Data Patterns India – ADD

Initiating coverage

08 March 2022

An emerging player in defence electronics Company update

Data Patterns is a vertically integrated electronics solutions CMP Rs620 Price performance (%)
provider having design capabilities across the entire spectrum of 12-mth TP (Rs) 758 (22%) 1M 3M 1Y
strategic defence and aerospace electronics. It is targeting larger Absolute (Rs) (13.2) 0.0 0.0
Market cap (US$m) 418
system integration opportunities in radars and electronic warfare
Absolute (US$) (15.8) 0.0 0.0
(>2/3rd of revenues) and is pursuing prospects in avionics, nano Enterprise value(US$m) 421
Rel.to BSE Midcap (3.6) 0.0 0.0
satellites & exports. Thrust on defence spending and strong Bloomberg DATAPATT IN
earnings growth (25% Cagr in FY22-24ii) should help sustain rich Cagr (%) 3 yrs 5 yrs
valuations vs other DPSUs; Initiate with ADD recommendation and Sector Capital Goods EPS (Rs) 132.1 112.1
TP of Rs758, at 28x FY24ii EPS (1.2x PEG).
Shareholding pattern (%) Stock performance
Proxy on emerging defence & aerospace electronics market: The Promoter 45.6 Vol('000, LHS) Price (Rs., RHS)
Pledged (as % of promoter share)
Indian Defence Electronics market, pegged at ~US$1.9bn for 2021, is at 0.0 20,000 1,000
an inflexion point. Currently, defence electronics make up only 25-35% of FII 1.3
15,000 800
the cost of platforms used by the Indian armed forces with > 60% of the DII 9.2 600
10,000
electronic components sourced from foreign OEMs. Thrust on domestic 52Wk High/Low (Rs) 864/575 400
defence procurement, increasing indigenisation and higher share of 5,000 200
Shares o/s (m) 52
electronics in warfare is expected to drive 10Y Cagr of 16% in this 0 0
Daily volume (US$ m) 0.0
segment (~US$7bn by 2030). With >30 years of presence, high entry

Dec-21

Feb-22
Dividend yield FY23ii (%) 0.2
barriers and strong capabilities, Data Patterns is poised to benefit.
Free float (%) 54.4
Driving system capabilities & scalability: Data Patterns is leveraging Financial summary (Rs m)
its end-to-end capabilities to design, manufacture and deliver complete Y/e 31 Mar, Consolidated FY20A FY21A FY22ii FY23ii FY24ii
systems/ sub-systems indigenously, supported by in-house Design & Revenues (Rs m) 1,561 2,240 3,136 4,275 5,094
Development. While antecedents of producing building blocks of Ebitda margins (%) 27.6 41.1 42.7 40.4 40.5
technologically complex products for the DRDO and DPSUs have given the Pre-exceptional PAT (Rs m) 210 556 909 1,213 1,404
company a foundation to build its own products, reusable building blocks Reported PAT (Rs m) 210 556 909 1,213 1,404
led business model (COTS) aids cost competitiveness. Growth in radars and Pre-exceptional EPS (Rs) 4.1 10.7 17.5 23.4 27.1
EW systems is further driving scalability. Growth (%) 173.3 164.0 63.5 33.4 15.8
IIFL vs consensus (%) 0.0 0.0 0.0
Strong earnings outlook: FY19-22ii inflow Cagr of 36% is forecasted to
PER (x) 152.9 57.9 35.4 26.5 22.9
be sustained in FY22-24ii led by large production orders. 40% of its
ROE (%) 14.7 30.8 22.7 18.6 18.1
Rs5.8bn OB (1.9x TTM sales) is based on single vendor basis and healthy
order pipeline will ensure GMs of 65% in FY23-24ii. We forecast 27/24% Net debt/equity (x) 0.4 0.1 (0.5) (0.4) (0.4)
Cagr in Sales/EPS in FY22-24ii with strong operating leverage. While FCF EV/Ebitda (x) 75.9 35.2 22.0 17.0 13.8
remains healthy, reduction in NWC cycle (280 days) holds the key to Price/book (x) 21.0 15.5 5.4 4.5 3.8
improve balance-sheet and drive re-rating amid severe input shortages in OCF/Ebitda (x) 0.3 0.6 0.5 0.3 0.6
the near term. Source: Company, IIFL Research. Priced as on 07 March 2022

Renu Baid | renu.baid@iiflcap.com Narendra Mhalsekar | |

91 22 4646 4651 narendra.mhalsekar@iiflcap.com
91 22 4646 4687
 Data Patterns India – ADD

Company snapshot Figure 2: Revenue and net profit snapshot

• Data Patterns is a vertically integrated defence and aerospace (Rs m) Revenue (LHS) PAT (LHS) Ebitda Margin (RHS)
electronics solutions provider. Its offerings span across defence and 2,500 50%
aerospace platforms (space, air, land and sea) supported by in-
house design & development capabilities and experience of over 41.1%
2,000 40%
three decades.
27.6%
• The company has design capabilities across entire spectrum of 1,500 30%
strategic defence & aerospace electronics including processors, 19.5%
power, radio frequencies (“RF”) and microwave, embedded software 1,000 14.5% 15.9% 20%
and firmware and mechanical engineering. It has developed end-to- 556

1,107

1,129

1,311

1,561

2,240
end capabilities to build and deliver complete systems. 500 210 10%
• Its products are used in notable programme such as Tejas LCA, LUH, 30 44 77
Brahmos missile programme, precision approach radars and various - 0%
COMINT & ELINT systems. FY17 FY18 FY19 FY20 FY21
• Its competence is driven by reusable building block model where it Source: Company, IIFL Research
develops basic modules (“COTS” - Commercial Off-The-Shelf) used
to build systems & sub systems. This approach has driven savings in Its promoters Mr. Srinivasagopalan Rangarajan and Mrs. Rekha Murthy
development time of new products and enabled better margins by Rangarajan have been associated with the defence and aerospace
spreading out the development costs over multiple programmes. electronics industry for more than three decades and are supported by
experienced senior management and skilled & qualified manpower.
Figure 1: Capabilities span across entire spectrum of electronics
Figure 3: Promoter background
Name Designation Background
He holds a B-Tech in chemical engineering from Faculty of
Chairman & Technology of University of Madras and a master’s degree in
Srinivasagopalan
Managing Science from IIT, Madras. He has over three decades of
Rangarajan
Director experience in business development, corporate affairs, finance
and marketing.
She holds a bachelor’s degree of arts from the Bangalore
University and a master’s degree of arts in Applied Psychology
Rekha Murthy Whole-time from Madras University. She has over two decades of
Rangarajan Director experience in administration, facility maintenance, human
resource and development, process engineering and special
projects
Source: Company, IIFL Research

