Data Patterns (India) Limited (DATAPATTNS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Data Patterns (India) Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Ms. Prayasi Patel from Go India Advisors, Thank you, and over to you, ma'am.

Thank you, Vida. Good afternoon, everyone, and welcome to Data Patterns (India) Limited Call to discuss Q1 FY '27 earnings call. We have the senior management of the company on the call Mr. S. Rangarajan, Chairman and Managing Director; and Mr. Venkata Venkatachalam Chief Financial Officer. We 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 risk that the company may face. May I now request Mr. Rangarajan sir to take us through the company's business outlook and financial highlights, subsequent to which, we will open the floor for the Q&A. Thank you, and over to you, sir.

Thank you, Prayasi. Good afternoon, ladies and gentlemen, and a warm welcome to all of you for the Q1 FY '27 earnings call of Data Patterns (India) Limited. We sincerely appreciate your continued trust, support and participation. I hope all of you have had the opportunity to review our earnings presentation which has been uploaded on the stock exchanges and our company website. Before Venkat takes you the financial performance, I'd like to share a few key business updates and our outlook for the coming quarters. The quarter marks a important step in our long-term growth strategy. as our strategic investments over the past several years are beginning to transit tangible business, which is open a stronger market position. We continue to witness healthy customer engagement across multiple programs and increasing opportunities for larger value and complete contracts. We secured orders across avionics, ADAS, Electronic Warfare and Automatic Test Equipment programs from various customers, including Minister defense and [indiscernible] separating renewing confidence in our technology capabilities and execution track record. We also continue to pursue several large opportunities and are currently at various stages of discussion evaluation. A key milestone for us as we have adjusted can see a further products from the development stage to complete system solutions to significantly expand our addressable market. enables us to participate in larger and higher-value programs. With differentiated capabilities, we're trying to convert them into single window opportunities. We're also rigour existing technology platforms and be the sole building blocks develop new products faster and more cost effectively, including both scalability and speed to market. The order book stands at INR 265 crores, including order negotiated, providing healthy revenue visibility over the coming years. Origin order book currently stands at INR 39 crores, and we continue to actively engage with customers on the global markets to expand our export footprint. We also remain confident of securing around INR 2,000 crores of fresh order inflows during FY '27, over and above the orders have already received when negotiated. Policy environment also remains highly favorable. The government's continued focus on higher invigorate procurement is creating significant opportunities across the ecosystem, including the armed forces, businesses and private sector companies. There is a strong in-house design capabilities and proven existing tax records we believe Denali is well positioned to benefit from the structural opportunity. Another entering development during the quarter was we initial traction in our drone and counter drone business, where we've started resuming orders. We believe that this business will become an important growth driver as demand for engines unmanned country solutions continue to exist. Coming to the quarter, our revenue trajectory continues to remain on track. As indicated earlier, we continue to invest in strengthening and renewing talent and future capabilities, consulting higher employee cost base is expected to remain elevated over the coming quarters. In addition, changes in the product is also impacted margins during the quarter. There are conscious investments that strengthen our long-term competitive version prepares for larger opportunities ahead. Looking ahead, the outlook of the Indian defense sector remains highly encouraging, supported by a robust order pipeline, expanding product portfolio, increasing opportunities and favorable politic policy content -- we remain confident of achieving our full year guidance. Growth rate 20%, 25% revenue growth by maintaining EBITDA margins of 35% to 45% range. We remain committed to investing in the technology, innovation and end capability development while creating sustainable long-term value to all of our customers. With that now, I hand over the floor to our CFO Venkat to take you to the financial performance.

