Cyient DLM IPO Receives Favorable Broker Recommendations

Cyient DLM IPO, the Mysuru-based Electronic Manufacturing Services (EMS) player, has generated significant interest among brokerage houses as it opens for subscription today. With a target to raise INR 592 crore, the IPO is priced between INR 250 and 265 per share. Broker recommendations for Cyient DLM IPO have been predominantly positive, with analysts recognizing its strong capabilities throughout the value chain. However, certain risk factors, such as high client dependency, have also been highlighted. In this article, we delve into the broker recommendations and provide insights into the opinions of various research houses regarding Cyient DLM IPO.

Analysts’ Positive Views on Cyient DLM IPO:

1. BP Wealth: “SUBSCRIBE” Rating and Debt Reduction Expectations
BP Wealth analysts express optimism about the prospects of Cyient DLM IPO, foreseeing a reduction in the company’s debt post-IPO. This reduction in debt is expected to enhance the company’s earnings by saving on financial costs. The research house advises cash surplus investors to consider parking funds for long-term rewards. Valuing the issue at 34.2x FY23 EPS on the upper end of the price band, BP Wealth considers the IPO to be fairly priced and recommends a “SUBSCRIBE” rating. However, the report acknowledges the risk of high business concentration, emphasizing that the top 10 customers contribute to 91.1% of the company’s total revenue.

2. Choice Broking: Attractive Valuation and Robust Order Book

Choice Broking’s research note highlights the demanding price-to-earnings (P/E) multiple of 66.2x (FY23 earnings) for CDLM at the higher price band. Despite the premium valuation compared to the peer average, the research house finds the valuation attractive due to factors such as a robust order book, strong parentage, and expected benefits of lower finance costs in the near-to-medium term. Consequently, Choice Broking assigns a “SUBSCRIBE” rating for the issue.

3. Elite Wealth: Industry Growth Potential and Competitive Positioning

Elite Wealth analysts emphasize the expected growth of the Indian electronics industry at a compound annual growth rate (CAGR) of 18.4% by FY27. They believe that Cyient DLM is well-positioned to capitalize on this growth and achieve its long-term growth goals. With a P/E ratio of 66x (upper price band) based on FY23 earnings, Cyient DLM is perceived to be slightly higher than the industry average of 49.75x. Elite Wealth suggests investors “SUBSCRIBE” to the offering. The report also highlights risks related to foreign exchange rate fluctuations and political instability.

4. Nirmal Bang: Industry Tailwinds and Revenue Growth Potential

Nirmal Bang acknowledges the strong industry tailwinds favoring Cyient DLM IPO, with the domestic EMS industry expected to grow at a CAGR of 32% over FY22-27. Although the company’s revenue growth lags behind peers at a 15% CAGR during FY21-23, its strong order book provides visibility for accelerated growth in the future. Considering the future growth opportunities, Nirmal Bang finds the valuation reasonable, with a P/E ratio of 66.2x FY23 earnings. Nirmal Bang’s research note recommends a “SUBSCRIBE” rating for the IPO.

5. GEPL Capital: Competitive Edge and Promising Opportunities

GEPL Capital’s report focuses on Cyient DLM’s earnings, amounting to INR 31.78 crore for FY23. With an upper price band of INR 265, the company aims for a post-issue market cap of INR 2,102 crore, resulting in a P/E multiple of 66.14x. GEPL Capital highlights Cyient DLM’s expertise, complex product manufacturing, end-to-end solutions, and customer trust, which provide a strong competitive edge in the EMS and solution-providing sectors. The report recommends a “SUBSCRIBE” rating to the issue for potential listing gains.

SMC Global’s Risk Factors:

While the overall consensus on Cyient DLM IPO is positive, SMC Global points out several risk factors to consider:

1. Dependency on Key Customers: The company relies heavily on specific key customers for the sale of its products.
2. Revenue from B2P Solutions and PCBAs: A significant portion of the company’s revenue is derived from its B2P solutions and the manufacture and sale of PCBAs.
3. Manufacturing Facilities: All of Cyient DLM’s manufacturing facilities are located in southern India, posing a potential business risk if any disruptions occur.
4. Dependency on Third-party Suppliers: The company depends on third-party suppliers for raw materials and components, which are acquired on a purchase-order basis.

Cyient DLM IPO has received favorable broker recommendations, with analysts expressing optimism about the company’s prospects. While risks related to client dependency, foreign exchange rates, and supply chain management have been highlighted, the consensus view leans toward subscribing to the IPO. Investors should carefully evaluate the recommendations and assess their risk tolerance before making investment decisions.