Astra Microwave Products Ltd

7/23/2019 Astra Microwave Products Ltd

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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%




Astra Microwave Products Ltd. VCK Research Analyst: Niraj Shah 2

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





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.





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.





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.





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.





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





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: [email protected] Mumbai Office - Ph:(022) 56325727/ Fax: (022) 56325737

Astra Microwave Products Ltd

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