About the Company
Incorporated in 2011, DCX Systems Limited (DSL) is among the leading Indian players in the manufacture of electronic sub-systems and cable harnesses. The company operates through their manufacturing facility located at the Hi-Tech Defense and Aerospace Park SEZ in Bengaluru, Karnataka.
As of June 30, 2022, DCX Systems had 26 customers in Israel, the United States, Korea and India and its customers include domestic and international OEMs, private companies and public sector undertakings in India across different sectors, ranging from defence and aerospace to space ventures and railways.
IPO Details
| IPO Date | Oct 31, 2022 to Nov 2, 2022 |
| Listing Date | 11 November 2022 |
| Price Band | ₹197 to ₹207 per share |
| Lot Size | 72 Shares |
| Issue Size | ₹500 Cr (₹400 Cr Fresh, ₹100 Cr Offer for Sale) |
| Minimum Application | ₹14,904 |
| GMP (Last Updated 31 Oct) | ₹80 per share (38%) |
| QIB Quota | 75% of the Issue Size |
| NII Quota | 15% of the Issue Size |
| Retail Quota | 10% of the Issue Size |
Timetable
| Issue Period | 31st October to 2nd November 2022 |
| Finalization of Allotment | 7th November 2022 |
| Initiation of Refunds | 9th November 2022 |
| Credit of Shares | 10th November 2022 |
| Date of Listing | 11th November 2022 |
| Mandate end date | 17th November 2022 |
| Anchor Investors Lock-In End Date | 30th November 2022 |
Allotment Link
Objects of the Issue
The net proceeds from the IPO will be utilized for the below purposes:
- Repayment/ prepayment of certain borrowings availed of by the Company.
- Funding working capital requirements of the Company.
- Investment in a wholly owned Subsidiary, Raneal Advanced Systems Private Limited, to fund its capital expenditure expenses.
- General corporate purposes.
Financial Highlights
| Particulars | FY20 | FY21 | FY22 |
| Assets (₹ Crores) | 698.85 | 793.18 | 942.62 |
| Revenue (₹ Crores) | 449.3 | 641.2 | 1,102 |
| PAT (₹ Crores) | 9.7 | 29.6 | 65.61 |
| ROCE | 19.2 | 4.2 | 13.15 |
| ROE | 56.8 | 63.2 | 55.8 |
Valuation
At the higher end of the price band, DCX Systems IPO is reasonably priced at post-issue at 31 times FY22 earnings (consolidated). This is lower than peers Bharat Electronics (34 times), Data Patterns (61 times), Paras Defence (97 times), and Astra Microwave (97 times). Interestingly, DCX Systems has reported a better RoNW than these listed peers.
Growth Potential
- Strengthen system integration operations: The company intends to expand its existing cable and wire harness assembly operations to better serve the requirements of global customers.
- Focus on adjacent industry verticals: They intend to focus on the products identified in the Positive Indigenization List by the Ministry of Defence, (GoI), which they believe will provide opportunities to obtain transfer of technology.
- Cross-selling of products: They plan to increase cross-selling of products to increase customer base in various product verticals and expand into new or adjacent product verticals with existing customers. DCX will continue to leverage existing customer relationships to expand into new product categories.
- Penetrate into new geographies: They intend to identify opportunities in overseas jurisdictions and tie up with local partners to utilize existing product portfolios and further develop products suitable for meeting the respective country’s native requirements.
Risks
Heavy dependency on top three customers: DCX’s top three customers account for 96.83% of its revenue from operations in the three months ended June 30, 2022, respectively. The loss of one or more such customers or a reduction in their demand for DCX’s products will adversely affect its financials.
Order book may not translate to future income: The company has a strong order book of ₹2,563.63 Cr (as of June 30, 2022) but the order book may not necessarily translate into future income in its entirety. Some of the current orders received may be modified, cancelled, delayed, put on hold, or not fully paid, which could adversely affect the results of operations.
