Target: ₹275
CMP: ₹260.10
From a long-term perspective, we view DCX Systems as structurally well-positioned to benefit from rising defence exports and import substitution initiatives. Its strong order book (2.5x of FY25 revenue) & global partnerships support our assessment. However, according to us, near-term execution remains a key concern. Systems has faced margin pressure over the past couple of quarters, raising questions about its operational efficiency and earnings visibility.
Revenue for Q1-FY26 was up 60.9 per cent y-o-y and down 59.6 per cent q-o-q stood at ₹222.20 crore (vs CIE est. ₹1,53.40 crore). PAT for Q1FY26 was up 37.8 per cent y-o-y and down 80.4 per cent q-o-q at ₹4.1 crore (vs CIE est. ₹8.3 crore). PAT margin contracted by 31 bps y-o-y, reaching 1.8 per cent (vs CIE est. 5.4 per cent).
The resignation of Diwakaraiah as the Executive Director and CFO raises near-term uncertainty about leadership stability and financial stewardship. While the management has assured that a new CFO will be appointed in due course, the transition period could weigh on investor sentiment. Until the time there is a greater clarity on the incoming CFO, we maintain a cautious stance on the stock.
We have introduced FY28 estimates and are now valuing the stock on the basis of the average FY27–28E EPS. Accordingly, we upgrade our rating to Reduce (from Sell) with a revised target price of ₹275, valuing the stock at 30x multiple of the average FY27–28E EPS.