DCX Systems — Q3 FY24 earnings call

Call held 9 Feb 2024

Management summary

DCX Systems reported a quarter marked by strategic capital raising and significant new order wins, including a pilot order from Lockheed Martin and a large export order. While Q3 revenue saw a sequential decline, profitability margins improved year-on-year. The company outlined clear plans for QIP utilization, focusing on the NIART Systems JV for railway security and technology acquisition for Make in India initiatives, alongside the ramp-up of its PCBA manufacturing subsidiary, Raneal Advanced Systems.

Highlights

  • Successfully raised ₹500 crores through QIP in January 2024, with ₹209 crores allocated to the NIART Systems JV.

  • Secured a pilot order from Lockheed Martin USA worth ~$2 million (₹16.5 crores) for electronic assembly.

  • Received another export order of ₹457 crores ($55 million) for electronics/modules from overseas customers.

  • Q3 FY24 Revenue stood at ₹197.98 crores.

  • Q3 FY24 EBIT margin improved to 10.75% from 8.14% in Q3 FY23.

  • 9M FY24 PAT grew by 36.33% to ₹42.16 crores compared to ₹30.92 crores in the corresponding period of FY23.

  • Current order book stands at ₹1,569 crores as of February 9, 2024.

  • Raneal Advanced Systems (PCBA manufacturing subsidiary) recorded ₹40 crores in internal consumption for Q3 FY24 and targets ₹200 crores by March FY24.

Key financials

2 periods

Q3 FY24

  • Revenue
    ₹197.98 Cr
  • EBIT
    ₹21.28 Cr
  • EBIT Margin
    10.8%
    YoY +32.1%
  • PAT
    ₹11.89 Cr
  • PAT Margin
    6%
    YoY +1.1%

9M

  • FY24 Revenue
    ₹677.2 Cr
    YoY -8.9%
  • FY24 EBIT
    ₹70.63 Cr
    YoY +25.1%
  • FY24 EBIT Margin
    10.4%
    YoY +37.2%
  • FY24 PAT
    ₹42.16 Cr
    YoY +36.3%

What they filed

Q1 FY27: revenue down 53.6%, net profit down 313.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue196 200 550 222 193 −1%121 −39%207 −62%103 −54%
EBITDA-4 3 10 1 -13 −237%-5 −271%-0 −103%-11 −1060%
Net profit5 10 21 4 -9 −273%-2 −124%-0 −101%-9 −313%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Investment

  • QIP Allocation for NIART Systems JV Investment · January 2024 · High confidence ₹209 crores
    company now is going to fund about 209 crores out of this 500 crores of what we raised in the QIP.

    — Dr. Raghavendra Rao, Chairman and Managing Director

  • QIP Allocation for Technology Acquisition/JVs Investment · Ongoing · High confidence ₹200 crores
    the second 200 crore investment, to invest on our JV's and technology of transfer for Make in India program.

    — Dr. Raghavendra Rao, Chairman and Managing Director

  • QIP Allocation for General Corpus Fund (MRO Technology) Investment · Ongoing · High confidence ₹77 crores
    balance about 77 crores we kept as a mainly on the general corpus fund mainly of the two things on the acquisition of MRO Technology

    — Dr. Raghavendra Rao, Chairman and Managing Director

Revenue

  • NIART Systems Revenue Generation Start Revenue · FY24-FY25 · Medium confidence FY24 end to FY25
    most likely our revenues start generating from 24 end to 25.

    — Dr. Raghavendra Rao, Chairman and Managing Director

  • Raneal Advanced Systems Internal Consumption (DCX) Revenue · by March FY24 · High confidence ₹200 crores
    We are already I think 200 crores we are planning to do in this year roughly about other things

    — Dr. Raghavendra Rao, Chairman and Managing Director

  • Railway Safety Product Revenue Generation Start Revenue · FY25 · High confidence FY25
    I am confident that by 25 I should execute not only getting PO. start executing the program revenue should generate from 25.

    — Dr. Raghavendra Rao, Chairman and Managing Director

Profitability

  • Acquisition/JV Payback Period Profitability · Long term · High confidence 3-5 years
    The payback period we are always negotiating the payback period should be somewhere between 3 years to 5 year.

    — K S Ranga, Whole Time Director & Chief Financial Officer

Capacity Utilization

  • Raneal Advanced Systems Internal Consumption Target Capacity Utilization · Going forward · Medium confidence 60%-70%
    We are planning to have at least internal requirement go to 60%-70%

    — Dr. Raghavendra Rao, Chairman and Managing Director

  • Raneal Advanced Systems Direct Orders Target Capacity Utilization · Going forward · Medium confidence 30%-40%
    balance 30% we know where all we can able to capture this business

    — Dr. Raghavendra Rao, Chairman and Managing Director

Commercial Production

  • NIART JV Commercial Production Start Commercial Production · FY25 · High confidence FY25
    commercial production in the NIART JV will probably start from financial year 25, right? Yes as on today maybe early, but I don't want to overboard to the conservative level and looks 25 is practical.

    — Dr. Raghavendra Rao, Chairman and Managing Director

Risks & concerns

  • Quarter-to-quarter revenue volatility

    medium

    Management stated that revenue is not evenly distributed across quarters, with Q3 and Q4 typically being stronger, and advised against comparing quarter-to-quarter performance.

