AstraM designs, develops, & produces sub-systems for Radars & Missile Electronic Systems for Defence, Space, Meteorology. Needless to say, what Astra does is Knowledge Intensive.
They work closely with, & hence have longstanding relationships with DRDO, BEL & other Defence PSUs, which is a significant advantage. Top priority given to ‘Buy (Indian - IDDM)’ in DPP 2016 is another advantage.
They also supply subsystems to ISRO although it’s a small part of their total revenue. ISRO’s funding is likely to go up significantly if the overall economy does well in the coming years, & that might help AstraM to get more orders from ISRO. I don’t know whether the ever improving business prospects of Antrix can result in any order flow.
The JV with Rafael gives them the SDR (Software Defined Radio) Know-how. The JV with Unique Broadband Systems is focused on product lines for Broadcasting & Medical Imaging (Coils and RF Amplifiers). It might help them reduce the dependence on the Defence Sector.
In my opinion, the management is capable and honest. I see no problems with their capital allocation so far.
The stock seems fairly valued in 100-120 range. Increased order flow, & improved execution (depends on approvals from the Clients after field tests) will be the key. I don’t see any problems in the balance sheet. It’s not a stock which can be looked at from quarter to quarter.
Cons:
- Dependence on Govt’s Defence Orders & they usually take a lot of time to finalize. Outlay for OROP, & Parrikar seemingly more intent on improving efficiency before undertaking any move towards modernization.
- Working Capital Pressures & Lumpy Cashflows.
I don’t think Tata, Reliance, L&T are direct competitors to AstraMicro. The competitive threat is more likely to come from FDI limit in defence which has been increased to 49%. AstraM is trying to stay ahead with consistent R&D spending & the attempt to transition to a Systems supplier from a Sub-systems supplier. Let’s see how that pans out.
Disclosure: Invested since March 2016.
P.S. For a quick understanding of the company, go through HDFC’s initiating coverage report from July and Q1FY17 Concall. I mentioned March and July just to say that I had already invested before the report came out. 
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