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VCK Share and St ock Brok i ng L t d . FOR PRIVATE CIRCULATION
Astra Microwave Products Ltd. VCK Research Analyst: Niraj Shah
1
Sector: Electronics
Stock details
BSE code 532493
NSE code Astramicro
Market cap (Rs crs) 1534.1
Free float (%) 4452-wk Hi/Lo (Rs) 2990/382
Avg. daily volume 15000
Absolute Return 12M (%) 558.34
NSE Return 12M (%) 48.37
SHARE HOLDING PATTERN
Astra Microwave Products Ltd.Time Period: Long Term
Current Market Price: Rs.2714
Recommendation: Buy
Target Price: Rs.560 ex bonus & splitDated: 21st Sept 2005
Company Profile:The company is pioneer and one of very fewcompanies from private sector involved in hightechnology RF and radar and microwave supercomponents and sub system products for mission
critical applications in defence, satellite and spaceand telecommunication sector.
Highlights:??The company’s revenue has grown at CAGR of
53% and PBT has grown at CAGR of 67.5% sincelast 5 years. The company has recorded 87%
jump in revenues to Rs.65 crs.and 127% jump innet profit to Rs.23 crs in 2005 compared to last
year.??The company has appx. Rs.106 crs worth
orders in hand and this is going to increasesignificantly as the company is in negotiation with
foreign defence majors for outsourcing some oftheir critical applications.
??The company has completed Rs.10 crs
expansion plan last year and it is furtherimplementing Rs.25 crs expansion plan duringcurrent year in order to sustain the growth.
??The company is consistent dividend payer sinceits inception and has paid 50% dividend thisyear. The company is a big spender on R&D and
spends about 13% of the revenue on R&D.
??About 60% of the revenues come from BEL and
Bharat Dynamics and defence companies. Theofficial defence budget of Rs.83000 crs which is
quite a big hike over last year’s defence outlayhas already resulted in big outflow of orders and it
is expected to continue going forward.
FII
9%
Promot
ers
56%
Public
25%
Body
corpora
tes
10%
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Stock Split and Bonus Shares
The company is splitting the stock intoRs.2 face value and also it hasannounced 1:1 bonus shares and it has
fixed 15th October 2005 as Record Datefor this.
Products and applications:
1.Defence Applications: The Company’s
focus is on defence sector and R&Defforts are thrust more into developing
new systems for Radar electronics,Missile electronics, EW Applications and
telemetry components. In fact, thecompany is specializing in custom madeand order made Research and
development against orders for thesame. About 66% revenue or Rs.43 crs
came from this sector.
2.Space Applications: The Company has started design anddevelopment of Flight Module T/R modules for satellite
applications against development order. The companyexpects to complete the development during this year
and start production in large quantities in current yearitself.
The company has also designed and developed AutomaticWeather Station (AWS) in association with ISRO.This product
is used to improve weather forecasting and related
information at local level. The company has signed MOUwith Antrix Corporation of ISRO to supply the same in
bulk quantity.Only about Rs.1.53 crs or 2.34% of the revenues came from
this sector.
3.Telecom application: The company is the major supplier ofCellular Repeaters, Jammers, CDMA Filters, VSAT and
Antennas. The company has successfully designed anddeveloped optical repeater for cellular applications and
it is expecting bulk orders for the same in this year.
Valuation table (Rs. crs)
Year end March FY04 FY05 FY06E FY07E FY08E
Sales 34.98 65.1 102.6 134.0 194.0Growth (%) 71.7 86.0 57.6 30.6 44.8
EBITDA 13.36 30.81 62.0 81.0 117.0
OPM (%) 36.9 45.1 60.0 60.0 60.0 Net profit 7.5 17.06 37.1 48.3 74.0 Net profit margin (%) 21.4 26.2 36.0 36.0 38.1
EPS (Rs) 14.1 32.0 7.0 9.1 14.0CEPS 21.1 42.4 8.2 10.3 15.0
DPS (%) 30 50 - - -
ROCE (%) 35.9 65.3 51.9 52.5 55.6
RONW (%) 33.9 57.5 52.5 47.3 45.1
Sales/Assets 1.39 1.72 1.6 2.0 2.7
Interest coverage (x) 8.5 18.0 24.0 12.9 19.1
Debt/equity (x) 0.4 0.44 0.47 0.27 0.14
Enterprise Value (crs) 180 1534.2 1550.2 1550.2 1550.2
EV/Sales (x) 5.1 23.6 15.1 11.6 8.0
EV/EBITDA (x) 13.5 49.8 25.0 19.1 13.2P/E (x) 198.5 58.1 40.0 30.7 20.0
P/BV (x) 62.6 31.28 21.0 13.25 8.5
Price/Sales 80.0 43.0 27.3 20.9 14.4
PEG Ratio 3.2 0.46 - 1.02 0.37
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About 31% of the revenues or Rs.20.4 crs came fromthis sector.