    Management acknowledged

  • Confidentiality restrictions on new orders

    low

    Management could not disclose specific customer names or project details for certain export orders due to NDA and classified program nature.

    Management acknowledged

Areas of evasion (2)

  • Exact margin percentages for specific business segments/new orders
  • Specific customer names for certain export orders

Q&A highlights

2 direct
Visibility and margins for Lockheed Martin orders Partial
Lockheed is a big opportunity taking entry of big and big potential, make in India program everything is going on the plan and with a margin I can say today cannot give you numbers because it is better than what we are doing in the current situation, what program we are doing with a much complex and the things, better than what we are doing in the margin in the Lockheed is better and opportunity is very big.

Analysts sought clarity on the long-term potential and profitability of the new Lockheed Martin order, a key new customer.

Asked by Akshada Deo

Timeline and customer base for NIART Systems JV Direct
As I mentioned Proto and trial has been done and just waiting for the bulk order to get into the company and as per my road map and for the potential available most likely our revenues start generating from 24 end to 25. ... It has to be Indian Railways the single customer and also there are other global customer in European and US and also some of the European countries and they will be used only in the government Railway Department.

This question clarified the expected revenue timeline and the primary target market for the significant new railway safety JV.

Asked by Akshada Deo

Raneal Advanced Systems investment, captive use, and margin impact Direct
what we are raised in the IPO object of the issue 45 crores it is still not even used single rupee. It is in the fixed deposit, but still my plant is up and run. I will tell you before my IPO as I mentioned because of the emergency demand in the market, customer pushing to start Raneal Advanced Systems in house PCB's, we used our internal accrual and the term loan from the bank. We started an operational this 45 crores we kept in the fixed deposit still, but we invested our own money started the PCB assembly. ... The internal consumption is already started definitely margin get improved in the upcoming days and going forward

Analysts probed the funding source for Raneal, its current operational status, and its contribution to the company's overall margin improvement.

Asked by Deepak Saha

3 min read 6 chapters

Detailed narrative

Q3 & 9M FY24 Financial Performance

DCX Systems reported Q3 FY24 revenue of ₹197.98 crores. Despite a sequential decline, EBIT margin improved significantly to 10.75% from 8.14% in Q3 FY23. PAT for the quarter stood at ₹11.89 crores, with PAT margin expanding 115 basis points year-on-year to 6.01%. For the nine months ended December 31, 2023, revenue was ₹677.2 crores, while EBIT grew by 25.05% to ₹70.63 crores, and PAT increased by 36.33% to ₹42.16 crores, demonstrating sustained profitability growth.

Strategic Capital Raise and Utilization

The company successfully raised ₹500 crores through a Qualified Institutional Placement (QIP) in January 2024, attracting investments primarily from mutual funds, FIIs, insurance companies, and AIFs. A significant portion of these funds, ₹209 crores, is earmarked for the joint venture with IAI ELTA Systems, NIART Systems Limited. Additionally, ₹200 crores are allocated for technology acquisition and JVs under the Make in India program, with ₹77 crores designated for the general corpus fund, including MRO technology acquisition.

New Order Inflows and Robust Order Book

DCX Systems announced two major new orders: a pilot order from Lockheed Martin USA for electronic assembly worth approximately $2 million (₹16.5 crores), marking a significant entry into a new customer relationship. Furthermore, the company secured another export order of ₹457 crores ($55 million) for electronics/modules from overseas customers. These new orders have bolstered the company's order book, which now stands at a strong ₹1,569 crores as of February 9, 2024.

NIART Systems JV for Railway Security

The joint venture with IAI ELTA Systems, NIART Systems Limited, is progressing smoothly, focusing on railway security and obstacle reduction systems. This technology, capable of predicting obstacles up to 1 kilometer, has completed trials successfully. Management expects revenues from this JV to start generating from late FY24 to FY25, with Indian Railways being the primary customer, alongside potential global customers in Europe and the US. The total investment in this JV is ₹209 crores from the QIP proceeds.

Raneal Advanced Systems (PCBA Manufacturing)

The subsidiary, Raneal Advanced Systems, which focuses on PCBA manufacturing, has commenced commercial production. The company invested approximately ₹27-30 crores from internal accruals and term loans to set up this facility, not yet utilizing IPO funds. Raneal recorded ₹40 crores in internal consumption for Q3 FY24 and aims to reach ₹200 crores by March FY24. Going forward, the target is for 60%-70% internal consumption and 30%-40% direct orders, with its two SMT lines having the capacity to handle up to ₹2,000 crores in revenue, primarily for high-end aerospace and defense applications.

Focus on Make in India and Export Markets

DCX Systems is strategically aligned with the Government of India's Make in India initiative, targeting the 60% indigenous content requirement for defense procurement. The company is actively pursuing technology transfers and JVs with foreign OEMs to capitalize on the positive indigenization list. The current order book reflects a mix of export orders (majority) and domestic defense PSU orders (20%-25% of 9M revenue), with a strong emphasis on expanding its marketing base to India, Israel, US, and European countries.

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