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* Q2FY25 Performance Update: Revenue for the quarter stood at Rs 1956mn, de-grew 36.7% YoY/+41.7% QoQ) vs our estimates Rs 2485mn vs Rs 3091mn last year same period, led by weak execution. Gross profit fell by 74% YoY to Rs 67mn and gross margin contracted significantly by 485bps to 3.4% vs our estimates 10.0%, led by of high raw material prices. EBITDA decreased significantly by 121% YoY to Rs -38mn, and margin contracted by 791bps YoY to -1.9% vs our estimates 5.9%, largely impacted by higher RM cost. PAT, stood at Rs 52mn vs our estimates stood Rs 200mn and PAT margins came 2.7% vs our estimates 8.1%. overall numbers not satisfactory due to weak topline execution. As of Sep 30th , 2024 the order book stands at appx. INR 2,164cr. The management is confident about healthy pipeline and growing order book.

* Strategic Growth through Acquisitions and Partnerships: This year, the company reached several key milestones, being awarded the prestigious Four-Star Export House certification by the Directorate General of Foreign Trade, Ministry of Commerce and Industry. This upgrade from a Two-Star Export House highlights the company’s exceptional export performance and maintaining high standards. A major strategic achievement was the establishment of NIART Systems Ltd, a joint venture with ELTA Systems Ltd. The company also strengthened its position in the Maintenance, Repair, and Overhaul (MRO) sector through a collaboration with Israel Aerospace India Services, enhancing its capabilities to offer services within the domestic defense industry. Furthermore, the company secured a significant contracts from prestigious company M/S Lockheed Martin for electronic assemblies, which not only demonstrates the company’s ability to meet international defense standards but also opens doors for future opportunities with one of the world's leading defense contractors. These strategic initiatives have solidified the company’s presence in both the railway safety and defense sectors, positioning it for future growth and success.

* Rs 2bn Investment to unlock defence opportunity: The company will invest Rs 2bn in JV’s to acquire technology through ToT for Make in India programs in the area of Defence & Aerospace. The Make in India program requires companies mandates to manufacturing at least 60% Indian content must be indigenous content. The company has a state-of-the-art facility having rich experience, and is reserving around Rs 2bn for this defence program.

* Radar based railway obstacle system: Developing cutting edge obstacle collision with ELTA for Radar & Optical where it will procure PCB, Cables and Subsystems will help DCX to become major player in the category. Product, development and certification has done and company is ready to go for mass production, expect some tender post end of election protocol.

* View & Valuation: DCX has also established a joint venture to enhance its overall profitability. The JV with ELTA focuses on railway products, with production slated to commence in FY25 under a product development category that offers significantly higher margins compared to the build-toprint (BTP) category. Additionally, the backward integration with Raneal Advanced Systems for PCB assembly is projected to boost margins. The company is also exploring opportunities for further expansion in the domestic defense sector. We anticipate that DCX's Revenue/EBITDA/PAT will grow at compound annual growth rates (CAGR) of 17%/19%/22%, respectively, over FY24-27E, driven by the ELTA JV, backward integration, and new orders in both export and domestic defense markets. We maintain our positive view on DCX Systems with a ”BUY" rating, setting a target price of Rs.372, based on a 30x multiple of FY27E EPS.

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