DATAPATTNS — earnings call

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Prepared remarks

Moderator · Conference Operator

MS. SHRIDA – GO INDIA ADVISORS Data Patterns (India) Ltd August 09, 2023

Ladies and gentlemen, good day and welcome to Data Patterns Q1 FY24 Earnings Conference Call hosted by Go India Advisors.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone.

Please note that this conference is being recorded.

I now hand the conference over to Ms Shrida from Go India Advisors.

Please go ahead ma'am.

Shrida

Thank you Seema.

Good afternoon everyone and welcome to Data Patterns India Limited Earnings Call to discuss Q1 FY 2024 results.

We have on the call with us Mr. S.

Rangarajan, Chairman and Managing Director, Ms. Rekha Murthy Rangarajan, Whole Time Director, Mr. V.

Venkata Subramanian, Chief Financial Officer.

I must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that company may face.

A small request to the participants, please restrict your questions to one or two as we have strictly one hour to complete the call.

I will now hand over to Mr. S.

Rangarajan.

Thank you and over to you, sir.

S. Rangarajan

Thank you.

Good afternoon, ladies and gentlemen, and thank you for joining us today for the Q1 FY24 results call.

I hope you had the chance to go through the earnings presentation, which is available on both the stock exchanges and on our website.

Before my CFO Venkat takes us through the financial results, I would like to give you a quick rundown of some of the important updates and key highlights for this quarter.

I'm pleased to announce another quarter of profitability, contributing to our company's sustained growth.

Through our QIP, we successfully raised approximately INR500 crores for product development in areas such as radar, electronic warfare, and satellite technologies.

This strategic focus on innovation positions has substantial revenue expansion across domestic and international markets in the coming years.

Our order book during Q1 FY24 demonstrated remarkable growth of 113% year-on-year, reaching 96.71 crores the order inflow sold to rupees 132 crores representing noteworthy 2.9x year on year increase.

In Q1 FY 24, we secured several significant orders, about 357 million for radars and electronic warfare about 362 million from DRDO.

Going to the financial overview, our revenue from operations surged by an impressive 31% year on year.

Gross margin remained robust at 62% and EBITDA exhibited a commendable growth of 31% year on year.

Defence sector in India continues to be a significant focus for government.

The current union budget has allotted INR5.94 lakh crores to bolster the defence sector, signalling a notable 30 percent year-on-year increase.

Further, the Ministry of Défense has set an ambitious target of achieving turnover of INR1.75 lakh crores within the aerospace and defence manufacturing sectors by 2025, which includes export targets of around 35,000 crores.

In support of the domestic defence industry, the government is actively fostering an environment of transparency, predictability, and improved ease of doing business through the establishment of a robust ecosystem and support to policy measures.

Keeping the sectoral tailwinds in mind, we outlined our strategic priorities over the next two years.

Capitalizing on promising opportunities in radar, electronic warfare, and satellite markets.

Data expansion into export markets is actively pursuing various prospects in collaboration with domestic competitors, active Data Patterns (India) Ltd August 09, 2023 participation in contracts for over 20 to 30 billion over the next three, four years, constant efforts aiming at achieving top lines over the 20 to 30 percent, and a sustainable high margin between 35 to 40 percent.

At this point, I'll pass the floor to Venkat for his comments.

Venkata Subramanian

Thank you, sir.

Good afternoon, ladies and gentlemen.

We are delighted to report outstanding performance in Q1 FY24. Let me provide an overview of financial results, which are as follows.

Q1 24, revenue demonstrated a robust year-on-year surge of 31% and stood at 89.69 crores.

Development contracts contributed to 39% of the revenue and production contracts to 54%.

Showcasing our diverse revenue streams.

Additionally, service contracts accounted for approximately 7% of the Q1 revenue, emphasizing our comprehensive earnings.

We successfully maintained gross margins at a healthy 62% in line with our guidance.

The profit before tax stood at 348 million, up by about 80%.

Our profit after tax recorded a remarkable 82% increase, reaching to 258.6 million.

Our prudent financial management practices have led to a debt-free balance sheet, highlighting our commitment to financial sustainability.

We continue to target a working capital cycle of approximately 294 days on TTM basis, ensuring operational efficiency.

As of June 30, 2023, the company holds over 364 million in cash and equivalents, underlining our financial stability and liquidity position.

Overall, we delivered a strong performance in Q1 and have set a positive momentum for the year ahead.

With this, we will now proceed to the question and answer session.

Thank you.

Moderator · Conference Operator

Thank you very much, sir.

Thank you.

We take the first question from the line of Umesh Raut from Phillip Capital.

Please go ahead, sir.

Umesh Raut

Good afternoon, sir.

Congratulations for the good set of numbers.

My first question pertains to your remark regarding large value tenders with MOD under MEC1, MEC2 categories, which are under process and that you are targeting to kind of explore.

So could you please highlight or share some details about those tenders, which are these programs, and how soon we can realize these opportunities?

transfer technology can happen. · So competition is there. It is varied. It's not that all of them compete in all programs or products,

So competition is there.

It is varied.

It's not that all of them compete in all programs or products, but there will be competition.

The differentiators, again, as I said, is we try and do more in India to be more competitive.

As regards to the second part of your question, do you try to build only yourself and also look at tie-ups of foreigners?

