DCX Systems IPO plans to raise Rs. 500 crore as a mix of fresh issue (400 cr) and offer for sale (100 cr). The Bengaluru-based company is primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies, and is also into kitting. DCX systems is among the preferred Indian Offset Partners for the defence & aerospace industry with global accreditations.

Bidding date10th – 12th Oct 2022
Issue Size  (₹ Cr)₹ 290 – 309 Cr
Issue Size  (Shares)3,86,72,208
Face Value1
Bid Lot shares185 and multuples
Price Band75 – 80
Issue Structure :
QIB75%
NIB15%, 5,800,831 shares
Retail35%, 3,867,220 shares, 175 Cr.
Appl. for 1x Retail0.15Lac

DCX Systems IPO Review: Video in Presentation form

About DCX Systems Limited

  • Preferred Indian Offset Partner for foreign original equipment manufacturers for executing aerospace and defense manufacturing projects
  • Promoters are Dr. H.S. Raghavendra Rao, NCBG Holdings Inc. and VNG Technology Private Limited
  • Commenced operations in 2011 and operates a single facility in Hi-Tech Defence and Aerospace Park, SEZ, Bengaluru, in Karnataka with area of over 30,000 square feet
  • All revenues are generated from this facility. As of June 2022, it had 26 customers in Israel, United States, Korea and India.
  • Key customers include EltaSystems,  Israel Aerospace Industries System Missiles and Space Division, Bharat Electronics, Astra Rafael Comsys, Alpha-Elsec Defense and Aerospace Systems, Alpha Design Technologies, Astra Microwave Products Limited, Kalyani Rafael Advanced Systems Private Limited etc.
  • DCX systems Limited business verticals:
    • System integration in areas of radar systems, sensors, electronic warfare, missiles, and communication systems. 85.3% of the revenue.
    • Cable and Wire Harness Assemblies. 2.7% of the revenue.
    • Kitting: Supplies assembly-ready kits of electronic and electro-mechanical parts. 12% of the revenue.
  • ELTA Systems Limited and Israel Aerospace Industries Limited, System Missiles and Space Division (collectively, the “IAI Group”), Israel, count DCXSL as one of their largest Indian Offset Partners (“IOP”) for the production of electronic subsystems and cable and wire harness assemblies for the Indian defence market.
  • Holds many certifications including AS-9100:2016 certification for quality management systems for aviation, space and defense products manufacturing. Defence industrial license from the Ministry of Commerce and Industry, Government of India, for the manufacture of defence subsystems including microwave components, modules for radar and electronic warfare subsystems, microwave submodules, for command and guidance units for missile subsystems.

Anchor Book: DCX Systems IPO

The company has raised nearly Rs 225 crore from anchor investors.
33.33% of total allocation to Anchor Investors were allocated to 2 domestic mutual funds

DCX Systems IPO: Financials

Particulars / (₹ Cr)Q1FY23Q1FY22FY22FY21FY20
 ConsolidatedStandaloneConsolidatedStandalone 
Revenue from Operations213.25122.911,102.27641.16449.26
Revenue Growth (%)73.50%71.92%42.71%
Adj. EBITDA24.3511.63105.932.4845.2
Adj. EBITDA (%)11.05%9.03%9.42%4.75%9.72%
Net Profit5.573.3565.6129.569.74
Equity Share Capital15.483.515.483.53.5
Net worth123.1850.05117.5946.7917.17
RONW(%)4.52%6.68%55.79%63.18%56.75%
NAV (₹)15.927.1515.196.682.45
Debt-Equity Ratio4.052.254.272.917.8
Post Issue share Cap19.34
FV in Rs.2
IPO price207
EPS post IPO FY226.78
PE30.5
Market Cap Rs. Cr.2002
Market Cap/Sales1.82

Salient Points

  • Proceeds from the IPO:
  • Repayment/prepayment in full or part, certain borrowings: Rs 110 crore.
  • Funding working capital requirement: Rs 160 crore.
  • Investment in wholly owned subsidiary Raneal Advanced Systems Pvt. to fund its capital expenditure expenses: Rs 44.88 crore.
  • RASPL will be setting up a manufacturing facility for EMS which will have facilities for design, development, manufacturing, qualification and life cycle support of high reliability electronic and electro – mechanical systems used in Aerospace and Defence, Medical Electronics and Industrial Electronics application.
  • In Fiscal 2022, it exported US$ 76 million worth of equipment accounting for 4.7% of the overall defense exports from India.
  • About 87% of the FY2022 consolidated revenue came from offset and 13% from non-offset.
  • Exports accounted for 55.73% of FY2022 revenues
  • Major exports to Israel and significantly to North America & Korea.

Concerns

  • Significant dependence on Indian offset defense partners for revenue and any changes in the offset defence policy
  • DCX Systems operates a single facility in Hi-Tech Defence and Aerospace Park, SEZ, Bengaluru. Thus prone to revenue disruption due to any instability, workforce issues.
  • Supplier concentration risk. top 3 customers account for 80.5% of revenue
  • DCX Chol, one of the group companies, was proposed to be debarred for product quality deficiency and defaults in delivery of products by the Defence Logistics Agency of USA
  • Reprioritization of funding in Indian defense
  • Raw Material risk

Peers: DCX Systems Limited

Firm/ Rs. Cr.CMP rs.FVRevenueNet ProfitNPMEdbita%ROCEEPS22PE
Apollo Micro2171024314.66.0%15.4%8.737.0430.8
Astra Micro305277640.35.2%12.1%11.054.6565.6
BEL1051153682400.215.6%20.6%27.13.2832.0
Centum59310780-23.7NA4.4%6.17NANA
Data Patterns1,337231197.731.4%46.6%33.3919.170
Paras Defence6401018026.914.9%24.9%12.46.992.8
DCX2072110265.66.0%7.60%13.26.7830.5

DCX Systems IPO: Assessment

  • Defense exports are expected to touch 12000 cr. this fiscal
  • The Government of India has taken many measures to stimulate ‘Make in India’ operations through policy support programs and minimize reliance on overseas defense acquisition.
  • DCX Systems top line has shown rapid growth. Its revenue from operations increased at a CAGR of 56.64 % between Fiscal 2020 and Fiscal 2022.
  • operating and net profit margin has increased but is in single digits
  • Holds many key certifications for quality management systems for aviation, space and defense products manufacturing
  • Holds defence industrial license too.
  • Strong order book of Rs 2,564 crore bodes well for the company.
  • Inroads into orders with BEL
  • Presence in defense and aerospace industry with global accreditations
  • Good visibility of cash flows
  • DCX Systems is well-positioned to capitalize on emerging tailwinds in the sector.
  • On post-issue equity P/E is 30.5x of FY22 EPS.
  • PE is low compared to its peers.
  • Dominant Market Share
  • Price to BV at 3.9x, lower than most peers
  • I intend to apply in the DCX Systems IPO.

DCX Systems IPOs IPO: Apply or Not

Risk : Very Low
Expected Reward : Moderate to Good Profit
Listing Gains : Likely. Current GMP ~ Rs. 65-70
Hold for Medium/ Long Term: Looks OK though Margins are bit low
Subscription : Expected to be High
I am not likely to apply to Tracxn Technologies IPO. Will apply only if very good QIB traction on Day3.
Above are my views only. Please do your own diligence.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.

Leave a Reply