Data Patterns IPO subscribed 119.62 times on Day 3

**Data Patterns (India) Limited IPO opened for subscription on 14th December. It got subscribed 119.62 at the end of Day 3. The company is looking to raise up to Rs 588.22 crore through the public issue. Here are the details:** ## **About Data Patterns Limited IPO** **Data Patterns Limited IPO Date:** 14 December - 16 December 2021 **Data Patterns Limited IPO Price band:** Rs 555 - Rs 585 **Issue Size**: Rs 588.22 crore (Fresh issue aggregating up to Rs 240 crore and offer for sale aggregating up to Rs 348.22 crore) **Reservation**: QIB 50%, Retail - 35, NII 15% **Post Issue Market Cap:** Rs 2892 cr to Rs 3035 cr **Minimum Investment**: Rs 14,625 **Bid lot:** 25 shares, and in multiples of 25 shares ## **Objectives of the issue** The net proceeds from the IPO will be utilized for the following purposes : - Repayment or prepayment of all or a portion of certain outstanding borrowings availed by the company. - Funding working capital requirements of the company. - Upgrading and expanding the company’s existing facilities in Chennai. - Meet general corporate purposes. ## **About Data Patterns** - The company was incorporated in 1985. It is into defense and aerospace electronics solutions.  - It is **one of the fastest-growing companies** in the Defence and Aerospace Electronics sector in India with excellent margins and returns ratios (F&S Report). - It offers products to the entire spectrum of defense and aerospace platforms - space, air, land, and sea. - Data Patterns 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. - It had developed the first nanosatellite 'NiUSAT' which was deployed in 2017. In addition, **two more satellites are in progress.** - Data Patterns works closely with the defense PSUs such as Bharat Electronics Ltd and Hindustan Aeronautics Ltd as well as government organizations involved in defense and space research like DRDO. - Its manufacturing facility consists of a 100,000 square feet factory built on 5.75 acres of land in Chennai.  - The facility is used for design, manufacturing, qualification, and life cycle support of high-reliability electronic systems used in defense and aerospace applications. - Data Patterns is **backed by former Blackstone head Matthew Cyriac** via Florintree Capital Partners LLP which holds a 12.8% stake in the company. ## **Data Patterns Financials**  - The total revenue reported by the company for FY19, FY20, and FY21 is Rs 132.51 crore, Rs 160.19 crore, and Rs 226.55 crore, respectively. The company has shown good revenue growth over the last three financial years. - The net profit for the same period was Rs 7.70 crore, Rs 21.05 crore, and Rs 55.57 crore, respectively.  - The EBITDA for FY19, FY20, and FY21 is Rs 26.99 crore, Rs 47.25 crore, and Rs 94.49 crore, respectively. The EBITA margin for the same period was 20.37%, 29.50%, and 41.75%. - The ROE and ROCE for FY21 are 26.75% and 34.69%, respectively. - The average EPS and RoNW for the last three financial years are 6.01 and 15.45%, respectively. - It has an order book of Rs 582.30 crore as of July 31, 2021, which has increased from Rs 178.70 crore as of April 1, 2018, at a CAGR of 40.72%. - Contribution from the global clients is 14.76%, 7.13%, and 9.16% of its total revenue from operations for FY21, FY20, and FY19, respectively. ## **Data Patterns Listed Peers** Data Patterns has many listed peers in the industry, some are prominent names. The listed peers include recently listed **MTAR Technologies, Astra Microwave Products, Centum Electronics, and Bharat Electronics.**  - Needless to say, in terms of revenue, the biggest player is Bharat Electronics with revenue of Rs 14,108.69 crore (FY21) followed by Centum Electronics.  - The Earning Per Share (EPS) is highest for MTAR Technologies (16.99) followed by Centum Electronics with an EPS of 13.31. - Data Pattern has the highest RoNW of 26.79% followed by Bharat Electronics with RoNW of 19.43%. ## **Defense and Aerospace Electronics** **Industry Outlook**  Frost & Sullivan estimates 39,033 satellites to be launched from 2021-2030. About 98.99% of the demand is from small satellites of which 49.01% of the demand is from satellites weighing less than 75 Kg. The total demand consists of the new satellites as well as the replacement satellites for a continued offering of services.  It is also estimated that the **global satellite manufacturing revenues** for 2021 is $29.62 billion, and is expected to grow to $97.94 Billion by 2030, at a **CAGR of 14.21%.** Frost & Sullivan estimates the **Indian satellite manufacturing revenues** to be $803.26 million as of 2021. It is expected to grow up to $1061.5 million by 2030, growing at a **CAGR of 3.15%.** ## **Data Patterns USPs** **Indigenous integrated and strategic defense and aerospace electronics solutions provider** - The Indian defence industry is rapidly evolving into a self-sustaining one. The company's competency and the focus of the Indian Government to enhance indigenization makes them well-positioned to rapidly commercialize or scale up and thereby garnering significant benefits from the Make-in-India program.  **Focus on innovation** - The company is focused on in-house development and manufacturing capabilities led by innovation, design, and development efforts. The company has consciously built competencies to design and build building blocks across the defence and aerospace electronics spectrum. It allows them to build lower-cost value-added integrated systems with greater ease and in a cost-competitive manner. **Modern certified manufacturing facility** - It is certified for or follows various standards across product life cycles, including for aerospace systems under AS9100D by TUV-SUD, IPC Standards for PCB design, DO 178B for software for airborne systems. Its modern production and test infrastructure cater to the production and validation of Aerospace, Defence, and Space electronics systems.  ## **Data Patterns Growth Potential** **Expansion of product portfolio** - Data Patterns plans to expand its capabilities and product portfolio to enhance its offerings in the defence and aerospace electronics space, especially in complex technology-based products. In the future, it also intends to opportunistically bid for and engage in higher-value projects which require significant use of complex technologies. **Focus on repeat large volume production orders** - Because of its reusable building block model and pre-existing certification and platform-specific products, the company can distribute development costs over multiple programs and be the preferred OEM supplier for ongoing programs. It aims to focus on such orders or projects wherein the initial development stage has been completed and there is significant scope for high volume repeat orders or high-value repeat orders. **Augmenting design and development capabilities** - The company will use part New Proceeds of the IPO towards upgrading and expanding its existing facilities located in Chennai. It also intends to augment design and development capabilities for its various verticals, including design verticals, through procurement of additional software, testing equipment, or other related hardware.  **Increasing export business** - Data Patterns plans to expand to high-end global markets similar to India, where its core competency is in complete sync with requirements for various sectors, such as industrial automation, telecom, automobile, medical and nuclear. It will identify market opportunities in overseas jurisdictions and tie-up with local partners to utilize its existing product portfolio and develop products suitable for meeting the respective country’s native requirements. ## **Data Patterns Risks** **Business dependent on contracts from GoI** - Data Patterns significant business depends on contracts from the Government of India and its associated entities. The company derived 52.58%, 36.71%, and 48.10% of its total sales during FY21, FY20, and FY19, respectively, from sales made to the GoI Entities. A decline or reprioritization of the Indian defence or space budget, reduction in orders, termination of existing contracts, delay of existing or anticipated contracts or programs will impact Data Patterns revenue. **Limited number of customers** - The company has a limited number of customers such as DRDO Defence PSUs such as MoD, BrahMos Aerospace, and the Indian government space organization. If its customers can fulfill their requirements through any existing or new competitors, providing products with better quality and/or cheaper cost, Data Patterns may lose a significant portion of its business. **Strict quality standards** - The business is subject to strict quality requirements, customer inspections, and audits. Any failure to comply with quality standards may lead to the cancellation of existing and future orders. It will also damage the company's reputation and will have an impact on future prospects. ## **Data Patterns IPO: ** Data Patterns' topline has increased at a healthy CAGR of 31% over from FY19 to FY21, making it one of the fastest growing players in the Defense and Aerospace Electronics sector. The company’s net profit has also grown at a healthy rate of 164% on-year in FY21. EBITDA margins as well as return ratios have also risen at a healthy rate between FY19- 21.  At the higher end of the price band, Data Patterns IPO is priced at a **Price to Earnings Ratio of ~54 times** FY21 earnings. This seems to be lesser than MTAR Tech (135 times), Centum Electronics (190 times) and Paras Defence (190 times) but lesser than Astra Microwave and Bharat Electronics. Notably, Paras Defence as well as MTAR Technologies saw bumper listings recently from this space.   Given the company’s steady topline growth, robust margins, good return ratios, competitive advantage in design and development capabilities, entry barriers in the industry and strong growth outlook, we remain **“positive”** on the prospects of the issue. ## Subscription status as on 16th December 2021 (End of Day 3) | Category | Subscription (times) | |-----------|----------------------| | QIB | 190.86 | | NII | 254.22 | | Retail |23.14 | | Total |119.62 | To read more about Data Patterns post IPO details like allotment date, listing date etc, click [here](https://www.indmoney.com/articles/data-patterns-ipo-allotment-listing-subscription).