166% rally from issue price; check why Motilal Oswal has retained 'buy' on this stock that debuted in July 2023

Stock market today: Cyient DLM, where DLM stands for design-led manufacturing, is the unit of IT firm Cyient that made its debut on the bourses in July 2023. Since listing (taking into account the closing price), the stock has jumped around 68 per cent until Wednesday's intraday trade, April 10 (Rs 705.55 on the BSE). Cyient DLM shares were listed on the bourses in July 2023. The issue price of the offer was Rs 265.

Analysts at Motilal Oswal Financial Services, in their report issued on April 9, noted that Cyient DLM, an integrated EMS and solutions provider with a strong presence in high-margin and rapidly growing critical end-user industries, is likely to capture its share of the pie, on the back of its strong core competencies and high technical capabilities.

The report mentioned that the Indian defence sector is under prime focus, with defence spending rising steadily, hitting Rs 6.22 trillion in FY24B, up 4.7 per cent from FY23A. The government targets $25 billion in defence manufacturing by CY25, including $5 billion from exports. 

Initiatives such as the Defence Offset Policy are geared towards reducing reliance on foreign arms imports. As of March 2022, a total of 57 contracts had been signed under this policy, amounting to $13.5 billion, the report added. 

"To align with the nation’s focus on the indigenisation of defence, the company has hired key personnel with robust backgrounds in defence and deep connections to drive the company’s domestic defence growth story," it added. 

Of the total exports (nearly 60 per cent in FY23), Cyient DLM generates the majority of its export revenue from the aerospace industry, backed by its strong clientele. The company is in advanced talks with new and existing clientele, expecting the aerospace segment to grow the fastest among other segments.

"Overall, the A&D segment will continue to be the key growth driver for the company in the coming years, capitalising on both the global and domestic upcycle in the A&D industry," the report said further. 

Given this, the brokerage has maintained a "buy" call on the stock with a target price of Rs 810 ((35x FY26 EPS). 

MOFSL expects Cyient DLM to sustain its growth momentum, aided by the following factors:

• Strong order book coupled with healthy order inflows;
• high customer stickiness; 
• Strong promoter heritage.

"We estimate Cyient DLM to report a CAGR of 39 per cent / 42 per cent / 79 per cent in revenue/EBITDA/ Adj. PAT over FY23–26," the report added.

On Wednesday, April 10, the stock ended at Rs 715.50, up 1.88 per cent on the BSE.