The maiden public issue of Bengaluru-based DCX Systems, a contract manufacturer primarily engaged in executing defence offset obligations, is set to open for bidding today and run through November 2.
Analysts are largely bullish on the issue as they believe that the company is a preferred Indian offset partner for the defence and aerospace industry and has a strong order book that gives revenue visibility. The issue is also valued lower compared to its peers.
“DCX Systems has better revenue and profit growth (CAGR of 57 percent and 159 percent) compared to peers over two years, healthy return on equity and company also has a strong order book (of Rs 2,564 crore) which provides visibility for the next two years,” said Purves Chaudhari, an analyst at Angel One.
Chaudhari assigned ‘subscribe’ rating on the issue saying its valuation is at reasonable levels.
The post-issue P/E works out to 30.5 times FY22 earning per share at the upper end of the issue price band, which is lower than its peers like Paras Defense & Space Technologies, Data Patterns (India) and Sundram Fasteners.
The company plans to raise Rs 500 crore, with fresh issue being Rs 400crore and the rest being offer-for-sale (OFS) that will give exit to some of its shareholders. The price band is set at Rs 197 to 207 a piece.
Of the fresh issue net proceeds, Rs 110 crore will be utilised for the payment 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 subsidiaries.
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On October 28, DCX Systems allotted 1,08,69,564 equity shares at Rs 207 per share aggregating Rs 225 crore to 12 anchor investors including BNP Paribas, Volrado Ventures, Theleme, HDFC Large & Midcap, Motilal Oswal MF, Quantum, Resonance, Cohesion, etc.
Rajnath Yadav of Choice Broking, who also has a ‘subscribe’ rating on the issue said there are numerous positives that drive his recommendation, including visibility of cash flows, technology enabled and scalable end-to-end capabilities, track record of consistent financial performance and experienced and qualified promoters.
At the same time, he also pointed out risks and concerns that include unfavorable government policies and regulations, revenue concentration risk, unfavorable forex movements and stiff competition.
DCX Systems IPO: 10 key things to know before you subscribe to the issue
The issue is also generating strong interest in the grey market. Its shares were quoting at a 20 percent premium to the issue price, which reflects that the issue may see oversubscription.
BP Equities also has a ‘subscribe’ rating on the issue as it sees the company playing a role in achieving India’s ambition to hit $5 billion export by 2025 in the aerospace and defence goods sector.
“DCX Systems is well positioned to capitalise on the growing Indian landscape for the defence and aerospace industry. Initiatives like an increase in foreign direct investment in the Indian defence sector from the current 49 percent to 74 percent under the automatic route are anticipated to be key drivers and growth opportunities for the market,” it said.
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