Buy Data Patterns Ltd for the Target Rs. 2,845 by JM Financial Services Ltd
Data Pattern reported 1QFY26 numbers below estimates. Revenue declined 4.6% YoY, which was 17% below JMFe, due to delay in dispatch clearance from customer (impact of INR 270mn). This is expected to be booked in coming quarter. Order inflows of INR 1.8bn in 1QFY26, were driven by AMC contract for Brahmos. Additional orders worth INR 10bn is expected to be booked in next 2/3 quarter. Company continues to focus on developing new products (have spent INR 1.3bn for the same) 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. Company has successfully completed flight test of seeker for Brahmos (currently imported) and expect to bag contracts in coming month. Management guided for 20-25% revenue growth for FY26 with EBITDA margins in range of 35-40%.
? Lower than expected revenue: Revenue declined 4.6% YoY to INR 993mn below JMFe INR 1.2bn), where management highlighted it was due to delay in customer approvals. Production contracts grew 25% YoY to INR 755bn and Service revenue grew 4% YoY to INR 119mn. While Development contract revenue declined 63% YoY to INR 119mn. Gross margins expanded 750bps YoY to 79.8%, due to revenue mix. EBITDA declined 13.7% YoY at INR 321mn, (JMFe INR 434mn). EBITDA margin came in at 32.3% vs 35.7% YoY (JMFe 36.5%), impacted due to negative operating leverage. PAT declined 22% YoY to INR 255mn (JMFe INR 357mn).
? Order inflows driven by service contracts: Order inflows for 1QFY26 came in at INR 1.8bn vs INR 381mn in 1QFY25. Inflows were driven by five year AMC order for Brahmos worth INR 1bn (billable yearly). Other Key orders bagged during the quarter includes 1) EW development orders from MOD worth INR 122mn, 2) Radar development order from DoS worth IRN 111mn, 3) Avionics production order from DRDO worth INR 48mn. Order book as on end of 1QFY26 stands at INR 8.1bn. Brahmos orders from Navy and Air Forces are expected to be bagged in FY26, where Data Patterns will be supplying seekers. Order book comprises of Production contract (37% - 3bn), Development contract (38% - 3.1bn) and Service contract 25% INR 2bn). Exports order book stands at INR 1bn and there has been an increased traction from exports market.
? Maintain Buy with TP of INR 3,070: 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. We have revised downwards our EPS estimates by 3%/4% for FY26/27E, factoring in weak 1QFY26 performance. We maintain BUY rating on stock with revised TP of INR 3,070 (INR 3,210 earlier) valuing it at PE of 50x FY27E vs average 1- year forward PE of 46x 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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SEBI Registration Number is INM000010361