Thank you, sir. afternoon, ladies and gentlemen, and thank you all for joining us today. Let me take you through the financial highlights for the quarter of -- first quarter of financial year 2027. Revenue from operations for Q1 FY '27 stood at INR 116 crores, registering a healthy 17% year-on-year growth, driven by continued execution across our diversified business programs. Gross profit increased to 16% year-on-year to INR 91.5 crores while gross margins remained strong at 78.9%, reflecting the high-value nature of our product mix. EBITDA stood at INR 31.4 crores with an EBITDA margin of 27%. Margins during the quarter were impacted by high employ costs associated with capability expansion and changes in the product mix. Profit after tax stood at INR 32.1 crores with a PAT margin of 19%, reflecting a temporary impact due to uneven quarterly revenue. The company continues to maintain a strong balance sheet remaining net debt free with cash, bank balances and investments of INR 530 crores as on 30 June 2026, providing ample flexibility to support future growth initiatives. Our order book stands at INR 920 crores as on 30th June 2026, with orders received in July and orders negotiated, the auto currently stands at INR 2,654 crores. We remain focused on disciplined execution, operational efficiency and prudent capital allocation as we continue to invest in technology and support the company's long-term growth. With that, I would like to open the floor for question and answers. Thank you.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Hardik Rawat from IIFL Capital.

First question would be with regards to other expenses. So while our gross margins have largely not changed much on a Y-o-Y basis. And despite only 17% sort of growth in revenue or other expenses have risen by 64%. So is there anything that is peculiar about other expenses in this quarter?

The increase in other expenses is due to some additional repairs and maintenance costs, which is incurred because the facility is going through some revamping. So we had to spend some additional expenditure on repairs and maintenance. And also close to INR 2 crores, we have additionally provided for against the long-timing receivables as per our policy. These 2 have contributed increase in other expenditure. Otherwise, it's in line with our budget.

Got it, sir. And sir, on revenue in the press release, sir, I alluded to the fact that there were some temporary delays in customer approval. And we are expecting normalization in the main quarters. If you could provide some information there. So is there any quantum of revenue that was basically slipped from recognition in this current quarter because of this issue?

We can't be specific because it involves customers and I can't talk about open channel. We have these issues, we had these issues in the past also where products are ready and inspection team doesn't come because their own requirement to deliver is probably got delayed. So automatically, we don't come to set -- but these are all aberrations, which have continued to be there as long as we depend on that with the order book more revenue model being very near. So these issues will come in the picture. We try and manage it by other orders and other orders, see that our positions are maintained. But sometimes it is not [indiscernible] because we are not a quarter-to-quarter business, we're a yearly business and all the projects are long term, which is not a productive one-to-one day-on-day production business. So obviously, that's an impact on our revenue quarter-to-quarter but having said that, the important thing is to how to alleviate this quarter-to-quarter performance deviation is to see that the order books substantially goes up at least 3 years of our revenue projection. Then we will be able to position to say what quarter wise we should do and how do we deliver this. So there are [indiscernible] pertaining towards very a sizable order book in the coming year or so, 2 years. These were we crossed the INR 3-odd crores revenue projections, then we should be able to do better so to handle this kind of problems. So I think you need to bear with me for some time till the order book starts coming the way we want. We've invested substantially in product development, continue to invest substantially in differentiated products where we stand alone in some of the markets, and these are very disparate needed by our MOV. So as and when that happens, the order book would substantially increase. And we believe that our revenue projections will be met quarter-to-quarter as we roll off. We're going to take a bit of time, so now we need to be patient on a yearly model of growth for [indiscernible].

Got it, sir. That's really helpful. Sir, one last question before I fall back in the queue, Sir, our book orders negotiated but not in a part for orderbook now stands at about INR 17-odd billion -- from INR 1,726 crores. Sir, if you could just help us with the time line as in how should we expect this to turn into order book? Should this convert into orderbook in the, say, for example, in the next 6 to 9 months, what is the average conversion time line to conversion to order book for these orders that have been negotiated?

