The stock market turmoil has dragged the shares of recently-listed Data Patterns 23 per cent lower from the all-time high of Rs 935 in a month, but domestic brokerage ICICIDirect sees it to be well placed to capture a huge opportunity in the defense electronics space.

At present, over 60 per cent of electronic components used are supplied by foreign OEMs. As indigenisation efforts by the government continue, future procurement will see a large portion of defense electronics sourced locally, according to the brokerage.

In the FY23 Budget, the government had earmarked Rs 84,598 crore, 68 per cent of the military’s capital acquisition budget, for purchasing locally produced weapons and systems to boost self-reliance in the defense sector, besides setting aside 25 per cent of the defense R&D budget for private industry, start-ups and academia.

“Given Data Patterns has proven in-house design and development capabilities and experience of more than three decades in the defense and aerospace electronics space across all the platforms – space, air, land and sea – it stands to benefit,” said ICICIDirect.

The brokerage has initiated coverage on the stock with a ‘buy’ rating and a target price of Rs 886, suggesting 24 per cent upside from previous close on Tuesday. Even if the stock meets the target in 12 months, it would fail to reach the 52-week high level.

Data Patterns is a vertically integrated defense and aerospace electronics solutions provider catering to the indigenously developed defense products industry. The stock had listed in December last year at a premium of over 40 per cent. It is among one of the few debutants of 2021, that still trade at a premium to their issue prices. The company has delivered revenue, PAT CAGR of 30.7 per cent, 168 per cent, respectively, in FY19-21.

ICICIDirect said a healthy order book position and a pipeline of order provides the company with strong visibility. At the end of the December quarter, the company’s order book was at Rs 577 crore, with orders from several marquee customers, including the Defense Ministry, BrahMos, DRDO, ISRO, and among others.

As per the management, the company is on track to get orders worth Rs 500 crore in FY23. Over the next two years, the brokerage expects it to swell to Rs 2,000 crore.

“Data Patterns is well placed to deliver revenue and PAT CAGR of 27.6 per cent and 29.5 per cent, respectively, over FY22-24E. An increase in profitability with strong asset turnover will result in healthy return ratios over FY23-24E. It values ​​the stock at Rs 886, on 32x P/E on an FY24E EPS basis,” ICICIDirect said.

It flagged dependence on government contracts and significant working capital requirements as key risks to target.


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By Dipak

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