DCX Systems is one of leading Indian
manufacture of electronic sub-systems and cable harnesses in defence and
aerospace sector.Operations of the company are classified as 1) system integration;
2) cable and wire harness assemblies; and 3) kitting. In FY2022, about 85.3% of the revenue came
from system integration, 2.7% from cable and wire harness assemblies and 12%
from kitting.
In addition, the company also
undertakes certain job work services including assembly and testing of
materials that have been supplied directly by its customers.System integration is
in areas of radar systems, sensors, electronic warfare, missiles, and
communication systems. Its strength in system integration includes
manufacturing of complex microwave modules and sub-systems such as transmit
receiver modules, receiver subsystems, and antennas used in military
applications, space technology and aerospace.
The company manufactures 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, and other electronic warfare systems for
the aerospace and defence industries as per its customers’ requirements.
Kitting comprises supply and assembly
ready kits of electronic and electro-mechanical parts. It undertakes all
aspects of procurement including sourcing components from suppliers approved by
its customer along with a ‘Certificate of Compliance’ for traceability,
controlled storage of moisture sensitive devices to ensure that customers
receive complete assembly-ready kits when required when they are needed for
production.
Since commencing operations in 2011,
the company has become a preferred Indian offset partner for foreign original
equipment manufacturers (OEMs) for executing aerospace and defence
manufacturing projects.
Its manufacturing facility is located
at the Hi-Tech Defence and Aerospace Park SEZ in Bengaluru, Karnataka. The
facility, spread over an area of 30,000 square feet, is geared for complete
in-house environmental and electrical testing and wire processing. The location
of its facility is in the same city as some of its key domestic customers including
Bharat Electronics, Alpha Design Technologies Private Limited, Alpha Elsec
Defence and Aerospace Systems Private Limited, and Centum Adeno India Private
Limited, ensuring shorter delivery time.
As of June 30, 2022, it had 26
customers in Israel, United States, Korea, and India. These included certain
Fortune 500 companies, multinational corporations, and start-ups. Its 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. It has a mix of domestic and
international customers. Certain key customers areEltaSystems, Israel Aerospace Industries’ System Missiles
and Space Division, Bharat Electronics, 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.
It holdsmany key certifications including
AS-9100:2016 certification for quality management systems for aviation, space
and defense products manufacturing, and defenceindustrial 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 only. It also adheres to global standards and have
obtained various global certifications.
These certifications ensure that its
processes comply with customer specific, industry specific, statutory health
and safety, as well as environmental and social and governance requirements.
Certain of these standards also require it to undergo audits. Its global
certifications help to serve its customers’ stringent quality specifications and
assists in new customer acquisition.
The issue
The issue comprises both fresh issue
of equity shares by the company and offer for sale by promoter selling
shareholders. Fresh issue involves issue of equity shares aggregating upto Rs
400 crore. Offer for sale involves selling of equity shares aggregating upto Rs
100 crore [Rs 50 crore each by NCBG Holdings INC and VNG Technology, the two
promoter selling shareholders].
On post issue expanded equity, the
holding of promoter selling shareholders will decline to 32.96% from about
44.32% in pre issue equity capital.
Object of the Issue
Of the net proceeds from the fresh
issue, about Rs 110 crore will be use for repayment of debt, Rs 160 crore for
funding working capital requirements of the company, and Rs 44.883 crore for
investment in Raneal Advanced Systems (RASPL), the wholly owned subsidiary of
the company to fund its capital expenditure.
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.
Strength
The order book end June 2022 was
strong at Rs 2563.634 crore [of which 94.8% were system integration orders,
0.53% cable & wire harness, and 4.68% kitting]to beexecuted in FY 2023 to FY
2025.
About 87% of the FY2022 consolidated
revenue came from offset and 13% from non-offset. Similarly, exports accounted
for 55.73% of FY2022 consolidated revenue and 44.27% from domestic. Major
exports of the company are to Israel and significantly to North America as well
as Korea.
The company is a preferred IOP for
foreign OEMs for executing defence manufacturing projects. It undertakes
build-to-print system integration and manufactures cable and wire harness
assemblies for both domestic and international OEMs. It is also one of the
largest IOP for the Israel-based IAI Group [ELTA Systems and Israel Aerospace
Industries’ System Missiles and Space Division], Israel, for the Indian defence
market to manufacture of electronic sub-systems, and for cable and wire harness
assemblies.
Operating in a growing Indian landscape
for defence and aerospace services. The Indian aerospace and defence sectorsare
poised to attain a value of US$ 70 billion by CY2030. 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 Defence Research and Development
Organization has announced the indigenous development of roughly 108 systems
and sub-systems which is expected to generate demand for cables and connectors
across the Indian defence environment. The Indian government has also banned
approximately 101 items within the defence-based imports segment and introduced
the third positive indigenization list that bans the import of 780
LRU/components.
These initiatives are expected to
boost indigenous manufacturing within India. The instating of defence industry
corridors across Uttar Pradesh and Tamil Nadu is also poised to improve the
market growth dynamics by broadening the opportunities offered to the private
sector. All of these, in turn, serve as
an opportunity for the company to capitalize on the expected growth in this
space.
