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C2C Advanced Systems

• C2C Advanced Systems is coming out with an initial public offering (IPO) of 43,83,600 equity shares in a price band Rs 214-226 per equity share.
• The issue will open on November 22, 2024 and will close on November 26, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 21.4 times of its face value on the lower side and 22.6 times on the higher side.
• Book running lead managers to the issue are Mark Corporate Advisors and Beeline Capital Advisors.
• Compliance Officer for the issue is Manjeet Singh.

Profile of the company

C2C Advanced Systems draws its passion and strength from a deep and abiding commitment towards making India a leading player in the domain of cutting edge technologies systems for defence, security and aerospace sectors. The need to partner with global players is the most urgent need to accelerate innovations. Its promoters / Key Managerial Personnel have over two decades of monetary and intellectual investments and innovation built capabilities that have been accepted in India and the global markets. This is an ongoing and long term journey. Its success in selling and execution of its “Combat Management System” (CMS) to Royal Malaysian Navy against stiff competition from most established global Platform players is a testament to its capabilities. This remains as one of the most successful capability demonstration in Intelligent platform from India.

Current systems in the Indian military will need retrofits and upgrades and the company has the ability to re-engineer and revamp such legacy systems and bring them to current needs in warfare. The company as the pre-eminent domain agnostic technology company focused on “Intelligent Platform” is in a very unique position to dominate this space. It has a technological advantage over its existing competitors, as reflected in its higher margins and globally competitive offerings. Its expertise in architecture design, data acquisition, data analytics and modelling, AI/ML has dual use in the civilian applications. The rigorous requirements placed by Military requirements allows it to innovate for the highest levels of performance. Its expansion strategy is to build its next domain in “Digital transformation” which is based on sensors in applications such as Industry 4.0 and transportation. It has built a revenue generating practice that focuses on three areas which are applicable in Defence/ Security as well as in Industry 4.0.

The company does not manufacture metal or electronic components. Its Intelligent platforms enable the operationalization and provide data analytics to ensure efficient situational awareness and command and control. Its architecture, engineering and design is agnostic to legacy, current and future platforms. One of the key areas of its architecture enable upgrading legacy platforms whose metal life is longer than the electronics or the system that run both. The company has in-house expertise to continue to develop its products and new innovations which have annuity income stream over long life cycle of the platforms, systems and sub systems it delivers. Its in-house architecture, engineering and design of the entire stack software makes it a unique company in the market place.

Proceed is being used for:

• Funding of capital expenditure towards purchase of fixed assets (both hardware and software) for its existing operations (the upgradation of the existing Experience Centre and set up of Training Centre at Bengaluru) and the proposed set up of Experience Centre at Dubai
• Towards fit-outs at the new premises at both Bengaluru and Dubai
• Payment of Security Deposit for the new premises at Bengaluru, Karnataka, India
• Funding the working capital requirements of the company
• Funding expenditure towards general corporate purposes

Industry Overview

The Indian Defence ecosystem is a confluence between the Government and the defence manufacturing industry. Ministry of Defence has set a target of achieving a turnover of $25 million in aerospace and defence manufacturing by 2025, which includes $5 billion in exports. Over last decade, the defence, security and aerospace sectors in India have assumed position of immense strategic importance. Realizing the vital importance, the Indian government under the leadership Hon. PM Modi has laid out the goal of joining the select group of top global producers of defence, security and aerospace equipment and systems by the year 2025.The Government is embarked on serious reforms through various policy initiatives encouraging private sector to take the lead in building a globally competitive Military Industrial complex. India’s defence and security sector is on a cusp of explosive growth. In addition, the internal and external security challenges of the country and the world continue to increase exponentially. Given this background, the need to build capacity in architecting, design and development of mission critical systems with unwavering focus on imbibing emerging technologies, cannot be over emphasised.

