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Harnessing external support and self?capabilities

We hosted Mr. Srinivasagopalan Rangarajan, CMD, Mr. Venkata Subramanian Venkatachalam, CFO and Mr. Vijay Kumar Ananth, COO for our defence day to gain insights into order pipeline, upcoming opportunity and payment cycle. Data Patterns (DATAPATT) is among the few vertically integrated defence and aerospace electronics solution provider catering to the indigenously developed defence products and the core competency lies in self?built radars, electronic warfare (EW), avionics, other electronics for aircrafts, under water communication and many others. From a supplier to manufacturer of sub?systems for satellite, the company now evolved into a manufacturer of satellite with in?house design and development capabilities.

We believe DATAPATT’s design and build capabilities across the entire spectrum of strategic defence and aerospace electronics solutions at competitive prices and its ability to partner with customers through the life cycle of a product, from conception till deployment will help company leverage its operating efficiencies in the coming years. Given its well diversified product portfolio, consistent repeat orders from customers, healthy order book and proven execution track record, DATAPATT has been able to deliver Revenues/Adj. PAT CAGR of 33%/130% over FY19?22 respectively. At the CMP the stock is trading at a P/E of 35.8x and an EV/EBITDA of 22.8x as on FY22 earnings.  

Key Highlights:  

* The management expressed that it is currently looking at making large satellites after successfully delivering the nano satellites. It also wants to be an equipment supplier as almost everything in the sector is imported in India.  

* The company works on the competency model, where products are created ahead of the market requirement in its facilities. Also, the company meets its own raw material demands by making components in?house. It’s industrial knowhow and technological capabilities will enable the company in making the components and equipment needed in the industry.  

* As on Q4FY22, order book stands at ~Rs.4.8bn (1.5x FY22 revenues) comprising majorly of radars and electronic lock to be executed over 2 years. Of the total orders, development contracts jumped to 4?fold constituting 52% of total order book providing contracts visibility while 43% was constituted form production contracts.  

* Going ahead, DATAPATT is looking at order inflow of Rs20?30bn largely from radars, electronic warfare (EW), EW on ground systems – next gen ground receivers.  

* The company is doubling its manufacturing facility in Chennai to 200,000sqft and is in the process of setting up additional SMT lines and testing infrastructure in FY23E.  

* On the working capital front, management indicated that there has been some improvement in clllections led by operational efficiencies. The company has reduced its working capital cycle from 355 days in FY21 to 329 days in FY22 and is expected to reduce further.  

* As part of the indigenization process in the defence sector, the government has mandated that for any product bought, 50% of it should be value?added in India. This is a huge requirement, considering the current availability status in India and becomes attractive for companies like DATAPATT who build the equipment and the domain.

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