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DCX Systems IPO review (Apply)

Review By Dilip Davda on September 22, 2022

•    DCXSL is the most preferred India Offset partner for aerospace and defence manufacturing projects.
•    It has posted growth in its top and bottom lines for the reported periods of the offer document.
•    Its current order book stands at Rs. 2563+ cr. 
•    Based on its financial performance, the issue is reasonably priced. 
•    Investors may consider investing with a medium to long-term perspective.

DCX Systems Ltd. (DCXSL), formerly known as DCX Cable Assemblies Pvt. Ltd., is among the leading Indian players for the manufacture of electronic sub-systems and cable harnesses in terms of manufacturing capability and revenue in Fiscal 2022 in the defence and aerospace sector (Source: Company Commissioned F&S Report). The company is primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies and is also involved in kitting. DCXSL has been a preferred Indian Offset Partner ("IOP") for foreign original equipment manufacturers ("OEMs") for executing aerospace and defence manufacturing projects (Source: Company Commissioned F&S Report). It is a rapidly growing company in the Indian defence space (Source: Company Commissioned F&S Report) and its revenue from operations has grown at a CAGR of 56.64% between Fiscal 2020 and Fiscal 2022. 

DCXSL is also one of the largest Indian Offset Partner ("IOP") for ELTA Systems Limited and Israel Aerospace Industries Limited, System Missiles and Space Division (together, the "IAI Group"), Israel, for the Indian defence market for the manufacture of electronic sub-systems and cable and wire harness assemblies. Over the years, the company has expanded its manufacturing capabilities and grown its order book. 

The growing Indian landscape for defence and aerospace serves as a key opportunity for the Company. The Indian aerospace and defence sector is poised to attain a value of USD 70 billion by 2030. Recent initiatives like an increase in foreign direct investment ("FDI") in the Indian defence sector from the current 49% to 74% under the automatic route are anticipated to be key drivers and growth opportunities for the market. The Defence Research and Development Organization has announced the indigenous development of roughly 108 systems and sub-systems which is expected to generate demand for cables and connectors across the Indian defence environment. 

The Indian government has also banned approximately 101 items within the defence-based imports segment and has also introduced the third positive indigenization list that bans the import of 780 LRU/components. These initiatives are expected to boost indigenous manufacturing within India. The instating of defence industry corridors across Uttar Pradesh and Tamil Nadu is also poised to improve the market growth dynamics by broadening the opportunities offered to the private sector. (Source: Company Commissioned F&S Report). All of these, in turn, serve as an opportunity for DCXSL to capitalize on the expected growth in this space.

As of June 30, 2022, it had 26 customers in Israel, the United States, Korea and India, including certain Fortune 500 companies, multinational corporations and start-ups. Its customers include domestic and international OEMs, private companies and public sector undertakings in India across different sectors, ranging from defence and aerospace to space ventures and railways. It has a mix of domestic and international customers and certain 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 Defence 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. As of June 30, 2022, the company had 98 employees on its payroll. 

To part finance its needs for repayment/prepayment of certain borrowings (Rs. 110 cr.), working capital (Rs. 160 cr.), investment in a wholly owned subsidiary (Rs. 44.88 cr.), and general corporate purposes, DCXSL is coming out with a maiden IPO with a combo of Fresh equity shares worth Rs. 400 cr. (approx. 19323720 shares at the upper cap) and an offer for sale of Rs. 100 cr. (approx. 4830930 shares) making an overall issue size of Rs. 500 cr. (approx. 24154650 shares). It has announced a price band of Rs. 197 - Rs. 207 per share of Rs. 2 each. The issue opens for subscription on October 31, 2022, and will close on November 02, 2022. A minimum application is to be made for 72 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 24.97% of the post-issue paid-up capital of the company. Though the company has posted profits, due to regulatory compliances, it has allocated 75% for QIBs, 15% for HNI, and 10% for Retail investors. 

