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DCX Systems Limited : SUBSCRIBE

Issue Open: October 31, 2022

Issue Close: November 02, 2022

Incorporated in 2011, DCX Systems Limited (DSL) is among the leading Indian players in the manufacture of electronic sub-systems and cable harnesses. The company has been a preferred Indian Offset Partner ("IOP") for foreign original equipment manufacturers ("OEMs") and for executing aerospace and defense manufacturing projects. DSL is primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies and are also involved in kitting. The company operates through their manufacturing facility located at the Hi-Tech Defense and Aerospace Park SEZ in Bengaluru, Karnataka.

Positives: (a) Among the preferred Indian Offset Partners for the defense and aerospace industry with global accreditations (b) Strong order book providing visibility of cashflows (c) Well-positioned to capitalize on industry tail winds

Investment concerns: (a) High customer concentration risk (b) Significant competitive intensity (c) High dependence on offset defense contracts.

Outlook & Valuation: In terms of valuations, the post-issue P/E works out to 30.5x FY22 EPS (at the upper end of the issue price band) which is low compared to its peers like Paras Defense & Space Technologies Ltd, Data Patterns (India) ltd and Sundram Fasteners Ltd. Further, DSL has better revenue/PAT growth (CAGR of 57%/159% respectively) over 2 years, healthy return on equity and company also has a strong order book (of `2,564cr) which provides visibility for next 2 years. Considering all the positive factors, we believe this valuation is at reasonable levels. Thus, we recommend a SUBSCRIBE rating on the issue.

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