Should you subscribe to the DCX Systems IPO? What brokerages say

The initial public offering (IPO) of DCX Systems will open for subscription on Monday, October 31, and analysts remain positive on the issue.

The company will sell its shares in the range of Rs 197-207 apiece till Wednesday, November 2, and in a lot size of 72 equity shares and its multiples thereof.

According to brokerages, strong order books within the defence and aerospace industry with global accreditations, visibility of cash flows and being well-positioned to capitalize on industry tailwinds are the biggest positives for the company.

High customer concentration risk, significant competitive intensity and high dependence on offset defence contracts are some of the biggest risks according to them.

The post-issue P/E works out to 30.5x FY22 EPS which is low compared to its peers like Paras Defense and Space Technologies, Data Patterns (India) and Sundram Fasteners, said Angel One in its pre-IPO note.

"It has better revenue and PAT growth over 2 years, a healthy return on equity and the company also has a strong order book of Rs 2,564 crore which provides visibility for the next two years. We believe this valuation is at reasonable levels," it added with a subscribe rating.

The issue consists of fresh equity shares of Rs 400 crore with a face value of Rs 2 each, along with an offer for sale (OFS) of up to Rs 100 crore by its promoters and existing shareholders.

Investors participating in OFS include promoters of the company NCBG Holdings and Vng Technology who will offload more than 48.30 lakh equity shares during the process.

The company has reserved 75% of shares for qualified institutional buyers, whereas 15% of shares are allocated to non-institutional bidders. The remaining 10% of shares will be reserved for retail bidders.

The company has reported consistent financial performance over the years and is technology enabled with the capacity to scale further without incurring too much capital expenditure, said Arihant Capital. "Its order book is growing with repeat orders from existing customers."

"There is a huge opportunity in offset business, where the MOD has announced offset backlog of $13.4 billion which needs to be completed in next seven years, out of which 25% belongs to DCX category," it added with a 'subscribe for the long term' rating.

DCX Systems reported a net profit of Rs 29.56 crore with a revenue of Rs 683.24 crore for the financial year 2020-21. It reported a net profit of Rs 3.34 crore with a revenue of Rs 128.69 crore for the period ended on June 30, 2021.

Edelweiss Financial Services, Axis Capital and Saffron Capital Advisors are the book-running lead managers to the issue, whereas Link Intine India is the registrar to the issue. Shares of the company will be listed on both BSE and NSE.

DCX Systems is among the leading Indian players in the manufacture of electronic sub-systems and cable harnesses. It had 26 customers in Israel, the United States, Korea and India as of June 30, 2022.

It is a preferred Indian offset partner (IOP) for foreign original equipment manufacturers (OEMs) for executing aerospace and defence manufacturing projects.

The Government of India aims to become a $5 billion export country by 2025 in the aerospace and defence goods sector thus providing private players like DCX Systems an important role in achieving this target, said analysts.

Analysts at BP Equities said to enhance its global presence, the company continues to strengthen its operations in Israel, the United States and Korea and also aims to expand its global footprint to Europe.

The shift from passive to active radar solutions will also provide numerous opportunities for the company, it said with a subscribe rating on the issue. "However, any changes in the offset defence policies remain a key risk."

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)