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DCX commenced its operations in the year 2011; it is involved in manufacturing a comprehensive array of cables and wire harnesses assemblies for a variety of uses including Communication systems, Sensors, Surveillance systems, Missile systems, Military Armoured Vehicles, Air Defence Systems, Reconnaissance, and Observation System, Multifunction Displays and other Electronic Warfare Systems.
In FY22, the Issuer incorporated a wholly-owned subsidiary, Real Advanced Systems Private Limited. The Issuer has been a preferred Indian Offset Partner for foreign original equipment manufacturers for executing aerospace and defense manufacturing projects.
DCX has made long-term Aerospace and defense investments in the Israel market which processes high-end advanced and modern technology in the last several years. The Issuer&rsquo's order book rose to Rs 2369 crore in FY22 from Rs 1941.31 crore in FY20. The order book was Rs 2563.63 crores in Q1FY23 to be executed in FY23-FY25.
Around 56% of the revenues for FY22 were from Israeli-based customers and about 44% are from the domestic market. Revenue from operations has grown at a CAGR of 56.64% between FY20 to FY22.
Operations are carried out through a manufacturing facility located at the Hi-Tech Defence and Aerospace Park SEZ in Bengaluru, Karnataka. The facility is spread over an area of 30,000 square feet and is set up for complete in-house environmental and electrical testing and wire processing.
The customers include domestic and international OEMs, private companies, and public sector undertakings in India across different sectors, ranging from defense and aerospace to space ventures and railways.
The Issuer’s key customers include Elta Systems Limited, Israel Aerospace Industries Limited – System Missiles and Space Division, Bharat Electronics Limited, Astra Rafael Comsys Private Limited, Alpha-Elsec Defense and Aerospace Systems Private Limited, Alpha Design Technologies Private Limited, Astra Microwave Products Limited, Kalyani Rafael Advanced Systems Private Limited, SFO Technologies Private Limited and DCX-Chol Enterprises Inc.
Promoter and MD-Dr. H.S. Raghavendra Rao.
The total revenue for Q1FY22 was Rs 220 crore and DCX posted PAT of Rs 65.61 crore for the same period. A growing trend can be seen in its revenue; the revenues increased by 65% to Rs 1124.33 crore in FY22 from Rs 683.24 crore in FY21. PAT is increasing largely (more than double) since the last three fiscals as can be seen from the table. EBITDA margin was 8.14% and 7.61 % for Q1FY23 and FY22 respectively.
The debt to equity ratio is high for the company at 4.27x as on 31st March 2022. DCX had short term borrowings of Rs 467 crore as on 31st March 2022.
| Particulars | Q1FY2023 (Consol) | FY2022 (Consol) | FY2021(Standalone) | FY2020 (Standalone) |
| Total Revenue | 220.25 | 1124.33 | 683.24 | 465.23 |
| Revenue from operations | 213.25 | 1102.27 | 641.16 | 449.26 |
| PAT | 5.57 | 65.61 | 29.56 | 9.74 |
| EBITDA | 17.36 | 83.87 | 10.08 | 30.51 |
| Total Assets | 1011.61 | 942.62 | 793.18 | 698.47 |
| Net cash generated from operations | -19.7 | -134.03 | 113.98 | 130.03 |
| EBITDA Margin | 8.14% | 7.61% | 1.57% | 6.79% |
The IPOis priced at 22.52x with earnings of 9.19 per share for FY22 at upper price band of Rs 207 per share. The Issue appears to be attractively priced at Q1FY23 earnings when compared to industry average P/E of 62.94x. Bharat Electronics, Data Patterns, Paras Defence, Astra Microwave and Centum Electronics are the peers of the Issuer. Peer comparison table can be seen below.
| Parameters | Bharat Electronics | Data Patterns | Paras Defence and Space | Astra Microwave | Centum Electronics | DCX Systems |
| Face Value/share | 1 | 2 | 10 | 2 | 10 | 2 |
| Total Income for FY22 (Cr) | 15599.72 | 314.81 | 185.53 | 756.84 | 788.0 | 1124.3 |
| EPS (FY22) | 3.28 | 19.48 | 7.78 | 4.37 | -23.7 | 9.19 |
| NAV per share | 16.83 | 110.72 | 97.06 | 67.61 | 154.07 | 15.19 |
| Return on net worth | 19.50% | 16.40% | 7.20% | 6.50% | -26.90% | 55.80% |
| P/E | 32.36 | 61.56 | 84.69 | 73.15 | NA | NA |
| Market Price | 103.55 | 1332.8 | 643.35 | 305.4 | 573.55 | NA |
| IPO Price | NA | 585 | 175 | NA | NA | NA |
| Listing Price | NA | 856 | 475 | NA | NA | NA |
| Listing Gain | NA | 48% | 171% | NA | NA | NA |
DCX IPO opens on 31st Oct and closes on 2nd Nov amounting to Rs 500 crore. The offer comprises a fresh issue of Rs 400 crore and offers for sale of Rs 100 crore. The price band is Rs 197-207 per share. The retail quota is 10% with a minimum lot size of 72 shares (Rs 14904). The objects of the offer include repayment of borrowings (Rs 110 crore), funding working capital requirements (Rs 160 crore), and investment in its wholly owned subsidiary, Real Advanced Systems (Rs 44.88 crore). The IPO is expected to be listed on Nov 11, 2022.
The overall growth of this market is driven by the increased investment in modern infrastructure and government’s efforts to drive indigenous development of aerospace and defense products. The Indian Aerospace and Defence segment is expected to account for USD 70 billion by the year 2030. India’s defense manufacturing sector recorded increased production to US$ 11.85 billion in FY22 from US$ 10.9 billion in FY21.
Government’s present objective is to enhance the value of defense production to USD 25 billion by 2025. The private players in the Indian defense sector accounted for 70% (FY22), 86% (FY21), and 88% (FY20) of the exports generated respectively.
In the year 2022, DCX exported US$ 76 million worth of equipment accounting for 4.7% of the overall defense exports from India.
DCX has a consistent financial profile with strong growth in its topline with the limiting factor of high debt on its B/S. The growth in the aerospace sector coupled with government’s support to the defense sector would benefit the Issuer in the long run. It shall be noted that the IPOs of companies engaged in similar business have given robust returns to the investors. Hence investors shall subscribe to the IPO.
Review By CA Priyanka Choudhary on 20th Oct 2022
About CA Priyanka Choudhary
Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.
Email: [email protected]
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.
