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Review By Dilip Davda on December 12, 2021

•    DPIL is the fastest-growing company in defence and aerospace electronics solutions developments.
•    It has performed well so far with growth in top and bottom lines.
•    Based on financial parameters, the issue is fully priced.
•    It has orders worth Rs. 581 cr. on hand. 
•    Ongoing attraction for defence sector counters will create fancy post listing.

ABOUT COMPANY:
Data Patterns (India) Ltd. (DPIL) is among the few vertically integrated defence and aerospace electronics solutions provider catering to the indigenously developed defence products industry. With net profitability growth of approximately 164% between Fiscal 2020 and Fiscal 2021, it is one of the fastest-growing companies in the Defence and Aerospace Electronics sector in India. (Source: Company Commissioned F&S Report). 

The company has proven in-house design and development capabilities and experience of more than three decades (including through our erstwhile subsidiary) in the defence and aerospace electronics space. Its offerings cater to the entire spectrum of defence and aerospace platforms - space, air, land and sea. Between Fiscal 2019 and Fiscal 2021, it is amongst the highest growing companies in terms of revenues amongst key Indian defence and aerospace companies as captured in the Company Commissioned F&S Report, with a growth in revenues of 71% during this period. Further, between Fiscal 2020 and Fiscal 2021, DPIL recorded the highest growth in revenues amongst key Indian defence and aerospace companies with revenue growth of 43% in this period. Also, in Fiscal 2021, it recorded the highest EBITDA margin, ROCE and ROE amongst key Indian defence and aerospace companies. (Source: Company Commissioned F&S Report).

The company has design capabilities across the entire spectrum of strategic defence and aerospace electronics solutions including processors, power, radio frequencies ("RF") and microwave, embedded software and firmware and mechanical engineering. Its core competencies include electronic hardware design and development, software design and development, firmware design and development, mechanical design and development, product prototype design and development, functional testing and validation, environment testing and verification and engineering services opportunities.

DPIL has end-to-end capabilities to build and deliver complete systems, with its design and manufacturing capabilities being completed in-house. The company's electronic solutions are developed by specialist teams working on areas including complex 20+ layer printed circuit board ("PCB") designs, field-programmable gate arrays ("FPGA") based firmware algorithms, all layers of software including operating system porting, device drivers, networking layers, application software, graphical user interface, cartography, signal processing, streaming protocols and waveform engineering. Its capabilities across the spectrum of aerospace and defence electronics solutions from design to delivery allow significant competitive benefits in terms of overall development time and cost and also allow to offer competitive pricing when bidding for aerospace and defence projects.

It has diversified products and solutions mainly due to design and development capabilities, and a qualified and experienced workforce. As of September 30, 2021, DPIL had 818 employees with more than 500 qualified engineers, including 416 members in Design & Engineering department. As of September 30, 2021, it has on hand 105 orders worth Rs. 581.30 cr.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans of repayment/prepayment of certain borrowings (Rs. 60.80 cr.), working capital needs (Rs. 95.19 cr.), upgrading/expanding existing unit (Rs. 59.84 cr.) and general corporate purpose needs, DPIL is coming out with a maiden IPO of Rs. 588.22 cr. (approx. 10055125 shares) as a combo offer via book building route. The company will be issuing a fresh equity issue worth Rs. 240.00 cr. (approx. 4102575 shares at the upper cap) and an offer for sale (OFS) of 5952550 equity shares of Rs. 2 each (worth Rs. 348.22 cr. at the upper cap). It has fixed a price band of Rs. 555 to Rs. 585 per share. Minimum application is to be made for 25 shares and in multiples thereon, thereafter. The issue opens for subscription on December 14, 2021, and will close on December 16, 2021. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 19.38 % of the post issue paid-up capital of the company. DPIL has allocated 50% for QIBs, 15% for HNIs and 35% for the Retail investors. 

The joint Book Running Lead Managers are JM Financial Ltd., and IIFL Securities Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company raised further equity in the price range of Rs. 4 to Rs. 577 (based on FV of Rs. 2 per share) between May 2004 and November 2021. It has also issued bonus shares in the ratio of 60 for 1 in December 2000, 20 for 1 in August 2021 and 1 for 10 in September 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is ranging from Rs. 0.36 (lowest) to Rs. 63.65 (highest) per share.  

Post-IPO, the company's current paid-up equity capital of Rs. 9.56 cr. will rise to Rs. 10.38 cr. (51886661 shares). Based on the IPO pricing, the company is looking for a market cap of Rs. 3035.37 cr. (at the upper cap).

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, DPIL has reported turnover/net profits of Rs. 132.51 cr./ Rs. 7.70 cr. (FY19), Rs. 160.19 cr. / Rs. 21.05 cr. (FY20) and Rs. 226.55 cr. / Rs. 55.57 cr. (FY21). For the first half of FY22 ended on September 30, 2021, it has posted a net profit of Rs. 23.21 cr. on a turnover of Rs. 97.17 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 7.72 and an average RoNW of 18.94%. The issue is priced at a P/BV of 12.64 based on its NAV of Rs. 46.28 per share as of September 30, 2021. 

If we annualize FY22 earnings and attribute it on fully diluted post issue equity, then the asking price is at a P/E of 65.36 and on the basis of FY21 earnings, it comes to 54.62. Thus issue appears fully priced. 

COMPARISON WITH LISTED PEERS:
As per offer documents, DPIL has shown MTAR Techno, Astra Microwave, Centum Elect., Bharat Elect., and Paras Defence as its listed peers. They are currently trading at a P/E of 134.81, 52.09, 188.59, 22.4 and 189.04 (as of December 10, 2021). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has paid a dividend of 20% for the last three fiscals and 653% for FY22 to date. Thus it has a dividend track record. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
The two Book Running Lead Managers associated with the offer have handled 39 public offers in the past three years, out of which 13 issues closed below the offer price on the listing date.

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