Source: Company, IIFL Research

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 Data Patterns India – ADD

Data Patterns’ IPO in Dec 2021 entailed fresh issuance of Rs3bn (Rs Products: Building blocks to systems
650m for capex and rest for NWC requirements) and OFS of Rs3.6bn
from promoters (16% of pre-IPO holding) and Employees (14% of pre-
• The major product groups consist of Radars, Underwater
electronics/communications/other systems, Electronic warfare suite,
IPO holding). Promoters currently hold 45.6% of total shares.
BrahMos programme, Avionics, small satellites, Automated Test
Figure 4: Shareholding as of Dec-2021 Equipment (ATE) for defence and aerospace systems and COTS. Its
Shares (m) % stake portfolio covers the entire spectrum of defence electronics and is
well positioned in land, airborne and naval defence programme of
Srinivasagopalan Rangarajan 12.8 24.6%
India.
Rekha Murthy Rangarajan 10.6 20.4%
• Data Patterns has capabilities in building complete systems from the
Promoter Group – G.K. Vasundhara 0.3 0.6% building blocks and sub-systems that have already been developed.
Total Promoter 23.7 45.6% It has built Military grade processor modules, Cockpit displays,
Others Actuator controllers for missiles and torpedoes, Flight control
Florintree Capital Partners LLP 6.0 11.5% computers, Digital receivers and Up/Down converters for radars
utilising its pre-developed building blocks and sub systems.
Mankekar 0.8 1.5%
KMP + Others (Mostly employees) 10.2 19.7%
• It has developed its current product portfolio in line with the future
programme by the Indian Armed Forces and ISRO, providing strong
FII 0.7 1.3%
future positioning. Solutions such as radar systems also have good
DII 4.8 9.2% export potential.
Public 5.8 11.3%
Total shareholding 51.9 100.0% Figure 6: Ground up design capabilities across COTS, Products & Systems
Source: Company, IIFL Research Processors & Communication Graphics & Fibre Optics &
Microcontrollers Protocol & Buses Display Laser
The company recruits fresh engineers from smaller universities and
trains them. Though attrition at the entry level remains high, COTS Modules in Open Bus Architectures – Complete Range
comparable to other IT firms, senior leadership has been intact. Power Supplies cPCI, PCI Exp, VME64x, VPX, VXI, M Modules, IP, PMC, XMC, FMC,
Structured approach for talent management, differentiated salaries and PCMCIA
high level of employee ownership (~19% to employees) will ensure Operating Systems – Complete Range
RF, MW
availability of quality people required to scale the business. Windows, RT Linux, Lynx, Vx, Works, QNX
Figure 5: Breakdown of employee strength Domains
FPGA,
Department Permanent Temporary Total Avionics, Displays, Electronics Warfare, Radar, Sonar, Fire Control
Firmware
Design & Engineering 347 36 383 System, Space, Communication, Digital Computing, Navigation & Control
Manufacturing 151 96 247 Application – On-board Systems for platforms, Aircraft, Helicopter,
Support 64 8 72 Digital Ground / Mobile, Missile, Ship, Torpedoes, underwater, Satellites,
Marketing & Customer Support and Services 53 5 58 Satellite Launch Vehicle
Total 615 145 760 Applications – Automated Test Equipment and Ground Checkout
Analog
Source: Company systems
Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 7: Major product groups of Data Patterns

Product category Particulars

Offerings in radars are categorised under three broad categories: (i) surveillance
Radars radars (ii) weather radars, and (iii) tracking radars, consisting of (a) IFF Systems for
defence services and (b) Missile Seekers - BrahMos

Underwater
Oceanography products are primarily employed in the data acquisition
electronics /
requirements of the ocean resources. A variant of this product is used to monitor
Communications /
bottom pressure recorders, which is a part of India’s Tsunami Warning Systems
Other systems
EW is used for passive surveillance and intelligence gathering (SIGINT) and is
Electronic warfare further broadly divided into COMINT and ELINT. Other products: Electronic
suite Counter Measure (Jammer), Search Receiver, Monitoring Receiver, Direction
Finder, Radar Warning Receiver

BrahMos The company develops fire control systems, Mobile autonomous launcher,
programme Airborne launcher and other electronic systems for the BrahMos missile
programme.

Data Patterns has focused on Avionics displays as one of its key technology
Avionics
domains. Its products have been used on the Light Combat Aircraft (“LCA”),
Intermediate Jet Trainers and Light Utility Helicopters (“LUH”).

Automated Test Serving the needs of ISRO in various types of automated test equipment for
Equipment (ATE) development of its test benches for PSLV & GSLV.

The off the shelf products are broadly categorised into military COTS and
Commercial Off
traditional COTS. COTS modules are designed in the context of reusable building
the Shelf (COTS)
blocks for building Military electronics systems with a quick turnaround time.

Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 8: Data Patterns is looking to target focused markets

Source: Company, IIFL Research

Figure 9: Key customers for Data Patterns The customer base ranges from government organisations involved in
Customers FY18 FY19 FY20 FY21 defence and space research to various DPSUs such as BEL and HAL.
BEL 13% 10% 1% 4% DRDO/MoD contribute >35% share of revenues
Brahmos 13% 29% 54% 10%
While the Leonardo Group (UK) has been driving exports recently, Data
DoS 13% 8% 9% 15% Patterns is looking for other opportunities to work with EU players and
DRDO/ MoD 24% 37% 24% 37% also working in collaboration with domestic players for exports.
ECIL 9% 0% 0% 15%
Exports 24% 9% 7% 14%
Source: Company, IIFL Research

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 Data Patterns India – ADD

Production contracts drive scale & operating leverage Figure 10: Order book has scaled up quickly with accrual of production orders and
developmental orders in 1HFY22
Data Patterns has deliberately targeted programs/projects over the (Rs m)
Development Production Service
past with potential to offer huge volumes in the future. Its
participation in key Development contracts are now yielding the 7,000
desired results as the order book has started reflecting healthy mix 6,000
of production orders which can drive scale for the company. 5,000

Developmental contracts 4,000

• The company usually works with DRDO for Design & Development 3,000
for building custom solutions and indigenisation of systems/ sub- 2,000
systems. These projects are awarded on 1) single vendor, 2) limited
1,000
vendor and on 3) open tender basis.
• Typically, such contracts have a single delivery (project completion) 0
schedule and carry high NWC cycle. Average execution timeline is FY18 FY19 FY20 FY21 Sep-21
12-18 months, but tests are subject to final field trials of the end Source: Company, IIFL Research
platform
• Entire cost of development is expensed over the given financial year. Figure 11: Revenue acceleration led by pick-up in production orders
DRDO retains the IP for the systems developed by its vendors.
(Revenue Production Development Service
Rs m)
Production contracts 3,500
• On successful field trials, development contracts are later converted 3,136
3,000
to production orders (volume orders) from ECIL or the DPSU who
2,240
receives the transfer of technology from DRDO. 2,500
• Pricing is usually benchmarked to the Development contracts and is 2,000 1,561
adjusted for inflation, forex and changes in scope, if any. 1,500
1,311
• Production contracts offer higher revenue visibility for 2-3 years. 1,000
Volumes of such contracts are more evenly spread with lower NWC
intensity. 500
• While development projects (Eg: EW, Himashakti) lead to -
production/repeat orders, development programs (Eg: LCA) offer FY19 FY20 FY21 FY22ii
annuity type orders. Source: Company, IIFL Research

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 Data Patterns India – ADD

Contender/Supplier across notable programmes • The company is expected to be a major participant in Rs20-30bn
worth of contracts in the next 3 years.
• Data Patterns is focused on designing and building own products • Due to its positioning in various projects and niche technology
across the manufacturing value chain to developing products and segments, 1) Products like RWR, airborne ELINT upgrades and
sub-systems. It remains well positioned to quickly commercialise or airborne surveillance radars could provide an annuity business based
scale-up a number of existing products or building blocks to end on the number of upgrades planned, 2) EW products/ receivers
systems or complete solutions designed by Data Patterns can provide large project orders and also
• Focus on building complete systems from the building blocks and pave the way for the company to participate directly and
sub-systems already developed aids higher value addition while independently in MoD tenders
distributing development costs. • The company can be positioned as both an independent OEM, and
• The company has also designed and developed some products also a strategic partner to companies like Tata, L&T, etc. which
having an ability to be used as blocks in future platforms and forms an important element of its future growth strategy.
products.
Figure 12:Products having an ability to be used as blocks in future platforms
Product(s) Details
Monopulse RF Seeker Delivered prototypes to DRDO
Prototype installed in Chennai for the
X-Band Doppler Weather Radar
government meteorology department
Installed at Cochin for a government owned
205MHz Wind Profile Radar for CUSAT
university
Radar for Naval Utility Helicopter Prototype delivered to LRDE
A Next-Generation Software Defined
Prototype developed for DEAL
Radio
A Next-Generation Radar Warning
Prototype developed for DLRL
Receiver
A Next-Generation COMINT Prototype developed for DLRL
A Next-Generation ELINT System Prototype delivered for DLRL
Being delivered to industry and educational
Nano Satellite
institutions
Source: Company

• Military COTS type processor designed and developed for DRDO are
being redeployed by various DRDO laboratories for other projects
including in naval applications in ships & helicopters.

