DCX Systems Limited IPO

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i. 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. They commenced operations in 2011 and have been a preferred Indian Offset Partner (“IOP”) for foreign original equipment manufacturers (“OEMs”) for executing aerospace and defence manufacturing projects

ii. DCX Systems is a rapidly growing company in the Indian defence space (Source: Company Commissioned F&S Report) and the revenue from operations have grown at a CAGR of 56.64% between Fiscal 2020 and Fiscal 2022. They are also one of the largest Indian Offset Partner (“IOP”) for ELTA Systems Limited and Israel Aerospace Industries Limited, System Missiles and Space Division (together, the “IAI Group”), Israel, for the Indian defence market for manufacture of electronic sub-systems and cable and wire harness assemblies. Over the years, the company has expanded its manufacturing capabilities and grown its order book.

iii. The growing Indian landscape for defence and aerospace serves as a key opportunity for the Company. The Indian aerospace and defence sector is poised to attain a value of USD 70 billion by 2030. Recent initiatives like increase in foreign direct investment (“FDI”) in the Indian defence sector from the current 49% to 74% under the automatic route is anticipated to be a key driver and growth opportunity for the market.

iv. The company classifies its operations under the following business verticals:

a. System Integration: They undertake system integration in areas of radar systems, sensors, electronic warfare, missiles, and communication systems. They provides product assembly and system integration services for various complexities to address customers’ requirements. System integration services are part of a comprehensive array of electronics and electro-mechanical assembly and enclosure assembly. We also provide product repair support for the parts that they manufacture.

b. Cable and Wire Harness Assemblies: The company manufactures a comprehensive array of cables and wire harnesses assemblies such as radio frequency cables, co-axial, mixed signal, power, and data cables for a variety of uses including communication systems, sensors, surveillance systems, missile systems, military armored vehicles, and other electronic warfare systems for the aerospace and defence industries as per its customers’ requirements.

c. Kitting: They supply assembly-ready kits of electronic and electro-mechanical parts and undertake all aspects of procurement including sourcing components from suppliers approved by its customer along with a ‘Certificate of Compliance for traceability, controlled storage of moisture sensitive devices to ensure that customers receive complete, assembly-ready kits when required when they are needed for production.

Competitive Strengths

i. Technology enabled and scalable end-to-end capabilities
ii. Business model with visibility of cash flows and ability to mitigate operational and technology risk
iii. Strategically located in aerospace Special Economic Zone with an advanced and modern manufacturing facility

Objects of the DCX Systems Limited IPO:

The company proposes to utilize the Net Proceeds of the Fresh Issue towards funding the following objects: 1. Repayment/ prepayment, in full or part, of certain borrowings availed of by the Company. 2. Funding working capital requirements of the Company. 3. Investment in the wholly owned Subsidiary, Raneal Advanced Systems Private Limited, to fund its capital expenditure expenses. 4. General corporate purposes.

DCX Systems Limited IPO Details:

Open Date: Oct 31 2022
Close Date: Nov 02 2022
Face Value: ₹ 2 Per Equity Share
Issue Type: Book Built Issue IPO
Issue Size: 500 Cr.
Lot Size: 72 Shares
Issue Price: ₹ 197-207 Per Equity Share
Listing At: NSE,BSE
Listing Date: Nov 11 2022

Promoters And Management:

(i) Dr. H.S. Raghavendra Rao is the Chairman and Managing Director of the Company. He has been the Director of the Company since January 16, 2012. His key role in the Company, amongst other things, is to deliver the business plan and conduct the business of the Company, ensure client relationship management and coordinate the administrative duties of the Company. He has been conferred with an honorary doctorate in business management by the International Peace University, Germany. He has about 21 years of experience in the electronics manufacturing sector and aerospace sector. He was previously associated as a whole-time director with Vinyas Innovative Technologies Private Limited. (ii) Neal Jeremy Castleman is the Non-Independent and Non-executive Director of the Company. He has been the Director of the Company since March 14, 2012. He holds a bachelor of science degree in chemistry from the University of Southern California. He has over two decades of experience in the electronics manufacturing sector. He has been working with DCX-CHOL Enterprises, Inc as a director (president) since 1997. (iii) Sankarakrishnan Ramalingam is the Whole-time Director of the Company. He has been the Director of the company since January 28, 2022. His key role is to deliver the business plan of the Company and manage its day-to-day affairs in accordance with the directions given by the Board. He is an associate of the Indian Institute of Bankers and holds a bachelor of science degree from the University of Bombay as well as a diploma in industrial chemistry from the British Institutes, Bombay. He has about 26 years of experience in the finance sector. He was previously associated with Hindustan Lever Limited and Syndicate Bank. He has also been the whole-time director of Saffron Capital Advisors Private Limited and Impetus Arthasutra Private Limited.