Sometimes we would do tie-ups with foreigners because if there are allied or different technologies involved and it doesn't make sense to develop the technology within a short time frame and involves too much development expense, which may not be practical or highly high risk, then we would see that if we can tie-up strategically with some organizations who have the products, so then we could try and do that.

We are thinking on some similar lines in some programs, but in most of the programs we're trying to go alone.

So that is where it is.

I know it's a very early stage in all MEC1, MEC2 programs.

None of them have really been concluded and come into real demonstration stages yet.

So I think we need to wait another year or so before we get more data on all this.

Umesh Raut

Understood, sir.

My second question is more of on the larger platform or programs like AMCA or IMRH, where currently ADA is doing more of development at a national stage, but they are Data Patterns (India) Ltd August 09, 2023 kind of now open to have more-and-more participation from the private sector.

So are you looking to target some of these large opportunities in say next medium to longer term?

Moderator · Conference Operator

Thank you.

We take the next question from the line of Dipen Vakil from InCred Equities.

Please go ahead, sir.

Dipen Vakil

Congratulations on good set of numbers, sir.

Sir, I have my first question is basically on the other trials were happening in.

So, any update on that?

Moderator · Conference Operator

Thank you.

We take the next question from the line of Arti Rai from Equentis Wealth Advisory.

Please go ahead, ma'am.

Arti Rai

Thank you.

The first question would be around the margins.

I just wanted to understand that while at gross margin level we have sustained a 60% which is in line to the previous quarters and with the EBITDA margin where generally the guidance was up about 40% and was there in the last two quarters.

This quarter has come out of term 30% and even in the initial remarks we did mention an outlook of 35% to 40%.

So are we looking at slightly bringing it down at 35?

I mean, since the sustained margin guidance earlier was 40% and now we are speaking of around 35%?

Moderator · Conference Operator

Thank you.

We take the next question from the line of Satendru Chakraborty from Chakraborty Family Office.

Please go ahead, sir.

Satendru Chakraborty

Hello.

Good afternoon.

Congratulations on a good quarter.

My first question is really something happening in your P&L statement.

The other income, can you help me understand the year-on- year and the quarter-o- quarter change, just to make some sense on what exactly is happening on that part?

Moderator · Conference Operator

Thank you.

We take the next question from the line of the Dipen Vakil from InCred Equities.

Please go ahead, sir.

Dipen Vakil

Hello, sir, I wanted to know the order book of the reporting for FY ‘24 and mainly it is for the government mainly.

I'm sorry to interrupt you sir, we are losing your audio sir.

Moderator · Conference Operator

Thank you.

We take the next question from the line of Mr. Akshay Kothari from Envision Capital.

Please go ahead, sir.

Akshay Kothari

Thanks for the opportunity.

I just wanted to know, since we mentioned that 25% of the total order book execution would only be done in this year.

Does it mean that, we would end this year also with a good cash balance or would it be going in our inventory?

Moderator · Conference Operator

Thank you.

We take the next question from the line of CA Garvit Goyal from Nvest Analytics.

Please go ahead, sir.

Garvit Goyal

Hello.

Good afternoon, sir.

So firstly to understand on this skewness in order execution, so Q4 is usually the best for us, which is mainly the most skewed order execution for the contracts, but my question is, why does that happen?

Why can't these contracts be executed in first three quarters, so kindly help me to understand that, sir?

Data Patterns (India) Ltd August 09, 2023

Moderator · Conference Operator

We take the next question from the line of Gagan Thareja from ASK Investment Managers.

Please go ahead, sir.

Gagan Thareja

So the first question is around the order pipeline that you indicate.

I hope I'm correct if I term it as order pipeline.

You indicate INR2,000 crores to INR3,000 crores, over the next three, four years, or four, five years.

Is that tender that you'll bid for, or is that the orders that you expect that you can win?

I'm a little confused there.

Moderator · Conference Operator

Thank you sir.

Ladies and gentlemen, due to time constraints, we will take the last two questions for the day.

The next question is from the line of Abhishek Agarwal from Naredi Investments.

Please go ahead.

Abhishek Agarwal

Good afternoon sir and congrats on good number.

My first question the number of employees has been increased in Q1 compared to Q4 last quarter.

Even after that, employee cost has decreased in Q1 compared to Q4 last quarter so what is the reason behind it?

And second part of this question, how much salary will be high in FY’24 and when?

Data Patterns (India) Ltd August 09, 2023 And last question, for next future of growth if you need any extra funding, go for reasonable debt as interest cost you may charge from profit and loss account, whereas raising of equity is always costlier than debt?

Moderator · Conference Operator

Mr. Abhijit, does that answer your question?

Abhijit Mitra

Yes.

How much salary will be hiked in percentage term?

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, we take the last question for the day from the line of Sarjeet Yadav from Mount Intra Finance Private Limited.

Please go ahead, sir.

Sarjeet Yadav

Yes.

Hello, sir.

Good afternoon.

I had a question regarding the DRDO projects.

You have already spoken about them a lot.

So, about one part of your revenue is coming from the development orders.

Do we take it that, they are going to be single vendor situations or they are going to be competition when the product is finally developed?

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, that was the last question.

I would now like to hand the conference over to the management for closing comments.

Thank you.

On behalf of Go India Advisors, that concludes this conference.

Thank you for joining us and you may now disconnect your lines.