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 Data Patterns India – ADD

Figure 13:Data Patterns is a contender for many large programs

Programme Details Opportunity value
AGRU/ Arudhra Radar Won the order against Astra and is expected to supply ~55 units US$ 20m
DP is a development partner on single vendor basis which includes TR modules, AGRU, signal processor, etc. The TOT has been US$10-30m
Ashwini LLTR
offered to DP and BEL. The company expects to realise either electronics/ full radar order
Development programme for large EW requirement for Deserts & Plains and has been nominated to BEL. DP has received single US$50m
Dharashakti vendor orders from DLRL for development and supply of COMINT search receivers, Direction Finder, Monitoring receivers. DP will be
an OEM for entire receiver systems
By leveraging expertise in Dharashakti project, DP will cater to airborne COMINT and ELINT equipment. The equipment will be US$15-20m
Airborne COMINT/ELINT
towards various upgrades such as MI 17, Dornier, Aerostat, and any new rotary wing programme
These are required in mountainous borders (China, Pakistan) which are not adequately covered. DP will leverage its EW capability to Rs3-4bn
Light weight EW
supply products for light weight EW requirement
DP has delivered ASR (complete hardware) for helicopters and fixed wing aircrafts to LRDE on a single vendor basis. The Flight tests Rs25m/unit
Airborne surveillance radar
are expected in FY22 and will also be inducted in Navy’s Dornier upgrade and new helicopter programme
Airborne Early Warning DP has also participated in RWR (digital R118) for Airborne Early Warning System to DLRL. This has been fitted on the Embraer early US$55m for LCA
System warning radar developed by CABS
Next Generation Software SDR can be fitted on LCA MK IA (83 nos) as well as Sukhoi 30 upgrades (~ 270 nos) and attack helicopters. The flight tests are planned Rs20m/ aircraft
Defined Radio (SDR) by Mar’22 on the LCA, and similar tests are planned on Sukhoi 30 thereafter
Source: Company, IIFL Research

Figure 14:Large order prospects for Data patterns

Programme Customer Value (Rs m) Status of project
Ashwini LLTR MoD 7,500 Budgetary quote sent to Air Force
Dharashakti - EW BEL 4,500 Secured development contract already
HAL (Dornier); 27 units of ELINT for Dornier Upgrade (~Rs800m) from HAL;
Airborne COMINT/ELINT - EW DRDO (C-295); 1,320 ELINT for C-295 from DRDO (Rs360m; project started);
Aerostat (Airforce) SIGINT for Aerostat at Rs150m (RFP expected)
Light weight EW BEL 3,500 -
Airborne surveillance Radar (ASR) HAL 1,215 Flight tests to be conducted in 2HFY22
Airborne Early Warning System HAL 17,650 RWR (digital R118) for LCA is under trial in FY22; Trials for Sukhoi-20 expected thereafter
Next Generation Software Defined Radio (SDR) HAL 7,060 Flight tests planned in 4QFY23 for LCA; Sukhoi-30 tests subsequently
AGRU/ Arudhra Radar BEL 1,500 MoD RFP sent to BEL
Himshakti - EW BEL/ ECIL 1,502 Award to BEL expected in Mar-Apr’22
Source: Company, IIFL Research

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 Data Patterns India – ADD

Manufacturing Capabilities Competitive landscape

• The company’s core focus on in-house design and development
capabilities (>450 engineers) is complemented by 100,000 sq.ft.
manufacturing facility at the SIPCOT IT Park, Siruseri, Chennai. The
facility is certified for various standards across product life cycles.
• It is also in the process of upgrading & expanding the facility, with a
proposed doubling of available floor area & manufacturing capacity,
as well as addition of capability of handling large and heavy
equipment, integration of large radars and mobile electronic warfare
systems and satellite integration facility while also strengthening
testing capabilities, with planned capex of Rs800m in FY22-23.
• Data Patterns is doubling its SMT capacity in new facility while also
improving test infrastructure to validate RF & microwave products
(Rs200m capex on test equipment). In addition to electronics
manufacturing, it is building large mechanical integration capabilities
to ensure higher in-house integration.
• Data Patterns faces competition at two levels: (i) during the
development stage in DRDO requirements from SMEs building
custom solutions and/or integrating the solutions around imported
COTS products and (ii) from large corporates offering complete
systems, often under partnership with international OEMs, for
products and programme directly procured by the Indian
government or Ministry of Defence.
• Most of the system level products delivered to DRDO or ISRO are on
single vendor basis, though the initial subsystem/component level
contracts may have been obtained through a tender process.
• Competition is from various companies, including L&T, BEL,
Mahindra Defense Systems, Astra Microwave Products, Alpha Design
Technologies, Mistral Solutions, CoreEl Technologies, etc.
Figure 16:Indian Defence Suppliers Anticipated Future Positioning

Figure 15: Data Patterns is undertaking capacity expansion

Expansion Existing Facility Enhancement

 Large Systems Integration Hangar
 Complete Radar Integration
 Electronic Warfare Vehicle Integration
 Additional Test Facility
 Augmented Environmental Test
Infrastructure
Source: Company, IIFL Research
 Augment Design & Development facility
 Additional Space For D&D Resources
 Clean Room for Satellite Integration
 Additional EMS Line
 Multi Ton material handling Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 17: Capabilities of Data Patterns vs Peers

Company Established FY21 Sales (Rs m) OB Latest (Rs m) Defense & Aerospace capabilities
COTS, RF & Microwave, Electonic Warfare, Avionics display, Radars, IFF, Laser & Electro Optic system, Space
Data Patterns 1998 2,240 5,770 System, ATE Testing equipment, Launch & Fire Control System, Software & Application, Communication &
SDR
Communication system, Radars, Naval system, Electronic Warfare System, Avionics, Electro Optics, Vehicle
Bharat Electronics 1954 140,638 565,680
electronics system, Weapon system, C4I System, Shelters & Masts, Simulator systems, Batteries
Astra Microwave 1991 6.050 17,490 Radar Electronics, Electronic Warfare, Strategic Electronics, Telemetry, Avionics, Space Electronic
Optronics & LRF Based Products, Laser Aiming Systems, Thermal Imagers & Fire Control Systems, Navigation
Alpha Design 2004 4,500 48,000 Systems, Tactical Communication, Radar and C3I Systems, EW Systems, Simulators, Microwave Components
& RF Units, Aerospace, Space Technology
Paras Defence 2009 1,443 3,049 Defense & Space optics, Control and computing systems, Heavy engineering, EMP protection solution
Mistral Solution 1997 1,256 NA COTS, Radar Modules, SOM Modules, Development platform, Homeland Security
CoreEL Technologies 1991 1,086* NA Radar, Electronic Warfare, Sonar
Source: Company, IIFL Research, * FY19

Figure 18: Product Capability Comparison of Major Indian Defence Stakeholders

Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 19: Financial comparison of defense electronics peers

Sales (Rs m) Ebitda Margin PAT (Rs m) Cagr FY17-21
Company FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 Sales Ebitda Pat
Data Patterns 1,107 1,129 1,311 1,561 2,240 14.5% 15.9% 19.5% 27.6% 41.1% 30 44 77 210 556 19% 55% 108%
Bharat Electronics 86,683 104,008 121,642 129,677 141,087 20.6% 19.6% 23.9% 21.2% 22.8% 15,234 14,310 18,867 18,247 20,998 13% 16% 8%
Astra Microwave 3,898 3,622 2,935 4,672 6,409 26.5% 31.4% 11.0% 19.0% 12.0% 574 611 98 440 289 13% -7% -16%
Alpha Design 1,902 2,012 2,308 3,375 3,530 7.1% 12.6% 10.3% 8.2% 13.6% 88 115 65 60 91 17% 37% 1%
Paras Defence 477 1,493 1,544 1,466 1,328 17.6% 27.6% 27.8% 26.9% 32.1% 20 251 190 200 151 29% 50% 65%
Mistral Solution 858 834 1,340 1,262 1,256 17.6% 7.6% 14.9% 14.9% 15.6% 119 73 170 125 152 10% 7% 6%
Source: VCC Edge, IIFL Research

Figure 20: Financial comparison of defense electronics peers

NWC Days RoE Debt/Equity
Company FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21
Data Patterns 457 443 429 368 333 2.5% 3.6% 5.9% 14.7% 30.8% 0.5 0.4 0.5 0.4 0.2
Bharat Electronics 30 110 110 88 10 17.9% 18.1% 21.9% 18.9% 19.8% 0.0 0.0 0.0 0.0 0.0
Astra Microwave 322 252 344 270 257 13% 12% 2% 8% 5% 0.3 0.2 0.0 0.1 0.2
Alpha Design 132 48 158 284 194 7% 8% 2% 1% 2% 0.5 0.8 0.2 0.3 0.3
Paras Defence 142 86 199 307 419 6% 20% 12% 12% 7% 0.9 0.5 0.5 0.6 0.5
Mistral Solution 129 172 111 173 181 22% 11% 20% 13% 13% 0.4 0.0 0.0 0.0 0.0
Source: VCC Edge, IIFL Research

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 Data Patterns India – ADD

Play on fast growing defence electronics Figure 22: Growth in Indigenous/ Private Domestic Company share of defence contracts
is set to be driven primarily by DAP 2020
market
Indian defence manufacturing undergoing structural shift
• There is a structural shift in the Indian defence budget with
increased allocation for modernisation funds, and approval of non-
relapsable fund. The total allocation directly benefiting indigenous
defence and aerospace industry has increased at 7% CAGR over
FY17-22.
• The capital and stores allocation component of the Indian defence
budget is expected to grow to US$33bn and US$10 bn respectively
by FY31, with cumulative opportunity of US$339 bn to the industry.
• The government’s latest policies seek to build greater self-reliance in
Indian defence R&D and manufacturing through a combination of the
Aatmanirbhrar Bharat mission, DAP 2020, Offsets and the upcoming
Defence Production and Exports Policy.