Okay. This question was asked during our AGM morning, and I [indiscernible] this question. So anyway, we will like to lever all shareholder address this. See, this order book normally should not take this longer time to get converted into contracts. And in this particular situation, because we're long with a big program, and the program position delays on finalizing the program before the order can get placed. It went to certain approval stages and it took a lot more time take an additional 6 months in 1 of program has been stretched more opcos because of which some of the contracts we expect out of the programs through negotiation is completed, order couldn't happen. What I'm told now is it takes an additional extension protectors from us, we expect the other 2 months this contract should happen. And also some of the orders we expected, the order has got postponed, but we didn't negotiate these orders. We read some negotiation, but a lot of protractingotiations. That's also coming to an end now that also should happen. So as we sauce converted in the next few months in actually had some a week, 2 weeks' time, but maybe conversion to 1 to be on a safer side and the order book is there, and we have already negotiated contracts. These are all long-term larger contracts, and that is only educations and delays are happening. On top of that, we've also told as part of the opening remarks. Other than the contracts which you are seeing on our order book, we're also pursuing some very large similar contracts, the extent of another INR 2,000 crores, which we expect to run in the course of this financial year. So I think the order is slowly aren't growing the way we want. In the coming years, will grow substantively is what we believe.

The next question is from the line of [ Ritika ] from Goldman Sachs.

So could you please share an update on the testing of Jamaports for 230 along with the revenue contribution you're expecting from this in the medium term? That's my question.

Okay. That product is going on where? The developer stage, customers had a view of this product renewed the product. And they have said, we're quite happy with the progress you hear on the -- so we are going through the quality and execution to maybe on quite a lot in play. We believe that should happen before December. We should have the first time to start that maybe a few months of flight trials and to satisfy the requirement on specifications. I think the commercial motion should start after that. So I can't -- I don't want to -- I have a number in mind. Of course, we know what we're working on. So we do invest in money. But I think it's not appropriate to talk about a future order not it has come in tender and to say how much is your expecting out of it. There are 2 major contracts we're expecting around INR 70,000 crores. And at the present [indiscernible], exact value, we will not like to disclose to the invent 1 happens. I expect to maybe the next 2 years' time, this contract will start happening, and that's the right time Yes, we're working in really large operators. And we took [indiscernible] to fund such development as well we are confident on our IP ratio and our [indiscernible] business. And so multi engineering approach, [indiscernible] We see that it's a complex system to supply is taking the challenge is because we need to scale our business substantially in the coming years. So we're doing kind of a or it will be larger at the maturity and we are on track.

Sir, secondly, could you please shre some more color on why did we have lower margins this quarter? And how are you expecting this to pan out in the coming quarters for '27?

Actually, we have our margin. I don't know look at the gross margins as 1 higher than a has probably done last quarter last year -- last year first quarter. But what happens to the lower end type because whether we deliver products are not this year, this quarter, we continue to spend on legal expenses, which is probably one of the highest in our industry, we spend on that. then we could explain to you that the other expenses write-off as cost depreciation...

Basically an even revenue in quarters. You have to look at it on annual because the revenue is not distributed evenly through all the quarters and expenditures remaining almost the same quarterize. The contribution from gross margin, it is distributed to the higher cost, the margins are seen lower. Otherwise, we are confident of achieving the full year targeted margins.

Our budget towards year-end targets. -- quarter-on-quarter, it will vary depending on what is the level of turnover we achieve. It's very in line with our internal targets. Revenue is 1 quarter, it's fourth, then the margin will be changed. -- the revenue is not equally distributed across the quarters, you're finding the so-called EBITDA margins coming down. That starts to the gross margin remains very healthy. That's the actual fact.

The next question is from the line of Dipen Vakil from PhillipCapital.

Congratulations on decent execution. Sir, my first question is on order in -- so one thing is that we have like negotiated contract with INR 17 billion and of that, I believe that last quarter, we had mentioned that HCL has like an order of more than say, INR 10 million so whenever it gets converted into order book, what would be the time line of execution of that order considering that it's one large order from a single client?

