IGI Logo

Delays in customer approvals impact revenue

Earnings missed our estimates

* Data Patterns (DATAPATT) reported a muted quarter, with revenue declining ~5% YoY due to delays in customer approvals (~INR270m). The Production/Service segment grew 25%/4% YoY, which was offset by a sharp 63% decline in the development segment. EBITDA margin contracted 340bp YoY, led by low-margin strategic contracts taken up by the company.

* The closing order book as of Jun’25 stood at INR8.1b, down 20% YoY. However, on the back of strong order book visibility, driven by additional BrahMos orders from the Air Force and Navy, management is targeting orders worth over INR10b. The company has retained its revenue growth/EBITDA margin guidance of ~20-25%/35-40%/for FY26.

* We largely maintain our FY26/FY27 estimates despite muted 1Q as spillover of revenue from 1Q is expected in 2Q and the company has also maintained its full year guidance, supported by strong order book visibility. We reiterate our Neutral rating with a TP of INR2,500 (premised on 40x FY27E EPS).

Adverse operating leverage impacts operating margins

* Consolidated revenue declined ~5% YoY to INR993m (est. INR1.2b) in 1QFY26 due to delays in customer approvals (~INR270m). Revenue from Service/Production grew 4%/25% YoY to INR99m/INR497m, while revenue from development declined 25% YoY.

* In terms of products, Radar/Avionics accounted for the largest revenue mix at ~66.4%/11.5%. In terms of customers, BEL played a significant role this quarter, accounting for ~63% of the mix.

* Gross margins expanded 750bp YoY to ~80%. Employee/other expenses grew 27pp/16pp YoY to 36.6%/10.8% in 1QFY26.

* Accordingly, EBITDA margin contracted 340bp YoY to 32.3% (est. 35.4%). EBITDA declined 14% YoY to INR321m (est. INR442m). Adjusted PAT declined 22% YoY to INR255m (est. INR372m).

* The order book stood at ~INR8.1b as of Jun’25 vs. INR7.3b/INR10.1b in Mar’25/Jun’24. Development/Production/Service account for 38%/37%/25% of the total order book

Highlights from the management commentary

* Guidance: Revenue softness in 1Q from customer approval delays is expected to normalize, with strong order visibility supporting 2Q’s rebound. Management maintains its FY26 growth guidance of 20-25% and 35-40% EBITDA margin, with scaling efforts focused on 2HFY26.

* Orders: The company’s order book stands at INR10b, with over INR3.2b in new orders received since the start of the financial year, including significant wins from BrahMos and the Ministry of Defense. The export order book remains healthy at around INR1b, supported by increasing traction in international markets. Management is targeting over INR10b in additional orders over the next 6-8 months.

* Product development The company is strengthening its product portfolio with over INR1.2b invested in advanced defense systems (including radar, electronic warfare, communication, and airborne solutions). Flagship projects such as the BrahMos seeker and the jamming pod are in the final stages of production and testing.

Valuation and view

* DATAPATT reported a muted start to the year, though this is expected to be largely recouped in 2Q. The company’s guidance of higher order bookings in FY26 supports the near-term outlook. Meanwhile, long-term tailwinds, such as: 1) strong order book visibility, 2) differentiated product building competencies, 3) long-term relationship with clients, and 4) a strong pipeline of products, will drive sustainable growth.

*We estimate a CAGR of 25%/25%/26% in revenue/EBITDA/adj. PAT over FY25- 27. We reiterate our Neutral rating with a TP of INR2,500 (premised on 40x FY27E EPS).

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412