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Saturday, 11 December 2021
CM RATING48/100
 

Data Patterns (India)

Electronics solution provider

To benefit from growing defence/space spend due to in-house design and manufacture

Data Patterns (India), promoted by Srinivasagopalan Rangarajan and Rekha Murthy Rangarajan, is a vertically integrated defence and aerospace electronics solutions provider catering to the indigenously developed defence products industry. It offers products catering to the entire spectrum of defence and aerospace platforms such as space, air, land and sea. Major products or product groups of the company comprises (i) Radars, (ii) Underwater electronics / communications / other systems, (iii) Electronic warfare suite, (iv) BrahMos programme, (v) Avionics, (vi) small satellites, (vii) ATE for defence and aerospace systems, (viii) Commercial off the shelf (COTS).

Core competencies of the company include electronic hardware design and development, software design and development, firmware design and development, mechanical design and development, product prototype design and development, manufacturing, functional testing and validation, environment testing and verification, and after sales support engineering services.

It has design capabilities across the entire spectrum of strategic aerospace and defence electronics solutions including processors, power, radio frequency and microwave equipment, embedded software and firmware and mechanical engineering.

The company have invested in and developed reusable building block model leading to capabilities / competence across various product domains. This approach has allowed it to achieve better margins due to spreading out of development costs over multiple programmes, in addition to saving on development time for new products.

Several of its existing products or their component modules or building blocks are pre-approved by its customers, especially defence-sector public sector undertakings (“DPSUs”) and government ministries and departments and this gives the company the benefit of reduced lead times for development of new products.

The company participates in all three production, development and service contracts. In FY21 & H1FY22, the production contracts contributed 76% & 83.6% of the revenue and development contracts about 16.3% & 6.7% and service contracts about 7.7% & 9.7% of the revenue.

The company is currently engaged in the supply of critical products to several prestigious defence projects in India, including the Light Combat Aircraft (LCA), the HAL Dhruv, Light Utility Helicopter (LUH) and the BrahMos missile programme, precision approach radars and various communications intelligence (COMINT) and electronic intelligence (ELINT) systems. In each of the above projects, its products form critical components, such as the launch systems for the ground based BrahMos missile launcher, flight and safety critical “take me home” displays for the Tejas.

It has received single vendor orders from Defence Electronics Research Laboratory (DLRL) for development and supply of all of the COMINT search receivers, Direction Finder, Monitoring receivers for the Dharashakti programme. This order/project is a development programme for large Electronic Warfare (EW) requirement for Deserts and Plains and has been nominated to BEL. This places Data Patterns in a position to be an OEM for the entire receiver systems with likely revenues of USD 50 million on complete execution of the programme. The expertise gained in the project would also position Data Patterns to cater for airborne COMINT and ELINT equipment for various upgrades such as MI 17 Upgrades, Dornier Upgrades, Aerostat upgrades, and any new rotary wing programmes.

Using its experience of working with the DRDO and from development of the wind profile radar, the company have successfully bid for and obtained an approximately Rs 380 crore contract from the Ministry of Defence for nine precision approach radars for the Navy and Air Force, which are currently in the delivery stage.

Currently the manufacturing facility of the company consists of a 100,000 square feet factory built on 5.75 acres of land in Chennai, which has facilities for design, manufacturing, qualification and life cycle support of high reliability electronic systems used in defence and aerospace applications. The company is also in the process of upgrading and expanding its Chennai facility. The company is proposing to acquire an additional 2.81 acres of adjacent land for further expansion.

The Offer & Object of the Issue

The current initial public offer comprises a Fresh Issue aggregating to Rs 240 crore and an Offer for Sale of up to 5,952,550 Equity Shares with promoters together selling 3934025 shares [1967013 equity shares by Srinivasagopalan Rangarajan; 1967012 shares by Rekha Murthy Rangarajan]. Balance portion of OFS comprises sale by other selling shareholders of 489775 equity shares [75000 shares by Sudhir Nathan; 414775 shares by GK Vasundhara] and Individual Selling Shareholders collectively selling about 1528750 shares.

The company earlier in Nov 2021, made a private placement (pre-IPO placement) of 1,039,861 Equity Shares at a price of Rs 577/share aggregating to Rs 60 crore.

Post IPO, the selling promoters i.e. Srinivasgopalan Rangarajan and Rekha Murthy Rangarajan hold 24.6% and 20.39% of expanded equity. The other selling shareholders Sudhir Nathan and G K Vasundhara hold about 0.19% and 0.63% of post IPO expanded equity.

Proceeds from the issue will be used to repay debt, meet working capital needs and upgrading and expanding its existing facility at Chennai to the tune of Rs 60.803 crore, RS 95.191 crore and Rs 59.839 crore respectively.

Aggregate outstanding indebtedness of the company as of November 20, 2021 was Rs 62.248 crore.

Strengths

Strong order book of RS 581.298 crore as on September 30, 2021. Of the current order book production contracts were Rs 389.817 crore; development contracts Rs 123.346 crore; and Service Contracts Rs 68.135 crore. In terms of product categories Radars accounts for major junk at Rs 362.807 crore followed by Services with Rs 68.435 crore, Avionics at Rs 41.023 crore.

Client profile of the company comprise several marquee customers in the Indian defence ecosystem including the Indian government defence ministry, BrahMos, DRDO, the Indian government space organisation, HAL, BEL and a DPSU involved in the missile space.

Building complete systems from the building blocks and sub-systems already developed, provides a higher value addition while distributing development costs. The company have more than 1000 building blocks that can be used on multiple end systems in defence and space.

