DATA PATTERNS INDIA Q2FY23 Earnings Call Highlights
H1 revenue increased 1.6 times in the last year same period with profit increasing by 1.5 times. Gross margins have been maintained at 65%.
Development contracts contributed higher to the revenue and order this quarter. This is an important highlight because development contracts translated into production contracts in future and provide a good visibility for future revenues.
Have good visibility on our future performance, because of a strong order book. Order book stands at over INR 880 crores as on date, highest ever for the company. A large proportion of this is from development contracts it eventually turns into a production contracts.
Received in H1 two radar orders from DRDO worth INR 362 crores. These are development orders, development and production orders worth INR 30 crores for Electronic Warfare. Also received an export order and production order from DPSU, totaling INR 22 crores in the Avionics Naval systems segment, two more orders from DRDO for EW & Communication worth INR 40 crores are also received.
After many years and maybe for the first time in the last 30 years, India's private sector defense companies now has a support from the government, which had lacked for many decades.
Uniquely positioned to benefit from the sectorial opportunity as co develops complete systems in-house. Also have the best-in-class manufacturing facilities. Have been expanding facility and it will be ready by this quarter. Have a strong debt-free balance sheet.
Strategic priority for the next two years is clearly laid out. Will be focusing on larger opportunities in radar, EW and the satellite business. Export markets will grow for as co is working on multiple opportunities there. Will participate in over INR 20 billion to INR 30 billion worth of contracts for the next three years to four years. These efforts should help achieve topline growth of 25% to 30% and deliver a strong ROE and ROCE of more than 20%.
Will be able to maintain the working capital base in the range of 280 days to 300 days in the medium to long-term.
Regarding the 120-odd crores, which co had negotiated. A large part of it, about INR 70-odd crores is for the LCA Mk 1A cockpit display, which was developed in 2005, now the contracts are being negotiated and expect the order to come this month. The other one is L1 or an automatic weapon loading system for tank. That also, think the budgets have been released, so probably the order should come now.
As regards Himshakti and Arudhra, awaiting contracts on BEL. And back-to-back, should get some business from them.
Enquiries in follow-on jammer has already been issued by headquarters, having some presentations done on a couple of days at the headquarters.
At the present moment, on the launcher business of BrahMos. Do the fire control system, which is what is called a ground-based launcher. Also only the aircraft-based launcher, which is based on Su-30. There is also a discussion that the smaller missile is being planned to be inductor or tested. It will go into other platforms, in which case then we’ll be doing automatic choice since you have done for a larger missile on a large platform aircraft like Su-30, it become a choice in these requirements. DRDO is saying is that trials are expected in November, December.
Co is a single vendor to all the test systems, missile test system earlier imported from Russia, indigence co developed this system for the last 10 years, plus co is developing the test system and delivering it to all services, Army, Navy and Air Force, obviously, through BrahMos.
Have been designing products forthe last 20 years or 30 years. The company is about 37 years old. Ever since the company started, been designing products on own in competition with foreign systems.
Have about 1,000 people working now overall, and out of which 520 odd are in design and development and QC, etc..
On working capital, taking advanced decision on expected contracts also, because need to keep the delivery mechanism on. One part of the stress inventory is because co is buying more materials, not only for execution this year, but execution next year also. Buying material only for contracts on hand.
Trying to build a quarter-to-quarter business now and even out the quarters rather than having 80%, 85% in Q4.
Now started delivering directly to MOD.
First radar delivered in March, the acceptance is already over. So the bill pricing will happen. The second radar is the installation; third is acceptance, factory expenses are over and dispatches it.
On the large orders received last quarter, the advances will be coming this quarter. And next quarter, will see those advances or deposits in bank.
The orders for INR 800 crores has come, and more INR 300-odd crores in just a new design. Have design completions, the components are finalized and orders can be place. And this is a two year delivery product about 18 months, 20 months. So have not ordered any material for those. But some component orders have beenplaced, but that is all with from clear understanding of orders available components.
