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Data Patterns IPO: All You Need To Know

The IPO will open on Dec. 14 and close on Dec. 16.

<div class="paragraphs"><p>Missiles sit on the tarmac in front of a fighter jet in India. (Photographer: Anindito Mukherjee/Bloomberg)</p></div>
Missiles sit on the tarmac in front of a fighter jet in India. (Photographer: Anindito Mukherjee/Bloomberg)

Data Patterns (India) Ltd., a defence and aerospace electronics solutions provider, will launch its three-day initial public offering on Tuesday to raise fresh equity and allow partial exit to promoters and selling shareholders as a record year for Indian listings draws to a close.

The maiden offer comprises a fresh issue and an offer for sale of 59.52 lakh shares, according to the company’s red herring prospectus. The price band is set at Rs 555-585 apiece. Bidding for anchor investors will open on Dec. 13.

The IPO comprises 19.38% of the post-issue equity capital, and promoters will hold 45.6% after the share sale.

Issue Details

  • IPO duration: Dec. 14-16.

  • Fresh issue: Rs 240 crore.

  • Offer for sale: Rs 348.20 crore.

  • Implied market value: Rs 3,035.4 crore at the upper end of the price band.

  • Face value: Rs 2 apiece.

  • Lot size: 26 shares and multiples.

  • Listing: NSE and BSE.

  • Lead managers: JM Financial, IIFL Securities.

The company has undertaken a pre-IPO placement of Rs 60 crore at an equity share price of Rs 577 apiece.

Objective

The company will use the proceeds from the fresh issue to:

  • Prepay or repay all or a portion of certain outstanding borrowings availed by the company: Rs 60.80 crore.

  • Fund working capital requirements: Rs 95.19 crore.

  • Upgrade and expand existing facilities at Chennai: Rs 59.83 crore.

Business

Data Patterns is among the few vertically integrated defence and aerospace electronics solution providers catering to the indigenously developed defence products industry.

It has proven in-house design and development capabilities and experience of more than three decades. Its caters to the space, air, land and sea.

The company has design capabilities across the spectrum of strategic defence and aerospace electronics solutions, including processors, power, radio frequencies and microwave, embedded software and firmware, and mechanical engineering.

These systems have found application in the Tejas Light Combat Aircraft, Light Utility Helicopter, BrahMos missile programme, precision approach radars and various communications intelligence and electronic intelligence systems.

The products developed have been used for the LCA, LUH, BrahMos’ missile programme, including land and air-based missile launch systems and automatic test equipment, tracking radars, weather radars, automatic test equipment and nano satellites for the Indian government space organisation, the Defence Research and Development Organisation’s radars and electronic warfare systems, onboard equipment for various aircraft, missiles and torpedoes and airborne early warning and control systems.

The company had an order book of Rs 5,81.29 crore as on Sept. 30. Nearly 70% of that is based on production contracts on a single-vendor basis, 20% is based on developmental contracts it undertakes for the DRDO and other defence development agencies, and 10% are services contracts.

Developmental contracts and long-term projects, once they achieve commerciality, transform into production contracts. The company provides for all its development expenses as revenue expense during the year and is not amortised. Hence, when it gets production contracts, it comes with higher margin.

Financials

Data Patterns has been profitable for the last three financial years. Being in the defence sector, it has high working capital requirement, and has higher inventory days and trade receivable days. The company expects this to significantly decline as its order book mostly consists of production contracts.

Peers

Data Patterns competes with MTAR Technologies Ltd., Bharat Electronics Ltd., Paras Defence and Space Technologies Ltd., Astra Microwave Products Ltd. and Centum Electronics Ltd. in the listed space.

Risks

  • Business is largely dependent on contracts from the Government of India and associated entities, including defence public sector undertakings and government organisations involved in space research. A decline or re-prioritisation of India’s defence or space budget may have a material adverse impact on business.

  • Depends on a limited number of customers such as DRDO Defence PSUs, BrahMos Aerospace and the ISRO for a significant portion of revenue. Loss of any major customers or significant reduction in business from major customers may affect business.

  • Loss, shutdown or slowdown of its design and engineering and manufacturing facility may have a material adverse effect on business.

  • It may not qualify for or win bids to expand business, affecting business.

  • If it fails to obtain, maintain or renew statutory and regulatory licences, permits and approvals required for business, its results of operations and cash flows may be adversely affected.

  • It has significant working capital requirements. If it experiences insufficient cash flows from operations or are unable to borrow to meet working capital requirements, it may affect business, cash flows.

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