IPO Note - Data Patterns (India) Ltd By Nirmal Bang
BACKGROUND
Data Patterns (DP) is one of the few integrated defence and aerospace electronics solutions provider catering to the indigenously developed defence products industry. DP has proven in-house design and development capabilities and experience of more than three decades in the defence and aerospace electronics space. Radars make up 62% of the order book with the rest comprising of electronic warfare suite, communications, avionics, BrahMos programme, service contracts and others.
Details and Objects of the Issue
* The total issue size is Rs. 588 Cr constituting (i) Offer For Sale of up to 0.595 Cr equity shares aggregating to Rs. 348 Cr; and (ii) Fresh issue of up to 0.41 Cr equity shares aggregating to Rs. 240 Cr. The offer shall constitute 19.4% of the post-offer paid-up equity capital of the company.
* DP shall utilise the proceeds from the fresh issue for repaying debt, funding working capital requirements and expanding its Chennai facility.
Investment Rationale
* Integrated and strategic defence and aerospace electronics solutions provider which is well positioned to benefit from the ‘Make in India’ opportunity
* Superior business positioning backed by in-house design, development and manufacturing capabilities across multiple segments
* Indian military radar market to grow at ~11% CAGR till 2030 and reach USD 3.18 Bn
* Strong order book of Rs. 581 Cr (2.6x FY21 revenue) and pipeline of Rs. 1500 Cr over next 3 years
* Transition from development stage to production stage resulting in an increase in return ratios
Valuation and Recommendation
DP is a proxy play on India’s indigenization of defence products. With strong capabilities across segments, robust order book of Rs. 581 Cr (2.6x FY21 revenue) and an order pipeline of Rs. 1500 Cr, DP is on track to deliver good growth in coming years. Even on historical basis, we note that it’s growth has outperformed listed peers. Higher margins more than compensates for the lengthy working capital cycle resulting in satisfactory cash flow based ROCE (pre-tax cash flow from operations / capital employed - at 36% over FY19-21). We recommend investors to subscribe to the issue for listing gains as well as from a long term perspective
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