Exports
The company is believed to be in negotiations with someforeign defence companies for the development of certaincritical application products as well as for the supply of
already developed high technology microwave components.
This deal is expected during this year and it can be a majorbooster for the growth of the company. Announcement on
this front can be a major surprising boost for the stockprice.
Good Order book Position
The company has got about Rs.106 crs order in hand and
with the development of new products for space &telecom sectors this order book is only going to swell
further. Besides, the company is now putting newthrust on exports which is almost nil at present. Thiswill further add to its swelling order book.
Expansion and New Projects
The company is implementing Rs.25 crs expansion plans. The
company has raised debt of Rs.17.5 crs at an interest rate of8.25% for the same and the rest Rs.7.5 crs.through internal
accruals. This expansion involves addition of testing andenvironmental equipments and construction of new
manufacturing facilities.
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Increased Defence Budget
The defence budget for 2005-06 has increased by 7.8% toRs.83000 crs compared to Rs.77000 crs a year ago. Themajor proportion of this budget is for the modernization of
the defence system. If we add the unspent amount fromprevious years, this amount goes over Rs.1 lakh crs.
This big budget has resulted in the huge orders to companies
like Bharat Electronics, Bharat Dynamics, DRDO, etc.Astra Microwave being the main and critical supplier of RF and
microwave components and sub systems for the systemssupplied by these companies is also going to be the major
beneficiary.
Telecom sector-world’s fastest growing
The telecom sector in India is growing at more than 20% perannum and it is expected to continue to grow at the samerate for coming few years.
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Astra Microwave is continuing to benefit from this growth asalso from the growth of finance and capital market.
The capital and stock market is going into new zone of growthand the big stock broking houses are expanding and openingmany more branches throughout India and that mainly in
remote places because of the growth opportunities itprovides. The connectivity of all these branches is provided byVSAT and so the demand for VSATs and allied components is
only going to increase with the growth of retail finance and
banking business. Astra Microwave is the only developerof VSATs in India and it is well placed to benefit from
this growth.
Space Technology
ISRO’s 5-year budget is USD 3.3 billion. India’s spaceprogram is already a money earner and it sells infrared
images from its remote sensing satellites to other countries.If everything goes right, India’s moon mission Chandrayan
will be launched by end 2007. ISRO is also planning nextgeneration GSLV, Mark 3 for launching biggest satellites athalf the rate charged US, Russia or France. In fact manyAfrican and Asian countries have shown interest and help of
ISRO in developing their space technology on commercial
basis. Astra Microwave is closely associated with ISRO in thedevelopment of flight model and other mission critical
components since long time. So, all this progress and growthof ISRO is indirectly helping the company with the
development of new products.
Financial Performance:The company has achieved sales of Rs.65 crs registering
an impressive growth of 87%. The EBIDTA has grown
142% to Rs.30.81 crs. The net Profit after tax has grownby 127% to Rs.17.06 crs compared to Rs.7.5 crs. In
fact, the company’s sales have grown at CAGR of 53%and PBT has grown at CAGR of 67.5% since last 5
years.
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Concerns:
The majority of the company’s business comes from defencesegment. Generally, defence purchases and projects have
long gestation period and as such can affect the growth of thecompany. Besides, any change in the defence policy canadversely impact the company’s growth.
Valuation and Recommendation:
The company’s sales are expected to grow at CAGR of 45%to cross Rs.200 crs in FY2007-08. The stock looks overvalued
by Simply looking at PE and other valuation parameters. But
this company has grown at more than 55% since last 5 yearsand it is expected to maintain the momentum of growth andeven better it with the outsourcing of R&D in high technology
sector picking up. The company is believed to be in talks with some major US and European defence manufacturing
companies as well as space agencies for thedevelopment and manufacturing of critical RF &
microwave radar components. Any positiveannouncement on this front will act as a big booster for
the stock price and rocket it into higher zone.