The value of defence production in the country crossed Rs 1 lakh crore ($12 billion) for the first time on the back of key reforms to spur growth in the sector that holds vast potential. The figure stood at Rs 1,08,330 crore ($13.07 billion) in FY23 compared to Rs 95,000 crore ($11.47billion) in FY22 and Rs 54,951 crore ($6.63 billion) five years ago. The Indian defence sector is one of the world’s largest and most profitable industries, with a 10-year pipeline of over $223 billion in aerospace and defence capital expenditure and a projected medium-term investment of $130 billion. The Draft Defence Production and Export Promotion Policy (DPEPP) was published in 2020, with the ambitious goal of increasing defence turnover from approximately Rs 80,000 crore ($10 billion) in 2019-20 to approximately Rs 1,75,000 crore ($21.87 billion) by 2025, including the export of Rs 35,000 crore ($4.37 billion). Among the large defence programs expected to be shifted to “Buy Global - Manufacture in India” are 114 multirole fighter aircraft (MRFA), with a gradual increase in domestic production. The FDI maximum in defence manufacturing under the automatic route has been raised from 49% to 74% (for new investments requiring an industrial licence), allowing foreign firms to establish manufacturing units with a greater degree of ownership and control.

India’s defence manufacturing is poised on a transformational cusp. Many of the impediments of the past which retarded progress in the past are being addressed. The MoD has set ambitions targets for indigenisation and its recent polices are aimed at revitalising this sector with a focus on innovation, technology development, exports, enhancing existing capacity and improving efficiencies in defence manufacturing. Restructuring within the MoD towards improving efficiency and quality is an encouraging development, the entry of the private sector also bodes well for the future. However, there are still areas where the pace of change could be accelerated. The emergence of India as a defence manufacturing hub not only to meet its own security requirements for India but for the entire region will depend on the MoD’s ability and inclination to walk the talk in ensuring that its progressive policies are implemented in both, letter and spirit.

Pros and strengths

Wide range of products and solutions for defence applications: The company offers a wide range of products and solutions for defence applications. As of September 30,2024, it has a range of products and solutions with variations in each category. Offering high-quality products and operational execution focused on continual improvement supports its ability to offer a wide range of products and solutions. Its wide range of products and solutions catering to specific customer needs enable it to successfully service the defence sector in India and across the globe. This allows its customers to source most of their requirements from a single vendor and enables it to expand its business from its existing customer base, as well as address a larger base of potential customers. The company’s ability to provide end-to-end solutions to its customers ranging from designing, developing, manufacturing and testing increases its capability to meet specific and exclusive requirements of its customers.

Strong R&D capabilities with a focus on innovation: The company places strong emphasis on R&D which has helped it to develop a wide range of products and solutions in the defence and manufacturing reorganisation consulting sector. It has invested in precision manufacturing infrastructure and human resource in its dedicated Experience Centre at Bengaluru, Karnataka. Its Experience centre is an interactive space that is designed to showcase an immersive near-live experience of deployment; first-hand experience of operating a Combat Management System in an Operations room environment. The available functions range from Aircraft Carrier, Frigates, Destroyers, Off Shore Patrol Vessels and Missile Boats as individual platforms or as part of a fleet. Through R&D, the company has developed design and technological capabilities, which allow it to develop new products and solutions, undertake process innovation and improve existing portfolio. It has also facilitated in developing technology for future requirements and further helps it in expanding its role in the defence sector.

Strong relationships with a diverse and global customer base: The company has a diversified customer base which ranges from private platform players, Government arms and government organizations involved in defence research, to various defence public sector undertakings. It also caters to international customers including global Navy clients. Its established of experience in designing, developing and manufacturing systems and sub-systems for diverse customers in defence sector has enabled it to develop a deep understanding of the sectors and customers’ requirement. Its partnership with overseas technology companies also enables it to serve as manufacturing partner for global customers of such companies.

