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Strong Order Book & New Product Pipeline Drive Growth

Q2 performance remained weak and materially below our estimates, with Revenue/EBITDA/PAT declining 56.7%/54.2%/55.6% YoY, respectively. While the high base of Q2FY26 partly explains the decline, revenue improved 14.8% QoQ. EBITDAM stood at 23.5%, contracting 350 bps QoQ, reflecting the uneven execution of large defence programmes.

We believe Data Patterns is gradually moving up the value chain, from supplying subsystems to developing complete indigenous defence solutions. This transition could expand its addressable market and strengthen its positioning in larger defence programmes. Its firm order book of INR 1,724 Cr, along with negotiated orders of INR 956 Cr, takes the total order visibility to INR 2,680 Cr, (equivalent to approximately 2.9x FY26 revenue). Further, the acquisition of ST Advanced Composites strengthens its inhouse capabilities and supports the company's integrated-system offering.

We believe investments in complete systems and reusable technology platforms could strengthen the company's competitive positioning and create opportunities for meaningful revenue scaling up over the next few years. The management has retained its FY27 guidance of 20–25% revenue growth and 35–40% EBITDA margin. Achieving this guidance would require a meaningful improvement in execution in H2FY27.

Sharp Revenue Decline, Earnings Drastically Miss Estimate

* Revenue for Q2FY27 was down by 56.7% YoY and up by 14.8% QoQ at INR 1,333 Mn (vs CIE est. of INR 2,460 Mn)

* EBITDA for Q2FY27 was down by 54.2% YoY but remained broadly flat QoQ at INR 314 Mn (vs CIE est. of INR 836 Mn). EBITDAM stood at 23.5% (vs CIE est. of 34.0%), expanding 126 bps YoY but contracting 350 bps QoQ

* RPAT for Q2FY27 was down by 55.6% YoY and down 1.1% QoQ at INR 218 Mn (vs CIE est. of INR 615 Mn). PAT margin stood at 16.4% (vs CIE est. of 25.0%), expanding 38 bps YoY but contracting 264 bps QoQ

View & Valuation:

We remain positive on DATAPATTs’ medium-term growth prospects, supported by its strong order pipeline, indigenous product development capabilities and increasing focus on completesystem solutions. Accordingly, we upgrade our rating to ‘BUY’ (from ‘REDUCE,’ earlier) and revise our Target Price upwards to INR 4,810 (earlier INR 4,060), valuing the company at 45x Sept ’28E EPS. We believe successful execution of the order book and commercialisation of new product categories are likely to support the company's next phase of growth.

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