DCX Systems IPO: Issue subscribed nearly 70 times on the final day of bidding

The initial public offering (IPO) of Bengaluru-based DCX Systems garnered a strong response from investors so far on the final day of bidding. The initial share sale, which started on October 31, got fully subscribed on the very first day.

On Wednesday, the Rs 500-crore issue attracted bids for 1,01,27,44,152 shares by 5 pm, which was 69.79 times the issue size of 1,45,11,146 shares. The quota reserved for non-institutional investors was subscribed 43.97 times while that of retail individual investors by 61.77 times. The portion reserved for qualified institutional buyers (QIBs) was subscribed 84.32 times.

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DCX Systems has fixed the IPO price band at Rs 197-Rs 207 per equity share. Investors can bid for a minimum of 72 equity shares and in multiples of 72 equity shares thereafter.

Latest grey market premium

Market participants said DCX Systems IPO grey market premium (GMP) today is at Rs 85. It implies that the grey market is expecting the lender to list around Rs 292 (Rs 207 + Rs 85), which is more than 41 per cent higher than the IPO's upper band price of Rs 207 per equity share.

Expert Views

Manoj Kumar Dalmia, Founder and Director, Proficient equities Private limited: "DCX Systems is among the leading Indian players in the manufacturing of electronic sub-systems and cable harnesses. It had 26 customers in Israel, the United States, Korea and India, including certain Fortune 500 companies. With 'Make in India', 'Atmanirbhar Bharat' and other policies, DCXSL – is poised for bright prospects. Based on its financial performance, investors can 'Subscribe'."

Ravi Singhal, CEO, GCL: "From our side must apply for the long-term and listing gains. The company has a good and promising business model. One of the leaders in its category has the global presence. India is also focusing on making in India the entire defence system. All things look positive except investment in subsidiary and how much they invest and purpose for it."

Ravi Singh, Vice-President and Head of Research, Share India: "The growing Indian landscape for defence and aerospace may serve as a key opportunity for DCX Systems. Recent initiatives like an increase in FDI (foreign direct investment) in the Indian defence sector from the current 49 per cent to 74 per cent under the automatic route are anticipated to open new growth opportunities for the industry. The issue price of DCX Systems is also seems to be fairly priced based on their valuations. Investors may 'subscribe' to this IPO from a long-term perspective."

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Pravesh Gour, Senior Technical Analyst, Swastika Investmart Ltd: The current geopolitical issues like the Russia-Ukraine war and the China-Taiwan tussle have created a strong impetus for increased spending on defense globally. Additionally, the intent of the government to manufacture domestically is clear, and schemes such as 'Make in India', 'Atmanirbhar Bharat' and initiatives like an increase in FDI in the Indian defense sector along with an import ban on various defence products will help in the cause. The company is one of the leading Indian Offset Partners (IOP) & among the top Indian players for the manufacture of electronic sub-systems and cable harnesses in the defense and aerospace sector, thus making it a proxy play on the rising indigenous manufacturing in the defense industry. Nevertheless, there are concerns with the company like high dependence on key customers, the majority of the revenue from low margin built to print offset defense contracts, the regulated nature of the industry, high debt to equity, and high working capital requirements. However, the company's expansion plans into high-margin & high-growth verticals like Electronic Manufacturing Services (EMS), Cable Harness, MRO, and Transfer of Technology alleviate some of the concerns like low margin, and reasonable valuations compared to its peers provide comfort. Finally, the tailwinds in the sector emanating from government reforms will be visible in the long term, and thus we 'recommend' this issue to long-term investors only."

Manan Doshi, UnlistedArena.com: "The issue looks reasonably priced at a PE (Price-earnings) multiple of about 30 times (post-fresh issue) based on 2021-22 (FY22) figures. Due to the government's efforts to boost domestic manufacturing and export of defence equipment, the sector-specific stocks have remained popular lately."

Meanwhile, according to the company, 75 per cent of the issue has been reserved for qualified institutional investors, 15 per cent for non-institutional investors, and the remaining 10 per cent for retail investors.

The company aims to utilise the net proceeds from the fresh issue towards debt payment, funding working capital requirements and investment in its wholly-owned subsidiary Raneal Advanced Systems.

The company is primarily engaged in system integration and manufacturing a comprehensive array of cables and wire harness assemblies and is also involved in kitting.

On the financial front, DCX Systems' revenue from operations grew at a CAGR (Compounded annual growth rate) of 56.64 per cent from Rs 449 crore in fiscal 2020 to Rs 1,102 crore in fiscal 2022.

The company's order book has increased from Rs 1,941 crore as of March 31, 2020, to Rs 2,369 crore, as of March 31, 2022.

Edelweiss Financial Services, Axis Capital and Saffron Capital Advisors are the book-running lead managers to the issue. The equity shares are proposed to be listed on both the bourses, BSE and NSE.