IPO Note : DCX Systems Limited By Nirmal Bang
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DCX Systems Ltd (DCX) is among the leading Indian players for the manufacture of electronic sub-systems and cable harnesses in terms of manufacturing capability in the defence and aerospace sector. With commencement of operations in 2011, DCX Systems is primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies and are also involved in kitting.
Objects and Details of the Issue:
The public issue consists of fresh Issue of Equity shares aggregating upto ? 400 Cr and Offer for sale of Equity Shares aggregating upto ? 100 Cr. The company proposes to utilise the Net Proceeds of the Fresh Issue towards funding the following objects: Repayment/ prepayment, in full or part, of certain borrowings; funding working capital requirements; Investment in their wholly owned Subsidiary, Raneal Advanced Systems Private Limited, to fund its capital expenditure expenses.
Investment Rationale:
* Preferred Indian Offset Partner for the defence and aerospace industry
* Technology enabled and scalable end-to-end capabilities
* Business model with visibility of cash flows and ability to mitigate operational and technology risk
* Strategically located in aerospace SEZ with an advanced and modern manufacturing facility
* Strong Financials
* Strong, experienced and dedicated senior management team
Valuation and Recommendation:-
DCX is a proxy play on growth in defense expenditure in India via the offset route. DCX has demonstrated its scalability and execution by growing at 57% CAGR over FY20-22 and has scaled revenue of Rs. 1102 Cr in FY22. Core profitability for DCX in terms of ROCE is similar to listed peers while its historical growth has been higher. With an order book of Rs. 2564 Cr (2.3x FY22 revenue) executable over FY23-25, we expect DCX’s strong growth trajectory to continue. We believe DCX is being offered at reasonable valuations at 30.8x FY22 earnings considering peer valuations and future growth opportunities in the defense industry. We recommend subscribing to the issue.
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