The manufacturing facility is in a
Special economic zone (SEZ), thus, giving several fiscal incentives and other
benefits for special economic zone developers and their customers, including
exemptions from income tax and duties.
Weakness
Dependent on certain select customers for
majority of its revenue, with top customer accounting for 55.62% of FY2022
consolidated revenue,the top 3 customers accounting for 80.55% of the revenue,
and the top 10 customers accounting for 99.71% of revenue. So, any reduction/loss of business or
profitability from its top customers will impact the financial performance of
the company.
Any changes in the offset defence
policy or a decline or re-prioritization of funding in the Indian defence
budget or delays in the budget process could adversely affect the growth of the
company.
Significant shortages of or delay or
disruption in the supply of raw materials especially the primary RMs such as
electronic assemblies, PCB assemblies, integrated circuits, and connectors
could affect the performance of the company.
Does not own the brand name DCX and does
not pay any royalty or other fees to DCX Chol (one of the group companies owning
the brand) for the use of the DCX trademark.
Had negative cash flows from operating
activities in FY2022.
DCX Chol, one of the group companies,
was proposed to be debarred (NPD) for product quality deficiency and defaults
in delivery of products by the Defence Logistics Agency of USA on June 17, 2021.
Valuation
Consolidated sales for FY2022 stood at
Rs 1102.27 crore. With OPM standing at 6.1%, operating profit was Rs 66.99
crore and net profit was Rs 65.61 crore.
For the quarter ended June 2022, consolidated net
profit was Rs 5.57 crore on sales of Rs 213.25 crore. As there are no consolidated figures for Q1FY2022,
consolidated TTM numbers could not be calculated. Similarly, for companies catering to the defence
and space, revenue and profit will be backended, resulting in strong H2. Thus, annualization
of Q1FY2023 numbers will not be appropriate.
The consolidated EPS for FY2022 on
expanded post issue equity based at the upper price is Rs 6.8 and, thus, the PE
works out to 30.4 times of its upper price band of offer price.
In comparison, companies catering to the
defence and space segments such as Data Patterns, Paras Defence, and Astra
Microwave are quoting at TTM PE of 73.7, 93.1 and 70.7 times of their FY2022
EPS. Bharat Electronics, which is major player and aggregator/client for
smaller defence players, was available at a PE of 32.8 times.
The price to book value for the
company stood at 3.9 times compared to 12.1 times for Data Patterns, 6.2 times for
BEL, 6.7 times for Paras Defence, and 4.5 times for Astra Microwave.
DCX Systems: Issue Highlights
|
|
Fresh Issue (in Rs. Crore)
|
400
|
Offer for sale (in Rs. Crore)
|
100
|
Price band (Rs.)
|
|
Upper
|
207
|
Lower
|
197
|
Post-issue equity (Rs crore)
|
|
in Upper price band
|
19.34
|
in Lower Price Band
|
19.54
|
Post-issue promoter (including
promoter group) stake (%)
|
73.58
|
Minimum Bid (in nos.)
|
72
|
Issue Open Date
|
31-10-2022
|
Issue Close Date
|
02-11-2022
|
Listing
|
BSE, NSE
|
Rating
|
50 /100
|
DCX Systems : Re-stated Consolidated
Financial Results
|
|
|
2003 (12) *
|
2103 (12) *
|
2203 (12)
|
2206 (3)
|
|
Sales
|
449.26
|
641.16
|
1102.27
|
213.25
|
|
OPM (%)
|
1.4
|
1.6
|
6.1
|
2.3
|
|
OP
|
6.22
|
10.08
|
66.99
|
4.91
|
|
Other income
|
15.97
|
42.08
|
22.06
|
7.00
|
|
PBIDT
|
22.18
|
52.16
|
89.05
|
11.91
|
|
Interest
|
7.94
|
9.92
|
11.32
|
4.98
|
|
PBDT
|
14.24
|
42.24
|
77.73
|
6.93
|
|
Depreciation
|
1.38
|
2.43
|
2.18
|
0.46
|
|
PBT
|
12.87
|
39.81
|
75.56
|
6.47
|
|
EO Exp
|
0.00
|
0.00
|
0.00
|
0.00
|
|
PBT after EO
|
12.87
|
39.81
|
75.56
|
6.47
|
|
Tax
|
3.12
|
10.25
|
9.95
|
0.90
|
|
PAT
|
9.74
|
29.56
|
65.61
|
5.57
|
|
PPT
|
0.00
|
0.00
|
0.00
|
0.00
|
|
Net profit
|
9.74
|
29.56
|
65.61
|
5.57
|
|
EPS (Rs)**
|
1.0
|
3.1
|
6.8
|
2.3
|
|
|
|
|
|
|
|
** on post issue equity of Rs 19.34
crore. Face Value: Rs 2
|
|
* Standalone Financials
|
|
|
|
|
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|
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|
EPS is calculated after excluding EO
and relevant tax
|
|
|
# EPS can not be annualised due to
seasonality in operations
|
|
Figures in Rs crore
|
|
|
|
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|
|
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Source: Capitaline Corporate
database
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