Q4FY23 Review: Data Patterns India: Growth to catapult in FY25

16 May 2023 , 10:33 AM

Data Patterns is stepping up its R&D efforts on new product development to fuel longer-term growth and drive a sustainable mix with system integration capabilities and existing sub systems. Inflows in FY23 are 3x YoY and YTD OB is Rs10bn (2.2x sales), which will ensure 25% revenue growth in FY24 with steady 40% OPMs. Large single vendor order wins in FY24 and execution of surveillance radars in FY25 will not only offset on profitability front, but also aid robust growth of >50% in revenues, driving EPS Cagr of 37% in FY23-25.

Healthy growth visibility: 

With FY23 ending with a 2.2x increase in order inflows, order book closed at a record of Rs9,240mn. Management highlighted that the Order Book at 2x Book-to-Bill provides sufficient runway to meet revenue growth target of 25% CAGR in the future. Developmental projects for large surveillance radar aided inflows in FY23, single vendor high margin projects (Arundhati & Himshakti -Rs1.5bn each) will aid Rs8bn inflows in FY24 and offset the impact on profitability in the FY25. Incrementally, company expects 1-2 order wins in competitive bid based projects in FY24 driving upside to the base guidance.

Strives to sustain 40% margins: 

At 38%, Ebitda margins for FY23 slipped below targeted levels of 40% due to lower gross margins (higher share of low margin development revenue) and rise in staff costs with 38% YoY increase in headcount (1,500) & salary increments made in November 2022 (significant drop in attrition in FY23). Data patterns will further add 100 engineers to support investments in new-product R&D. Management reiterates ~40% Ebitda margins to be sustainable led by new product driven strategy, in addition to building integration capabilities.

Pursuing new product development: 

Having raised Rs5bn in QIP, the company is all set to ramp up investments across Satellites, Radars, Communication & ESM verticals. New manufacturing facility was commissioned in Q4FY23. Large order wins and improvement in the NWC cycle are key catalysts, for the stock to retain rich valuations.

Analysts of IIFL Capital Services revise FY24/25 EPS by -1/4%. Stock continues to trade at steep valuations of 38x FY25 EPS, in anticipation of large order wins in FY24-25. They maintain ADD with TP of Rs1,627, implying 6% upside.