Also working on other contracts, expect that the some more contracts will happen for new areas where co is uniquely positioned in terms of product capabilities and development already carried out. So not just depending on the pipeline stated earlier orders. Also generating more pipeline with unique probabilities.
Because of COVID, all component prices have gone up. It is not cooling. It's actually gone up, because components are in short supply. Maybe it will come down again next year or so. But as of now, the component prices are not ready to come down.
Gross margin is not based on contracts and projects. It is not uniform across projects, because it depends on budget, it depends on whether it's a single vendor, whether it's tender, limited tender or open tender, based on which on competitiveness co quotes. So it varies from contract-to-contract. Cannot really say every unit has the same gross margin.
In the last quarter, INR 400-odd crores orders developmental order co has shown, INR 360 crores is for two radars. This is a very-very important strategic radar. This is space surveillance, where India has to protect it’s space. Trying to build the largest radar for India will be these two. It’s a very strategic radar and launcher can scale substantially after the first system is delivered. Slated for delivery in the next 18 months or so, 19 months, 21 months. Get 30% advance plus on material ordering, get another 30% advance.
Expect very reasonable growth next year. Because these orders co is getting now is going to be executed next year.
Getting new contracts, some more development contracts are expected and have already started design for the development contracts, so that co is ahead of time & deliver those systems. So that is why co has increased its manpower strength.
More than just DRDO, looking at MOD tenders and there are the system level development has to be done, which is challenging and which is interesting.
Have spent seven years, eight years and developed complete competency of building the entire satellite ourselves with no imports, including ground stations, the telecommunication, tele-command, and satellites are working three years, four years, they are still getting signals all properly. Trying to work with ISRO to see how this can be done on a commercial level. Matter of fact, the nano-satellites of ISRO, they buy all the parts from Data Patterns, including ground station, rather than single vendor.
Whatever orders co expects, they are only single vendor contracts.
In this 2,000, 3,000, the large value is going to be radar because this is what co delivered in 2015, '16, which has all been accepted. BEL is a large final system integrator for the delivery of the EW systems for India. So back to back, they should also give back these orders.
HAL may be recipient of EW & Communication systems because they do their full systems in aircraft, then back to back, may get the orders from them. In Avionics, which has been done in open tender with DRDO or with HAL. Won contracts in open tender HAL and then repeat orders from HAL is now coming.
Doubled the infrastructure in terms of production capability. Created a different kind of infrastructure, where co can do end equipment from a box build or avionics kind of typical thing, which you're doing for subsystems with DRDO, today trying to mature into an MOD business, which is the full systems, full radars.
Been really selective in the last few years where to go. Not really participating in very small, one-off, you know, PCP level contracts. Take a large portion of contract, which converts all of electronics, mechanical systems, where multi-disciplinary technology is involved, which makes it difficult for some other organization to get to do this.
Co builds own electronics software, IP, mechanical system, the structures,design everything in-house, manufacture everything here except mechanical. Integrate, test, validate, have full certification process for all platforms. Built up a competency matrix, can address the market. So margins will be higher than others.
If the production is followed or developed in contracts, the margins will be same. In the production order, the so-called tender contracts or MOD tenders, it is going to be competition driven & margins vary.
Going to move production from existing facility to new facility fully in over the next six months. Will convert existing one to, development infrastructure in the existing facility and R&D testing.
Major turnover export turnover from UK is for an airborne Avionics, which is designed for them.
Also trying to work with South Korea, trying to do what co is doing in India, can export to South Korea. Also exported one system like that to South Korea, about a $1million-odd to Korea two years back. Some more orders are expected in different configurations.
Disclaimer:- Nothing on this website should be construed as investment advice. Please consult your financial advisor before taking any decision. We are not SEBI registered RA/RIA. The author owns the stock in their portfolio at the date this post was published.