Should you be investing in Data Patterns (India) Limited IPO?

In this article

• IPO Brief
• Offer break-up
• IPO Object
• Importance of defence
• IPO Strengths
• Key Risks
• Financials

Chennai-based Data Patterns, incorporated in1985, is the fastest-growing defense and aerospace electronics solutions, provider. The company supplies products to a wide range of defense and aviation platforms in space, air, land, and sea. Its core skills include electronic hardware design and development, software design and development, firmware design and development, mechanical design and development, etc.

The company’s manufacturing facility consists of a 100,000 square feet factory built on 5.75 acres of land in Chennai, which has facilities for design, manufacturing, qualification, and life cycle support of high-reliability electronic systems used in defense and aerospace applications. The company has proposed to acquire an additional 2.81 acres of land for further expansion. As of July 31, 2021, Data Patterns had 760 employees with more than 450 qualified engineers.

IPO Brief

• IPO open from: Dec 14^th – Dec 16^th 2021
• Face value: ₹2
• Price Band: ₹555-585
• Market Lot: 25 shares
• Minimum Investment– ₹14,625
• Listing on: BSE and NSE
• Fresh Equity Issue: up to ₹240 crores
• Offer for sale: up to ₹348 crores
• Total issue: up to ₹588 crores
• Promoters: Srinivasagopalan Rangarajan and Rekha Murthy Rangarajan are the Promoters of the company and manage day to day affairs.
• Book running lead managers: IIFL Securities Ltd And JM Financial Consultants Private Limited

What is an IPO and should you invest in them?

Offer Break-up

The offer is broken up into the following investor classes:

IPO OBJECT

Data Patterns (India) Limited IPO Size is ₹588crores, here is the brief of how the company is going to use the IPO money:

1) Offer for Sale (OFS):  ₹348crores from the IPO will directly go to the bank account of existing shareholders and the company would not receive any part from IPO proceeds.

2) Fresh issue of ₹240crores: The remaining amount will be infused in the company and will be used for the following purposes:

• Payment of certain outstanding borrowings.
• Funding working capital requirements.
• Upgrading and expanding its existing facilities at Chennai.
• Rest for general corporate purposes.

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Importance of defence sector to counter India’s security challenges

India’s most pressing problems continue to be terrorism from Pakistan and a potential flare-up with China. The calendar year 2020 witnessed the most violent clash between India and China in decades with both sides sustaining casualties

The taking over of Afghanistan by the Taliban will further add to the security problems, with a likely increase in terrorist attacks and cross-border infiltration. To counter this situation government boosts its defense sector with an increase in the defense budget and the “Atmanirbhar Bharat” initiative would likely benefit Data Patterns.

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IPO Strengths

• Benefit from the Atmanirbhar Bharat &Make in India initiative: Under the Atmanirbhar Bharatcampaign, the defence sector has been identified as one of the core areas to boost ‘Make in India’.
• Strong order book: Data Patterns’s order book have grown from₹80.54crores in March 2017 to₹582.30crores in march 2021 which shown a significance jump with 63.98% CAGR growth in last 4 year.
• Products that are matching internationalstandard: The company have a modern in-house design and development capabilities with high reliability of its electronic systems that match international standard.
• Good financial track record: Data patterns is one of the fastest growing companies in the defence sector with profitability growth of 164.12% between March 2020 to March 2021.
• Skilled workforce: Defence sector required skilled and qualified manpower that ensure the continued innovation and maintain the quality of the product. Data patterns have 760 employees out of which 450 are engineers.

Key Risks

• Orderbook depend on Government: Due to the small penetration of export, Data Patterns largely dependent on contracts from Indian government and its entities.
• No diversification in customer base:The company’s revenue is dependent on a limited number of clients, which include DRDO, ISRO, BrahMos and BEL. Loss of any customers would significant reduction in the business and itsprofitability.
• Required strict quality standards:Data Patterns work in strategically important sector where no chance of any failure and if they do so that could negatively impact its reputation and business.
• Continuity in innovation and development: The company operates where rapid technological evolution happens and there is a need to keep in pace with state-of-the-art technologies.
• Promoter shares are pledged:The company’s promoter Srinivasagopalan Rangarajan has pledged hissharesaggregating to 26.79%of the paid-up capital. Any breach of any certain agreements may harm the company’s goodwill and affect its business.

Financials