DCX Systems Limited - IPO Note


DCX Systems Limited - IPO Note


Price range
Rs. 197-207
Issue Period:
Oct 31, 2022
Nov 02, 2022
October 31, 2022

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 500 cr.
Public Issue
2.4 cr. shares
Market cap post IPO
Rs.1925 – 2000 cr.
Equity Pre - IPO
7.74 cr.
Equity Post - IPO
9.67 cr.
Issue type
Fresh Issue and Offer for Sale

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Competitive strengths and strategies

Among the preferred Indian Offset Partners (IOP) for the defence and aerospace industry with global accreditations
Company is a preferred IOP for foreign OEMs for executing defence manufacturing projects (Source: Company Commissioned F&S Report). They undertake “build-to-print” system integration and manufacture cable and wire harness assemblies for both domestic and international OEMs. It is also one of the largest IOP for the IAI Group, Israel.

DCX Systems hold a number of key certifications that include AS-9100:2016 certification for quality management systems for aviation, space and defense products. The company holds Defence Industrial License from the Ministry of Commerce and Industry, Government of India for the manufacture of defence subsystems that includes microwave components, modules for radar and electronic warfare subsystems, microwave sub modules, for command and guidance units for missile subsystems only.

Capable to provide wide array of services:
As part of its system integration services, company’s strength includes the manufacturing of complex microwave modules and sub-systems such as transmit receiver modules, receiver subsystems, and antennas used in military applications, space technology and aerospace. They are also engaged in manufacturing a large variety of cables and wire harnesses assemblies such as radio frequency co-axial, mixed signal, power, data and communication cables for a variety of uses including communication systems, sensors, surveillance systems, missile systems, military armored vehicle, and other electronic warfare systems.

Strong relationship with its customers
Company has established long-term relationships with its key customers and the average period of business relationship with its top three customers is over five years. As of June 30, 2022, DCX had 26 customers in Israel, United States, Korea and India, including certain Fortune 500 companies, multinational corporations and start-ups. Their customers include domestic and international OEMs, and private companies and public sector undertakings in India across different sectors, ranging from defence and aerospace to space ventures and railways. Some of its key customers include Elta Systems Limited, Israel Aerospace Industries Limited – System Missiles and Space Division, Bharat Electronics Limited, Astra Rafael Comsys Private Limited, Alpha-Elsec Defense and Aerospace Systems Private Limited, Alpha Design Technologies Private Limited, Astra Microwave Products Limited, Kalyani Rafael Advanced Systems Private Limited, SFO Technologies Private Limited and DCX-Chol Enterprises Inc. Company believes that their long-standing relationship with its customers has enabled them to be among its preferred suppliers.

Decent track record of Financial Performance
DCX Systems have been delivering consistent financial performance in the past 3 fiscals. In Fiscal 2020, 2021 and 2022, revenue from operations was Rs.449 cr, Rs.641cr and 1103 cr, respectively. Revenue from operations grew at a CAGR of 56.64% between Fiscal 2020 and Fiscal 2022. EBITDA also witnessed a good growth and was reported at Rs.67 cr as on FY22. EBITDA (including other income) has increased at a CAGR of 53% from Rs.45 cr in Fiscal 2020 to Rs.105 cr in Fiscal 2022. PAT more than doubled in FY22 at Rs.66 cr from Rs.31 cr clocked in FY21demonstrating strong growth.

Particulars (Rs. In crores) FY20 FY21 FY22
Revenue 465 683 1124
EBITDA (including other income) 45 32 105
EBITDA Margin (%)(including other income) 9.72% 4.75% 9.42%
Profit After Tax 9 31 66
PAT Margin (%) 2% 5% 6%
Particulars FY20 FY21 FY22
EBITDA 30 10 84
Add: Interest on fixed deposits 15 22 22
Adjusted (EBITDA) (A) 45 32 106
Total Income (B) 465 683 1124
Adjusted EBITDA Margin (A/B) 9.72% 4.75% 9.42%

(Source : RHP)
Note – FY20 and FY21 represent standalone numbers and FY22 represent consolidated figures as per RHP


Peer comparison

Particulars (Rs. in Crores) M. Cap(Cr) Face value (Rs.) Total Revenues(cr) EPS(Rs) PE ROE(%) ROCE (%)
DCX Systems Limited 2000.00 2.00 1102.00 9.19 22.50 56.00 13.15
Bharat Electronics Limited 78361.00 1.00 15600.00 3.28 32.00 20.00 27.00
Data Patterns 7077.00 2.00 315.00 19.48 61.50 33.00 24.00
Astra Microwave Products 2663.00 2.00 757.00 4.37 73.15 9.00 16.00
Centum Electronics Ltd 766.00 10.00 788.00 -23.70 NA 4.40 12.00
Paras Defence and Space Tech 2500.00 10.00 186.00 7.78 85.00 9.23 10.40


Key Areas of concern:
High debt and low Operating Margins: DCX Systems outstanding borrowings at the end of August 31,2022 stands at Rs.890 cr which is extremely high. As far as Margins are concerned, company’s core EBITDA margins excluding other income are quite low and are in single digit at 6% as of FY22.

