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DCX Methods Ltd – IPO Word

Firm Overview: 

DCX Methods is primarily engaged in system integration and manufacturing a complete array of cables and wire harness assemblies and are additionally concerned in kitting. The agency is among the many main Indian gamers for the manufacture of digital sub-systems and cable harnesses when it comes to manufacturing functionality and income in FY2022. Additionally it is one of many largest Indian Offset Accomplice (“IOP”) for ELTA Methods Restricted and Israel Aerospace Industries Restricted, System Missiles and House Division (collectively, the “IAI Group”), Israel, for the Indian defence marketplace for the manufacture of digital sub-systems and cable and wire harness assemblies. The manufacturing facility is situated on the Hello-Tech Defence and Aerospace Park SEZ in Bengaluru, Karnataka. It has 26 prospects in Israel, the US, Korea, and India, together with sure Fortune 500 firms, multinational companies, and start-ups. 

Objects of the Supply:

The Firm proposes to utilise the Internet Proceeds of the Recent Subject in direction of funding the next objects:

  • Reimbursement/ prepayment, in full or half, of sure borrowings availed of by the Firm.
  • Funding working capital necessities of the Firm.
  • Funding within the wholly owned Subsidiary, Raneal Superior Methods Non-public Restricted, to fund its capital expenditure bills.
  • Normal company functions.

Funding Rationale:

Sturdy Base: The corporate is a most popular IOP for overseas OEMs (Unique Tools Producers) for executing defence manufacturing initiatives. It undertakes “build-to-print” system integration and manufactures cable and wire harness assemblies for each home and worldwide OEMs. The corporate caters to a mixture of home and worldwide prospects and key prospects embody Elta Methods Restricted, Israel Aerospace Industries Restricted – System Missiles and House Division, Bharat Electronics Restricted, Astra Rafael Comsys Non-public Restricted, Alpha-Elsec Protection and Aerospace Methods Non-public Restricted, Alpha Design Applied sciences Non-public Restricted, Astra Microwave Merchandise Restricted, Kalyani Rafael Superior Methods Non-public Restricted, SFO Applied sciences Non-public Restricted, and DCX-Chol Enterprises Inc.

Monetary Monitor File: The Firm has had sturdy income progress within the final 3 years. Whereas it isn’t apple to apple comparability to check standalone revenues with consolidated revenues, its revenues elevated from Rs.465 crs in FY20 to Rs.1124 crs in FY22. Income from operations has elevated at a CAGR of 56.64% between Fiscal 2020 and Fiscal 2022. Together with this, DCX has generated an ROE of 55% and a ROCE of 16% for FY22. The corporate’s ROE is larger as a result of excessive debt on its steadiness sheet. 

Sturdy Order Guide: The corporate’s product portfolio is backed by its system integration and manufacturing capabilities has led the order ebook to develop from 45 orders aggregating Rs.1941 crs, as of March 31, 2020 to 48 orders aggregating Rs.2369 crs, as of March 31, 2022. As of June 30, 2022, the order ebook comprised 42 orders and was Rs.2564 crs with orders from a number of prospects for initiatives to be executed in Fiscal 2023 to Fiscal 2025. The aggressive benefits embody effectivity in operations leading to well timed supply to prospects, sustaining high quality management, and product safety. This has enabled the Firm to develop long-term and entrenched relationships with OEM prospects which have resulted in progress of their operations and sizeable order ebook.

Key Dangers:

OFS – The IPO is a mixture of a suggestion on the market (OFS) and a Recent difficulty with OFS being 20% of the general difficulty dimension. NCBG Holdings and VNG Know-how are the promoters of the corporate. By means of this IPO, every entity can be offloading 15% of its stake by the supply on the market. Although solely a major a part of the IPO is OFS, the corporate gained’t get something from that half.

Consumer Focus Threat – The highest 3 prospects account for 81% and the highest 10 buyer accounts for 99% of the income for FY22. The lack of a number of such prospects or a discount of their demand for the merchandise may adversely have an effect on the enterprise, outcomes of operations, monetary situation, and money flows of the corporate.


The corporate’s listed friends are Bharat Electronics Ltd, Knowledge patterns Ltd, and Paras Defence and House tech. Ltd, Astra Microwave merchandise, and many others. At the next worth band, the itemizing market cap can be round ~Rs.2000 crs and DCX is demanding a P/E a number of of 30x based mostly on FY22 EPS (Publish recent difficulty), which appears to be cheap whereas in contrast with its friends. The corporate’s high line is within the fast progress part additionally the order ebook of the corporate is large together with a major market share within the business. One of many key benefits for the corporate is the economic tailwind as the federal government has launched a 3rd optimistic indigenization record, which forbids the import of 780 LRU/parts, and roughly 101 merchandise from the defence-based imports class. Nonetheless, the working and web revenue margin of the corporate is within the single digits which appears to be difficult for the corporate. Based mostly on the above views, we offer a ‘Subscribe‘ score for this IPO.

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