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Better than expected performance; strong outlook

Data Patterns reported a robust quarterly performance with revenue growth of 117% YoY to INR 4bn, above JMFe of INR 3.1bn. During the quarter company executed few of the low margin strategic order to build its capabilities, which resulted in EBITDA margin contracting to 37.7% vs 51% YoY. Order inflows in FY25 came in at INR 3.6bn (down 47.7% YoY), which were lower than expected due to delay in order finalisation at customer end and is expected to be booked in 1HFY26. Company expects to bag orders worth INR 10bn in FY26 (INR 3.6bn in FY25). Order pipeline stands strong at INR 20-30bn over next 18-24months. Order book at end of FY25 stands at INR 7.3bn. Management guided for 20-25% revenue growth for FY26 with EBITDA margins in range of 35-40%. Company continues to focus on developing new products and complete systems that can help company to participate in large tenders thereby expanding its TAM to INR 200-300bn in next five–six years.

* Strong revenue growth: Revenue grew 117% YoY to INR 4bn, above JMFe of INR 3.1bn. Revenues during the quarter were mainly driven by execution of development contracts (up 169% YoY to INR 2.3bn) and production contract revenue reported growth of 76% YoY to INR 1.7bn. Gross margins contracted to 48.9% vs 71.9%, due to execution of few low margins orders. EBITDA grew 60.7% YoY to INR 1.5bn (JMFe of INR 1.3bn), with EBITDA margin coming at 37.7% vs 51% YoY (JMFe 40.2%). PAT reported healthy growth of 60.5% YoY to INR 1.1bn (JMFe INR 929mn).

* Order book stands at INR 7.3bn: FY25 order inflow came in at INR 3.6bn, down 47.7% YoY. Key orders bagged during the quarter includes 1) AMC service order from MOD worth INR 140mn, 2) Avionics production order from exports market worth INR 28mn, 3) Avionics production order from DPSU worth INR 28mn etc. Order book as on end of FY25 stands at INR 7.3bn. Orders negotiated and yet to receive till date stands at INR 920mn. Order book comprises of Production contract (51% - 3.7bn), Development contract (40% - 2.9bn) and Service contract 9% INR 657mn).

* Maintain Buy with TP of INR 3,210: We remain positive on stock due to in-house design capabilities, healthy order backlog, focus on product development to increase TAM, healthy EBITDA margin profile and government thrust on defence localisation. Additionally recent initiatives to expand international foot prints will help company to diversify its revenue concentration in long run. Factoring strong FY25 performance, management guidance and healthy order pipeline, we revise our EPS estimates upwards by 10.5%/7.9% for FY26/27E. We maintain BUY rating on stock with revised TP of INR 3,210 (INR 2,500 earlier) valuing it at PE of 50x FY27E (42x FY27E earlier) vs average 1- year forward PE of 49x since listing (Dec 2021), factoring strong defence capex outlook. Key risk: Slowdown in government spending on defence, weak order inflows and delay in new product pickup.

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