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investors recognise Data Patterns

investors recognise Data Patterns

the much sought after IPO offers a value entry into a promising sector
December 21, 2021
3 min read
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investors recognise Data Patterns

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quick, which sector is the single biggest recipient of funds from India’s Union budget? if you said defence, you’d be correct, as the world’s third largest military spender allotted nearly $67 billion to the sector for FY22. it is, however, a sector where the government holds over 80% of holdings and investment opportunities are few. but recent changes and upcoming companies are opening up new avenues. the Rs 588 crore IPO of Data Patterns, a provider of services to the defence sector, received bids for nearly 120 times that amount.

what does it have to offer investors?

data’s business

Data Patterns is one of the fastest-growing companies in the Defence and Aerospace Electronics sector in India. its products cater to the entire spectrum — space, air, land, and sea. it’s core services include the design and development of electronic hardware, software, firmware, and mechanics, as well as prototyping, manufacturing, functional testing and engineering services. between FY19 and FY21, the company recorded revenue growth of 71% — the highest amongst the major Indian defence and aerospace companies. further, its revenue for H1FY22 jumped 117% over the corresponding period last year, from Rs 44.5 crore to Rs 96.5 crore.

brokerage firm Motilal Oswal calculates that the company’s offer price represents a P/E ratio (ratio of share price to the company’s earnings per share) of 55, based on FY21 earnings.

defence play

the defence services sector is coming of age in India. one of the major reasons, from a market perspective, is the Indian government’s push to increase the involvement of private entities. it is also taking measures to privatise portions of its holding in several defence sector PSUs, which may be whetting the market’s appetite for the sector. there is also an increased focus on defence exports, which have increased by 325% in the last five years.

two popular IPOs from this year, MTAR and Paras Defense, have been met with heavy investor interest. as of December 16, MTAR traded at a P/E ratio of 167 while Paras traded at a P/E ratio of 138. these valuations not only suggest that Data Patterns has significant potential upside but also that the average P/E ratio for new market entrants in the sector is very high. the higher the P/E ratio for a company, the higher the growth that the market believes it will achieve.

with the grey market signalling the stock price to double upon listing, Data Patterns may come as a Christmas gift for those who are allotted shares. for those who hold on, it may be a gift that keeps on giving.