We recommend buy on the stock because oftremendous growth potential it has got and in additionit is a niche player in a very critical, high technology
exclusive and highly growing defence, space andtelecommunication sector. This is a very good
investment stock and can give the tremendous returnsover a period of 2-3 years. The stock has got very goodsupport at 2600 level and below that strong support at2400 and becomes a value buy at these levels. We
expect the price target of Rs.560 with 2-3 years long
term view.
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Company Financials:Income Statement(Rs.Crs.)
Y/E March FY 04 FY 05 FY06E FY07E FY08E
Gross Sales 39.53 76.03 120.2 156.0 226.0
Net Sales 34.98 65.1 102.6 134.0 194.0Other Income 1.22 3.19 1.4 2.0 2.0
Total Income 36.2 68.29 104 136 196.0
Total Expenditure 22.84 37.48 42.0 55.0 79.0
PBIDT 13.36 30.81 62.0 81.0 117.0
OPM (%) 36.9 45.1 60.0 60.0 60.0
Interest 1.14 1.4 2.3 5.8 5.8
PBDT 12.22 29.41 59.7 75.2 111.2
Depreciation 3.72 5.48 6.7 6.2 6.0
Tax (Incl. Def.Tax) 1.0 6.87 15.9 20.7 31.2
PAT 7.5 17.06 37.1 48.3 74.0
NPM (%) 21.4 26.2 36.0 36.0 38.1
EPS 14.1 32.0 7.0 9.1 14.0
Balance Sheet (Rs. Cr.)
SOURCES OF FUNDS FY04 FY05
FY06E* FY07E FY08E
Equity Share Capital 5.06 5.31 10.6 10.6 10.6
Preference Share capital 0.0 0.0 0.0 0.0 0.0
Reserves Total 17.31 31.37 60.0 102.0 164.0
Total Shareholders Equity 22.37 36.68 70.6 112.6 174.6
Debt 9.49 16.01 33.5 30.0 25.0Deferred Tax Liabilities 3.05 4.38 2.38 0.0 0.0
Total Liabilities 34.91 57.07 106.48 142.6 199.6
APPLICATION OF FUNDS
Gross Block 25.26 37.86 64.0 66.0 70.0
Less Depreciation 9.3 14.72 21.4 27.6 33.0
Net Block 15.96 23.14 42.6 38.4 37.0
Investments 0.44 5.65 8.65 10.0 14.0
Cash and Bank 2.33 7.07 4.5 4.1 5.5
Current Assets 30.45 52.86 105.0 174.2 260.0
Less: Current Liabilities 11.88 24.8 50.0 80.0 112.0
Net Current Assets 18.57 28.06 55.0 94.2 148.0Misc.Exp. (Incl. Def. Tax assets) 0.14 0.22 0.2 0.2 0.2
Total Assets 35.11 57.07 106.45 142.6 199.2
*1:1 Bonus shares
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Price Chart:
Cash Flow (Rs. Cr.) FY04 FY05 FY06E FY07E FY08E
Net cash From Operatingactivities 8.83 15.3 14.8 13.1 26.0
Net cash From Investing
activities -12.45 -13.4 -29.0 -4.0 -8.0Net cash From Financingactivities 3.74 2.98 11.5 -9.5 -17.0
Net Inc./(Dec.) in cash 0.12 4.88 -2.7 -0.4 1.0
Cash at the beginning of theyear 2.21 2.33 7.2 4.5 4.5
Cash at the end of the year 2.33 7.2 4.5 4.1 5.5
Disclaimer - The information in this report has been obtained from sources, which VCK Research believes to be reliable, but we do not
hold ourselves responsible for its completeness in accuracy. All estimates and opinions in this report constitute our judgment as of this dateand are subject to change without notice. VCK Research will not responsible for the consequence of reliance upon our opinion or statement
contained herein or for any omission.
VCK Share & Stock Broking Services Ltd. Analyst : Niraj shah
41, Shakespeare Sarani, Kolkata - 700017 Kolkata Office - Ph:(033) 22872387/ Fax: (033) 22478479
Email: research@vckgroup.org Mumbai Office - Ph:(022) 56325727/ Fax: (022) 56325737