Buy DCX Systems; target of Rs 466: KR Choksey

KR Choksey's research report on DCX Systems

In tandem with historical trend of seasonality, DCX delivered a muted H1FY25 but slew of order wins was the showstopper in Q2FY25 with a total order worth of INR.30,000 Mn. For the Q2 in specific, higher material cost continued to weigh on margin and resulted into a miss on earnings. Though the gross margin improved for the quarter sequentially but it continues to be under pressure. Similarly, EBITDA margin continues to be in negative territory but it improved on a sequential basis. The recent order wins add confidence on the revenue visibility for the near to medium term. However, lack of clarity on the recovery of increased raw material costs and persisting margin pressure have caused us to revise down our EPS estimates for FY25E and FY26E by -34%/-10%.

Outlook

Overall, we continue to hold our conviction on DCX’s ability to become a key player in EMS space with huge potential lying ahead in the railway and defence space. Consequently, we retain our P/E multiple of 36x on FY26E EPS and maintain our BUY rating on the counter with the target price of INR 466 (Previously: INR 519).