Target: ₹3,000

CMP: ₹2,101.05

Data Patterns is a high-growth company with consistent margins & improving return ratios. We expect its strong momentum to continue in the medium term.

A robust order backlog with a strong order pipeline and the focus on in-house product development and exports, we feel, will aid high growth and margins.

Data Patterns order book (OB) nearly doubled in FY23 to ₹920 crore (2x OB/TTM sales). The company’s OB is well diversified with production (31%), development (64 per cent) and services (5 per cent) orders. Anticipating a substantial presence in the market, the company aims to secure new contracts worth over ₹3,000 crore in the next three years.

We feel the expansion in manufacturing facility and an experienced management team (average experience of 20 years+) will help Data Patterns to achieve sales and EPS CAGR of 38/45 per cent, respectively, over FY23-26F. We expect the company to post healthy RoE/RoCE of about 22 per cent by FY26. We initiate coverage on the stock with an Add rating and a target price of ₹3,000 (50x Sep 2024F EPS).

Downside risks: Lower-than-expected new order wins and margins, & any budgetary cut or delay by the government.