Astra Microwave Products Ltd

Incorporated in 1991, Astra Microwave Products Ltd. (AMPL) is in the business of designing, developing and manufacturing sub-systems for radio frequency and microwave systems used in defence, space, meteorology and telecommunication. A group of eminent scientists with background in microwave and digital electronics created the company. The vision of the company is to lead the wireless communication revolution by research, development and investment in cutting-edge technology. The DRDO’s (Defence Research and Development Organisation) ‘Surface to Air Missile’ programme saw the company’s first deliveries of modules used in missile electronics in 1997. From a small beginning, the company has developed into one of the strategic partners for DRDO.

It has provided numerous vital and wide-band products, particularly in the naval sector. ISRO’s call to the Indian private sector to enter the space industry in 2004 gave the company the motivation it needed to take up challenging work for components and sub-systems for satellite applications. Since 2008, the company has participated in each significant launch of an Indian satellite. It offers a wide range of specialised products and services in areas like defence, space and meteorology. Under the defence category are radars, electronic warfare, strategic electronics, telemetry and avionics. While automatic weather stations and agriculture-related meteorological stations are solutions linked to meteorology, flight model application and ground-based application are space-related. 

Sector Overview
India’s defence sector is a crucial one from a strategic perspective. Aside from the United States and China, India boasts one of the largest armies in the world and the fourthhighest yearly defence budget. The Ministry of Defence was allocated USD 70.6 billion as part of the Union Budget 2022– 2023. India ranks third among countries that spend the most on their armed forces, with its spending making up 2.15 per cent of its GDP. The amount of India’s defence imports was USD 463 million in FY20 and nearly USD 469.5 million in FY21. India’s self-reliance plan has been targeted by the government for the defence and aerospace sector with a strong emphasis on the building of domestic manufacturing infrastructure supported by the required research and development environment.

Between 2016 and 2021, India’s defence manufacturing industry has experienced a CAGR of 4 per cent. By 2025, the government expects to have USD 25 billion turnover, USD 5 billion of which will come from the export of goods and services related to aerospace and defence. In a more optimistic way, the nation’s defence exports have seen significant rise during the past two years. In India, the government owns 80 per cent of the domestic defence industry. Among the state-run companies are Bharat Electronics, Hindustan Aeronautics, Cochin Shipyard, Mazagon Dock and Bharat Dynamics. DRDO provides great research services to the industry. There are also a few privately owned companies in this sphere, including Reliance Naval Shipyard, Tata Defence Systems, Mahindra Defence Systems and Bharat Forge. 

Financial Overview
Taking into account the company’s financial performance for the fourth quarter of FY22, on a consolidated basis the company reported net sales and other operating income of ₹239.44 crore, a decrease of 4.75 per cent from ₹251.39 crore reported in Q4FY21. The operating profit was ₹27.50 crore in Q4FY22 as opposed to ₹54.18 crore in Q4FY21. With a decline of 56.62 per cent from the same quarter the previous year, Q4FY22 had a net profit of ₹12.05 crore as opposed to ₹27.78 crore. Considering the yearly performance, the net profit of company surged 26.61 per cent to ₹40.12 crore as against ₹31.69 crore during the previous year. Also, net sales rose by 17.09 per cent to ₹750.46 crore as against ₹640.91 crore during the previous year ending March 2021.

The company has a market capitalisation of ₹2,340 crore. Promoters held a small 8.46 per cent stake in the company as of March 31, 2022. Institutional investors have a total stake of 2.34 per cent, out of which foreign institutional investors (FIIs) owned 2.17 per cent. Non-institutional investors have total stake of 89.20 per cent. Prior to now, countries frequently depended on domestic suppliers for critical military equipment, shielding the defence sector from shocks on a global scale. The defence industry began to adopt globalisation in the 1990s in an attempt to take advantage of all of its strengths, but doing so also made the sector more vulnerable. 

The pandemic has made these flaws apparent. The business was disrupted by the pandemic’s first and second waves. The company was able to perform better quarter over quarter in terms of revenue and profit margins after recovering losses reported in the quarters of June 2020 and September 2020. Analysis of the other financial metrics reveals that the company generated average profitability per unit of total capital with return on equity (ROE) of 6-7 per cent and return on capital employed (ROCE) of 11 per cent. Since many years, the company’s debt-to-equity ratios have been close to zero, clearly indicating that all of the company’s major funding comes from equity rather than debt and all of the company’s assets are financed mostly by equities.

Outlook

To encourage exports and liberalise foreign investment, the automatic route has extended foreign direct investment (FDI) in the defence sector to a maximum of 74 per cent and the government route has lifted FDI to a maximum of 100 per cent. The amount of FDI equity invested in the defence sector last year was USD 10.15 million. Additionally, the DRDO provides a Technology Development Fund (TDF) for MSMEs and start-ups to domesticate cutting-edge defence technologies. There are many professionals and companies involved with 135 domestically developed technologies and USD 20 million in funding. There are over 200 defence technology start-ups in India developing cutting-edge technological solutions to strengthen and support the nation’s defence activities.

In order to improve defence capabilities with locally produced weapons and systems, including transport planes, tanks, helicopters, airborne early warning systems and anti-drone weapons, India signed agreements and approved projects worth ₹54,000 crore in 2021. India and the US reviewed the potential for extending their bilateral defence cooperation to new fields, including space, cyber security and artificial intelligence at the 16th India-US Defence Policy Group (DPG) conference. The government entered into numerous agreements with different companies, one of the largest being the Ministry of Defence’s announcement of an ₹22,000 crore agreement with TataAirbus.

This is to procure transport aircrafts for the Indian Air Force (IAF). The government has also established two defence industrial corridors in Uttar Pradesh and Tamil Nadu. The industry is undoubtedly expected to expand rapidly as national security worries increase. The ongoing territorial conflicts with Pakistan and China for control of the northern state of Kashmir and the north-eastern state of Arunachal Pradesh, respectively, have created a market for defence equipment in India. In light of the company’s outlook, opportunities are emerging for the company to create and supply goods that are on the government’s list of prohibited imports.

In close collaboration with governmental research agencies for defence and space, the company wants to create additional revolutionary items. It also makes a significant effort to target the commercial radar end-user sectors. Through its collaborative ventures, it is exploring the fields of anti-drone, satellites and electro-optics. The company’s prospect is positive due to its role as a strategic partner for DRDO and its participation in every significant launch of an Indian satellite since 2008. Given the excellent long-term opportunities for the Indian defence sector and the company’s potential to expand significantly more in the short term, we recommend HOLD.