DCX SYSTEMS LIMITED IPO

About the company
Incorporated in 2011, DCX systems is among the leading Indian players in the manufacture of electronic sub-systems and cable harnesses. The company is primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies. You must have seen this set of cables in your CPU or Car (see image below) these are nothing but cables and wire harness assemblies.

They are a rapidly growing company in the Indian defence space and among the preferred Indian Offset Partners for the defence and aerospace industry with global accreditations. Meaning, whenever a foreign company wins a defence deal, it is supposed to invest a part of the contract value in the country. This helps in developing skills and bringing in technology, while also generating employment. So, DCX Systems Ltd is the preferred company where such companies will invest a part of the contract value.

DCX System's key customers include Elta Systems Ltd, Israel Aerospace Industries Ltd - System Missiles and Space Division, Bharat Electronics Ltd, Astra Rafael Comsys Private Ltd, and Astra Microwave Products Ltd among others.

The defence manufacturing industry in India is an integral segment of the country’s economy. It is a mix of DPSUs, large private players, and smaller but niche suppliers such as DCX. With increased national security concerns, the industry is set to grow substantially. India is noted to be among the top importers of defence equipment over the last five years to gain technological advantages over competing countries such as Pakistan and China. The GOI has taken many measures to stimulate ‘Make in India’ operations through policy support programs in order to modernize its armed forces and minimize reliance on overseas defence acquisition.

Products offered by the company
The company classifies its operations under the following business verticals:

System Integration: Bringing together the component sub-systems into one system and ensuring that the subsystems function together as a system.

Cable and Wire Harness Assemblies: Comprehensive array of cables and wire harnesses assemblies such as radio frequency cables, co-axial, mixed-signal, power, and data cables for a variety of uses.

Kitting: Supply assembly-ready kits of electronic and electro-mechanical parts and undertake all aspects of procurement. Basically, they combine different finished goods into a new separate SKU.

Objects of the offer
The total issue of Rs. 500 Cr. consists of Rs. 400 Cr. fresh issue and an offer for sale of Rs. 100 Cr. Proceeds from the issue will be utilized for Repayment/ prepayment, in full or part, of certain borrowings, availed of by the Company, funding working capital requirements, investment in its wholly owned Subsidiary - Raneal Advanced Systems Pvt. Ltd., to fund its capital expenditure expenses.

Finances

The company’s revenue grew by 56.64% in the last 3 years while PAT grew by 156.9% in the same period. As of June 30, 2022, the company’s order book was Rs. 25,636.34 million with orders from several customers for projects to be executed between Fiscal 2023 and Fiscal 2025.

Peer comparison and IPO valuation

Company P/E at the highest price band is 22.52. The lowest P/E in the peer group is BEL at 32.36. The company enjoys the highest RONW and second-highest Total Income for fiscal 2022. So, we can say that based on P/E multiple the company is fairly valued.

Risks & Litigations
1) The company derives nearly 97% of its revenue from the Top three customers in Q1FY23
2) Any changes in offset defence policy or a decline or reprioritization of funding in the Indian defence budget
3) Company has a negative Operating Cash flow

4) The company had a debt-to-equity ratio of 7.80, 2.91, and 4.27 as of March 31, 2020, 2021, and 2022 respectively

IPO Details & Subscription status
1) The IPO starts on 31^st October and will end on 2^nd November 2022. The issue size is Rs. 500 Cr. The lot size will be 72 shares and a retail investor can apply for a maximum of 13 lots. The price band offered by the company is Rs. 197-207 per share.
2) As of 2nd November 2022 11:00 am, the IPO was subscribed 5.26 times. And the GMP was Rs. 85.