The Rs 500 crore initial public offering (IPO) by DCX Systems kicked off for subscription on Monday. The issue, which is being sold in the Rs 197-Rs 207 price band, has received ‘subscribe’ ratings from a host of brokerages, thanks to reasonable valuations, strong order book, visibility on cashflows and industry tailwinds.
Last heard, the issue was commanding a grey market premium(GMP) of Rs 70.
The IPO comprises of a fresh issue aggregating up to Rs 400 crore and an offer for sale (OFS) of up to Rs 100 crore. Retail investors can bid for a minimum of 72 equity shares and in multiples of 72 equity shares thereafter.
At the upper limit of the price band, the post-issue PE works out to 30.5 times FY22 EPS, which is low compared with peers like Paras Defense & Space Technologies, Data Patterns and Sundram Fasteners.
“DCX Systems has better revenue growth CAGR of 57 per cent and PAT CAGR of 159 per cent over the last two years. It has healthy return on equity and a strong order book of Rs 2,564 crore, which provide visibility for the next 2 years. Considering all the positive factors, we believe valuations are at reasonable levels,” said Angel One, which has a subscribe rating on the issue.
DCX Systems is primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies and are also involved in kitting. It has a manufacturing facility in Bengaluru, Karnataka.
Sushil Finance said the asking price is at a PE of around 72 times, If one annualises Q1FY23 earnings.
“There are listed peers like BDL trading at P/E 32 times (Lowest) and Paras Defence trading at P/E 84 times (highest) and industry average P/E is 62 times. The Indian government has banned defence based imports that will boost indigenous manufacturing within India. DCX Systems is preferred IOP for foreign OEMs for executing defence manufacturing projects,” it said.
With strong rise in topline, decent margins, good airstrip for growth and reasonable valuations, the brokerage feels that investors can apply for the issue with a long-term horizon.
DCX Systems proposes to utilise the net proceeds from fresh issue towards repayment certain borrowings (Rs 110 crore). It intends to fund working capital requirements to the tune of Rs 160 crore. It is also looking to invest in its wholly owned subsidiary Raneal Advanced Systems and fund its capital expenditure expenses (Rs 44.88 crore).
“To enhance its global presence, the company continues to strengthen its international operations in Israel, the United States and Korea and also aims to expand its global footprint to Europe. The shift from passive to active radar solutions will also provide numerous opportunities for the company,” said BP Equities which has a ‘subscribe’ rating on the issue with ‘listing gains.’
