Astra Micro Huge Growth Ahead in Offset Space

This is indeed an interesting business. The stock price has seen significant correction in last few months.
@VIFL I am curious what are your thoughts on this business, now that it has corrected so significantly?

I understand that the business has not been doing too good since last year but considering industry offset can offer a good opportunity IMHO.

Promoter holding is only 13% and is decreasing every year which does not exude confidence in the stock.

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@Pratik_Patel9

Firstly, the stock tended to be stable, mostly staying above 100 even during significant corrections in the last couple of years. That obviously changed this time around, which wasn’t good news for those speculatively holding the stock to see if something significant happens in terms of order inflows.

Coming to the business, as of this writing, the ‘Defence Make in India’ has turned out be a whole lot of noise, & not much substance. We could say that about the entire ‘Make in India’ “campaign”.

If I’m not wrong, Govt said during the budget that their defence spending would go up only if there is some kind of a war situation. That is significant considering Govt is the only end buyer. So, the order inflows for the company will mostly be from the indigenisation programme, which so far hasn’t moved the needle significantly enough in terms of sales.

By management’s own admission, the two JVs aren’t going to see much activity in the near future.

In terms of numbers, the company has guided for sales of 380Cr (revised downwards from 420Cr) this year. i.e., a Q4 sales of 189Cr (9MFY18 sales is 191Cr) with a PBT of 18-20%. They are guiding for a FY19 topline of 450Cr (a 18% growth for someone holding the stock for 2 years isn’t really noteworthy, considering FY19 was supposed to see a big jump in the topline). The current orderbook is 533Cr & they expect to get orders of 650-700Cr next year. One can go through the Q3 concall to get the breakdown for both sales and orders.

Coming from an ECE background, I can say that what the company does is highly knowledge intensive, & requires extensive R&D; not to mention the exacting standards required to be a reliable long term supplier of subsystems for the defence PSUs. They are ready to take advantage if (that’s a BIG EFFING IF) and when something significant happens on the defence manufacturing in India. The company needs topline growth to take advantage of their operating leverage. I doubt there’s anything left to squeeze out in terms of bottomline.

I feel the management is competent, & going by the concalls-- fairly honest & upfront. The promoter holding has always been low. It was 17% when I invested a couple of years ago. There were rumours (mentioned on CNBC last year) that the promoters were looking to sell out. There will be more than enough takers for this business if that happens. I don’t see any problems with the balance sheet.

Disclosure: Holding on for now, but likely to sell sometime in the near future. I’m just glad it’s back up above 100.

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Ratnabali Investment Pvt Ltd acquired 4280621 shares yesterday at 4.94%

Astra Microwave Q2FY20 Concall Summary

Business Updates

The order book as of H1FY20 stands at Rs 1214 crores and orders booked during the quarter is around Rs 176 crores

Participants

India Nivesh

Sundaram Mutual Fund

Dhanki Securities

Ratnabali Capital

HNI Investments

QnA

  • Out of Rs 176 crores, Rs 85 crores is from exports, Rs 64 crores is from domestic defense, Rs 20 crores is from space, and Rs 7 crores is from met dept.
  • All orders for Akash missile are expected in Q4 including the missile and radar portion and are expected to be in region of Rs 100 crores
  • The management usually keeps a backlog of 2 years for its orderbook and they are working on achieving an order book of Rs 1800 crores
  • The management is exploring newer avenues where it can work in the future
  • In terms of broad numbers the current quarter run rate can be maintained but in Q4 order mix is skewed towards exports so they will be lower margin orders
  • Order book mix
    • Exports: Rs 730 crores
    • Defence: 162 crores
    • Space: Rs 254 crores
    • Met Dept. : Rs 55 crores
    • Others: Rs 14 crores
  • The management has been participating in may tenders from Ministry of Defence where order book is larger than the orders it currently does for Tier 1 companies
  • The amount of orders in the orderbook which are not repeat orders is around 10%
  • In 2-3 years the company is looking at exploring the export markets for the radar business in the Asian countries
  • The revenue realization for the company is skewed towards the second half of the year and thus the company has to stock inventory in the earlier periods to execute the orders
  • The revenues for the last two quarters are net off the late delivery charges. The charges for the quarter just ended is Rs 1.63 crores and for H1FY20 is Rs 2.59 crores
  • The offset orders carry very less margins and gross margins in this segment is around 15%
  • The company is being managed by the similar two people as it was being earlier and entry of new institutions have not changed anything

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