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Salient features of the IPO:

* Bengaluru based, DCX Systems Ltd. (DCX) a contract manufacturer primarily engaged in executing defence offset obligations, is coming up with an IPO to raise Rs. 500cr, which opens on 31st Oct. and closes on 2nd Nov. 2022. The price band is Rs. 197 - 207 per share.

* The IPO is a combination of fresh issue and OFS portion. DCX will not receive any proceeds from the OFS portion. Of the fresh issue net proceeds, Rs. 110cr will be utilized for the prepayment/repayment of debt; Rs. 160cr will be used to fund the working capital requirement and another Rs. 44.9cr will be utilized to invest in wholly owned subsidiary (to fund the capital expenditure expenses).

Key competitive strengths:

• Among the preferred Indian Offset Partners for the defence & aerospace industry with global accreditations

• Technology enabled and scalable end-to-end capabilities

• Business model with visibility of cash flows and ability to mitigate operational & technology risk

• Strategically located in aerospace SEZ with an advanced & modern manufacturing facility • Well-positioned to capitalize on industry tailwinds

• Track record of consistent financial performance

• Experienced and qualified promoters and senior management team supported by a committed employee base

Risk and concerns:

• Unfavorable government policies & regulations, especially for offset defence contracts

• Revenue concentration risk

• Unfavorable forex movements

• Difficulty in maintaining the profitability

• Competition

Below are the key highlights of the company:

• Over FY17-23, the Indian defence budget has increased by 14.3% CAGR to over USD 70bn. To gain technological advantages over neighboring countries and to reduce the import reliance, the government through various policy supports has targeted to modernize its armed forces. As per RHP, the domestic military modernization programs to account for USD 130bn in the coming five years. To promote indigenization, the government has included 351, 107 and 780 defence items under the negative list of imports. This initiative will aid domestic defence manufacturing sector in accelerating production of certain items.

• Over the period, the government has also improved the India’s offset policy by providing greater access to the domestic firms. As a result, the SMEs benefited across the value chain and provided diverse electronics components & subsystems to Tier-1 and Tier-2 defence players, both private and government. Between 2016-19, the government has signed as many as 21 defence offset contracts worth USD 5.7bn.

• DCX commenced operations in 2011 and has been a preferred Indian Offset Partner for foreign original equipment manufacturers for executing aerospace & defence manufacturing projects. The company has made long term investments in the Israel’s aerospace & defence market and is the largest Indian Offset Player for M/s. IAI Group, Israel, for the manufacturing of electronic sub-systems for the domestic defence market.

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