Cyient Sells Over 1 Crore Shares of Cyient DLM in Rs 900 Crore Deal—Here’s What It Means for Investors

On Wednesday, IT company Cyient sold about 1.2 crore shares of its subsidiary, Cyient DLM, at an average price of Rs 766 per share, totaling Rs 883 crore through a block deal. The day before, Cyient had announced plans to sell up to 1.15 crore shares, representing a 14.5% stake in Cyient DLM.

After the deal, Cyient’s shares rose by 1.6% to Rs 1,965 on the BSE, while Cyient DLM’s shares dropped slightly by 0.65% to Rs 783.

At the end of June, Cyient owned a 66.67% stake in Cyient DLM. The company plans to use the money from this deal to invest in its semiconductor business and pay off some debt. Cyient aims to grow its market reach by offering complete solutions to clients in the medical, industrial, and telecom sectors.

Kotak Institutional Equities has maintained a “BUY” rating on Cyient, keeping the fair value at Rs 2,050. They see opportunities in the company’s strategy but also note some risks. Success will depend on choosing the right programs and using intellectual property (IP) effectively to speed up chip design.

JPMorgan has also given Cyient an “Overweight” rating with a target price of Rs 2,100, stating they don’t expect Cyient’s ownership in DLM to fall below 51%.

Cyient recently set up a new subsidiary focused on designing specific integrated circuits (ASICs) and selling chips without owning a manufacturing plant, known as a fabless model. Cyient bought Ansem in 2018 to enhance its semiconductor expertise, which mainly involves offering design services to clients. Currently, semiconductors make up a small part of Cyient’s revenues, but nearly half of the semiconductor revenue comes from providing complete solutions.

Analysts from Kotak also noted that Cyient’s semiconductor business requires more working capital because the company handles everything from start to finish, including the sale of chips to clients. They expect higher profit margins during the design phase of chip development compared to the manufacturing phase.