Rating Rationale
February 07, 2025 | Mumbai
DCX Systems Limited
Ratings reaffirmed at 'Crisil A-/Stable/Crisil A2+'; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.1000 Crore (Enhanced from Rs.250 Crore)
Long Term RatingCrisil A-/Stable (Reaffirmed)
Short Term RatingCrisil A2+ (Reaffirmed)
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A-/Stable/Crisil A2+’ ratings to the bank loan facilities of DCX Systems Limited (DCXSL).

 

The rating reflect the established market position supported by extensive experience of promoters & technical expertise, and strong financial profile . These strengths are partially offset by its working capital intensive operations and moderate operating margins

Analytical Approach

For arriving at the ratings, Crisil Ratings has combined the business and financial risk profiles of DCXSL along with its wholly owned subsidiaries, i.e., Raneal Advanced Systems Private Limited (RASPL) and NIART Systems Ltd. (NSL). This is because these entities are in similar line of business and has strong management, financial and operational fungibilities

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position supported by extensive experience of promoters and technical expertise: The promoters have an experience of over three decades in aerospace & defence equipment sector. Over the decades, DCXSL has developed strong engineering and execution capabilities, which has helped to establish themselves a reliable supplier of electronic components, especially in the defence segment. Further, DCXSL has also backward integrated themselves in to PCB Assembly segment and has received orders from reputed international clients. The management is also focusing on expanding the product line into other industries such as Medical Equipment, Industrial and other segments. Crisil Rating believes that the experience and expertise of the promoters coupled with backward integration into PCBA should support the revenue growth and operating margins over the medium term.

 

  • Strong financial profile: The group has a strong financial risk profile supported fund raising through IPO and QIPs in the recent past. Adjusted networth stood strongly at Rs 1126 crore as on 31st March 2024 and gearing and total outside liabilities to adj tangible networth (TOL/ANW) were at 0.26 times and 0.64 times. Capital expenditures and inorganic growth plans over the medium term will be funded by equity and reliance on external debt is expected to be minimum; leading to improvement in leverage levels. The debt protection metrics is strong with adjusted interested coverage and NCA to adjusted debt of 4.6 and 0.23 times in fiscal 2024; likely to further improve backed by improving profitability and lower reliance on debt

 

Weaknesses:

  • Working capital intensive operations: Its intensive working capital management is reflected in its gross current assets (net of cash) of 240 days as on March 31, 2024. Working capital cycle is marked by sizeable inventory towards the 4th quarter of the fiscal along with higher receivables to the end of the 4th quarter. Working capital profile is expected to remain capital intensive; given the nature of end user industries and turnaround time required in the end user projects.

 

  • Moderate operating margins; likely to improve over the medium term: The operating margins are moderate, currently in the range of 6-7%, given the nature of orders and moderate value additions; however; strong scale of operations of Rs 1431 crore in fiscal 2024; likely to further improve over medium term, ensures comfortable profits. The PCBA a segment, as it scales up and other strategic move by the management in to obstacle detention systems and broader industry segments and new orders from reputed clientele should support operating margins over the medium term.

Liquidity: Strong

Net cash accrual are expected to be over Rs 100-200 crore which are against nil term debt obligation over the medium term. Current ratio are healthy at 2.55 times on March 31, 2024. Capital expenditures and inorganic growth plans over the medium term will be funded by equity and reliance on external debt is expected to be minimum. Bank limits utilization is low currently and the group has cash and liquid assets of around Rs 800 crores; which provides strong liquidity buffer. Healthy leverage levels enhances the financial flexibility and the group’s ability to raise funds in case of any exigencies

Outlook: Stable

Crisil Ratings believe DCXSL and its subsidiaries will continue to benefit from established market position in the aerospace and defence equipment segment and strong financial risk profile.             

Rating sensitivity factors

Upward factors:

  • Improvement in scale of operation from the existing business along with incremental revenues from new subsidiary operations whilst sustaining operating margins above 8% on sustained basis
  • Sustenance if financial risk profile along with controlled working capital cycle.
     

Downward factors:

  • Material decline in scale of operations or moderations in operating margins margins by over 250 basis points; weakens the net cash accruals
  • Significantly higher than expected debt funded capex/acquisition or stretch in working capital cycle or moderations in financial flexibility/liquidity buffer weakens the overall financial risk profile of the group.

About the Company

DCXSL (previously known as DCX Cable Assemblies Private Limited) was incorporated in 2011. DCXSL along with its subsidiaries is preferred Indian Offset Partners (IOPs) specialize in manufacturing of military and aerospace system integration, circuit board assemblies, cable and wire harness assemblies, critical defence products, including electronic assemblies, automatic missile detection radars, surveillance systems, electronic warfare systems, communication systems, unmanned aerial vehicles, medium-range maritime reconnaissance aircraft, and surface-to-air missile, electronic sub-systems, mainly caters to Defence & Aerospace, marine & extended industrial Industry.

 

DCXSL is listed on Bombay Stock Exchange Ltd (BSE) & National Stock Exchange of India Ltd (NSE). It is headed by Dr. Raghavendra Rao Hosakote Shamarao (Chairman & Managing Director).

Key Financial Indicators

As on / for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

1,431.17

1,253.64

Reported profit after tax

Rs crore

61.74

47.37

PAT margins

%

4.29

3.77

Adjusted Debt/Adjusted Net worth

Times

0.26

0.90

Interest coverage

Times

3.11

3.27

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
Crisil Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Bank Guarantee NA NA NA 580.00 NA Crisil A2+
NA Packing Credit NA NA NA 420.00 NA Crisil A-/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

DCX Systems Limited

Full

Common management

Raneal Advanced Systems Pvt Ltd.

Full

Common management

NIART Systems Ltd

Full

Common management
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 420.0 Crisil A-/Stable 31-01-25 Crisil A-/Stable   --   --   -- --
Non-Fund Based Facilities ST 580.0 Crisil A2+ 31-01-25 Crisil A2+   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 280 HDFC Bank Limited Crisil A2+
Bank Guarantee 100 State Bank of India Crisil A2+
Bank Guarantee 50 ICICI Bank Limited Crisil A2+
Bank Guarantee 50 Axis Bank Limited Crisil A2+
Bank Guarantee 100 Axis Bank Limited Crisil A2+
Packing Credit 150 HDFC Bank Limited Crisil A-/Stable
Packing Credit 45 State Bank of India Crisil A-/Stable
Packing Credit 75 ICICI Bank Limited Crisil A-/Stable
Packing Credit 150 Axis Bank Limited Crisil A-/Stable
Criteria Details
Links to related criteria
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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