Figure 21: Indian Defence budget growth has grown at 10% Cagr over FY17-22RE
(Rs bn) Capital Outlay on Defence Services
1,600
1,400
1,200
1,000
800
600
400
200
0 Source: Company, IIFL Research
FY17A FY18A FY19A FY20A FY21A FY22RE FY23BE
Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 23: Indian Defence Capital and Stores expenditure Figure 24: Indian Defence Electronics Market to witness 16% Cagr over CY21-30
(US$ bn) Capital Stores (US$ million) Defence Electronics (LHS) CAGR % (RHS)
45

6,994
6,830
40 8,000 18%
9 10
35 7,000 16%

5,233
9 9

4,705
4,526
8 14%

4,334
30 8 6,000
7 12%

3,460
3,443
25 7 5,000
6 10%
6

2,577
20 4,000

1,881
8%

1,774
33

1,690
32

1,609
1,533
1,488
15 27 29 30 3,000
22 24 25 6%
10 18 20 2,000 4%
5 1,000 2%
0
0 0%
FY22

FY23

FY24

FY25

FY26

FY27

FY28

FY29

FY30

FY31

2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Source: Company, IIFL Research Source: Company, IIFL Research

Indian defence electronics at an inflexion point Figure 25: TAM for Data Patterns (US$2bn in CY20) to reach US$4.7 bn by FY30,
representing 10Y Cagr of 9%
• The Indian Defence Electronics segment will witness large scale US$ m CY20 CY25E CY30E
CY20-30E
indigenization efforts over the next decade leading to improved Cagr
manufacturing and quality standards. Military Radar 1,151 1,853 3,180 11%
• Domestic defence electronics market pegged at ~US$1.9bn for CY21 Airborne EW 413 397 606 4%
is expected to post 16% Cagr by CY30, to reach US$7bn. Military Avionics 300 390 455 4%
• Currently, the Defence Electronics make up only 25-35% of the cost Land COMINT/ELINT 74 120 205 11%
of platforms used by the Indian armed forces, which is expected to
Satellite Components 16 100 122 23%
increase in the future.
Testing equipment 12 68 80 21%
• At present over 60% of the electronic components used are supplied
by foreign OEM’s. As indigenisation efforts continue, future Ground stations 1 1 2 4%
procurement will see a large portion of defence electronics sourced TAM 1,967 2,929 4,650 9%
locally. Source: Company, IIFL Research
• Data Patterns targets Rs10bn sales in four years from Rs3bn
expected in FY22, led by significant scale up in radars and EW
systems from component supplies, increasing share of Avionics and
expanding presence in nano satellite components for the domestic
and International market.

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 Data Patterns India – ADD

Figure 26:Key programmes driving Indian Defence Electronics Market Figure 27: Radars and EW form a significant chunk of Order book (As of July 31, 2021)
Programme Name Value (US$ bn) Particulars Orders (in nos.) Value (Rs m) Mix (%)
UAS procurement by the IAF 1.4 Radar 19 3,639 63
Rotary Wing Procurement by the IAF and Indian Navy 1.9 Service 49 676 12
IFV/ APC Procurements by the Indian Army 3.6 Electronic Warfare Suite 4 572 10
Command and Control/ Tactical Communications Avionics 6 318 5
5.1
Modernization Communication 2 310 5
Combat Aircraft Procurement by the IAF and Indian Navy 7.9 BrahMos missile prog. 3 185 3
Source: DRHP/RHP Small Satellite 2 53 1
Naval system 4 48 1
Moving up the chain in EW & Radar systems ATE 9 24 0
Total 98 5,823 100
Strongly positioned in Radars with end to end capabilities Source: Company, IIFL Research
• While Data Patterns had developed good capabilities in hardware
and software for Radar in early 2000s, it lacked the RF/Microwave • Having supplied Precision approach radars, wind profile radars and
capabilities. It executed Radar orders in partnership with Astra Doppler weather radars to GoI, Data Patterns has positioned itself
Microwave, where it would undertake all the electronics & hardware strongly for future programmes in Defense and non Defense. It also
requirements while Astra Microwave would undertake the has future ready products such as X-Band Doppler weather radar, C-
RF/microwave side of the execution. Band Doppler weather radar and wind profile radar
• In 2007-08, it built its own RF and Microwave team with aspiration
to achieve entire domain expertise in Radar. It secured tracking
• The company won the Array Group Receiver Unit (“AGRU”) as part
of the Arudhra - Medium Power Radar programme to supply 55 units
radar order for launch vehicles of ISRO and started developing a
(Rs1.5bn) in competition with Astra Microwave
strong team with Radar capabilities.
• On the non-defence side, it beat large consortiums and delivered • RFP for 18 Ashwini - Low Level Transportable Radar (“LLTR”) are
Coastal surveillance Radar (DoS) and wind profile Radar (IMD/CUST) also expected from Air Force in FY23, worth ~US$270m (DP’s scope
with complete in-house design & development. is Rs7-8bn for array electronics)
• Using the experience of working with DRDO and development of • The company has delivered airborne surveillance radar (all of the
wind profile radar (205 MHz, world’s largest) for CUST, the company hardware) for helicopters and fixed wing aircrafts to LRDE on a
secured a contract of Rs3.8bn (Rs2.5bn for supplies, rest services & single vendor basis. LRDE is expected to flight test this radar in the
O&M) from MoD for nine precision approach radars for the Indian next few months and will be offered for Navy’s Dornier upgrade and
Navy and Airforce in FY20 which are currently under execution as buyer nominated equipment for the new helicopter programme
(completion in FY24).
• With the experience of building the complete solution for weather
• Today, the company has built strong competency model in this radars, Data Patterns is well positioned to build similar solutions for
segment and targets orders worth Rs10bn in the next 2-3 years domestic and international market.
from radars (refer Figure 14). Radars constitute >60% of the
9MFY22 order book of Data Patterns.

