As volatility increased due to multiple factors, investors switched to more tried and trusted investment methods. The art of value investing is back in the limelight. What seemed like an outdated idea has now become a safe haven for value investors.
That’s why people switched from growth stocks to value stocks. As a result, people turned away from IPOs. In times of rising inflation, rising interest rates, geopolitical tensions, etc., it’s difficult to trust a new company.
And we saw what happened last year with the big IPOs. Nykaa’s share price falls, along with Policybazaar, while Zomato and Paytm are the talk of the town.
All of this was evidence that the IPO markets were dead for a long time.
However, as markets have gained stability, the Indian IPO market is picking up. After a series of loss-making IPOs, the Indian primary market saw some profitable IPOs like Harsha Engineers, Electronics Mart India and Syrma Technologies.
DCX Systems is taking advantage of the shifting winds and is coming out with its IPO next week.
The Company’s IPO will open for subscription on October 31, 2022. Here are the key details.
Issue period: October 31, 2022 to November 02, 2022
Problem size: €5,000 m (fresh edition for €4,000 m sales offer for €1,000m)
prize band: €197 to €207 per share
face value: €2 per common share
The Company has reserved no less than 75% of the shares in the offering for qualified institutional buyers (QIB). It has reserved no less than 15% for non-institutional buyers (HNI). Therefore, no more than 10% of the shares are available to private investors.
Provisional IPO grant date: November 7, 2022
Preliminary admission date: November 11, 2022
Here are 5 key details about DCX Systems’ IPO.
#1 About the company
DCX Systems is one of the leading Indian players in the manufacture of electronic subsystems and wire harnesses.
The company started operations in 2011 and is a preferred Indian offset partner for foreign original equipment manufacturers (OEMs) to undertake projects in the aerospace and defense industries.
In 2020, the company commissioned a new manufacturing facility at 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, including select Fortune 500 companies, multinationals and start-ups.
The company’s customers include domestic and international OEMs, private companies and public sector companies in India from various sectors such as defence, aerospace, space companies and railways.
#2 Financial condition
DCX Systems’ financial performance continues to improve. In fiscal 2022, revenue soared a whopping 64.8% while profit soared 122%.
The company’s profit margins are gradually improving. From 2.1% in March 2020 to 5.8% in March 2022, the profit margin has doubled in two years.
DCX Systems’ earnings per share (EPS) also rose sharply. Over the past two years, earnings per share are up 557%.
Financial Snapshot
| details |
March 31, 22 |
March 31 21 |
March 31, 20 |
| Revenues ( €m) |
11.243.3 |
6,823.4 |
4,652.3 |
| Revenue growth (%) |
64.8% |
46.7% |
|
| pre-tax expenses |
10,487.8 |
6,434.4 |
4,523.6 |
| % 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 |
1,175.9 |
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
According to RHP, DCX Systems’ listed competitors are Bharat Electronics, Data Patterns (India), Paras Defense and Space Technologies, Astra Microwave Products and Centum Electronics.
peer comparison
| Name of the company |
Total Income (2022) ( €m) |
net profit |
EPS (Base) (Rs) |
Return on Net Worth (%) |
| DCX systems |
11.243.3 |
656.1 |
9.2 |
55.8 |
| Bharat electronics |
155,997.2 |
23,545 |
3.3 |
19.5 |
| Data Pattern (India) |
3,148.1 |
940 |
19.5 |
16.4 |
| Paras defense and space technologies |
18:55.3 |
271 |
7.8 |
7.2 |
| Astra microwave products |
7,568.4 |
401 |
4.4 |
6.5 |
| Center Electronics |
7,879.6 |
-489 |
-23.7 |
-26.9 |
Data Source: Company’s Red Herring Prospectus (RHP).
#4 Business case
- It is one of the leading players in electronic subsystems manufacturing.
- It has had a strong financial performance in the past.
- It has visible cash flows and is able to withstand operational and technology risks
- It is located in the Aerospace Special Economic Zone (SEZ) with an advanced and modern manufacturing facility. This is a strategic advantage.
- The defense industry is under the umbrella of rapid development, so there are huge opportunities ahead of the company.
#5 Risk Factors
- It relies heavily on a few customers for a large portion of its revenue. The top 3 customers account for 80.6% of total sales.
- The company has a high level of debt.
- Restrictions on the export of the Company’s products and other regulations could adversely affect its business, results of operations and financial condition.
Conclude
Over the past year, we’ve seen a spate of IPOs as the IPO market has been booming. Paytm, Zomato, Nykaa and Co. …
But there was one IPO in particular that stole the show.
I’m talking about the Paras Defense IPO. The IPO was oversubscribed 374 times! Let that sink in. This was the first time in history that an IPO was so oversubscribed.
The debut of Paras Defense was also a big hit on the stock exchanges. The company’s shares were listed at €475, a premium of 171% compared to the issue price.
Investors were excited about the company’s business model and the company offered indirect equity to capitalize on the drone megatrend in India.
The important question now is, will DCX Systems’ IPO be this year’s paras defense?
The company has strong finances and bright prospects.
Defense stocks are currently in a sweet spot as multiple factors are converging in their favor. We recently wrote why we think defense stocks can be future multibagger stocks.
However, DCX Systems has a high debt-to-equity ratio.
Only time will tell what kind of reaction investors will offer to DCX Systems’ IPO.
Stay tuned for more updates on this IPO and any upcoming IPOs in the market.
Have fun investing!
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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