Okay. See, this varies with the contract. varies with the customer delivery as we take a share to deliver the aircraft for a few of years. So then it to order is given or not. -- execution takes over a period of time. So that is one. In a project order, the value is high, project extrusion maybe got 8 in 24 months and the parser within the time frame,; with small subscription order [indiscernible] then the deliveries are faster, sale contracts take longer delivery time as on the actual application and demand of orders to be delivered development and integrated and accepted. This actually varies from a few months to maybe a few years. So unless we work with every product order. I can't answer the question currently. Of late has also launched a pretty decent delivery in over 2 to 3 years' time. We actually expected for higher availability delays that they are saying, okay, we -- this is being negotiated. Whatever we've talked now on the negotiated do not include HL contracts. We are under discussion on all these things. Negotiations are on place. I found that a lot of people are asking questions to me directly, we got in [indiscernible] release that we are in on [indiscernible]. I didn't comment on it because we have [indiscernible] it's a single contract [indiscernible] initiated, we're going to lever. As and when it happens, we can ounce it in the stock exchange.

Got it That thinking to you that it's out of -- beyond the INR 17 billion negotiated contracts already. So yes, that helps Sir, my second question is on the lines of counter-drone business and export business that you mentioned that are gaining traction. So what would be the product portfolio likely that is gaining traction? And are we supplying the complete platforms? Or we are looking at more from a subsystem play for the counter drone business as well?

We are not in the platform business as of now, is the sensor business. So we have 2 or 3 areas where we can do counter drone, that is in us build the full data. We get requirement quantities for counter drone and operators as we fully develop and we have unique products there that it requirements is not best in India. So it is imported now. So we believe we have a good outerwear start giving contracts. As you go along, we expect a far more healthy order book on actual reduction. Second is the passive reduction of counter drones. That is on AI intelligence and some gating to get deal what is happening in the core and then to locate where the drone is direction of the drone. And then this is another area. So we've already done a host of products in electronic intelligence, modernizing this contract, things this market size -- and that also is almost getting ready. We expect contracts to happen there also. The third area is not only just detecting but also to account machine, as we're jamming or jamming is to be done. We have products which built for the jamming also see that the single jam on 1, but also -- so there's a group of us working on the specs. We believe will cover the entire specification. Some of the applications also vary because they're amicons, and they want to even target the grows into the end project time. So they are also the direction of radar and [indiscernible] by them. So there is a requirement various kinds of requirements are coming up from the market. And Morhasdecided to place an on multiple as these vendors experiment 120 systems reach. So more number of things are approaching us for suitable sensors for all these applications. we're working with them in the next 3 to 6 months then, which contracts should start getting tied and should grow this. This is on the counter drone area. On the exports, we continue to build for the last so many years, single passes for ADAS, ADAS for U.K. company. And now we have started getting the first horse we got last year. for an antenna, we will then have an adeno an upset management for our fieracaft system. So we will be delivering in the next 6 to 8 time -- there's also a lot of interest in the same organization, which haltional, very large corporate in other areas even proposed to many of these systems. And they are very keen to see that use these systems because the time frame which we're talking about is far, far lower than what they expect their own automation to build spec in Europe, having Manohar and seen requirements of contracts and scaling up, you find a lot of opportunities getting created for us is our competency in building products. It will be analysis is very short. So I expect that business also in the next few months' time, the multimillion-dollar business, we start getting. Third area, we're also looking at civilization kind of absolute management and upgrades. We have, again, very large OEMs in the U.S. We expect that those contracts will also start coming in at exports. see normal business has been Indoor of tech sector, hence, how the business has been here. We want to now look into new markets, which is our export business, where we do product development or goes into their requirements and the market sales have become much bigger. So there, we can also look at a business which is in the annuity business, not just the project related. So very keen we're putting on export group. to address the market. And I think in the next 2 to 3 years' time, scaling substantially into export business should also start.

Sir, just one last question, if I can squeeze in. Sir, can you comment on your acquisition on ST Advanced? And what is it targeted at namely as to what kind of project, whether it is like and how it can increase our market opportunity. So are we targeting it mainly for mid '29 upgrades and '30 upgrades? Or there is a much wider application for this acquisition?