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 Data Patterns India – ADD

Figure 28: Radars, EW to drive >60% of sales over FY22-24

Products FY17 FY18 FY19 FY20 FY21
Earnings poised to grow at 24% Cagr
ATE 57% 30% 8% 20% 16%
Avionics 6% 10% 7% 8% 9%
Production orders to drive robust inflows in FY22-24ii
EW 15% 29% 18% 10% 41% • Data Patterns’ order book has registered >40% Cagr in FY18-21 led
Radar 11% 6% 6% 0% 16% by receipt of large production orders, starting FY20, based on
Services 7% 6% 6% 6% 7% various developmental projects executed in the previous 5-7 years.
Source: Company, IIFL Research • Key production orders won in FY20 include receipt of precision
approach radar (PAR) for Rs2.5bn (nine nos.) from the MoD and
Well placed to capture rising EW requirements of the IAF Samyukta order from ECIL (BEL) for Rs930m which have aided
• Recent skirmishes of India with adversaries such as Pakistan & strong order book of Rs5bn at the start of FY22. While Samyukta will
China has invigorated the importance of Electronic Warfare systems be delivered in FY22, PAR deliveries are expected to commence from
for land as well as air-borne applications. 4QFY22 and will drive revenues of Rs1.1bn each in FY23ii & FY24ii.
• Currently, the penetration of COMINT/ELINT capability is limited but • While the company has secured inflows of Rs10bn over FY18-21,
is expected to increase with the launch of programme Dharashakti. >85% contribution came from production based orders. During
9MFY22, inflows of Rs2.2bn were almost equally split between
• There is also a requirement for ELINT receiver as part of
production and development orders at Rs1bn each.
development programme for S&S which is a large EW requirement
for Deserts and Plains nominated to Bharat Electronics. • Healthy development orders in YTD FY22 (48% share), translates in
22% share in Order book (Rs5.8bn) vs 5% at end FY21. These
• Furthermore, a new programme for EW for Mountains has been
include large sub-system contracts, all of which have production
initiated by DRDO as a precursor to the needs of Indian Army.
revenue visibility for future. Management aims to strike an optimal
• These programmes will drive 11% Cagr growth in the ground mix of 70% production/ 20% Development orders with 10% for
COMINT/ELINT market to reach ~US$205m in CY30.
services over medium term. Most of the development orders secured
• Data Patterns is well positioned for the Himashakti (Rs1.5bn order in are on single vendor contracts due to specialised nature of the
FY23) and Dharashakti program having previously supplied COMINT projects, complexity and delivery timelines.
receivers to BEL /ECIL for Samyukta upgrade, Himraj, etc. • Data Patterns expects ~Rs7-8bn order inflows over FY22-23 led by
• The company has received single vendor orders from DLRL for programs such as Himashakti (EW), Arudhra, SDR and exports.
development and supply of all of the COMINT search receivers,
Direction Finder, Monitoring receivers, etc. for the Dharashakti Figure 29: Key notable inflows forecasted for FY22-23ii
programme. Timeline Programme Segment Customer Value (Rs m)
• Similarly, modernization of platforms such as the IAF’s requirement FY22 - 4Q LCA Cockpit displays Avionics HAL 550
for 200+ single engine fighters, acquisition of Tejas (HAL), Dassault
FY22 - 4Q Brahmos Missiles Export order FCS Brahmos 450
Rafale, procurement of A330’s and C-295 and future procurement of
the HAL AMCA are set to drive airborne EW (US$606m by CY30 – FY23 AGRU/ Arudhra Radar (8 nos.) Radar BEL 1,500
Cagr of 5%) and Data Patterns remains well positioned to capture FY23 - 2/3Q Himshakti EW BEL/ ECIL 1,500
the opportunity. Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 30: Inflows expected to grow 41% Cagr over FY22-24ii led by Radars & EWS Sanguine ordering provides strong growth visibility
(Rs m)
Order inflows • Conscious shift in the strategy towards development projects which
7,000 can drive higher volumes on conversion to production orders during
6,000 the last decade and increase in thrust on domestic defence
procurement, aided 220/180% jump in production OB/revenues
5,000 during FY18-21.
4,000

6,638
Figure 32: Production revenue/ inflows poised to grow 36/65% Cagr in FY22-24ii

5,490
5,601
3,000
(Rs m) Prodn. Revenue Inflows Revenue YoY %

3,338
2,000
2,110

6,000 80%

1,364
1,339

1,000
5,000 60%
0
FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii 4,000
40%
Source: Company, IIFL Research
3,000
20%
Figure 31: Healthy pipeline of volume based orders to aid robust growth in OB 2,000
1,000 0%
(OB - Rs m) Development Production Service
- -20%
10,000
7,941 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
8,000 Source: Company, IIFL Research
6,397
5,855
6,000 4,980 5,182
Figure 33: Development revenues likely to post a modest 11% Cagr in FY22-24ii
6,771
(Rs m)
5,169

4,000 Development Revenue Inflows

3,835
4,807

3,961

1,787 1,815 1,200

2,000
1,000
0
800
FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
600
Source: Company, IIFL Research
400
• Single vendor orders constitute to ~40% of the current OB. Gross
200
margins on single vendor order tend to be higher (ranging 70-80%).
• Share of single vendor contracts in FY22-23 inflows is expected to -
rise over 2/3rd driven by relevant orders vs a 33/50% share in FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
FY20/21, respectively. Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 34: We expect sales to grow at a Cagr of 27% from FY22-24ii Operating leverage to support Ebitda margins
(Rs m) • Gross margins are usually driven by individual programs. Data
Revenue YoY % Patterns has enjoyed healthy gross margins of 60-70% aided by its
6,000 50% strength in developing in-house COTS products, a key input across
5,094
5,000 key projects. Further, higher share of single vendor based orders
4,275 40% under execution help strong GMs.
4,000
3,136
• Sharp improvement in FY21 GMs is likely on account of execution of
30%
Samyukta (~15% share in sales). However, with execution of PAR
3,000
2,240 orders and increasing competition in new orders, gross margin is
20%
2,000 1,561 expected to moderate to ~65% during FY23-24.
1,107 1,129 1,311
10% • Employee expenses constitute large share of overheads at ~22% of
1,000
sales in FY21. While the company may face headwinds on employee
- 0% retentions with supply side pressures for tech talent, we expect 20%
FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii increase in employee expenses in FY22-24ii.
Source: Company, IIFL Research
• Given design & development contribution of ~20% in revenues,
contribution margins (post RM & Employee exps) should be
considered as a better benchmark, in our view.
• Management has guided for FY22 sales of Rs3bn+, driven by EW
(40-45% share) and radars (25-30% share). While FY21 witnessed • With breakeven sales at ~Rs1.35bn and ~60% GMs, strong growth
higher share of Radars in sales mix, FY22 will have > 30% from in revenues backed by healthy production orders should drive
Samyukta upgrade, >Rs500m from RWR and ~Rs750m for ELINT. operating leverage and help sustain the Ebitda margins at ~40%,
even as GMs moderate lower on changes in sales mix.
• Its aspires to clock Rs10bn sales in 4 years and is open to M&As to
bridge capability gaps Figure 36: Change in sales mix and increasing competition will moderate gross margins
Figure 35: Sales mix Gross margins Gross margins less Employee expense
Development Production Service 80% 68.6% 70.3%
Sales mix 65.0% 65.0%
70% 62.7% 64.1%
100% 60.3%
8% 7% 8% 7% 8% 8% 4% 3% 56.4%
60% 50.2%
46.9% 47.3% 47.2%
80% 50%
33.9% 37.0%
56% 53% 40%
60% 64% 72% 76% 81% 26.9% 28.7%
76% 30%
93%
40%
20%
20% 36% 39% 10%
28% 20% 19%
16% 15% 0%
0% 0%
FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
Source: Company, IIFL Research
Source: Company, IIFL Research

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Figure 37: Sustaining OPMs at ~40% levels translates in 24% Ebitda Cagr in FY22-24ii NWC cycle reduction is a key catalyst
(Rs m) Ebitda Ebitda Margin
2,500 50% • The company has >200days of receivables as significant share of
41.1% 42.7% 40.4% 2,065 revenues are booked in 4Q (Share of 4Q sales down from 70-85% in
40.5%
2,000 40% FY17-21 to ~55% in FY22). Typically, development contracts have a
1,727 single delivery (completion of contract) bunched up towards the end
27.6%
1,500 1,338 30% of the year resulting in optically higher receivables days. With share
19.5% of production revenues increasing (more evenly spread) receivables
920
1,000 14.5% 15.9% 20% trend is declining.
432 • Further, all electronic components are imported. The lead time for
500 179 255 10% procurement of some components is 6-12 months, necessitating
161
advance procurement orders for projects with tight execution
- 0% timelines (eg. Brahmos missiles export order). Also longer
FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii timeframe for review during development, testing and production
Source: Company, IIFL Research cycle necessitates longer inventory holding timeframe.
• Further, with stronger balance-sheet (debt free books, cash of
Figure 38: Strong operating profits and debt-free books post IPO should aid 24% Cagr in Rs2.8bn), management is exploring means to improve NWC cycle.
PAT over FY22-24ii
(Rs m) Figure 39: Ramp up in production orders has eased core NWC from 506 days in FY17 to
PAT YoY % 355 days in FY21
1,500 1,404 200%
1,213 (Days of Receivable days Inventory days
1,250 sales) Payable days Core working capital days
150% 800
1,000 909
506 529
750 100% 600 484
556 416
355
500 400 310 310 300
210 50%
250 77
30 44 200
- 0%
FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii 0

Source: Company, IIFL Research -200

FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 40: Overall NWC trend Figure 42: Balance sheet fairly healthy as Net DER of 0.1 as of FY21 turns net cash of
Days FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii Rs2.8bn post IPO in Dec 2021
Inventory 199 245 241 186 120 110 110 100
(Rs m) Gross Debt Cash Net cash
Sundry debtors 405 376 287 270 254 220 220 220
4,000
Other current assets 17 30 33 44 37 35 30 30
Sundry creditors 99 92 44 40 20 20 20 20 3,000
Other current liabilities 59 112 84 89 58 60 60 60
Provisions 7 4 4 3 2 2 2 2 2,000
Net Working capital days 457 443 429 368 333 283 278 268
Source: Company, IIFL Research
1,000

0
Cash generation to improve
• Cash flows have also been impacted by large share of development -1,000
orders in the past. Production orders entail regular cash inflows and FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
ease in NWC is expected to further improve the FCF.
Source: Company, IIFL Research
• Over the last five years, the company has been FCF negative only
once with total FCF generation of Rs1bn during this time. We
ROIC to be attractive at 28%
forecast FCF generation of Rs1.3bn in FY22-24ii. This includes
investment of Rs700m towards expansion of the existing facility. • RoE has significantly improved from 3% in FY17 to 31% in FY21
mainly driven by operating leverage led OPM expansion and higher
Figure 41: Expect FCF generation of Rs1.3bn over FY22-24 asset turns.
(Rs m)
• While the fund raise during the IPO is likely to keep the RoE
OCF Capex FCF suppressed in the near term, ROIC (post tax) are likely to sustain at
1,500 30%.