Risks and concerns  

Maximum revenue comes from limited customers: The company’s top five customers have contributed to 89.59% of its revenues for the year ended March 31, 2024 and 99.05% of its revenues for the period ended September 30, 2024, and its top ten customers have contributed to 100% of its revenues for the year ended March 31, 2024 and 99.05% of its revenues for the period ended September 30, 2024 based on restated financial statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. While it has maintained good and long-term relationships with its customers, there can be no assurance that it will continue to have such long-term relationship with them. It cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Major portion of revenue comes from projects undertaken with Government entities: The company is involved in designing, developing, manufacturing and testing of a wide range of engineering products and solutions for defence applications. Consequently, its business is highly dependent on projects and programmes undertaken by GoI and associated entities, such as defence public sector undertakings (the GOI Entities). Further, as at March 15, 2024, its order book from the prime contractors to GoI Entities, was Rs 1,533.74 lakh and as at September 30, 2024 was Rs 2,647.30 lakh. Further, its contracts depend upon the continuing availability of budgets extended to the Ministry of Defence (MoD). The Indian defence spending has been steadily increasing since the year 2000. A decline or reprioritisation of the Indian defence or space budget, changes in GoI Entities defence or space requirements and geo-political circumstances, reduction in orders, termination of existing contracts, delay of existing contracts or programmes will have a material adverse impact on its business.

Significant working capital requirements: The company’s business requires a substantial amount of working capital and moreover, it may need working capital for the expansion of its business at regular intervals due to its business requirements. It may need to raise additional capital from time to time, depending on business requirements. Some of the factors that may require it to raise additional capital include (i) business growth; (ii) unforeseen events beyond its control; and (iii) significant depletion in its existing capital base due to unusual operating losses. While it does not anticipate seeking additional financing in the immediate future as a part of its plan post the initial public offering, any additional equity financing may result in dilution to the holders of the Equity Shares. If it experiences insufficient cash flows from its operations or are unable to borrow to meet its working capital requirements, it may materially and adversely affect its business, cash flows and results of operations.

Outlook

C2C Advanced Systems is a vertically integrated defense electronics solutions provider catering to the indigenously developed defense products industry in India. The company's core competencies include C4I systems for effective situational awareness and decision support, AI/ML based big data analytics, enterprise integration of real-time data from IIOT, and embedded/FPGA designs. On the concern side, the company’s business has a significant proportion of its domestic revenues dependent on contracts from the GoI and associated entities including defence public sector undertakings and government organizations involved in Defence. Reprioritization of requirements based on government priorities may have a material adverse effect on its business. Moreover, it dependent on a limited number of customers for a significant portion of its revenue. The loss of any of its major customers due to any adverse development or significant reduction in business from its major customers may adversely affect its business, financial condition, results of operations and future prospects.

The company is coming out with a maiden IPO of 43,83,600 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 214-226 per equity share. The aggregate size of the offer is around Rs 93.81 crore to Rs 99.07 crore based on lower and upper price band respectively. On performance front, the revenue from operations for the FY 2023-24 was Rs 4,105.89 lakh as compared to Rs 804.87 lakh during the FY 2022-23 showing an increase of 410.13% on account of increased domestic and export sales. Moreover, profit after tax was Rs 1,227.69 lakh for the FY 2023-24 as compared to Rs 287.52 lakh in the FY 2022-23 showing an increase 326.99%.

The company can strengthen its foothold in Indian market by continuing to focus on its competitive strengths and increase its market penetration. It can expand its market share by focusing on increasing its products and solutions portfolio, enhancing its existing capabilities and indigenising advanced foreign technologies. Recent initiatives of the Government i.e. “Atmanirbhar Bharat Abhiyan”, the Defence Acquisition Procedure and “Make in India” reflects its focus on ‘self-reliance’ wherein indigenisation and innovation is enabled through processes of ‘Make’, ‘Design and Development’ and ‘Strategic Partnership’. Further, expanding its products and solutions portfolio by designing, developing and/or manufacturing new products and solutions will enable it to establish new customer base.