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Order Inflows Drive Bullish Outlook
JM Financial has resumed coverage on Data Patterns India with an 'Add' recommendation, setting a target price of Rs 4,080. This suggests a potential 12% appreciation from current trading levels. The firm's positive stance is grounded in Data Patterns' substantial growth visibility, fueled by increasing defence expenditures and the government's 'Make in India' policy promoting domestic manufacturing. The company's order book experienced a significant expansion, with Rs 1,130 crore in order inflows for FY26, a threefold increase year-on-year. An additional Rs 1,100 crore in negotiated orders are anticipated imminently, further strengthening the company's backlog. JM Financial projects a 30% compound annual growth rate in order inflows between FY26 and FY28, which is expected to drive considerable revenue and earnings growth.
Financial Projections and Sector Comparison
The brokerage forecasts Data Patterns to achieve strong financial performance in the medium term, supported by its execution capabilities and the escalating demand for sophisticated defence electronics. JM Financial anticipates revenue and earnings per share to grow at a compound annual rate of 25% and 26%, respectively, from FY26 to FY28. Management has reiterated its revenue growth guidance of 20-25% and EBITDA margin guidance of 38-40%. This aligns with broader trends in the defence sector, where increased geopolitical tensions and government focus on self-reliance are boosting order pipelines for key players. Competitors in the defence electronics space are also experiencing heightened interest, though Data Patterns' specific focus on niche technologies offers a distinct advantage. While Data Patterns' stock currently trades at a premium valuation of 52 times estimated FY28 earnings per share of Rs 78, JM Financial views this as justified given the company's strong earnings visibility and market position.
Operational Efficiency and Cash Conversion
Data Patterns has demonstrated operational resilience, maintaining healthy EBITDA even during quarters with lower revenue. The company is actively working to enhance its cash conversion cycles, a crucial metric for capital efficiency in the capital-intensive defence manufacturing industry. This focus on operational improvements is vital for sustained long-term growth and profitability. The current market sentiment for defence stocks, including Data Patterns, reflects investor confidence in India's growing defence manufacturing capabilities and the government's commitment to indigenous defence production. Recent analyst reports indicate a general positive outlook for the sector, with several companies benefiting from increased defence budgets and modernization programs.