1,000 Figure 43: Du Pont analysis

888
500 FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
500 295 257
134 123 PAT Margin (%) 2.7 3.9 5.9 13.5 24.8 29.0 28.4 27.6
(55) 185
Sales/Avg assets (Turnover) 0.5 0.5 0.5 0.5 0.7 0.6 0.5 0.5
0
Avg Assets/Avg Equity 1.9 2.0 2.1 2.0 1.7 1.3 1.2 1.2
-500 ROE (%) 2.5 3.6 5.9 14.7 30.8 22.7 18.6 18.1
Source: Company, IIFL Research
-1,000
FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 44: Steady improvement in ROIC to sustain over FY22-24ii

ROCE (Pre-tax) ROIC (Post-tax)

40%
35% 31.2% 31.0% 29.9%
30%
25%
20% 26.1%

15%
10% 13.3%
5%
6.6% 7.4%
0% 5.5%
FY17 FY18 FY19 FY20 FY21 FY22ii FY23ii FY24ii
Source: Company, IIFL Research

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 Data Patterns India – ADD

Valuation comparison
Figure 45: Financial snapshot of Defense & Aerospace companies
CMP Mcap Sales (Rs m) Ebitda Margin PAT (Rs m) Cagr FY22-24ii
Company (Rs) (Rs m) FY21 FY22ii FY23ii FY24ii FY21 FY22ii FY23ii FY24ii FY21 FY22ii FY23ii FY24ii Sales Ebitda Pat
BHE IN 214 522,040 138,497 158,080 176,673 196,605 23.2% 21.9% 21.8% 22.1% 21,003 6,465 8,194 10,280 12% 12% 26%
HNAL IN 1,325 443,080 227,545 241,628 254,315 284,126 25.2% 23.2% 23.5% 23.7% 32,392 21,117 23,463 27,958 8% 10% 15%
BDL IN 444 81,432 18,075 32,000 40,000 42,000 19.1% 23.6% 24.7% 24.7% 2,577 1,237 2,859 3,736 15% 17% 74%
DATAPATT IN 620 32,175 2,240 3,136 4,275 5,094 41.1% 42.7% 40.4% 40.5% 556 909 1,213 1,404 27% 24% 24%
PARAS IN 620 24,194 1,433 NA NA NA 30.3% NA NA NA 216 NA NA NA NA NA NA
ASTM IN 186 16,088 6,409 7,166 8,502 10,186 12.0% 13.1% 15.0% 20.0% 288 155 301 659 19% 47% 106%
Source: Company, IIFL Research

Figure 46: Valuations of Defense & Aerospace companies

CMP Mcap PE EV/Ebitda EV/sales ROE PEG
Company (Rs) (Rs m) FY21 FY22ii FY23ii FY24ii FY21 FY22ii FY23ii FY24ii FY21 FY22ii FY23ii FY24ii FY21 FY22ii FY24ii
BHE IN 214 522,040 24.9 21.4 19.3 17.2 14.7 13.6 12.2 10.8 3.4 3.0 2.7 2.4 20% 21% 0.7
HNAL IN 1,325 443,080 13.7 10.8 10.3 9.1 6.5 6.6 6.2 5.5 1.6 1.5 1.5 1.3 23% 22% 0.6
BDL IN 444 81,432 31.6 14.6 11.2 10.7 19.1 8.7 6.7 6.3 3.6 2.1 1.6 1.6 10% 17% 0.2
DATAPATT IN 620 32,175 57.9 35.4 26.5 22.9 27.8 19.1 14.8 12.4 11.4 8.1 6.0 5.0 31% 23% 0.9
PARAS IN 620 24,194 111.8 NA NA NA 57.7 NA NA NA 17.5 NA NA NA 8% NA NA
ASTM IN 186 16,088 55.8 41.3 23.8 12.9 21.7 17.8 13.1 8.2 2.6 2.3 2.0 1.6 5% 7% 0.1
Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 47: PE vs EPS CAGR for Defense and capital goods universe Figure 49: EV EBITDA vs ROCE plot
60 40
ABB
35
50 ABB

EV EBITDA - FY24ii
30
SIEM
40 SIEM 25
TMX MTARTECH
PE - FY24ii

MTARTECH
TMX 20 KKC
30
KKC DATAPATT 15 DATAPATT
20 10 LT
BHE BHE
LT
BDL 5 HNAL
10 HNAL
0
0 10 15 20 25 30 35 40
0 20 40 60 80 ROCE - FY24ii
EPS Cagr (FY22-24ii) Source: Company, IIFL Research
Source: Company, IIFL Research

Figure 48: PBV vs ROE plot

9
8 MTARTECH
ABB
7
6
PB - FY24ii

SIEM
5 TMX KKC
4 DATAPATT
BHE
3
2 LT
BDL HNAL
1
0
10 15 20 25 30
ROE FY24ii
Source: Company, IIFL Research

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 Data Patterns India – ADD

Key Risks Dependence on Promoters and Key Management Personnel

Dependence on Government’s budgetary support
Data Patterns is directly or indirectly dependent on contracts from GoI
and associated entities including DPSUs and ISRO. A decline or
reprioritisation of the Indian defence or space budget can have adverse
impact on the order inflows for the company
The company has developed strong capabilities under the leadership of
current promoters. A healthy succession planning is required to ensure
business continuity. Failure to build a capable senior management team
with capabilities to drive key strategic initiatives could impact long term
performance of the company. Strong stock ownership by employees &
KMP (~19%) and elevation of Vijay Ananth (COO) to the broad provides
visibility on the next line of leadership within the team.

Delay in project awards, execution bottlenecks of customers/

DPSUs
Historically, defence programs have witnessed delays in finalisation and
execution. Growth outlook for Data Patterns is largely depended on
materialisation of key defence programs. The throughput rate of the
domestic defence eco-system will an implication on the execution pace
and working capital intensity of Data Patterns as well.
Reduction in orders, termination of existing contracts, delay of
existing/anticipated contracts or any adverse change in the GoI’s
defence or space related policies will have a material adverse impact on
its business.

Increasing competitive intensity

Liberalisation of the defence or space sectors is allowing the entry of
numerous private and foreign companies leading to increase in level of
competition. Increase in competition for competitive bid based projects
or from other vendors for system integration jobs will have an
implication on the profitability profile of the company, especially when it
is moving from component supplies to large system or sub-system
integration.
Higher than expected impact on Gross margin in System projects can
curtail earnings growth despite revenues growth driven by large orders.

