Thread by @riteshdaga83

#DCXSystems

DCX IPO View:

DCX Systems Limited is among the leading Indian players in the manufacture of electronic sub-systems and cable harnesses.

The company commenced operations in 2011 and has been a preferred Indian Offset Partner ("IOP") for foreign original equipment manufacturers ("OEMs") for executing aerospace and defence manufacturing projects.

As of June 30, 2022, DCX Systems had 26 customers in Israel, the United States, Korea and India, including certain Fortune 500 companies, multinational corporations and start-ups.

The company's customers include domestic and international OEMs, private companies and public sector undertakings in India across different sectors, ranging from defence and aerospace to space ventures and railways.

DCX System's key customers include Elta Systems Limited, Israel Aerospace Industries Limited - System Missiles and Space Division, Bharat Electronics Limited, and Astra Rafael Comsys Private Limited, among others

IPO Date: 31st Oct – 2nd Nov 2022
Face Value: INR 2 per share
Price:INR 197 to 207 per share
Lot Size: 72 shares
Issue Size:INR 500 Cr (including INR 100 Cr offer for sale and Fresh issue: INR 400 Cr)

Objects of the issue:

1.Repayment/ prepayment, in full or part, of certain borrowings availed of by the Company.
2.Investment in our wholly owned Subsidiary, Raneal Advanced Systems Private Limited, to fund its capital expenditure expenses.

3.Funding working capital requirements of the Company.

Financial

-Topline Q1FY23 was 220 Cr Vs. 129 Cr in Q1FY22 up by 70% in YoY. Topline FY 2022 was around 1124 Cr Vs. 683 Cr in 2021 therefore up by 65% in YoY.

-Bottomline Q1FY23 was 5.7 Cr Vs. 3.3 Cr in Q1FY22 up by 66% in YoY. Bottomline FY22 was around 65.6 Cr Vs. 29.5 Cr in Q1FY22 up by 122% in YoY.

-EPS in FY22: 9.19 Vs. 4.22

-Forward PE as per issue price is 65

-EBITDA was around INR 83.8 in FY22 and margin was around 7.6%

-Strong order book and which is around INR 2,536 Cr as of June 30, 2022 Vs. 2,369 Cr as of March 2022 order book increased by around 180 Cr in Q1fy23

-ROE and ROCE in FY22 was around 55.8% and 13.1% respectively.

Positive Factor:

-The growing Indian landscape for defence and aerospace serves as a key opportunity for our Company. The Indian aerospace and defence sector is poised to attain a value of USD 70 billion by 2030. Recent initiatives like

increase in foreign direct investment (“FDI”) in the Indian defence sector from the current 49% to 74% under the automatic route is anticipated to be a key driver and growth opportunity for the market.

The Indian government has also banned approximately 101 items within the defence-based imports segment and have also introduced the third positive indigenization list that bans the import of 780 LRU/components.

These initiatives are expected to boost indigenous manufacturing within India

-Business Segment:
System Integration: System integration in areas of radar systems, sensors, electronic warfare, missiles, and communication systems which contributed 82.7% in topline in FY22

Kitting: Supply assembly ready kits of electronic and electro-mechanical parts and undertake all aspects of procurement including sourcing components from suppliers approved by customer contributed 9.8% in topline in FY22

Cable and Wire Harness Assemblies: We manufacture a comprehensive array of cables and wire harnesses assemblies such as radio frequency cables, co-axial, mixed signal, power, and data cables for a variety of uses including communication systems, sensors, surveillance systems,

missile systems, military armored vehicles contributed 7.4% in topline in FY22

-As of June 30, 2022, company had 26 customers in Israel, United States, Korea and India, including certain Fortune 500 companies, multinational corporations and start-ups. Customers include domestic

and international OEMs, and private companies and public sector undertakings in India across different sectors, ranging from defence and aerospace to space ventures and railways.

-Preferred IOP for foreign OEMs for executing defence manufacturing projects.

-One of the largest IOP for the IAI Group, Israel, for the Indian defence market for manufacture of electronic sub-systems and cable and wire harness assemblies.

-Strategically located in aerospace Special Economic Zone with an advanced and modern manufacturing facility

-Established a leadership position in the Indian aerospace and defence industry amongst other companies, in the segment of system integration business as a result of

operating history and the experience of management team

Risk Factor:
-Dependent on key customers and top three customers contributed more than 80% of business and also its increasing trend. Dependent on a limited number of key customers and in particular ELTA Systems Limited

and Israel Aerospace Industries Limited, System Missiles and Space Division (together, the “IAI Group”), for a significant portion of co revenues

-Business and financial condition are heavily dependent on the performance of the electronic sub-systems market for the defence and

aerospace sector globally and in India

-Negative cash flows in FY22 around INR 134 Cr and 19.7 Cr in Q1FY23

-Margin is pressurized as compare with other peers and listed player. DCX PAT margin is only 5.9% as compare with BEL: 15.3%, Apollo Micro System: 6.1%,

Data Patterns: 30.2%, Astra Micro: 5.4%. Although *DCX* significantly improved their margin from 2.1% in FY 20 to 5.9% in FY22.

View: Offer price 207 is trading around 65 PE this show expensive valuation.

-With “Make in India", “Atmanirbhar Bharat" and other policies, DCXSL – is poised for bright prospects. Based on its financial performance, investors can subscribe."