See ST Advanced is a very sound company. It's very sound and are met organization. We believe that we sensor business. We also have to have a requirement of composite for the dose food iconic intelligence and as well retorquements. It's 1 area we're already getting contracts and we are getting the products there for them, which is working very well for us. It's also supplying to bar electronics and other organizations. -- the advanced composites for aircraft systems in the. So the important is to try to see telecenters hold it into a larger impairments which we have in India. -- and abroad, both India and abroad, along with our sensors and parts of systems is a requirement of composite. So if you can combine these together, they do a whole system rather than fee the system. -- customers are much more happy because we take a full contract to import the system. So we thought this is a right approach built an ecosystem, which can feed each other's capabilities and grow it overall, some games can go up. That's the site, and we need to do a lot more work to bring this company up where it is today to a much larger over periods. And we have a lot of that kind of [indiscernible] which is the promoter the company has, and we've had some discussions them. We want to spend more time at with them, invest in the company to see that infrastructure has created and good long-term development plans for these contracts. -- their sustainable business model for its growth. At the percent moment, it's a bit too early, but they stay only finalized with the board, and we need to spend more time on the strategy -- but yes, it's a small company, where we believe it's an important acquisition to put that company as well as us that we can give a product offering as a whole. Now to look at some export business, which will art to him as well as to us seeing that we increase in the business. all the very best for FY '27.

The next question is from the line of [ Vinit Pasad ] from Investec Capital.

Good afternoon. Just a couple of questions. One is, if you can broadly highlight larger platforms, which you are on to participate in, not as a platform, but more as a system or subsystem developers. And that too, not from a near-term perspective, but over the next 3 to 5 years, where all can we participate and contribute? That's number one. And number two, just wanted to hear your take on Himshakti project. Where is that we were going to receive a few orders. Have you received those? Or where is the -- what's the project at us there?

Okay. On the larger platforms, is a mail program and bigger hail programs has taken up, large geneotenders. As a sensor developer, most of these are all now on the existing vendors and all of imported origin. -- we believe we should make the mark in providing all products in these areas in terms of a wanting the common mitigate detergents, electronic incisions, the IFF radio release -- so we come down links, data links. There so many areas which we can work on at a full system to give indigenous contribution to these kind of big programs, of larger platforms. And we're actually engaging with 2, 3 companies to offer them at least go to pierce the see that repeat requirements can come in numbers as you go along. The market is changing from man-to-man -- so there's a lot more opportunities to come. The same thing also will be applicable outside India. So on a combined system, if you can do this in India, along with the platform sort exporter. So these are exciting new opportunities. we already have existing competencies and products in the early price on, I need to treat for their particular platform in might see that we got total, so this is one area we're looking at. so on for various other surveillance applications we can outfit the systems. We are continuously gaining calls from various viewing manufacturers to see how can we give sensors for their birds, so we are exploring all those opportunities, competency exists a mutual benefit in terms of from a product and customer at a very high fast turnaround time. These are areas which we can do in terms of platforms. We also are now looking at to build back these kind of products for renewal platforms. Here, we won't start discussion now. on giving very modern systems for these large platforms in Navy and also some of the upgrades, which India is going through or is aircraft upgrade which go to same sensors, which we're talking about in terms of Wand Radar can get provided with that. Again, we're looking at in those markets. The first question is asked on the SPGA. It's one such requirement in the electronic outrate getting developed for the 3 platform is on 30 of aircraft. So the cars are there, multiple systems are happening. And also, Vadis also taking up a number of on that a whole lot of other projects, which may and things like that where we feel that our sensors can go between to the programs as we want [indiscernible]. So on a product level, we have the SSD market has seen that we continue with this part for the -- the number of those applications will take a lot of time, we will go through it, but I give you a flavor of down business. is not more areas where we can actually look into the applications to the products of those end applications. With regards Himshakti, I think we delivered the original products. Now we require we got the SMS other program, [indiscernible] talking about. There have been discussion with us. I can't tell you whether the RFP and [indiscernible] something, and still not -- I don't have good data with me against interaction for all or some of the products, which has proved in a shift. They are also talking to us to see whether this can be fitted for the next-generation platform. In the meantime, we're also upgrading our technologies in this add more value in terms of not just the hardware and software, but also the Rufont edge the antennas -- we have a large Atalandivision now we design optimally solution end product is not depending on our companies and defined fortigations to give you much better product performance. also we're not keeping quite in the last 2 years, then we all have grown up on and make elements still on with 3 envision programs and coming mitigations, RW and things like that. We're not waiting for the contract. We are going ahead products will be ready the next over time. We expect that the no to have, to be able to comment to a customer and the end user that these are the appropriate products for the but I can't comment exactly on when the contract will happen.