Failure to enhance skill sets from pure electronics play to a

system integrator
While the company is backed by core technical team with expertise in
electronics manufacturing, stepping up its efforts to transform into an
integrated player with capability towards integrating systems will
transform the growth of the company. Inability to drive the learning
curve in this direction could hamper the performance of the company

r en u .bai d@i i fl cap . co m 23


Appendix
Figure 50: Key Management Team
Name
Srinivasagopalan Rangarajan
Rekha Murthy Rangarajan
Venkata Subramanian
Venkatachalam
Manvi Bhasin
Vijay Ananth K
Desinguraja Parthasarathy
Thomas Mathuram Susikaran
Nandaki Devi Ramachandracharya Management Representative- Quality
Source: Company, IIFL Research
Designation
Chairman & Managing Director
Whole-time Director
Chief Financial Officer
Company Secretary and Compliance
Officer
Chief Operating Officer,
Chief Information Security Officer
Chief Technical Officer
Senior Vice President-Business
Development
Deputy General Manager and
Management System
r en u .bai d@i i fl cap . co m
Data Patterns India – ADD
Background
He holds a B.Tech in chemical engineering from the Faculty of Technology of University of Madras and a M.Sc.
from the IIT, Madras. He has over three decades of experience in business development, corporate affairs,
finance and marketing.
She holds a B.A. from the Bangalore University and a M.A. in Applied Psychology from Madras University. She
has over two decades of experience in administration, facility maintenance, human resource and development,
process engineering and special projects
He holds a B.Com from Madurai Kamaraj University. He is a fellow member of the Institute of the Chartered
Accountants of India. He has over two decades of experience in the finance sector.
She holds a B.B.A. from the Invertis Institute of Management Studies, Bareilly and a PGDM from Lal Bahadur
Shastri Institute of Management & Technology, Bareilly. She is an associate of the ICSI. She has three years of
experience in legal and secretarial matters
He holds a bachelor’s degree in Computer Science from Manonmaniam Sundaranar University and a master’s
degree in Computer Applications from the Faculty of Science of University of Madras. He has more than two
decades of experience in software engineering and product management.
He holds a B.E. (electronics and communication engineering) from the Faculty of Engineering of University of
Madras. He has 32 years of experience in Product Development.
He holds a B.E. (electrical and electronics) from Madurai Kamaraj University and a master’s degree of
technology in electrical engineering from IIT, Madras. He has over 21 years of experience in business
development and marketing
She holds a B.E> in electronics and communications from the University of Mysore as well as an advanced
diploma in Software Quality Management from AmitySoft Education. She has 22 years of experience in test
engineering.
24

Figure 51: Board of Directors
Name
Mr. Prasad Raghava Menon
Mr. Sowmyan Ramakrishnan
Mr. Vadlamani Venkata Rama
Sastry
Ms. Sabitha Rao
Mr. Mathew Cyriac
Source: Company, IIFL Research
Data Patterns India – ADD
Designation Background
Non-executive He holds a Bachelor’s degree from IIT, Kharagpur. He has served as Managing Director of Tata Chemicals and is an Ex- employee
Independent Director of Tata Power Company
Non-executive He holds a B.Tech (mechanical engineering) from IIT-M and a PG Diploma in Business Administration from IIM-A and M.A from
Independent Director Department of Oriental Studies and Research. He is an Ex-Executive Director and CFO of Tata Power
Non-executive He holds a B.Sc and B.E in electronics and communication from Andhra University. He is a Retired Chairman and M.D of Bharat
Independent Director Electronics and ex-Executive Director of Centre for Development of Telematics
Non-executive
She holds PG Diploma in Management from IIM-C and is currently working with Cerebrus Consultants.
Independent Director
He holds a B.Tech (mechanical engineering) from Anna University and Post graduate diploma in management from IIM-B and has
Nominee Director 23 years of experience in investment banking and private equity.
He has been previously associated with Blackstone Advisors, Bank of America, DLJ Merchant Banking Partners and Credit Suisse
r en u .bai d@i i fl cap . co m 25
 Data Patterns India – ADD

Figure 52: Product portfolio

Source: Company, IIFL Research

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 Data Patterns India – ADD

Figure 53: Product portfolio

Source: Company, IIFL Research

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 Data Patterns India – ADD

• Surveillance radar: These are Low Level Transportable Radar – • The entire Glass Cockpit of the LUH is produced and delivered by
Central acquisition radar of medium range low level target detection Data Patterns along with the accompanying Data Interface Unit.
and can detect highly manoeuvrable targets. Ashwini, is a product of • The company is also likely to deliver Next Generation Software
LRDE-DRDO. The LRDE Radar has been developed as an import Defined Radio (SDR) for LCA Mk IA and Sukhoi 30 platforms subject
substitute and Data Patterns has developed almost all of the to flight testing.
electronics in this Radar. •
• Weather radars: The Company has developed radars for cloud and Figure 54: Key milestones
rainfall measurement. Orders for X-Band Doppler Weather Radar at Year Particulars
Chennai and C-Band Doppler Weather Radar at Mumbai have been
2001 Designed a fire control system for the Research Center Imarat
executed.
Designed and developed the launch pad countdown system for delivery to
• Tracking Radar: The Indian government space organisation utilises 2001
Vikram Sarabhai Space Centre, Thiruvananthapuram
tracking radars to monitor flight trajectory of its launch vehicles.
2003-05 Developed Glass Cockpit Displays / Avionics
• BrahMos missile seeker: It is an important portion of the missile
which searches for the target and thereafter guides the missile to its Upgradation of Tracking Radars
target. 2007 Developed RF and Microwave capabilities allowing entry to building complete
• Identify Friend for Foe (IFF) Seeker: DRDO has accorded ToT of systems
IFF system and short range optical target locater to Data Patterns. 2009 Developed Seaking automated test equipment for INS Shikra
• Fire Control systems: These were indigenously developed around 2012 Designed and developed complete Radar Capability
2002 and deployed across India. These systems have a high export 2013 Designed a smart cockpit display system
potential as per the company due to the success of the BrahMos 2013 Developed an infrared guided missile tester
missile programme. Designed and developed primary surveillance radar for coastal surveillance for
• Airborne launcher for Sukhoi 30: Data Patterns received an order 2015
Vikram Sarabhai Space Centre
from BrahMos Aerospace Private Limited to develop flight qualified Built a Nano Satellite for ISRO which was launched in 2017.
launchers in the BrahMos System which have been delivered to 2016
Developed EW receivers, Satellite and Ground Station
equip Su-30 aircraft with the BrahMos missile launch capability.
2020 Designed software defined radios, RWR and ELINT for airborne platforms
• The Missile Checkout System that validates the health of the missiles
in storage have also been indigenised and maintained by Data Initiated expansion of manufacturing facility
2021
Patterns. Subsequently it has developed 'O'level and 'I' level testers Initial Public Offering
for the BrahMos air version launcher which have been delivered. Source: Company

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 Data Patterns India – ADD

R&D and Manufacturing • The facility is certified for various standards across product life
cycles, including for aerospace systems under AS9100D by TUV-
• The core focus of Data Patterns has been on in-house development SUD, IPC Standards for PCB design and DO 178B for software for
and manufacturing capabilities. As on July 31, 2021, it had >450 airborne systems. Environmental test facilities are also available for
engineers for design and development of the total employee base of the requirements of JSS-55555 / MIL-STD-461 / MIL-STD-810
750 persons. including for Highly Accelerated Life Test (“HALT”) and Highly
Accelerated Stress Screening (“HASS”).
Figure 55:Design and development teams
Figure 56: Key features of the manufacturing facility
Department Responsibility / Scope
 100,000 class clean room
Hardware Design & development of high-end & complex electronics modules
Development and building blocks  Electronic assembly facility inclusive of multistage reflow soldering station, BGA
repair workstation with display, Pick and Place Machine
Software Design and development of all types of embedded, real-time and
Development application software  Manual soldering certified to Space Grade standards
Mechanical Design and development of mechanical packaging, structure  Flexible modular production line to meet Low Volume High Mix Requirement
Engineering systems, jigs & fixtures  EMS Assembly capacity of 600 boards per day
PCB schematics, Artwork, signal analysis, power analysis, electrical  Capability to handle complex boards with 22 layer, 6,000 components and 21,000
CAD / CAM wiring, all modules/systems performance, and maintenance solder points
statistics like MTBF etc.  Dedicated 70 work-stations for testing modules and small systems.
Algorithm Design and development of various domain algorithms for RADAR,  Software assisted test and debug methods with Test and Measuring Instruments
Development Electronic Warfare, Communication waveform etc. such as Network analyzer, Spectrum Analyzer, Microwave sweeper / signal
Design and development of all types of RF modules and sub- generator, RF Power meter etc.,
RF Modules
systems.  Harness preparation of 2,000 points per day.
DOMAIN Systems Design and Development of product verticals as a system.  20 Dedicated Mechanical assembly stations to assemble small and large systems
Production All the products are functionally and environmentally tested  Over Head Bus Bars with Dual power feeding facility for testing 12 large systems
EMS Fabrication of all electronics modules. simultaneously.
Harnessing Fabrication of all types of cable harness  Enhanced Quality control Equipment
Mechanical  Dedicated Display Assembly Centre
Assembly and integration of all types of mechanical parts
Integration
 Environmental chambers available in-house for burn-in and high temperature tests,
Project Management Responsible for Delivering all the orders both internal and external. humidity tests, vibration, HALT and HASS
Source: Company, IIFL Research
Source: Company

