The Data Patterns (India) Limited public issue will hit the primary market on December 14 and will be open to subscription for the next two days.
Data Patters (India) is among the few vertically integrated players providing solutions related to defence and aerospace electronics. Incorporated in 1985, it offers products to the entire spectrum of defence and aerospace platforms – space, air, land and sea, and is well positioned to benefit from the government of India’s ‘Make in India’ push.
The company has established itself as a leading solutions provider to the indigenously developed defence products industry through its in-house design capabilities across the spectrum of strategic defence and aerospace electronics solutions, including processors, power, radio frequencies and microwave, embedded software and firmware, and mechanical engineering.
Its products have been used in flagship defence projects like Tejas Light Combat Aircraft, BrahMos missile programme and Light Utility Helicopter, and defence systems designed by DRDO (Defence Research and Development Organisation).
About the IPO
The public issue comprises a fresh issue of shares worth Rs 240 crore and an offer-for-sale of 59,52,550 equity shares by selling shareholders to garner Rs 588.2 crore. The price band for the offer has been fixed at Rs 555–585 per share of face value Rs 2 each.
The allotment of shares will get finalised by December 21 and unsuccessful investors will get refunds by December 22. Successful bidders will get shares in their demat accounts by December 23.
Data Patterns’ shares will list on the BSE and the NSE on December 24.
The company intends to utilise the proceeds for prepayment and repayment of certain debts, funding its working capital requirements, upgrading and expansion of its existing facilities at Chennai, and for general corporate purposes.
The promoters hold 57.08 percent in the company and their holding will come down to 44.99 percent after this issue.
What Brokerages Say
Most brokerages advise investors to ‘subscribe for listing gains’ based on the fact that the company has a strong order book of Rs 589 crore, has been performing profitably for the past three financial years and has been part of key defence projects due to its specialised capabilities.
“Innovation-focused business model, consistent track record of profitable growth due to a scalable business model and sound order book across product categories supplying to marquee customers in the defence and aerospace industry are key competitive strengths of the company,” said brokerage firm Marwadi Financial Services.
The pledging of 26.2 percent of paid-up capital with State Bank of India by the promoter and the company’s dependence on limited base of customers, however, pose a risk to the long-term prospects of the business, the brokerage pointed out.
To be sure, top five customers of the company contribute 88.79 percent to the total revenue.
“Considering the September trailing twelve months (TTM) EPS of Rs 16.41 on a post-issue basis, the company is going to list at a P/E of 35.64x with a market cap of Rs 3,035 crore, while its peers namely Paras Defence and Space Technologies and MTAR Technologies are trading at a P/E of 191x and 130x, respectively,” said Marwadi.
It assigns a ‘subscribe (with caution)’ rating to this IPO as the company has significant working capital requirements, client concentration and promoter pledging.
“We believe Data Patterns’ design and build capabilities across the entire spectrum of strategic defence and aerospace electronics solutions at competitive prices and its ability to partner with customers from conception till deployment will help it leverage its operating efficiencies in the coming years,” said Yes Securities, assigning a ‘subscribe for listing gains’ rating to the issue.
Yes Securities highlights that the company faces risks from its dependence on government capex, majority of its business is through competitive bidding process and any increase in competition may result in price reductions, reduced profit margins and loss of market share.
“Data Patterns has a proven track record of operational excellence as well as an order book that gives good visibility for the near term,” said Asit C Mehta Investment Intermediaries in its report.
At the upper price band of Rs 585, stock is priced at 54.62x its FY21 EPS of Rs 10.71 (based on fully diluted post issue equity), it said, suggesting ‘subscribe for listing gains’ rating to the issue.
Anchor Investors
Data Patterns on December 13 finalised the allocation of 30,16,533 equity shares to anchor investors, at a price of Rs 585 per equity share to garner Rs 176.5 crore.
Axis Mutual Fund, Ashoka India Opportunities Fund, HDFC Mutual Fund, ICICI Prudential, Aditya Birla Sun Life Trustee, Nippon Life, Kotak Mutual Fund, IIFL Focused Equity Fund, PGIM India Trustee, Tata Mutual Fund, HDFC Life Insurance, Volrado Venture Partners Fund and Nomura were the key participants in the anchor book.
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