The joint Book Running Lead Manager (BRLM) for this issue are Edelweiss Financial Services Ltd., Axis Capital Ltd., and Saffron Capital Advisors Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity at a price of Rs. 28.20 per share in January 2022. It has also issued bonus shares in the ratio of 3 for 1 in the same month. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.50, Rs. 5.65, and Rs. 7.05 per share. 

Post this IPO, DCXSL's current paid-up equity capital of Rs. 15.48 cr. will stand enhanced to Rs. 19.35 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 2002.18 cr. 

On the financial performance front, on a standalone basis DCXSL has posted turnover/net profits of Rs. 465.23 cr. / Rs. 9.74 cr. (FY20), and Rs. 683.24 cr. / Rs. 29.56 cr. (FY21). On a consolidated basis it has earned a net profit of Rs. 65.61 cr. on a turnover of Rs. 1124.33 cr. and for Q1 of FY23 it posted a net profit of Rs. 5.57 cr. on a turnover of Rs. 220.25 cr. 

On a standalone/consolidated basis, DCXSL has reported an average EPS of Rs. 6.23 and an average RoNW of 58.41% for the last three fiscals. The issue is priced at a P/BV of 13 based on its NAV of Rs. 15.92 as of June 30, 2022, and at a P/BV of 3.83 based on its post-IPO NAV of Rs. 54.09 (at the upper cap). For Q1 of FY23, it earned a net profit of Rs. 5.57 cr. on a turnover of Rs. 220.25 cr. 

If we annualize Q1-FY23 performance and attribute it to a post-IPO fully diluted equity base, then the asking price is at a P/E of around 90, and based on the FY22 consolidated performance basis, P/E stands at 30.53.

However, according to the management, the major activities in the industry like DCXSL take place in the second half of the year as per historical data, and hence the Q1 of FY23 performance is not relevant for considering annualized performance.   

DCXSL's order book as of the date of filing of this offer document stands at Rs. 2563.00 cr. However, as per the disclaimer by the company, this order book is subject to modification, cancellation, delay, put on hold, or not fully paid may adversely affect its business. Thus the order book may not necessarily translate into future income in its entirety. 

Asper the offer documents, DCXSL has shown Bharat Electronics, Data Patterns, Paras Defence, Astra Microwave, and Centum Electronics as its listed peers. They are currently trading at a P/E of 27.34, 70.72, 75.08, 63.05, and 37.01 (as of October 21, 2022). 

The company has not declared/paid any dividend in the reported periods of the offer documents. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

The three BRLMs associated with the offer have handled 58 public issues in the last four fiscals (including the ongoing one), out of which 25 issues closed below the offer price on the listing date. 

Conclusion / Investment Strategy

Off late, we are witnessing rising fancy for defence counters and even the Government of India has mooted many initiatives to boost this sector. With “Make in India”, “Atmanirbhar Bharat”, and other liberalized policies, DCXSL – the most preferred Indian offset partner - is poised for bright prospects. Based on its financial performance, the issue appears reasonably priced. Investors may consider investing in this issue for the medium to long-term rewards.

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on September 22, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

DCX Systems IPO FAQs

  1. 1. Why DCX Systems IPO?

    The initial public offer (IPO) of DCX Systems Limited offers an early investment opportunity in DCX Systems Limited. A stock market investor can buy DCX Systems IPO shares by applying in IPO before DCX Systems Limited shares get listed at the stock exchanges. An investor could invest in DCX Systems IPO for short term listing gain or a long term.

  2. 3. DCX Systems IPO what should investors do?

    DCX Systems IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the DCX Systems IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is DCX Systems IPO good?

    Our recommendation for DCX Systems IPO is to subscribe.

  4. 5. Is DCX Systems IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe to the DCX Systems IPO.

  5. 6. When will DCX Systems IPO allotment status?

    The DCX Systems IPO allotment status will be available on or around November 7, 2022. The allotted shares will be credited in demat account by November 10, 2022. Visit DCX Systems IPO allotment status to check.

  6. 7. When will DCX Systems IPO list?

    The DCX Systems IPO will list on Friday, November 11, 2022, at BSE, NSE.


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