• The in-house R&D capabilities are complemented by 100,000 square

feet manufacturing facility located on 5.75 acres of land at the
SIPCOT Information Technology Park, Siruseri, Chennai

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 Data Patterns India – ADD

9MFY22 financial performance • Gross margins have been robust at 81% aiding healthy Ebitda
margins of 38.1% (vs 5.2% PY) and PAT of Rs322m (vs loss of
Figure 57: 9MFY22 Financial highlights Rs104m PY)
Rs m 9MFY21 9MFY22 YoY • 9MFY22 order inflows are 60% higher than FY21 annual inflows, at
Rs2.2bn (130% YoY) and order book 16% higher than FY21 end
Total revenues 669 1,403 110%
backlog, at Rs5.8bn (1.9x TTM sales).
Raw Materials 214 264 24%
Employee expenses 349 452 29%
Other expenses 71 153 114%
EBITDA 35 535 -
EBITDA margin 5.2% 38.1% 32.9 pps
Depreciation 42 48 13%
Finance costs 113 75 -34%
Other income 19 14 -27%
PBT (102) 426 NA
Tax 2 105 -
Tax rate -2% 25%
PAT (104) 322 NA
Net margin -15.5% 22.9%
Adj EPS (Rs) (2.0) 6.2 NA
% of sales
Gross margin 68.1% 81.2%
Employee expenses 52.2% 32.2%
Other expenses 10.7% 10.9%
Source: Company, IIFL Research

• For 9MFY22, Sales grew 2x at Rs1.4bn against annual guidance of

Rs3bn for FY22.

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 Company snapshot Data Patterns India – ADD

Background: Data Patterns is a vertically integrated defence and aerospace electronics solutions provider. Its offerings span across defence and
aerospace platforms (space, air, land and sea) design capabilities across entire spectrum of strategic defence & aerospace electronics including
processors, power, radio frequencies (“RF”) and microwave, embedded software and firmware and mechanical engineering. It has developed end-to-end
capabilities to build and deliver complete systems.

Management
Revenue split - FY21 Order Book mix (%) - FY21
Name Designation
Srinivasagopalan Rangarajan Chairman & Managing Director Services, Develop
8% ment, Services, Develop
Vijay Ananth K COO ment, 6
16% 14
Venkata Subramanian
CFO
Venkatachalam

Customer: MoD, DRDO, ISRO, BEL, ECIL, Brahmos Productio

Competition: Astra Microwave, Alpha Design, Mistral Solutions, n, 80
Producti
CoreEL Technologies, Centrum Electronics
on, 76%

Assumptions PE Chart EV/Ebitda

Y/e 31 Mar, Consolidated FY20A FY21A FY22ii FY23ii FY24ii 12m fwd EV/EBITDA Avg +/- 1SD
12m fwd PE Avg +/- 1SD
Segment revenues (Rs m)
Developmental 1 365 639 830 789 26.0
38.0 (x) (x)
Production 1,445 1,701 2,246 3,256 4,135
36.0 24.0
Services 115 173 251 188 169
34.0 22.0
Gross margins 64.1% 68.6% 70.3% 65.0% 65.0%
Source: Company data, IIFL Research 32.0 20.0
30.0 18.0
28.0 16.0
26.0 14.0
24.0 12.0
Dec-21 Jan-22 Jan-22 Jan-22 Feb-22 Feb-22 Dec-21 Jan-22 Jan-22 Jan-22 Feb-22 Feb-22

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 Data Patterns India – ADD

Financial summary
Income statement summary (Rs m) Balance sheet summary (Rs m)
Y/e 31 Mar, Consolidated FY20A FY21A FY22ii FY23ii FY24ii Y/e 31 Mar, Consolidated FY20A FY21A FY22ii FY23ii FY24ii
Revenues 1,561 2,240 3,136 4,275 5,094 Cash & cash equivalents 15 88 2,790 2,900 3,598
Ebitda 432 920 1,338 1,727 2,065 Inventories 794 737 945 1,288 1,396
Depreciation and amortisation (55) (56) (72) (113) (143) Receivables 1,156 1,559 1,890 2,577 3,070
Ebit 377 864 1,267 1,614 1,923 Other current assets 190 228 301 351 419
Non-operating income 41 26 40 83 60 Creditors 173 120 170 234 279
Financial expense (133) (145) (94) (75) (105) Other current liabilities 395 363 533 726 865
PBT 284 745 1,212 1,621 1,878 Net current assets 1,588 2,131 5,223 6,156 7,338
Exceptionals 0 0 0 0 0 Fixed assets 333 330 758 965 1,102
Reported PBT 284 745 1,212 1,621 1,878 Intangibles 0 0 0 0 0
Tax expense (74) (190) (303) (409) (473) Investments 0 0 0 0 0
PAT 210 556 909 1,213 1,404 Other long-term assets 465 341 375 412 453
Minorities, Associates etc. 0 0 0 0 0 Total net assets 2,386 2,801 6,356 7,533 8,894
Attributable PAT 210 556 909 1,213 1,404 Borrowings 606 332 0 0 0
Other long-term liabilities 246 391 415 440 466
Ratio analysis Shareholders equity 1,535 2,078 5,941 7,093 8,427
Y/e 31 Mar, Consolidated FY20A FY21A FY22ii FY23ii FY24ii Total liabilities 2,386 2,801 6,356 7,533 8,894
Per share data (Rs)
Pre-exceptional EPS 4.1 10.7 17.5 23.4 27.1 Cash flow summary (Rs m)
DPS 0.1 0.1 0.9 1.2 1.4 Y/e 31 Mar, Consolidated FY20A FY21A FY22ii FY23ii FY24ii
BVPS 29.6 40.0 114.5 136.7 162.4 Ebit 377 864 1,267 1,614 1,923
Growth ratios (%) Tax paid (74) (190) (303) (409) (473)
Revenues 19.1 43.5 40.0 36.3 19.2 Depreciation and amortization 55 56 72 113 143
Ebitda 68.9 113.2 45.5 29.0 19.6 Net working capital change (283) (183) (390) (823) (484)
EPS 173.3 164.0 63.5 33.4 15.8 Other operating items 59 2 40 83 60
Profitability ratios (%) Operating cash flow before interest 134 549 685 577 1,168
Ebitda margin 27.6 41.1 42.7 40.4 40.5 Financial expense (133) (145) (94) (75) (105)
Ebit margin 24.1 38.6 40.4 37.8 37.7 Non-operating income 41 26 40 83 60
Tax rate 26.0 25.4 25.0 25.2 25.2 Operating cash flow after interest 42 430 630 585 1,123
Net profit margin 13.5 24.8 29.0 28.4 27.6 Capital expenditure (12) (50) (500) (320) (280)
Return ratios (%) Long-term investments (41) (26) (74) (120) (101)
ROE 14.7 30.8 22.7 18.6 18.1 Others 4 1 23 25 27
ROCE 17.8 34.3 28.5 24.4 24.1 Free cash flow (6) 356 80 170 769
Solvency ratios (x) Equity raising 0 0 3,000 0 0
Net debt-equity 0.4 0.1 (0.5) (0.4) (0.4) Borrowings 23 (280) (332) 0 0
Net debt to Ebitda 1.4 0.3 (2.1) (1.7) (1.7) Dividend (4) (3) (45) (61) (70)
Interest coverage 2.8 6.0 13.4 21.5 18.3 Net chg in cash and equivalents 12 73 2,702 109 698
Source: Company data, IIFL Research Source: Company data, IIFL Research

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 Data Patterns India – ADD
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 Data Patterns India – ADD

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Key to our recommendation structure

BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.

SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.

Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.

Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.

Distribution of Ratings: Out of 260 stocks rated in the IIFL coverage universe, 138 have BUY ratings, 8 have SELL ratings, 84 have ADD ratings and 28 have REDUCE ratings

Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as
comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there
is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such
demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in
certain industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social
conditions. This discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.

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