Reduce DCX Systems Ltd for Target Rs.170 by Choice Institutional Equities
Execution Uncertain; Awaiting Operational Clarity
We believe DCX Systems delivered another materially weak quarter, with continued pressure across revenue, margin and profitability. Execution challenges were there in the past and still persist. It raises concerns regarding the company’s ability to convert its order pipeline into sustainable earnings. Moreover, the management’s limited communication with the shareholders and lack of execution clarity add to near-term uncertainty. As of September 2025, while the order book remains healthy at ~INR 2,600 Cr (~2.4x FY25 revenue), backlog strength alone is insufficient without consistent execution and margin stabilisation. Repeated quarterly underperformance has weakened confidence in delivery timeline and operating leverage assumption. At this stage, visibility on earnings normalisation remains limited. The only structural positives lie in broader geopolitical realignments. The strengthening of India–US defence relationship and Israel’s potential shifting of defence manufacturing to India could create incremental outsourcing opportunities for domestic EMS players, such as DCX. However, these remain optionalities rather than near-term drivers of earnings. Given the persistent execution gaps and lack of margin recovery, we maintain a cautious stance on DCX. We maintain our REDUCE rating with a revised target price of INR 170, valuing the stock at 30x of FY28E EPS. We would turn constructive only upon tangible evidence of sustained execution improvement, margin stabilisation and stronger management communication.
Another Disappointing Quarter
* Revenue for Q3FY26 down 39.5% YoY and down 37.2% QoQ at INR 1,211 Mn (vs CIE est. INR 2,174 Mn) ? EBIDTA for Q3FY26 came in at INR -51 Mn (vs CIE est. INR -104 Mn). EBITDA margin stood at -4.2%, which contracted by 574 bps YoY (vs CIE est. -4.8%)
* PAT for Q3FY26 came in at INR -24 Mn (vs CIE est. INR 25 Mn). PATM contracted by 701 bps YoY, reaching -2.0% (vs CIE est. 1.2%)
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