Shares of Data Patterns (India) Ltd. saw a notable decline following the release of its September quarter results, which revealed a substantial miss across key financial metrics. The defense electronics company's performance fell significantly short of analyst expectations, prompting varied reactions from leading institutional equities firms.
Q2 Earnings Fall Short of Expectations
For the September quarter, Data Patterns reported Ebitda that was 61 percent below Jefferies' estimates, primarily due to a 52 percent revenue miss. Operating profit margins stood at 23.6 percent, falling 590 basis points below expectations. Nuvama noted that the company's Profit After Tax (PAT) missed Street estimates by 67 percent, with operating profit margin at 23 percent against a consensus expectation of 33 percent.
Despite the weak Q2 performance, Data Patterns' management has maintained its FY27E revenue growth guidance of 20-25 percent and an Ebitda margin guidance of 35-40 percent. This confidence is attributed to a robust order book and strong order flow, expecting an execution uptick in the coming periods.
Jefferies Sees Long-Term Potential
Jefferies acknowledged the Q2 miss but maintained a positive long-term outlook for Data Patterns, citing strong order visibility and the company's strategic position in India's growing defense sector. The firm set a price target of Rs 5,545, valuing the company at 65 times September 2028E PE, which represents a 20 percent discount to its peak valuation since listing in December 2021.
Jefferies highlighted several factors supporting its optimistic view: a projected 2.4 times rise in absolute profits over FY26-30E, an 18 percent Return on Equity (ROE), a debt-free balance sheet, and proprietary in-house technology. However, it also identified potential downside risks, including the obsolescence of the company’s technology and potential limitations in management bandwidth.
Nuvama Retains 'Hold' Rating
In contrast, Nuvama has retained a 'Hold' rating on Data Patterns, with an unchanged target price of Rs 4,500 (45 times FY29E PE). Nuvama's cautious stance stems from awaiting the conversion of significant negotiated orders.
- Order inflow surged 5.6 times year-on-year to Rs 930 crore.
- The order backlog doubled to Rs 1,720 crore.
- The company is awaiting conversion of Rs 970 crore in negotiated orders and anticipates Rs 2,000 crore in incremental opportunities.
Nuvama believes that the successful conversion of these orders could boost the March 2027 order book to Rs 3,500 crore, potentially driving a 30 percent-plus EPS CAGR and 20 percent RoE, along with a possible expansion in the company's price-to-earnings multiple.
Choice Institutional Equities Focuses on Strategic Growth
Choice Institutional Equities also expressed a positive long-term view, emphasizing Data Patterns' strategic investments. The firm believes that the company's investments in complete systems and reusable technology platforms will strengthen its competitive positioning and create opportunities for substantial revenue scaling in the coming years.
Choice noted that Data Patterns is strategically moving up the value chain, transitioning from supplying subsystems to developing comprehensive indigenous defense solutions. This shift is expected to expand its addressable market and solidify its position in larger defense programs. The firm highlighted a total order visibility of Rs 2,680 crore, comprising a firm order book of Rs 1,724 crore and negotiated orders totaling Rs 956 crore.