Bengaluru based DCX Systems Ltd (DCX) will float its maiden Initial Public Offering on October 31. DCX is one of the leading manufacturers of electronic sub-systems and cable harnesses in India. It started operations in 2011 and has been a preferred Indian Offset Partner (IOP) for foreign original equipment manufacturers (OEMs) for executing aerospace and defence manufacturing projects.
Here are 10 key things to know before you subscribe to the issue:
1. IPO Dates
The issue will open for subscription on October 31 (Monday) and the last day to subscribe to the public offer is November 2 (Wednesday).
2. Price Band
The price band for the offer has been fixed between Rs 197 - 207 per equity share of face value Rs 2 each.
3. Offer Details
The company plans to raise Rs 500 crore through this public issue that includes a fresh issue of Rs 400 crore comprising of 1.93 – 2.03 crore equity shares and an offer for sale (OFS) of Rs 100 crore comprising of 0.483 – 0.508 crore equity shares by promoters and selling shareholders.
After the issue, the promoter shareholding will decline 24.61 percent and come down to 73.58 percent from the current 98.19 percent stake held by the them in the company.
Of the total offer size, 75 percent of the net offer will be reserved for qualified institutional buyers, 15 percent for non-institutional investors and the remaining 10 percent is for retail investors.
4. Objectives of the Issue
Out of the total proceeds from the fresh issue, Rs 110 crore will be utilized for the prepayment/repayment of debt; Rs 160 crore will be used to fund the working capital requirement and another Rs 44.9 crore will be utilized to invest in wholly owned subsidiary, Raneal Advanced Systems to fund its capital expenditure expenses.
The company will not get any proceeds from the OFS portion, the proceeds of which will entirely go to the promoters.
5. Lot Sizes
Investors can bid for a minimum lot size of 72 shares and in multiples thereof. The minimum investment for a retail investor works out to Rs 14,904 at the upper end of the price band for 72 shares. A retail investor can apply for upto 13 lots or 936 shares for an amount of Rs 1,93,752.
6. Company Profile & Industry
Having commenced its operations in 2011, the company’s business verticals include i) system integration in areas of radar systems, sensors, electronic warfare, missiles, and communication systems, ii) Cable and Wire Harness Assemblies and iii) Supply of assembly-ready kits of electronic and electro[1]mechanical parts.
DCX also commissioned a new manufacturing facility at the Hi-Tech Defence and Aerospace Park SEZ in Bengaluru in 2020.
As of Jun‘22, DCX Systems had 26 customers in Israel, the U.S., Korea and India, including several 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 different sectors, ranging from defence and aerospace to space ventures and railways.
Its key customers include Elta Systems Limited, Israel Aerospace Industries Limited (IAI) - System Missiles and Space Division, Bharat Electronics Limited, and Astra Rafael Comsys Private Limited, among others.
The company has made long-term investments in the Israel’s aerospace and defence market and is the largest Indian Offset Player for IAI Group, Israel, for the manufacturing of electronic sub-systems for the domestic defence market.
The growing Indian landscape for defence and aerospace serves as a key opportunity for the Company. The Indian aerospace and defence sector is poised to attain a value of $70 billion by 2030. Recent initiatives like an increase in foreign direct investment (FDI) in the Indian defence sector from 49 percent to 74 percent under the automatic route are anticipated to be key drivers and growth opportunities for the market.
The Indian government has also banned approximately 101 items within the defence-based imports segment and has also introduced the third positive indigenization list that bans the import of 780 components. These initiatives are expected to boost indigenous manufacturing within India.
7. Financials
DCX reported a robust growth in the business and profitability over FY19-22. Driven by an increase in the system integration business, its revenue and PAT clocked CAGR of 57 percent and 159 percent respectively, while EBITDA margin expanded from 1.4 percent in FY20 to 6.1 percent in FY22.
For FY22, it reported revenue of Rs 1,100 crore, up 72 percent on year, while its EBITDA increased to Rs 67 crore (margin of 6.1 percent) in FY22 from Rs 10.1 crore (margin of 1.6 percent) in FY21. PAT for FY22 stood at Rs 56.5 crore, as against Rs 29.6 crore in FY21.
During FY22, domestic market contributed ~44 percent of total revenue while 56 percent is from exports. During Q1FY23 it reported revenue of Rs 210 crore, (up 73 percent YoY), while PAT grew by 66 percent on year to Rs 5.6 crore.
The company reported a positive operating cash flow during the period, except for FY22. Financial liabilities increased by 65.5 percent CAGR, however with expanded equity capital base and improved profitability, debt-to-equity ratio improved from 14.9x in FY19 to 4.3x in FY22.
On a standalone/consolidated basis, DCX has reported an average earning per share (EPS) of Rs 6.23 and an average return on net worth (RoNW) of 58.41 percent for the last three fiscals.
8. Strengths and business strategy
DCX is among the preferred Indian Offset Partners for the defence & aerospace industry with global accreditations and has technology enabled and scalable end-to-end capabilities. Its business model has visibility of cash flows and ability to mitigate operational & technology risk. The company is well-positioned to capitalize on industry tailwinds and has a track record of consistent financial performance.
To further enhance its business offerings, the company has submitted its letter of agreement/acceptance to act as the domestic offset partner for various upcoming projects like automatic missile detection radars, HERON unmanned aerial vehicle systems, Barak systems, medium range maritime reconnaissance system and short-range surface-to-air missile.
On diversification front, DCX intends to focus on electronic manufacturing services (EMS) for the aerospace & defence sectors; and Maintenance, Repair and Overhaul services. From the IPO net proceeds, the company is planning to utilize around Rs 45 crore for investing in its wholly owned subsidiary, which is planning to set-up an EMS facility.
9. Anchor Book
DCX mopped up Rs 225 crore through its anchor book on October 28, ahead of the public issue opening. A total of 12 investors participated in the anchor book and the company finalized the allocation of 1.08 crore equity shares to anchor investors at a price of Rs 207 per share, which is the upper end of price band.
Investors including Volrado Venture Partners Fund, Cohesion MK Best Ideas, Quantum State Investment Fund, India SME Investments, Theleme India Master Fund, Resonance Opportunities Fund, Vikasa India EIF I Fund, and BNP Paribas Arbitrage made investment in the company via anchor book.
Out of total allocation to anchor investors, 36.23 lakh equity shares were allocated to two domestic mutual funds - HDFC Mutual Fund, and Motilal Oswal Mutual Fund. These funds invested nearly Rs 75 crore in DCX Systems via the anchor book.
10. Grey Market, Allotment & Listing Dates
The company’s shares are commanding a premium of Rs 65-80 per share in the grey market currently, according to IPO Watch and IPO Central, both of which track the grey market movements.
Shares will be allotted to successful bidders on November 7, and the refund to unsuccessful bidders will be credited their accounts on November 9. Shares will be credited to the demat account of the successful bidders by November 10 and the stock will debut on the bourses on November 11.
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