Fundamentals justify the offer price though promoters’ residual minority stake at nil cost and key management personnel’s negative cost of holding may dilute attraction in the long run.
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DATA PATTERNS OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 588 Cr |
| Fresh Issue | Rs 240 Cr (41,02,564 equity shares) |
| Offer for Sale | 59,52,550 equity shares (Rs 348 Cr) |
| Face Value | Rs 2 |
| Price Band | Rs 555–585 |
| Mkt/Bid Lot | 25 Nos. |
| Implied M-Cap | Rs 3035Cr |
| Implied Equity Cap | Rs 10.37 Cr |
| Free Float | 54.38% |
| Lead Manager | JM Financial & IIFL Securities |
| Registrar | Link Intime |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
|
| Opening :14-Dec-2021 | Closing :16-Dec-2021 |
| Allotment :21-Dec-2021 | Refunding :22-Dec-2021 |
| DematCredit:23-Dec-2021 | Trading :24-Dec-2021 |
The Offer
The Chennai-based Data Patterns (India) Ltd is entering the capital market with an IPO which consists of a fresh issue of Rs 240 Cr (41,02,564 equity shares) and an offer for sale of 59,52,550 shares (Rs 348 Cr) from as many as 221 existing shareholders, including the two main promoters. The offer is being made through the book-building route with a price band of Rs 555-585 for Rs 10 paid-up share.
Applicants for the IPO should bid for a minimum lot of 25 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Friday, December 24, 2021. JM Financial and IIFL Securities have been roped in as the lead-managers to the offer. Link Intime Technologies will act as the registrar to the issue. The bidding opens on Tuesday, December 14, 2021 and closes on Thursday, December 16, 2021.
The company proposes to utilize the net proceeds from the fresh issue (Rs 240 Cr) towards prepayment/repayment of certain outstanding borrowings (Rs 60.80 Cr); funding working capital requirements (Rs 95.19 Cr); upgrading and expanding the existing facilities at Chennai (Rs 59.83 Cr) and general corporate purposes.
Lineage
The 23 year-old Data Patterns (DPI) was promoted by Srinivasagopalan Rangarajan and his spouse Rekha Murthy Rangarajan in November 1998. The company was originally incorporated as Indus Teqsite Private Ltd at Bangalore. The registered office of the company was shifted from Karnataka to Tamil Nadu in August 2006. This year, under a `Scheme of Amalgamation’ Indus Teqsite’s wholly-owned subsidiary, Data Patterns (India) Private Ltd, was merged into the parent company subsequent to which the parent company’s name was changed to Data Patterns (India) in August 2021.
In June 2012, Oman India Joint Investment Fund (OIJIF) came into the company by acquiring 3,33,887 shares (about 20% of the capital) for a consideration of Rs 55 Cr. Of this, Rs 30 Cr was directly paid to the company and Rs 25 Cr went to the promoters. For nine long years there was no alteration in the company’s capital or share holding pattern. But, suddenly in mid 2021, as a prelude to the public offer, hectic activity started on the company’s capital front.
In June 2021 the promoters arranged to sell OIJIF’s investment of Rs 55 Cr to Florintree Capital Partners LLP for a consideration of Rs 81 Cr. In other words, after nine years’ wait, OIJIF got a capital gain Rs 26 Cr (47%). After Florintree’s entry, the company first went for a 5:1 stock split and 4:1 bonus issue in August 2021. A month later it came out with another bonus, this time at a smaller ratio of 1:10. As on the date of the RHP Florintree was holding 59,96,622 shares (12.55%) which is worth more than Rs 350 cr! How Florintree is facilitated by the promoters to make such a huge capital gain within few months of investing is worth looking into.
As regards the company’s track record, between fiscal 2019 and fiscal 2021, DPI was one of the fast growing companies in terms of revenues among key Indian defence and aerospace companies with a growth in revenues of 71% during this period. Between fiscal 2020 and fiscal 2021, the company recorded a revenue growth of 43%. Also, in fiscal 2021, DPI registered the highest EBITDA margin, ROCE and ROE amongst key Indian defence and aerospace companies.
