Key Things You Must Know Before Applying Data Patterns (India) Ltd IPO

Data Patterns (India) Ltd is caters to the electronics and software solutions requirements of the defence and aerospace industry in India. The company has 23 years standing with its promoters having extensive decades of experience in this defence electronics field. In fact, Data Patterns has been one of the major suppliers of electronics solutions to some of the most prestigious projects in the defence field including the Tejas LCA, LUH, BrahMos Missiles etc. It also works in communication intelligence and electronic intelligence.

The company has a complete spectrum of capabilities which includes design, manufacturing, services, avionics, radar systems, annual maintenance contracts etc. The company is backed by Florintree Capital, which is owned and managed by former Blackstone India head honcho, Matthew Cyriac. Indian government has been investing its time, funds and bandwidth extensively in pushing its Make in India program with specific focus on defence and aerospace and Data Patterns will be a logical beneficiary of this thrust.

Data Patterns (India) Ltd: Major highlights of the IPO

The company will raise funds in the market via a mix of fresh issue and an offer for sale (OFS). Here is a quick look at how the IPO of Data Patterns is structured.

  • Data Patterns will make a fresh issue of 41,02,564 shares worth Rs.240 crore at the upper price band of Rs.585. This will result in fresh funds and dilution of capital.
  • In addition, the OFS will comprise of 59.53 lakh shares worth Rs.348.22 crore at the upper price band of Rs.585. This takes the total issue size to Rs.588.22 crore.
  • Out of 59.53 lakh shares in the OFS, the 2 main promoters will sell 19.67 lakh shares each. Promoter group will sell 4.15 lakh shares and early shareholders 15.29 lakh shares.
  • Consequently, the promoter stake fall from 58.63% to 45.62% while the public shareholding overall will increase to 54.38% post issue.

How has the company achieved consistent growth in profits and margins? That is due to better control over the value chain exercised due to the vertically integrated model. Sample these numbers. Revenues are up 71% andnet profits up 620% over FY19.

Data Patterns (India) Ltd will have an indicative market cap of Rs.3,035 crore at the upper end of the price band. This translates into a P/E ratio 54 times FY21 earnings. This is not only lower than peer group despite higher ROCE, but also does not tell the full story about the solid expansion in ROCE and EBITDA margins on a two year basis.

How should investors approach the Data Patterns IPO?                                                        

There are a few key points to consider ahead of investing in the IPO of Data Patterns.

  1. The company has a solid business mix. Out FY21 revenues of Rs.224 crore, 76% comes from manufacturing, 16% from development and 8% from AMC.It has 105 orders worth Rs.581 crore and that is equal to more than 2 years of sales.
  2. The business model is end-to-end and enables de-risked and non-cyclical growth in business. This is evident from high growth rates and healthy margins. For example, ROCE is up three-fold and EBITDA margins up nearly twice over last 2 years.
  3. The bulk of the fresh issue will be used to repay and prepay borrowings. Lower debt would give greater leverage to the profits of the company to grow with lower solvency risk. This is expected to be value accretive.

If you add up the potential of the business, the government thrust on “Make in India” and the peer group ratios and valuation; there is surely an enticing story. However, company is likely to come under greater scrutiny post listing. The small company risk will be a key factor when investors take a call on the stock.

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