Understood. Understood. Sir, lastly, on the Hawk radars, which you've developed -- have you found any application out there or any way to monetize what we've built -- and could that find a way into 30 upgrades or some of those larger platforms. So any discussions with the customer, any indications where we can monetize such a fantastic product, anything on that front?

Sure. We've done hardware for both mix as well as 3, but then we need the software for them. Original concept was we give this after some big work out, but the hardware we can here and developers at cost. We are in disease to see whether we can cover with them for putting this together. We're also discussing with the Russian counterparts. -- on the OEMs to see whether both are going ahead. I can't very clearly say which will happen when faster. We expect the next 2 to 3 months time should get some breakthrough of this, our systems can get -- the software get reported and then we go to facts after that. We're also investing in next generation program and next generationd radar, which we got a production-oriented line. Also, we won develop in the next step. As the first contracts come in, we'll be ready with the second the more advanced systems of that nature will also be available in a technology edge to the end customer. So we are waiting for this to happen. In the meantime, we also there will be your own software. Now we just started developing their own software, we own platforms using UV as a platform for our clients which is what some of our customers are wanting us to do. So we are also going to seeing that develop the systems. As a complete system ear, then we are not dependent any gains on technology. to bind the business orientation. That also we initiated. So it will take a few more months before we get a correct path as to where it is going to go. But yes, we are determined to see that these products were complied putting efforts to see that the more modernizing system learning from mistakes, correcting it, building a rich software, New whole lot of other stuff. You see that this project is successful. When it takes some time, so I can give you more data on in the possible success can happen.

The next question is from the line of [ Karish Parik ] from 361 Capital.

Sir, do we have an update regarding BrahMos. We have been supplying firsts for the same? And also, I've been working on development in orders for Scot. Any color on time lines for receiving commercial orders for these Seekers?

We expect this to happen this year, this bench here, but was a quantity product strategy as the quality anticompetitive trends. I think the contract should happen. Are you in 1 million more in [indiscernible] We believe that this should happen this year. We explained earlier that there are some bits will this happen in the quarter this year. One of the projections which we have for this year revenue on order intake. So not revenue but take this year.

Further do you have any comments on development of new subsystems for BrahMos, if you do that, what incremental wallet share are we targeting to gain here? And lastly, again, you've seen BrahMos have seen increased interest from a few countries, and we have also from other suppliers to the program, about them ramping up capacities for those respective components, how are we placed to meet the growing demand for BrahMos?

See, what happens is once you develop a product, there is when the developed towards the BrahMos missile. Those are getting contracts. So on the lead contracts for particular pieces are done. But I don't see so easy to change the supplier, redevelop and qualify our systems. So I don't expect that much to happen. The volume is coming with the more orders from them back to back orders will come to us, what we expect and we'll deliver this. So that is one part. Second, also, we are talking about ratios is an existing most happens and they don't select us for some of the programs is, we'll be very happy to see that our use them also in. We have the capability. But whether it will happen or not is something that we cannot guess. [indiscernible] to a whole lot of stuff in the last 20 years, the normal loathes happened in the patterns across domains. So we can do very fast on our time depending on the market. That's all I can say today.

[Operator Instructions] The next question is from the line of Neelotpal Sahu from JM Financial.

Am I audible?

Yes.

So my first question is on this existing order book of INR 2,600 crores. Can you give us some color of like how much of these are production and what level would be development orders?

I don't know, I have not classify it accordingly. I'll give you a direct answer. And will you have a classification of...