Fortune Scrip     

Published: April 15, 2025
Updated: April 15, 2025

DCX Systems

Cutting-edge defence vendor to global clients

Needless to say, it is a tough call for us to select a Fortune Scrip at this juncture, when the market sentiment and environment are unsettled on account of disturbing news from all sides – from Washington where US President Trump is playing his ‘Tughlaqi’ games, from the Middle East where Israel is determined to free the Gaza strip of Hamas, from Ukraine where Russia is bent on ravaging an entire country, and from the home front where the current political and economic uncertainties are leaving most Indians clueless.

But we have taken our courage in both hands, and with the help of reliable indicators, have selected a stock for the Fortune Scrip title. Our choice may lead to headaches in the next 2-3 quarters, and may even put investors in the red in the short term, but it will emerge as an extraordinary multi-bagger in the long run, allowing investors to reap a rich harvest.

The stock we have selected is DCX Systems, a leader in the defence manufacturing space that offers a full suite of electronics systems and subsystems, and cable and wire harness assemblies, for both international and domestic customers. The company’s system integration (SI) services encompass electronics and electro-mechanical assemblies in areas such as radar systems, sensors, electronic warfare, missiles and communication systems. These services are crucial to in-house quality testing such as vibration and environmental stress testing of complex RF products utilised in radar, communications, surveillance and missile systems.

SERVICING O.E.M.s

SI services constitute a comprehensive array of electronics and electro-mechanical assembly and enclosure assembly services. DCX also provides product repair support for the parts it manu factures. This is a unique listed company offering SI services to OEMs. Originally, DCX started as an Indian offset partner (IOP) for foreign OEMs, primarily generating revenue as an IOP for Israel. Now, it caters to India, Israel, the US and Korea. DCX operates through a modern manufacturing facility located at the Hi-tech Defence and Aerospace Park in Bangalore which is spread over an area of 30,000 sq ft and has a complete in house environmental and electrical testing and wire processing facility. The company has made rapid strides on the financial front. During the last six years, its sales turnover has expanded more than four and a half times from Rs 300 crore in fiscal 2019 to Rs 1,423 crore in fiscal 2024, with operating profit shooting up 14 times from Rs 5 crore to Rs 70 crore and the net profit surging from Rs 5 crore to Rs 68 crore.

MARQUEE CLIENTS

But we have not picked DCX for the position of Fortune Scrip on the basis of its existing laurels. We strongly feel that future prospects for the company are all the more promising. Consider:

• The company boasts of a highly credible list of marquee customers, including leading Indian companies like Bharat Electronics, Alpha Design Technologies, Aerospace Systems, Cen trum, and Larsen & Toubro. Global customers include ELTA Industries of Israel, Israel Aerospace Industries, IAI group of Israel, and reputed MNCs and start-ups from the US and South Korea. Last year (2024), the company added a giant customer – Lockheed Martin Global of the US.
• Needless to say, DCX Systems has a robust order book. As on January 1, 2025, it had orders worth Rs 3,000 crore, reflecting more than two years’ revenue visibility.
• Again, Bangalore is emerging as a significant hub for commercial aviation aircraft manu facturing with the Tatas’ collaboration with Lockheed Martin. This development presents huge op portunities for DCX in the civil aviation sector.
• The company’s financial position is extreme strong. As on September 30, 2024, its re serves stood at around Rs 1110 crore, over 50 times its equity capital of Rs. 22 crore. As on September 30, 2024 the company’s borrowings were just Rs 64 crore – only around 5 per cent of its sales turnover. On the other hand, cash equivalents stand at Rs 980 crore. The means that the company is in a position to further invest in new technology.

TECH TRANSFER

• Little wonder then that DCX is focusing on transfer of technology from abroad to meet the government’s ‘Make in India’ policy.
• As per Ministry of Defence rules, any defence order below Rs 2,000 crore must have an Indian company as the prime contrac tor, and 40-50 per cent of the product is to be sourced domestically. This au gurs well for DCX.
• The shift from imports to ‘Make in India’, the tightening of offset policies, the expansion into new ge ographies and customer acquisitions, and the successful implementation of backward integration for PCBAs of NIART and the Indian Railways have positioned DCX favourably.
• According to a Frost and Sullivan report and Ministry of Defence data, the global defence electronics market is set to grow at a CAGR of 6.61 per cent, while the Indian defence electronics sector is expected to grow at a faster CAGR of 13.71 per cent to reach $ 72 billion by 2030. This augurs well for DCX.

STRONG DEMAND

• The company is seeing strong demand from both domestic and international customers for the supply of cable and wire harness assemblies. It has received orders worth Rs 32 crore for these assemblies and continues to experience strong traction in its order pipeline. DCX is also focused on improving its margins and is confident of achieving double-digit margins. This will be supported by three key factors: utilizing Raneal Advanced Systems for internal consumption, NIART Systems preparing its obstacle detec tion equipment for mass production, and an increased mix of cable and wire harnessing, as per the analysts.
• DCX Systems has been granted the industrial licence for the production, assembly and testing of microwave submodules for command and guidance units for missile subsystems. This is meant for the integration and manufacturing of avionics and defence electronic equipment, and for the production, assembly and testing of radar systems and EW systems.

BEARISH BLIP

The company’s shares were going strong at around Rs 450. But the recent massive bearish mood in the market administered a body blow to its shares and the price tumbled to Rs 215-220. The share price is most likely to remain subdued in the overall bearish phase, and DCX may even go down to near Rs 200. But once the bearish phase is over, the price is bound to resume an upward journey and reach even the Rs 500 mark.