Rationale

 The revision in outlook for the long-term rating of Data Patterns India Limited (DPIL) to Positive factors in the expected improvement in the order book position, steady growth in revenues with healthy operating margins, low leverage levels while maintaining strong liquidity position in FY2025. The company received significant new orders worth Rs. 678.8 crore in FY2024, which resulted in an improvement in the outstanding order book position by 17% YoY to Rs. 1,083.1 crore as on March 31, 2024. This translates into OB/OI ratio of 2.1 times (PY: 2.0 times) providing medium-term revenue visibility. Further, the fresh order intake is projected to grow by 45-50% in FY2025. DPIL’s revenues increased by 15% in FY2024 and the operating margins improved by 410 bps to 42.6% in FY2024 on account of execution of certain high margin project and higher usage of the company’s intellectual property (IP) in the projects. DPIL’s revenue is expected to improve by 15-20% (PY: Rs. 519.8 crore, growth of 15%) and the operating margins are likely to be in the range of 35-40% in FY2025. The ratings take into account the limited dependence on debt and sustenance of strong liquidity position, despite annual capex plans of Rs. 100-150 crore in FY2025-FY2026. The ratings favourably factor in the company’s established track record of more than three decades in the design, development and manufacturing of electronic equipment for defence and aerospace sectors. This has supported DPIL in establishing strong relationships with reputed defence organisations in the domestic market, leading to repeat orders. Its growth prospects remain healthy, driven by the Indian Government’s focus on indigenisation in the defence sector as a part of the Make in India programme. Notwithstanding the improvement in the company’s working capital intensity (NWC/OI) to 76% in FY2024 from 84% in FY2023 on account of improvement in receivable days and elongation of creditor days, the operations continue to be working capital intensive owing to longer receivable cycle and high inventory levels. Around 30-40% of the revenue booking happens in the last quarter of the fiscal, adding to the elevated working capital indicators at the year end. Phase-wise billing, along with extensive trials and testing for technically critical products before the final acceptance, as well as procurement/stocking of electronic components done to cater the new and existing orders resulted in elongated inventory days of 369 days as of March 31, 2024 (PY:280 days). The NWC/OI is expected to remain high in the range of 75-80% in the medium term, amid the likely increase in execution of development orders in the medium term (accounting for 51% of pending order book), which entails a longer cash conversion cycle. Nevertheless, DPIL’s strong liquidity position acts as a mitigant to an extent. The ratings factor in the long gestation nature of projects executed by the company, involving design and development of products. There is a relatively high likelihood of projects being deferred due to procedural delays (leading to order deferment), as inherent in the defence industry.