Given over three decades of presence (including through its erstwhile subsidiary) in defence and aerospace electronics space and strong proven in-house design, development and manufacturing capacity across the entire spectrum of aerospace and defence electronics, the company is well positioned to take part in land, airborne and naval defence programmes as well as space programmes of the country.

End-to-end in house capabilities to design, build and deliver complete systems gives it significant competitive benefits in competitive bidding for defence and aerospace projects.

The manufacturing infrastructure of the company is certified by international A&D OEMs.

Favourable GOI policies that seek to build greater self-reliance in Indian defence R&D and manufacturing through a combination of Aatmanirbhrar Bharat mission, DAP 2020, Offsets and the upcoming Defence Production and Export policy. The top 3 capital acquisition categories of DAP 2020 i.e. Buy IDDM (Indigenously Designed Developed and Manufactured), Buy Indian and Buy & Make Indian emphasize on Indian company led defence modernisation with an Indigenous content (IC) category of at least 50%. Moving forward several high value tenders are expected to fall into these categories giving both private Indian defence primes and sub system suppliers ample opportunities in increasing revenue and technology base.

Weakness

Most of contracts usually bagged by the company are fixed-price contracts and requires the company to pay liquidated damages for delay in delivery and/or quality issues. The value of the liquidated damages typically ranges from 0.5% per day/week of delay to a maximum of 5%-10% of the undelivered portion of the contract. Thus any cost overruns, delays in delivery or failures to meet contract specifications may have an adverse effect on its business, financial condition and results of operations.

Purchases from foreign supplier's stands at about 74.46% and 63.68% of total purchases in H1FY2022 and FY2021 and this exposes the company to various risks such as forex risk, cost of acquisition, high lead supply time or shortage forcing higher level of inventory straining working capital apart from hurting operations.

One of the promoters of the company, i.e., Srinivasagopalan Rangarajan have pledged 12521025 equity shares, which is 98.1% of his holding & 53.6% of total promoter holding post OFS.

The defence projects/programmes are known for long delays from time of conceived/announced to awarding and completion. The company derived 52.58% of its FY2021 revenue from various public sector undertakings and defence-related organizations and any significant change in GOI's policies/capex plans regarding defence/space will hurt growth. Its growth also depends on ability to qualify and win in competitive bids.

Yet to obtain certain approvals from regulatory authorities for proposed expansion project.

No registered trademarks, including the trademark for its trade name or the corporate logo.

Valuation

Sales for the fiscal ended March 2021 was up by 43% to Rs 223.95 crore with sharp jump in revenue of services and development contracts. While the service contract revenue was up 51% to Rs 17.32 crore that of development contract was up 27552% to Rs 36.50 crore. The revenue from production contact was up 18% to Rs 170.13 crore. On better revenue mix the OPM expand by whopping 1350 bps to 41.1% and thus the operating profit jumped up by 113% to Rs 91.99 crore. Eventually the PAT was up 164% to Rs 55.57 crore.

The company for end Sep 2021 reported a TTM PAT of Rs 85.16 crore on sales of Rs 275.92 crore. The TTM EPS based on post issue expanded equity on higher price band is Rs 16.4 and PE works out to 35.7 times. The P/BV works out to 6.6 times.

In comparison the companies catering to defence and space segment such as Bharat Electronics, Hindustan Aeronautics, MTAR Technologies, Paras Defence, Astra Microwave, Sika Interplant and High Energy Batteries are quoting at a TTM PE of 22.1, 12.5,130.2, 321.6, 43.9, 24.4 and 16.8 times and P/PV of 4.4, 2.7, 14.4,8.0. 4.1, 5.3 and 6.6 times, respectively.


Data Patterns (India): Issue Highlights

Fresh Issue (in Rs. Crore)

240

Offer for sale (in no. os shares)

5952550

Price band (Rs.)

Upper

585

Lower

555

Post-issue equity (Rs crore)

in Upper price band

10.38

in Lower Price Band

10.42

Post-issue promoter (including promoter group) stake (%)

46.42

Minimum Bid (in nos.)

25

Issue Open Date

14-12-2021

Issue Close Date

16-12-2021

Listing

BSE, NSE

Rating

48/100

Data Patterns (India) : Financials

1903 (12)

2003 (12)

2103 (12)

2109 (6)

Sales

131.06

156.10

223.95

96.45

OPM (%)

19.5

27.6

41.1

39.2

OP

25.55

43.16

91.99

37.82

Other income

1.45

4.09

2.60

0.73

PBIDT

26.99

47.25

94.59

38.55

Interest

10.78

13.34

14.50

4.81

PBDT

16.22

33.91

80.09

33.73

Depreciation

5.86

5.48

5.55

2.96

PBT

10.36

28.43

74.53

30.78

EO Exp

0.00

0.00

0.00

0.00

PBT after EO

10.36

28.43

74.53

30.78

Tax

2.58

7.38

18.96

7.57

PAT

7.78

21.05

55.57

23.21

PPT

0.08

0.00

0.00

0.00

Net profit

7.70

21.05

55.57

23.21

EPS (Rs)*

1.5

4.1

10.7

8.9

EPS (Rs)**

1.5

4.0

10.7

8.9

** on post issue equity of Rs 10.38 crore. Face Value: Rs 2

EPS is calculated after excluding EO and relevant tax

# EPS can not be annualised due to seasonality in operations

Figures in Rs crore

Source: Capitaline Corporate database