Hold DCX Systems; target of Rs 321: Deven Choksey

Deven Choksey's research report on DCX Systems

DCX Systems' Q4FY24 results fell short of our expectations across all key metrics. Revenue stood at INR 5,500 Mn., down 26.3% YoY (+175.0% QoQ), sharply below our estimates (-32.2%). EBITDA came in at INR 102 Mn., down 73.0% YoY (+ 242.2% QoQ), sharply below our estimates (-66.7%) led by weaker revenue growth and contraction in gross margins. EBITDA margin contracted by 322bps YoY to 1.9%, below our estimates by 193bps. Net profit stood at INR 207 Mn., down 37.2% YoY (+ 106.8% QoQ), sharply below our estimates (-23.2%), led by weaker operational performance, partially offset by higher other income. We have revised our FY26E/FY27E EPS estimates by -25.8%/-13.6% respectively, to factor in persistent subdued gross margins stemming primarily from inability of the Company to raise an invoice for the excess bill of materials (BOM) supplied in the system integration segment. We believe, re-rating of the stock depends on improvement of the margin profile with expansion into higher-value and in-house developed products. We expect the Revenue/EBITDA/PAT to grow at 24.9%/314.4%/59.7% CAGR over FY25-27E.

Outlook

We value DCX at 36.0x FY27E EPS, implying a target price of INR 321. We downgrade our rating from “BUY” to “HOLD” on the stock.