Images to understand the Business Better

Industry Overview

The overall electronics industry consists of electronics products, electronics design, electronics components and electronics manufacturing services. The global electronics industry was valued at US$ 2,288 billion in CY2020 and grew to USD 2,494 billion in CY2021. As per Frost & Sullivan’s analysis, the industry is expected to grow at a CAGR of 4.9% to reach USD 3,168 billion by CY2026.

China leads the global EMS business with a 46.7% share in 2021. It is a global leader due to operational cost benefits, availability of a large number of highly skilled personnel, infrastructure, logistical advantages etc. However, post-COVID, many global electronics manufacturers are contemplating a China + 1 strategy and are looking for alternate manufacturing locations for exports, creating tremendous investment potential for countries like Vietnam, India and Philippines etc.

The PLI program, which benefits electronics manufacturing firms, was introduced in 2020. In Chennai, in the southern state of Tamil Nadu, an electronics manufacturing corridor is being built. The EMC Smart City investment in Greater Noida is planned at USD 162.7 million.

Further, the government has recently come up with an incentive scheme for the development of a semiconductor and display manufacturing ecosystem in India. In CY2021, India's EMS market was estimated at around USD 20 billion with a market share of 2.2% and it is expected to grow at a CAGR of 32.3% to USD 80 billion with a market share of 7.0% by CY2026.

So, the industry outlook seems to be very good.

Objectives

1. Funding incremental working capital requirements of the Company.

2. Funding capital expenditure of the Company.

3. Repayment/prepayment, in part or full, of certain borrowings.

4. Achieving inorganic growth through acquisitions.

5. General corporate purposes.

Financials

The revenue of the company has increased from Rs. 628.03 crores in FY 2020-21 to Rs. 832.03 crores in FY 2022-23 at a CAGR of 15.10%. Growth is also visible in EBITDA and Net Profit which have grown at a CAGR of 38.23% and 63.91% respectively from FY 2020-21 to FY 2022-23. Earnings ratio like ROCE and ROE are also good.

Valuation

On the upper price band of Rs. 265 per share, the PE ratio of the company is 34.20 indicating an undervaluation when compared to the PE ratio of 49.75 of the industry. The P/BV ratio of 5.48 is at par with the industry P/BV ratio of 5.57.

Risks

1. The company is heavily dependent on certain key customers. Top 10 customers constituted 91.08% of the total revenue from operations for the year ended 31^st March 2023. However, the company enjoys long-term relationships as an integrated partner to multiple customers such as Honeywell International Inc., Thales Global Services S.A.S, ABB Inc., Bharat Electronics Limited and Molbio Diagnostics Private Limited, having had an average relationship of over 11 years as on March 31, 2023.

2. All manufacturing facilities of the company are located in southern India. Further, they are highly dependent on Mysuru facility for a significant portion of revenue. In the year ended March 31, 2023, 90.75% of total revenue was attributable to Mysuru facility. Any disruption in any of the manufacturing facilities may adversely affect the business, results of operations, financial condition and cash flows.

3. Raw materials like semiconductors, capacitors, diodes, resistors, etc. required by the company are imported from USA, Europe, China, Israel and Singapore. Any delay or shortage in the supply of raw materials may have an adverse impact on the operations of the company.

IPO Details

1. The subscription period is from 27^th June 2023 to 30^th June 2023.

2. The price band is Rs. 250 to Rs. 265 per share.

3. One lot consists of 56 shares worth Rs. 14,840. A retail individual investor can apply to maximum 13 lots worth Rs. 1,92,920.

4. The entire issue is a fresh issue. There is no OFS.

5. As at the time of writing this blog, the share is trading in the grey market at a premium of 40.75%.