DCX Systems downgraded to 'Sell' by Choice Broking; target price slashed by 18%; here's why

Choice Equity Broking has downgraded defence electronics manufacturer DCX Systems Ltd shares from a 'REDUCE' rating to 'SELL' and lowered the target price by 17.98 per cent from Rs 317 to Rs 260. The brokerage cited weak operational performance and continued project delays as the key reasons for its downgrade call.

Reviewing the Bengaluru-based private defence player's fourth quarter (Q4 FY25) result update, Choice said, "From a long-term perspective, we view DCX Systems as structurally well-positioned to benefit from rising defence exports and import substitution initiatives. However, near-term execution remains a key concern."

The domestic broking firm said the company reported a sharp 41.4 per cent decline in revenue compared to estimates for Q4 FY25. Earnings before interest, taxes, depreciation and amortisation (EBITDA) came in at just Rs 10.2 crore, far below the expected Rs 58.9 crore, with margins under pressure at 1.9 per cent, compared to 6.3 per cent forecast.

"The company has faced margin pressures and delivery delays over the past four quarters, raising questions about its operational efficiency and earnings visibility," Choice also stated.

Even though DCX has a strong order book of over Rs 2,000 crore and high-profile clients like Lockheed Martin and Israel Aerospace Industries (IAI), Choice emphasised the need for improved execution.

"We advise investors to remain cautious until the company demonstrates a consistent track record of execution and financial performance," it added.

On a positive note, the company remains debt-free and saw a cash flow turnaround in FY25. It is also planning a radar-system joint venture with IAI through ELTX, expected to be operational within 11 months.

"We remain bearish on our topline/bottomline assumptions, but we are hopeful about margin improvement. Accordingly, we revise our FY26/FY27E revenue estimates downwards by 21.2 per cent and 15.9 per cent, and EPS estimates downwards by 10.5 per cent and 18.3 per cent, respectively. However, given the inconsistent performance, we downgrade our rating to SELL (from REDUCE), while maintaining a valuation multiple of 30x FY27E EPS," Choice further stated.

Meanwhile, shares of DCX were trading 0.77 per cent up at Rs 315.50 in Thursday's early trade. Promoters held a 56.85 per cent stake in the defence firm as of March 2025.