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During the quarter the company reported a decent set of performance on the profitability front. Revenue during the quarter grew by 16% YoY to Rs.1041mn (vs est. Rs.1094mn) backed by execution of own IP orders during the quarter. Gross margin expanded by 1005bps YoY/+36bps QoQ to 72.3%, this was backed by a higher share of its own IP programme. Gross profit jumped to Rs.752mn increased (+35% YoY). EBIDTA came at Rs.372mn (+34% YoY) (vs est. Rs.372mn), Margin jumped to 35.7% (+ 469bps YoY) (vs est. of 34%). Profit After Tax stood at Rs.328mn, jump +26.9% YoY (vs est. Rs.296mn).

*  Revenue to grow at healthy rate: Management has guided around 20-25% top-line growth in FY25 with a margin in the range of 35-40% and expected to deliver a PAT growth of 30%+. Company’s DPIL current order book stood Rs.10.2bn (as on 30th June 2024) which is ~2x of FY24 sales, with an order pipeline of Rs.20bn, of which Rs.10bn could inflow in FY25. The company order book comprises production-45%, development program-64% and service-4%. DPIL currently engages in various programs such as RADAR program with BEL and Avionics & Radar with HAL for LCA/LAH and domier and Early Warning systems with DRDO. Further, it also participates in various programs released by MoD.

*   Well Positioned to benefit make in India opportunity: Defence platforms Modernization, through indigenisation, drives the company business to new heights. The company builds the products against imported products. The company has a long rich history of participating in defence modernization. It is involving in defence modernization programme such as: Aarudhra Radar, Ashwini LLTR, Dharashakti programme, Mi-17 Upgrades, Dornier Upgrades, Aerostat upgrades, Lightweight EW requirements, Airborne surveillance radar, Radar Warning Receivers, Next Gen completely wide open for LCA Mk-1A and Sukhoi-30MKI platforms etc. These programs will drive the company core business short to medium term. The company is actively exploring the export market, supplying UK & Europe and expects more orders from other countries. The company strategically positioned itself from component/sub system level to whole system level

View and valuation: We like to maintain our positive view on DPIL, due to large localization opportunities from the defence sector and in-house technology developed in the last 4-5 years making DPIL more competitive over its peers. Further DPIL is 1) engagement in high growth category product such as Radar, E&W, BrahMos Missile participating, Avionics etc. in most of the defence modernization programs, 2) Well-Positioned to benefit from Make in India Opportunity, 3) decent size of order book (~2x of FY24 revenue) will support the growth story of the company. At the current level stock is trading at premium valuation of 75x/57x of FY25 & FY26 to most of the stock in defence electronics. We maintain a SELL rating on the stock with a TP of Rs.3035, valuing it at 55x of FY26E EPS after factoring all the positives.

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