Listed in December last year (2021), defense stock Data Patterns India has given solid returns to its investors. Its stock has jumped over 87 percent from its IPO price of ₹585 to hit its record high of ₹1,097 on August 29.
The stock had also listed at a sharp premium of 47 percent at ₹864 per share last year.
If an investor has out in ₹15,000 in its IPO last year, it would have turned to ₹28,000 currently.
Data Patterns is a provider of vertically integrated defense and aerospace electronics solutions to the domestically produced defense goods market. The firm has orders worth ₹663.55 crore as of June 30, 2022.
The stock has surged 37 percent in August 2022 so far after advancing 21 percent in July, however, it lost around 15 percent in June on the back of market volatility. It has rallied over 50 percent in 2022 YTD.
India plans to reduce its reliance on imports and increase its own production of its defense and space needs which a is key positive for the stock. According to Data Patterns' FY22 annual report, the amount of tenders has grown, the order books of manufacturers of defense products are starting to expand, capital investment programs have been started by participants in the defense industry, and the sector's employment base is expanding.
In the June quarter, the company's Profit After Tax (PAT) increased by 37 percent YoY to ₹14.23 crore from ₹10.30 crore in the year ago period. Its total revenue jumped 86 percent YoY in the quarter under review to ₹70 crore from ₹37.65 crore in the quarter ended June 30, 2021.
Commenting on the company’s performance, Srinivasagopalan Rangarajan, Chairman & Managing Director, Data Patterns (India) Limited said, “Company delivered good Q1 results in line with our expectations. The Company's primary focus is to create a robust order book and increase operational efficiency."
Post the earnings, brokerage house Anand Rathi, in a recent report noted that with established capabilities and expertise in the defense sector, a strong thrust in Make in India, and higher budget reallocation in defense the company is in the sweet spot for higher than normal growth in revenues in next few years.
It continues to remain positive on the company in the long run with a HOLD call and target price of ₹940 per share. However, the current target of the brokerage implies a 12 percent downside in the stock.
On the Capex front, the broekrage noted that the company’s new manufacturing facility is expected to get operational by Q3-FY23 which is expected to double the production capacity for the company. The new facility would handle full system contracts and also augment the production and testing infrastructure, it added.
Anand Rathi also pointed out that in the Juen quarter, on the order book front, the company has reported an order inflow of ₹45.6 crore of which the majority (98 percent) are for Production contracts for the avionics segment. Some of the key contracts received were - one, Avionics contract for ₹18.3 crore from HAL, an Avionics contact from DRDO of ₹10.4 crore and a large order for electronic warfare from DRDO worth ₹1.8 crore, informed the brokerage.
On the margins front, the company’s operating margins stood 31.1 percent at ₹21.3 crore in Q1FY23 as against 46.3 percent at ₹17.3 crore in the same quarter previous year, noted the brokerage. The decline in margins was mainly due to change in revenue mix, it further said.
However, delay/change in government policies/ procurement and further deterioration in supply chain issues could possibly delay revenue recognition and or may impact margins, cautioned the brokerage.
Disclaimer: This story is for educational purposes only. Please speak to an investment advisor before making any investment decisions.
