Buy Data Patterns Ltd For Target Rs.2,300 By Motilal Oswal Financial Services Ltd
Revenue deferment hampers performance Earnings below estimates
* Data Patterns (DATAPATT) witnessed a revenue decline (down 16% YoY) in 2QFY25, led by ~97% decline in development revenue on account of the deferment of an order. However, the company expects to record revenue growth in 2H, maintaining its FY25 guidance. Despite this, EBITDA margins expanded marginally by 10bp YoY, led by a favorable business mix.
* We maintain our FY25/FY26 EPS estimates in expectation of a strong pickup in 2H. We reiterate our Neutral rating with a TP of INR2,300 (premised on 45x FY26E EPS), owing to its higher working capital cycle and rich valuations.
Favorable business mix supports margins
* Consolidated revenue declined 16% YoY to INR910m (est. INR1.3b) in 2QFY25, led by strong growth in production/service revenue (up 2x/68% YoY), while development revenue declined 97% YoY. The company posted lower-than-expected revenue in 2QFY25 due to the deferment of the delivery schedule of completed products by a customer.
* Gross margins expanded 700bp YoY to 76%, led by a favorable business mix (execution of high-margin contracts). Employee/other expenses grew 5.5pp/1.4pp YoY to 29.2%/9.1% in 2QFY25.
* Accordingly, EBITDA margins expanded 10bp YoY to 37.7% (est. 38.4%). EBITDA declined 16% YoY to INR343m (est. INR495m). Adjusted PAT declined 10% YoY to INR303m (est. INR419m).
* The order book stood at INR9.7b as of Sep’24 vs. INR10.2b/INR10b in Jun’24/Sep’23.
* In 1HFY25, revenue declined 1% at INR1.9b. However, EBITDA/Adj. PAT increased 4%/6% YoY at INR715m/631m. For 2HFY25, implied Revenue/EBITDA/Adj. PAT growth is 36%/27%/28% YoY, led by strong revenue growth.
Highlights from the management commentary
* Guidance: DATAPATT guides for ~20-25% revenue growth in FY25, with EBITDA margins of ~35-40%. The company expects revenue growth for 2H, led by deferment of orders.
* Order Intake: The company witnessed a delay in order inflows, leading to slower-than-anticipated order book growth in 1HFY25. The company has received orders worth ~INR827m in Oct’24 and expects to receive a large order of ~INR2-2.25b in the next couple of months. Overall, it expects ~INR7-8b of order inflow in FY25.
* Capex: The company expects to incur ~INR1.5b of capex over the next two years. It will construct new testing facilities and set up additional lines for production.
Valuation and view
* DATAPATT is likely to witness strong revenue growth in 2HFY25 led by the execution of order in hand and an uptick in order inflows (orders inflow ~INR6- 7b expected in 2HFY25).
* We estimate a CAGR of 27%, each in revenue/EBITDA/adj. PAT over FY24-27. We maintain our FY25/FY26 EPS estimates. We reiterate our Neutral rating with a TP of INR2,300 (premised on 45x FY26E EPS), owing to its higher working capital cycle and rich valuations.
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