Reduce DCX Systems Ltd for the Target Rs.275 by Choice Broking Ltd
Execution & Leadership stability remain critical monitors
From a long-term perspective, we view DCXINDIA as structurally wellpositioned to benefit from rising defence exports and import substitution initiatives. Its strong order book (2.5x of FY25 revenue) & global partnerships support our assessment.
However, according to us, near-term execution remains a key concern. DCXINDIA has faced margin pressure over the past couple of quarters, raising questions about its operational efficiency and earnings visibility.
The resignation of Mr. Diwakaraiah as the Executive Director and CFO raises near-term uncertainty about leadership stability and financial stewardship. While the management has assured that a new CFO will be appointed in due course, the transition period could weigh on investor sentiment. Until the time there is a greater clarity on the incoming CFO, we maintain a cautious stance on the stock.
We have introduced FY28 estimates and are now valuing the stock on the basis of the average FY27–28E EPS. Accordingly, we upgrade our rating to REDUCE (from SELL) with a revised target price of INR 275, valuing the stock at 30x multiple of the average FY27–28E EPS.
Revenue up significantly, but margin under pressure
* Revenue for Q1FY26 up 60.9% YoY & down 59.6% QoQ stood at INR 2,222Mn (vs CIE Est. INR 1,534Mn)
* EBIDTA for Q1FY26 came INR 3.0Mn (vs CIE Est. INR -32Mn). The EBITDA margin stood at 0.1%, improved by 361bps YoY (vs CIE Est. -2.1%)
* PAT for Q1FY26 up 37.8% YoY and down 80.4% QoQ at INR 41Mn (vs CIE Est. INR 83Mn). PAT margin contracted by 31bps YoY, reaching 1.8% (vs CIE Est. 5.4%)
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SEBI Registration no.: INZ 000160131
