Multibagger DCX Systems shares are trading down 25% from recent highs. Time to buy?

Shares of DCX Systems, a company specializing in systems integration and cable and wire harnesses, were in a downtrend for most of August, falling 11.25% — its biggest monthly decline since September 2023.

Investors sold off the stock after the company’s June quarter results fell short of market expectations. The decline also led to a 25% correction in the stock from its recent all-time high ₹452 per share, reached in July.

The company’s revenue and net profit decreased in the quarter under review. Revenue for the quarter amounted to ₹138.08 crore, down from ₹170.10 crore in Q1 FY24. Analysts have noted that Q1 has traditionally been a slow one for DCX Systems and this quarter was no exception.

However, Raneal Advanced Systems (DCX’s PCBA division) achieved revenue of ₹42.4 crore, while NIART Systems (Railway Joint Venture) is now ready for mass production with total assets of Rs. ₹475.2 crore, according to analysts.

On an operational basis, DCX Systems reported a 19 percent year-over-year decline in revenue ₹138 crore due to typically slow Q1. Rising raw material costs led to operating loss ₹4.8 crore and net profit down 69% year-on-year ₹2.9 million.

Management emphasized that the increased raw material costs are expected to be recovered from customers under BOM guarantees. Most of these costs are related to one or two programs, and the company expects to receive funds within two to three months.

The order status at the end of the June quarter was ₹1937 crore, feasible within two years, with a significant portion ₹1,250 crore from L&T for manufacturing and supply of electronic modules. The management also expects strong order conversion in the future.

The company has seen a strong demand from domestic and international customers for the supply of cable harnesses and wires. It has received orders worth ₹32 crore for these teams and continues to enjoy strong demand in its order book.

DCX is also focused on improving its margins and is confident of achieving double-digit margins. This will be supported by three key factors: the use of Raneal Advanced Systems for internal consumption, NIART Systems preparing its obstacle detection equipment for mass production and an increased mix of cables and wire harnesses, according to analysts.

Strong order book and diversification efforts drive growth

Even though the company missed analyst estimates for the June quarter, domestic brokerage firm DevenChoksey emphasizes that DCX should not be valued on a quarterly basis, especially in the first quarter, which has historically been lackluster. The brokerage firm expects the second quarter to bring more clarity on the acceleration in growth, supported by the company’s solid order book. ₹1,937 crores.

As a result, the brokerage has maintained its earnings estimates for FY25E and FY26E, driven by strong order book, increased focus on wire and cable harnesses and commercial production of Raneal Advanced Systems. It continues to rate the stock as a ‘buy’ with a target price ₹519, which is 36 times fiscal year 2026 earnings.

The target price indicates a potential upside of 53% from the last closing price of ₹340 per share. Interestingly, despite the recent correction, the stock has still achieved a 146% gain over the last 17 months.

Reservation: The views and recommendations in this article are those of the individual analysts. They do not reflect the views of Mint. We recommend that investors consult certified experts before making any investment decisions.