Massive ₹883.20 Cr Block Deal Shakes Cyient DLM as Promoter Sells Off 14.5% Stake—What’s Next?

Shares of Cyient DLM and Cyient Ltd remained in the spotlight during Wednesday's trading session amid ongoing buzz around a block deal. The promoter entity, Cyient, divested equity shares in Cyient DLM Ltd through a block deal earlier today.

At 09:15 am IST, approximately 14.5% of Cyient DLM's stake was sold via a block deal on August 21. The transaction, likely involving Cyient as the seller, took place on the BSE, as per exchange data. Roughly 1.2 crore shares of Cyient DLM were traded at a floor price of ₹766 per share, amounting to a total transaction value of ₹883.20 crore. The identities of the buyers and sellers could not be confirmed immediately.

While the parties involved in the transaction could not be immediately determined, Cyient confirmed that its board had approved the sale of a 14.5% stake in its subsidiary, Cyient DLM, through a block deal.

Following the block deal, Cyient shares surged by 6%, reaching a high of ₹2,049.95, while Cyient DLM's shares declined by 3%, hitting a low of ₹765 on the NSE.

Cyient also announced plans to allocate the proceeds from the stake sale towards capital requirements and debt repayment. "Our aim is to utilize the funds from the proposed transaction to meet the company’s capital needs, including significant investments in our newly launched semiconductor business to drive growth, various organic and inorganic investments, and the repayment of company debts," Cyient stated.

According to Cyient DLM's latest shareholding data for the June quarter, Cyient, as the promoter, held a 66.66% stake in Cyient DLM.

JPMorgan, a brokerage firm, expressed approval of Cyient's strategy to divest its stake in Cyient DLM and use the proceeds for investments in the semiconductor business, mergers and acquisitions, and debt repayment. The firm noted that Cyient's DET business (semiconductor vertical) had a debt of $47 million as of the end of June, which could be partially repaid using the proceeds from the stake sale.

Regarding potential avenues for inorganic growth, JPMorgan suggested that Cyient could explore opportunities in the automobile sector for potential mergers and acquisitions. The brokerage has an 'overweight' rating on Cyient with a price target of ₹2,100.

Kotak Institutional Equities, another brokerage firm, considers the Cyient DLM opportunity attractive for Cyient but recognizes certain risks. "The success will depend on the choice of programs and the ability to leverage IP (Intellectual Property) to shorten custom chip design timelines," the brokerage commented. Kotak has a 'buy' rating on Cyient with a price target of ₹2,050.

For FY24, Cyient DLM generated revenue of ₹1,192 crore, which accounted for 17% of Cyient's total revenue of ₹7,147 crore during the same period. As of March 31, 2024, the net worth of Cyient DLM stood at ₹909 crore, representing 20% of Cyient's total net worth of ₹4,557 crore.

In a filing with the exchange, Cyient reiterated that the company intends to use the capital proceeds from the proposed transaction to address its capital needs, including significant investments in the recently announced semiconductor business to support growth, various organic and inorganic investments, and debt repayment.

ICICI Securities, in a note, mentioned, "The proceeds will be directed towards capital requirements, including investments in the semiconductor business and debt repayment. The deal is valued at a little over ₹900 crore based on Tuesday's closing price. Post the stake sale, Cyient will retain a 52.2% stake in DLM."

In the last quarter, the company received over 15 Gen AI projects, with additional deals anticipated in FY25. The company is also working on an ASIC (Application-Specific Integrated Circuit) for an intelligent neural system featuring advanced electronics. This ASIC is tailored for specific applications rather than general-purpose use, and it is expected to offer significant advantages in both revenue and capability.

According to ICICI Securities, the company aims to enhance its position in electronic manufacturing services (EMS) through strategic acquisitions via DLM and by focusing on entering the EV segment. The stock has reached the brokerage firm's target price of Rs 1,922 per share.