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Fastest growing player in defence & electronics space

About the Company: Data Patterns Ltd (DPL) is among the few vertically integrated defence and aerospace electronics solution providers catering to the indigenously developed defence industry

* Design capabilities across the entire spectrum of strategic defence and aerospace electronics solutions including processor, power, radio frequencies (RF) and microwave, embedded software and firmware 

* Fastest growing player in defence & electronics space with proven in-house design and development capabilities

Key triggers/Highlights:

* Focused on developing complete systems and sub-system solutions in domains like radars, electronic warfare, communication systems, RF and microwave, military COTS (digital receivers, processor boards, modules), avionics, missile and torpedo electronics, fire control systems, etc 

* Strong order book of | 581.3 crore across product categories supplying customers in the defence and aerospace industry

* Current manufacturing facility consists of a ~100000 sq ft factory built on ~5.7 acres of land in Chennai. It is in the process of upgrading and expanding its facility with doubling of available floor area and facility

* Beneficiary of shifting procurement trends and in defence- Atmanirbhar Bharat, Make in India, new defence acquisition policies among others.

What should investors do? DPL’s innovation focused business model, large market opportunities in Indian defence & aerospace, strong order book across product categories, consistency in profitable growth due to scalable business model are likely to help improve its growth and margins in the long run. At the upper end of the price band, it is valued at ~56x P/E for FY21.

* We assign SUBSCRIBE rating to the IPO

Key risk & concerns

* Largely dependent on contracts from GoI and its associates

* Concentrated business with select number of customers

* The company may not qualify or win bids to expand its business

* Promoters have pledged ~53% of promoter holding after the offer for sale

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