Key Management
DPI’s promoter Srinivasagopalan Rangarajan (64), who holds a bachelor’s degree in chemical engineering from the University of Madras and a master’s degree (MS) in Industrial Management from IIT Madras is the and Chairman and Managing Director of the company. Co-promoter Rekha Murthy Rangarajan (57), who holds a master’s degree of Arts in Applied Psychology, is a whole-time director. Mathew Cyriac is the nominee director representing Florintree Capital.
Many of the senior personnel, including chief technology officer, Desinguraja Parthasarthy (53), chief operating officer & chief information security officer, Vijay Ananth K (45), senior vice president-business development, Thomas Mathuram Susikaran (57), chief financial officer, V Venkata Subramanian (54) and deputy general manager – quality assurance and control, R Nandaki Devi (61) each with many years of relevant industry experience, have reportedly been associated with the company for more than two decades.
Stakeholders
Currently, there are 259 shareholders of which 13 shareholders are holding more than 1% each. They collectively hold 88.61%. The maximum average cost of the existing shareholders is Rs 63.65 a share. Maximum price of allotments made during last one year was Rs 88.22 a share. As many as 221 existing shareholders, including three from the promoter group, are making an offer for sale through the current IPO.
Post-public offer, the promoters will have a minority stake of 45.62%. As they will be collecting through the offer for sale more than what they had actually invested in the company, the promoters residual cost of holding would be negative. Of the promoters’ stake, 20% is locked-in for 18 months and the balance 25.62% is locked for 6 months.
Business
DPI is among the few vertically integrated defence and aerospace electronics solutions provider catering to the indigenously developed defence products industry. It is one of the fastest growing companies in the Defence and Aerospace Electronics sector in India. The company has got proven in-house design and development capabilities and experience of more than three decades (including through its erstwhile subsidiary) in the defence and aerospace electronics space. Its offerings cater to the entire spectrum of defence and aerospace platforms – space, air, land and sea.
The company has design capabilities across the entire spectrum of strategic defence and aerospace electronics solutions including processors, power, radio frequencies and microwave, embedded software and firmware and mechanical engineering. Its core competencies include electronic hardware design and development, software design and development, firmware design and development, mechanical design and development, product prototype design and development, functional testing and validation, environment testing and verification and engineering services opportunities.
The company reportedly has end-to-end capabilities to build and deliver complete systems, with its design and manufacturing capabilities being completely in-house. Its electronic solutions are developed by specialist teams working on areas including complex 20+ layer printed circuit board designs, field-programmable gate arrays based firmware algorithms, all layers of software including operating system porting, device drivers, networking layers, application software, graphical user interface, cartography, signal processing, streaming protocols and waveform engineering. Its capabilities across the spectrum of aerospace and defence electronics solutions from design to delivery allows DPI significant competitive benefits in terms of overall development time and cost, and also allows the company to offer competitive pricing when bidding for aerospace and defence projects.
Financial Track
With a bottom line growth of about 164% between fiscal 2020 and 2021, DPI is one of the fastest growing companies in the Defence and Aerospace Electronics sector in India with impressive margins and return ratios. Between fiscal 2019 and 2021, the company recorded higher growth in revenues, EBIDTA margin, ROCE and ROE amongst key Indian defence and aerospace companies. In last fiscal it recorded the highest EBITDA margin, ROCE and ROE among the peers. The company’s order book position was also very healthy at Rs 581 Cr at the end of last fiscal.
