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Data Patterns Q1FY23 review: Strong execution drives overall healthy performance

ICICI Securities 04 Aug 2022

What’s Buzzing:

Data Patterns (DPIL) reported better-than-expected revenues in Q1FY23 driven by stronger-than-expected execution in development contracts.

 

Context: 

Data Patterns' revenues for the quarter increased 83.7% YoY to Rs 68.4 crore; better than estimates on account of better-than-expected execution in development contracts. Revenue from development contracts witnessed strong growth YoY (contribution increased to 45% of revenue in Q1FY23 vs. negligible in Q1FY22). Gross margin contracted to 64.7% in Q1FY23 against 90.2% in Q1FY22 on account of change in contracts and revenue mix. EBITDA margin also declined 1394 bps YoY to 31.1%, which also came in lower than estimate. However, EBITDA was up 26.8% to Rs 21.3 crore led by sharp increase in revenues on YoY basis. PAT increased 39.1% YoY to Rs 14.2 crore. 

Our Perspective: 

The company's order book is currently at Rs 663.55 crore as order inflows remained healthy at ~Rs 250 crore during YTDFY23. Apart from this, contracts worth Rs 343 crore are expected to flow in the company’s order book in the near future where negotiations are completed. Thus, order backlog of about Rs 1,000 crore is likely in the coming period when these under negotiation projects get converted into orders. We expect DPIL to deliver revenue CAGR of 28.2% over FY22-24E led by strong order inflows and healthy execution. Though change in contracts mix (more towards development) and higher cost impacted the EBITDA margins to 31.3% during Q1FY23, we expect full year margins to sustain at ~40% levels during FY23-24E leading to EBITDA, PAT CAGR at 20.6%, 24.3%, respectively, during the period. We believe that government focus on indigenisation and rising share of electronics components in major defence equipment/platforms offers huge opportunity for DPIL. Healthy pipeline of orders worth Rs 2000-3000 crore in the next two to three years provides strong earnings visibility.

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