High raw material costs: Company imports key raw materials for manufacture of its products and due to high raw material costs, margins are quite low ultimately impacting financials of the company which acts as a key area of concern.

Parked funds in Fixed deposits: Company earned Rs.22 cr on interest on FD in FY22. Despite elevated levels of debt, company has parked its funds in FD which raises concerns that we are not able to comprehend.

Other Risks and Concerns
Foreign currency fluctuation risk: Company is exposed to foreign currency fluctuation risks, particularly in relation to its borrowings, import of raw materials and export of products, which may adversely affect the results of operations, financial condition, and cash flows.

Contingent Liabilities: Company has certain contingent liabilities that have not been provided for in their financial statements, which if they materialize, may adversely affect its financial condition.

Particulars Amount (Rs. In cr)
Bank guarantees 485
Total 485

Operates in a competitive industry: Company faces significant competitive pressures in its industry. Its inability to compete effectively would be detrimental to their business and prospects for future growth.

Significant shortage of raw materials: Significant shortages of, or delay or disruption in the supply of primary raw materials could affect company’s estimated costs, expenditures and timelines which may have a material adverse effect on its business, financial condition, results of operations and cash flows.

Company Description

DCX Systems Limited (“DCX Systems”) was incorporated on December 16, 2011. DCX Systems is among the leading Indian players for the manufacture of electronic sub-systems and cable harnesses for defence and aerospace sector (Source: Company Commissioned F&S Report). They are preferred Indian Offset Partner (“IOP”) for foreign original equipment manufacturers (“OEMs”) for executing defence manufacturing projects. DCX Systems is primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies and is also involved in kitting. They undertake system integration in areas of radar systems, sensors, electronic warfare, missiles, and communication systems. They also provide product assembly as per customers’ requirements. The company is one of the largest IOP for ELTA Systems Ltd and Israel Aerospace Industries Ltd, System Missiles and Space Division (together, the “IAI Group”), Israel. In 2020, the company commissioned its new manufacturing facility at the Hi-Tech Defence and Aerospace Park SEZ in Bengaluru, Karnataka.

The company's business verticals includes the following:

  1. System integration in areas of radar systems, sensors, electronic warfare, missiles, and communication systems.
  2. Cable and Wire Harness Assemblies.
  3. The company supplies assembly-ready kits of electronic and electro-mechanical parts.

System Integration

DCX Systems


On the valuation front, DCXSL is valued at 23x with earnings of Rs.9.19 (EPS FY22) calculated at the upper price band of Rs 207 per share.

Though, we continue to remain bullish on the defence theme overall but due to low margins, extremely high debt, competitive space we assign an AVOID rating to the issue.

Key Information

Use of Proceeds:
Use of Proceeds: The total issue size is Rs. 500 cr, of which Rs. 400 cr is Fresh issue and balance (Rs.100 cr) is Offer for Sale (OFS). The company will utilize the net proceeds from the fresh issue to repay debt, Funding working capital requirements, Investment in wholly owned Subsidiary, Raneal Advanced Systems, and general corporate purposes. Kindly find the bifurcation in the table given below.

Particulars Amount (Rs. In crores)
Repayment/ prepayment, in full or part, of certain borrowings availed of by the company; 110
Funding working capital requirements of the company; 160
Investment in the wholly owned Subsidiary, Raneal Advanced Systems Pvt Ltd, to fund its capex exps 44.88
General Corporate Purposes 85.12

Book running lead managers:
Edelweiss Financial Services, Axis Capital Limited, Saffron Capital Advisors Limited

H.S. Raghavendra Rao (Promoter, Chairman and Managing Director), Ranga KS (CFO), Shiva Kumara R (Vice President), Sankarakrishnan Ramalingam (Whole Time Director), Kalyanasundaram Chandrasekaran, PanchangamNagashayana, Lathika Siddharth Pai (e Independent Director), Nagaraj R Dhavaskar (Company Secretary, Legal and Compliance Officer of the company), Pramod B (Deputy General Manager- Operations), Anand S (Deputy General Manager- Supply Chain Management), Kiran Kumar K S (Manager-Production), Atul DhondiramMutthe (Manager- Quality).

Financial Statement

Profit & Loss Statement:- (Consolidated)

Particulars (in Crores) FY20 FY21 FY22
Revenue 449.00 641.00 1102.00
COGS 408.00 618.00 1000.00
Gross Profit 41.00 23.00 102.00
Gross Margins (%) 9.00% 4.00% 9.00%
Employee Benefits Expenses 6.00 5.00 9.00
Other expenses 30.00 7.00 26.00
Core EBITDA 5.00 11.00 67.00
Core EBITDA Margin (%) 1.00% 2.00% 6.00%
Depreciation and Amortization 1.00 2.00 2.00
EBIT 4.00 9.00 65.00
Other Income 16.00 42.00 22.00
Finance Cost 8.00 10.00 11.00
Profit Before Tax 12.00 41.00 76.00
Tax Expenses -3.00 -10.00 -10.00
Effective Tax Rate (%) -25.00% -24.00% -13.00%
PAT 9.00 31.00 66.00
PAT Margin (%) 2.00% 5.00% 6.00%
EPS(Rs.) 1.39 4.22 9.19