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Data Patterns Standalone Financials (in Cr) |
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| Period Ended |
Sep-21 |
Mar-21 | Mar-20 |
Mar-19 |
| Months |
6 |
12 | 12 |
12 |
| Revenue |
96.45 |
223.95 | 156.1 |
131.06 |
| Operating Profit |
37.82 |
91.99 | 43.16 |
25.55 |
| OPM% |
39.2 |
41.1 | 27.6 |
19.5 |
| Other Income |
0.73 |
2.6 | 4.09 |
1.45 |
| EBIDTA |
38.55 |
94.59 | 47.25 |
26.99 |
| EBIDTA % |
39.7 |
41.8 | 29.5 |
20.4 |
| Interest |
4.81 |
14.5 | 13.34 |
10.78 |
| Depreciation |
2.96 |
5.55 | 5.48 |
5.86 |
| Net Profit |
23.21 |
55.57 | 21.05 |
7.78 |
| Equity (Implied) |
10.38 |
1.7 | 1.7 |
1.7 |
| Reserves (Implied) |
509.58 |
206.07 | 151.8 |
131.19 |
| Borrowing |
52.41 |
32.44 | 60.41 |
58.16 |
| Fixed Assets |
41.20 |
33.00 | 33.30 |
36.40 |
Valuation
DPI has undertaken a pre-IPO placement of 1,039,861 equity shares at a price of Rs 577 per share. The IPO cap price of Rs 585 discounts the company’s last fiscal earnings about 55 times which, though looks steep, is quite comparable with a recent industry peer IPO, Paras Defence, and MTAR Technologies which enjoys the highest M-cap among the private sector peers. As a matter of fact, among the industry peers in the listed domain, only the PSU Bharat Electronics scores better than DPI. However, what should worry DPI’s prospective investor is the minority stake of the promoters and the negative cost of holdings of many an existing shareholder.
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HOW DATA PATTERNS COMPARES WITH DEFENCE/SPACE ELECTRONICS PEERS |
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Financials |
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| (Amount in Cr) | Data Patterns | Bharat Elect | MTAR Tech | Paras Defence | Astra Micro |
| Market Cap |
3035 |
51350 | 7347 | 2842 |
2206 |
| Fixed Assets |
33 |
3535 | 178 | 157 |
153 |
| Revenue |
224 |
14109 | 246 | 143 |
641 |
| Other Income |
3 |
125 | 1 | 1 |
11 |
| EBIDTA |
95 |
3366 | 84 | 45 |
109 |
| Interest |
15 |
6 | 7 | 12 |
24 |
| Net Profit |
56 |
2100 | 46 | 16 |
29 |
| Equity Cap |
10 |
246 | 31 | 39 |
17 |
| Reserves |
510 |
10816 | 446 | 333 |
541 |
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Stock Features |
|||||
| Current Price (Rs) |
585 |
209 | 2389 | 729 |
255 |
| Face Value (Rs) |
2 |
1 | 10 | 10 |
2 |
| Book Value |
100 |
45 | 155 | 95 |
65 |
| Promoter Stake % |
45.62 |
51.14 | 50.25 | 58.94 |
8.98 |
|
Profitability |
|||||
| OPM % |
41.1 |
22.8 | 33.7 | 30.3 |
15.7 |
| Net Margin % |
24.5 |
14.7 | 18.6 | 10.9 |
4.4 |
| Cash EPS |
11.78 |
10.12 | 19.09 | 6.51 |
8.66 |
| Earnings Per Share |
10.71 |
8.54 | 15.01 | 4.03 |
3.29 |
|
Return |
|||||
| RONW % |
25.7 |
19.0 | 9.7 | 4.2 |
5.1 |
| ROCE % |
35.7 |
26.9 | 14.7 | 7.5 |
9.1 |
|
Discounting |
|||||
| Price/Earnings |
54.6 |
24.5 | 159.2 | 180.7 |
77.3 |
| Price/Cash EPS |
49.7 |
20.7 | 125.1 | 112.0 |
29.4 |
| Price/Book Value |
5.8 |
4.6 | 15.4 | 7.7 |
4.0 |
| Price/EBIDTA |
32.1 |
15.3 | 87.1 | 63.6 |
20.3 |
| Price/Revenue |
13.6 |
3.6 | 29.8 | 19.8 |
3.4 |
| Price/Fixed Assets |
92.0 |
14.5 | 41.4 | 18.1 |
14.5 |
Concern
- On the corporate governance front, DPI has somehow failed to match its operational stature. For instance, the company is unable to trace some of its historical records, including the form filings made with the RoC, share transfer deeds and corresponding resolutions maintained by the company.