DCX Systems IPO Opens Next Week: 5 Things to Know

After a dream run, , the journey of Indian stock market, at the start of 2022, can be compared to a nightmare.

As volatility took over due to to several factors, investors moved to more tested and trusted methods of investing. The art of value investing is coming back to limelight. What seemed an outdated idea has now become a safe haven for value investors.

Owing to this, people moved from growth stocks to value stocks. Resultantly, people moved away from the IPOs. It is difficult to trust a new company in times of rising inflation, increasing interest rates, geopolitical tensions, etc.

And we saw what happened with big IPOs which came last year. Nykaa share price is falling, along with Policybazaar, while the talk of the town are Zomato and Paytm.

All this was proof that the IPO markets was dead for a long time.

However, as markets gained stability, the Indian IPO market is reviving. After a series of loss-making IPOs, the Indian primary market saw some profitable IPOs like Harsha Engineers, Electronics Mart India, and Syrma Technologies.

Taking advantage of the changing winds, DCX Systems is coming out with its IPO next week.

The company's IPO will open for subscription on 31 October 2022. Here are the key details.

Issue period: 31 October 2022 to 02 November 2022

Issue size: Rs 5,000 m (fresh issue for Rs 4,000 m offer for sale for Rs 1,000 m)

Price band: Rs 197 to Rs 207 per equity share

Face value: Rs 2 per equity share

The company has reserved not less than 75% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 10% of shares are available for retail individual investors.

Tentative IPO allotment date: 7 November 2022

Tentative listing date: 11 November 2022

Here are 5 important details about DCX Systems IPO.

#1 About the company

DCX Systems is among the leading Indian players in the manufacture of electronic sub-systems and cable harnesses.

The company commenced operations in 2011 and has been a preferred Indian Offset Partner for foreign original equipment manufacturers (OEMs) for executing aerospace and defence manufacturing projects.

In 2020, the company commissioned a new manufacturing facility at the Hi-Tech Defence and Aerospace Park SEZ in Bengaluru, Karnataka.

As of 30 June 2022, DCX Systems had 26 customers in Israel, the United States, Korea, and India, including certain Fortune 500 companies, multinational corporations, and start-ups.

The company's customers include domestic and international OEMs, private companies and public sector undertakings in India across sectors, like defence, aerospace, space ventures, and railways.

#2 Financial position

DCX Systems' financial performance keeps improving. In financial year 2022, its revenues grew a whopping 64.8% while profit grew 122%.

The company's profit margins are gradually improving. From 2.1% in March 2020 to 5.8% in March 2022, it has doubled profit margin in two years.

Also, DCX Systems' earnings per share (EPS) has seen a sharp rise. In the last two years, its EPS has grown 557%.

Financial snapshot

Particulars	31-Mar-22	31-Mar-21	31-Mar-20
Revenues (Rs m)	11,243.30	6,823.40	4,652.30
Revenue Growth (%)	64.80%	46.70%
Expenditure Before Tax	10,487.80	6,434.40	4,523.60
% of Total Income	93.3	94.3	97.2
Net Profit	656.1	295.6	97.4
Net Profit Margin (%)	5.8	4.3	2.1
Net Worth	1,175.90	467.9	171.7
Return on Net Worth (%)	17.4	11.9	18.8
Basic Earnings per share (Rs)	9.2	4.2	1.4

Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

As per the RHP, Bharat Electronics, Data Patterns (India), Paras Defence and Space Technologies, Astra Microwave Products, and Centum Electronics, are DCX Systems' listed peers.

Peer Comparison

Company Name	Total Income (2022) (Rs m)	Net Profit	EPS (Basic) (Rs)	Return on Net Worth (%)
DCX Systems	11,243.30	656.1	9.2	55.8
Bharat Electronics	1,55,997.20	23,545	3.3	19.5
Data Patterns (India)	3,148.10	940	19.5	16.4
Paras Defence and Space Technologies	18,55.3	271	7.8	7.2
Astra Microwave Products	7,568.40	401	4.4	6.5
Centum Electronics	7,879.60	-489	-23.7	-26.9

Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

• It is one of the leading players in manufacturing electronic sub-systems.
• It has given a strong financial performance in the past.
• It has visible cash flows and is in a position to withstand operational and technology risk
• It is located in the aerospace Special Economic Zone (SEZ) with an advanced and modern manufacturing facility. This is a strategic advantage.
• The defence industry is sitting under the roof of rapid development, hence huge opportunities lie before the company.

#5 Risk factors

• It is heavily dependent on a few customers for a major chunk of its revenues. The top three customers form 80.6% of the total revenue.
• The company has a high debt-equity ratio.
• Restrictions on the export of the company’s products and other regulations could adversely affect its business, results of operations and financial condition.

To conclude

Last year, we saw a flurry of IPOs as the IPO market was booming. Paytm, Zomato, Nykaa and the likes...

But there was one IPO in particular that stole the show.

I am talking about the Paras Defence IPO. The IPO was oversubscribed by 374 times! Let that sink in. This was the first time in history when an IPO was oversubscribed to such an extent.

The debut of Paras Defence was also a big hit on the bourses. The company's shares were listed at Rs 475, a premium of 171% compared to its issue price.

Investors were excited with the company's business model and the company offered indirect exposure to ride the drone megatrend in India.

Now, the important question is will DCX Systems IPO be the Paras Defence of this year?

The company does have strong financials and bright prospects.

Defence stocks are in a sweet spot right now as multiple factors are coming together in their favour. We recently wrote why we think defence stocks can be future multibagger stocks.

However, DCX Systems has high debt-to-equity ratio.

Only time will tell what kind of response investors offer for the IPO of DCX Systems.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...