2. Table of Contents
• Company Profile
• Shareholding Pattern of Astra Microwave
• Industry and Peer Analysis
• Impact of macroeconomic environment onAstra Microwave
• Major Risks the Company faces
• Company performance
• Financial Analysis
• Final Recommendation
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3. Company Profile
• Year of incorporation: 1991
• Core competency: Designing and Manufacturing of Radio Frequency (RF) and
Microwave super components and sub-systems
• Sectors catered to: Defence, Space,Telecom, Meteorology, Civil Communication
• Clientele includes: DRDO, ISRO, Indian Meteorological Dept.,Vikram Sarabhai Space
Research Centre, HAL, Bharti Airtel,Vodafone etc. incl. exports to Europe & Asia
• Operations from: Andhra Pradesh, Bengaluru & Delhi
• Revenue inflow segregation:
3
5. Industry & Peer Analysis
• RF & Microwave Component is an oligopolistic one with few but large players in the
industry mainly due to the following entry barriers:
– High capital investment requirement to enter this industry
– Knowledge intensive industry with necessity of high skilled employees
– Collaboration with machine manufacturers for knowledge transfer
– Creation and building up of clientele for recurring purchase orders
– Limited pool of potential customers
• Quality is a huge contributing factor for growth of business
• Industry is non-cyclical in nature with demand from few major projects of customers
• Very Few direct competitors
across the globe:
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6. Macroeconomic Environment
Defense expenditure almost 2% of the Indian GDP & 14% of Central Government Expenditure
Procurement expansion & modernization needs of Indian defense forces through
indigenous sources - 30% to 70% over the next decade.
Up to 49% FDI allowed & requirement of single largest Indian ownership of 51% of equity
removed
Increased allocation to Infrastructure sector, including telecommunications, in the Union
Budget 2016-17.
Increased spending in the Union Budget 2016-17 as compared to the last budget for the
Department of Space (DoS).
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7. Major Risks
StrategicRiskResearch and Development-
Ongoing R&D could result in
higher costs without a
proportionate increase in
revenues
Revenue Concentration-The
top 5 customers contribute
over 91% of total income
Uneven Order Flow and
Government Policies-
Conversion of orders to a
recognizable quantum lies with
the Government
Delayed Collection of
Receivables- Operations
involve high working capital
and need timely payments
Defense Export- Business
driven by offset provisions of
government which are lumpy
and controlled by export
regulations
FinancialRisk
Foreign Exchange Currency
Exposure- Risks arise from
mismatch between financial
reporting currencies, currency
of revenue, expenses and
indebtedness, as well as timing
differences
Inability to Obtain financing
for operations, expected capital
expenditure and working
capital requirements on
favorable terms, or at all.
ComplianceRisk
Lawsuits- These could be due
to government regulations,
deficiency in the quality of
products, inability to keep up
with environmental laws etc.
Ongoing legal proceedings-
The company has outstanding
legal proceedings and litigation
is incidental to its business and
operations
8. Company performance
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The EBITDA margin improved 8% to 28.7% which demonstrates improved operational efficiency of
the company.
The company is paying nearly 20% of the net profit as dividends which is a significant
improvement from previous year clearly demonstrating its earning potential in future.
The analysts from different sources project that Astra Microwave Products Limited will have a
median target share price of 148.50 INR, with a high estimate of 180.00 INR and a low estimate of
134.00 INR, in next 1 year.
Increase in the foreign direct investment in defense has provided new opportunities for bringing in new
technologies, which when coupled with high entry barrier can help Astra microwave in grabbing
significant market share in defense sector of India (Totaling INR 1 lakh crore a year) in coming future
9. Company performance
• The EBITDA margin improved 8% to 28.7% which demonstrates improved operational efficiency of the
company.
• The company is paying nearly 20% of the net profit as dividends which is a significant improvement from
previous year clearly demonstrating its earning potential in future.
• The analysts from different sources project that Astra Microwave Products Limited will have a median target
share price of 148.50 INR, with a high estimate of 180.00 INR and a low estimate of 134.00 INR, in next 1 year.
• Increase in the foreign direct investment in defense has provided new opportunities for bringing in new
technologies, which when coupled with high entry barrier can help Astra microwave in grabbing significant
market share in defense sector of India (Totaling INR 1 lakh crore a year) in coming future
10. Leverage
Ratios Long term debt/Total Assets
• Maintained a value range of 2-10% over 10 years
implying the company is slightly levered and
investing in it will be less risky
Debt to equity ratio
• Low debt to equity ratio is a healthy sign as the
company has slowly reduced its debt
dependence over the last 10 years
Leverage Ratios Liquidity Ratios
Profitability Ratios
& Multipliers
Miscellaneous
Financial Analysis
10
11. Liquidity
Ratios
Current Ratio
• Remained greater than 1 throughout the last 10
years, indicating the company will be able to
meet its short-term obligations if the need arises
Quick Ratio
• Shows a similar trend as the current ratio.
However, high values of both current ratio and
quick ratio have partly been because the value of
account receivables have increased over years
Leverage Ratios Liquidity Ratios
Profitability Ratios
& Multipliers
Miscellaneous
Financial Analysis
11
12. Profitability
Ratios
ROE - ROCE – EPS
• ROE and ROCE have averaged more than .18
over a period of 5 years and EPS has been more
than 6 in the last 3 years indicating that the
company has generated substantial revenue
continuously over a period of time
Multipliers
P/E -P/B
• Average P/E over a period of 10 years has been
around 21 (Above market average) and P/B has
been around 5 implying that the Market value of
equity is higher than book value of the company
Leverage Ratios Liquidity Ratios
Profitability Ratios
& Multipliers
Miscellaneous
Financial Analysis
12
13. Misc
Market capitalization
• Market capitalization increased to more than INR
12000 Million in 2015 from INR 4000 million in
2014 due to high growth prospects of the company
Z-score
The z-score in FY16 was 9.98 and its average value over
the past 10 years is above 6, which implies that the
company has very low probability of becoming
insolvent.
Leverage Ratios Liquidity Ratios
Profitability Ratios
& Multipliers
Miscellaneous
Financial Analysis
13
14. 1. Company growth forecasted around 7.5% in 2017
2. Govt. Policies like 49% FDI in Defense sector
3. High Entry Barrier in sectors like defense makes it
the sole domestic player in manufacturing of
defense equipment which has a current market of
more than 1 lakh crore a year
Future FactorsCurrent Factors
Recommendation: Buy the Stock
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Current Market Price: 118.85 (BSE)
1. Company growth by sales volume in last five
years is 176.1%.
2. Advantage in terms of low debt-equity ratio
and high growth in EBIDTA over the last 10
years (225%)
3. Average Z-score is 6.5 which means that
there is less risk of insolvency
4. Backing by highly reputed investors like L&T,
JP Morgan, HDFC, AXIS
5. Strong R&D team and more than two
decades of experience in defence and space
sector