Financials of DCX Systems Limited IPO:

Particulars (Cr) Q1Fy23 2022 2021 2020
Revenue 220 1124 683 465
Cost of materials Consumed 190 929 660 431
Change in Inventory 0 71 -41 -23
Employee Benefit Expense 2.4 8 5 5
Other Expense 15 26 7 30
EBITDA 12.6 90 52 22
OPM 5.73% 8.01% 7.61% 4.73%
Finance Cost 5 11 9 8
Depreciation 0.4 2.1 2.4 1.3
PAT 6 65 30 10
EPS 0.72 6.7 3.1 1.03

Comparison With Peers:

Name of the Company CMP FV EPS P/E
DCX Systems Limited 207 10 6 30
Bharat Electronics Limited 104 1 3.75 27.6
Data Patterns (India) Limited 1,343 2 18.11 71
Paras Defence and Space Technologies Ltd 641 10 6.9 75
Astra Microwave Products Ltd 305 2 4.65 63

Recommendation on DCX Systems Limited IPO:

Review and Recommendation of DCX Systems by InvestorZone team is 7/10

1. DCX system is among the leading Indian players for the manufacture of electronic sub-systems and cable harnesses in terms of manufacturing capability and revenue in Fiscal 2022 in the defence and aerospace sector. 2. The growing Indian landscape for defence and aerospace serves as a key opportunity for the Company. The Indian aerospace and defence sector is poised to attain a value of USD 70 billion by 2030. 3. They are primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies. 97% revenue comes from system integration in which they manufacture complex microwave modules, transmit and receiver modules, antennas used in military applications, and aerospace. 4. As of June 30, 2022, DCX order book composed of 42 orders and was ~₹ 2500 with orders from several customers for projects to be executed in Fiscal 2023 to Fiscal 2025. 5. Revenue of company has increased from 465 Crores in Fy20 to 1124 Crores in Fy22. 6. Profit has increased from 10 Crores in Fy20 to 65 Crores in Fy22. 7. DCX Mcap = 2000 Crores. and P/E of 30x based on FY22 numbers. Valuation looks fairly priced.

Lead Manager of DCX Systems Limited IPO:

  1. Axis Capital Limited
  2. Edelweiss Capital Limited
  3. Saffron Capital Advisors Private Limited

Registrar of DCX Systems Limited IPO:

  1. Link Intime India Private Limited

Company Address:

DCX Systems Limited Aerospace SEZ Sector, Plot Numbers 29,30 and 107, Hitech Defence and Aerospace Park, Kavadadasanahal Village, Devanahalli Taluk, Bengaluru Rural 562110 Phone: +91 80 6711 9555 / 9535 Email: cs@dcxindia.com Website: http://www.dcxindia.com/

Discussion on DCX Systems Limited IPO:

5 Comments

    This IPO will be benefited by the focus of government on Defence Sector.

    Reply

    Key domestic customers of DCX System are like Bharat Electronics Limited, Alpha Design Technologies Private Limited, Alpha Elsec Defence and Aerospace Systems Private Limited and Centum Adeno India Private Limited.

    Reply

    Business of DCX IPO

    (i) System Integration: (96% of the revenue comes from System Integration)

    They undertake system integration in areas of radar systems, sensors, electronic warfare, missiles, and communication systems. We provide product assembly and system integration services of various complexities to address customers’ requirements. System integration services are part of a comprehensive array of electronics and electro-mechanical assembly and enclosure assembly. We also provide product repair support for the parts that we manufacture.

    (ii) Cable and Wire Harness Assemblies: (3% of the business comes from Cable and Wire Harness Assemblies)

    They manufacture a comprehensive array of cables and wire harnesses assemblies such as radio frequency cables, co-axial, mixed signal, power, and data cables for a variety of uses including communication systems, sensors, surveillance systems, missile systems, military armored vehicles, and other electronic warfare systems for the aerospace and defence industries as per our customers’ requirements.

    Reply

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