Astra Microwave Products Limited (532493) Earnings Call Transcript & Summary

Thank you. Good morning, ladies and gentlemen. Thank you for joining us, and welcome you all to this conference call. I am with my colleague, Mr. M.V. Reddy, Joint Managing Director. The results of the company for the Q4 and the year ended 2021 was taken on record by the Board of Directors at yesterday's meeting. And we can share the broad financial performance details with all of you, along with the call invite. I hope everyone of you have received the same. For the benefit, I repeat some of the broad performance parameters. In terms of gross sales for the quarter, we did about INR 246 crores and for the year, it is about INR 605 crores, which is about 40% more than compared to the previous year. After adjustment of lead delivery charges and other accounting standard related requirements. The net sales for the quarter is about INR 237 crores, and for the year it is about INR 587 crores. Gross margin for the quarter is about 29% of net sales. And for the year, it is about 28% of net sales. This is significantly lesser than what we have achieved in the last year. But as we shared with you during previous calls, this is largely due to the change in the product mix, where export sales are more than 60% of the overall sales of the company. This mix is likely to get corrected as we move forward in the next 2 years. And therefore, we are expecting a slight improvement in our margins also. At the EBITDA level, for the quarter, it is about 18%. And for the year, it is about 9%. This is all for the moment in terms of performance details. Regarding some balance sheet items, we have inventories of close to about INR 300 crores; trade receivables, about INR 250 crores; cash and cash equivalents about INR 46 crores. We don't have any long-term borrowings, but working capital borrowings at the end of the year is about INR 100 crores. Great results to start with, and I open this discussion now for question and answers.

[Operator Instructions] The first question is from the line of Vaibhav Badjatya from HNI Investment.

Sir, I have a question regarding order book. So it seems that they have booked some major orders in [indiscernible] their other subsidiary JV company. Can you provide some more details on what is this order [indiscernible] for export or -- and on the margin side of that order?

I request Mr. M.V. Reddy to take this.

Yes. We are not able to get your question fully, but what we have understood is that you would like to know the order book at the end of the year. And the...

No, sir. Can you hear me now?

Yes.

Yes. So what I was trying to say is do you think there is -- there's some big order booking that has happened in one of your subsidiary company or in the JV company, looking at the difference in your stand-alone and consolidated order book? So just wanted to know whether this additional order is on a [ portfolio domestic turn ]? And what will be the margin profile of this order?

Okay. I think if I remember correctly, this information was already shared in the last quarter, our JV company has received an order for a number of projects where the order value is about...

$60 million, amortized. $60 million.

Is about $60 million executable over a period of 5 years. This is more like an assembly testing kind of thing, where the gross margin is very low. This is the only big order, which was booked in the group companies. If you are asking this question, this is the answer.

Yes. Yes. So, our margins might be low because it is an export order as it may. But in terms of what return on capital we made from this order, is it reasonably good or we need substantially to basically fulfill this order? What would be the investment required to fulfill this order?

No. Absolutely, the 0 investment kind of thing, especially in terms of the capital investment, nothing is required. But we need to add about 1 or 2 low end units to carry out the job.

The next question is from the line of Vivek Ganguly from Nine Rivers Capital.

I had, again, related to the order book for the main company. You have an order book of about INR 1,500 crores, INR 1,550 crores, can you reveal the breakup between exports and for the domestic market? That is the first question.

Yes. The INR 1,561 crores, the total order book in that export is about INR 723 crores. And Defense INR 547 crores. So Space segment, we have INR 223 crores and the Metallurgy and Hydrology group put together INR 66 crores.

Got it. The second question is on the consolidated basis, you have an order book about INR 2,500-odd crores, which is about INR 1,000-odd crores over and above the stand-alone company. So you just gave and of that, you said $60 million is coming from this assembly and testing. Largely, it is in assembly. So what would the remaining party, which would be another, I assume, another $60-odd million?

Yes. Actually, the ARC, the -- our JV company, they have about INR 692 crores in that $60 million as we just informed you that [indiscernible] [ certain plan integration contract ] activity. The rest is integration of SDR and supplied to [indiscernible]. So that is how the first original contract we have received. The total order value, what our JV partner has, is $90 million.

Okay. So $90 million?

Yes.

$90 million. So that still accounts for about INR 700-odd crores.

Yes, around closer to INR 700 crores. Yes.

So what does the remaining INR 30-odd crores account? $30-odd million? Sorry, INR 300-odd crores, yes.

Yes, we have close to about INR 20 crores from BEPL, that is our subsidiary company. And another INR 10 crores, Aelius. We have another subsidiary company, Aelius Semiconductor, we have about INR 10 crores.

Right. You still have INR 20 crores to INR 50-odd crores to account for.

We'll get back to this final number during the call.

[Operator Instructions] The next question is from the line of Kirthi Jain from Sundaram Mutual Fund.

Sir, my question is with regard to the expected profitability. Given that now the order book is more a balanced order book between domestic and exports, what sort of improvement in profitability should we expect in the year FY '22?

Just a minute, Mr. Jain. There is some disturbance in the line. One second. Yes. Can you repeat the question?

Sir, my question was that given that now order book is a balanced order book between domestic and exports, what is the sort of profitability margin improvement we should see in the year FY '22, sir?

Yes. FY '22, we are expecting a top line of about INR 700 crores. EBITDA margins, we are expecting to improve from the existing 7% to about 10% to 12%. And at PBT level, it should improve from existing 5% to about 9%. This is what we are expecting a change from the current year to the next year.

Sure, sir. Sir, one more question. Like in the current quarter, there is a sharp jump in the finance charges. Any particular reason, sir?

Two reasons. One is as compared to '19/'20, 2021 consistently, we have a working capital trial of in excess of INR 100 crores throughout the 12-month period. That is one which has contributed significantly for the higher working capital interest. Then the second one is see, there is an accounting standard requirement as far as advances secured to the customers. It is just an accounting adjustment, where a notional interest will be charged only advances outstanding from the customers for more than 1 year. You know very well, we have significant advances resumed from the export customers, where the other executions are happening regularly. But in respect of the terms of the purchase order there is an accounting standard requirement, betting on that, we have to provide interest on the outstanding advance amount. So that has contributed to about INR 7 crores out of the total amount of about INR 21 crores.

Sir, in terms of working capital requirement reduction, anything can we do, sir, to improve the cash flows, especially on the inventory front?

Yes, this is a regular question we are answering. We keep explaining that not looking at the nature of operations and the kind of material that is required, there is a good amount of stocking needs to be done by the company. So because of that, the inventory values are at higher level. And also, the receivables, some of the programs are very critical in nature. Unless it is proved at the system level that payments are not being -- getting released from the [ publics ] which are undertaking. So these are the 2 reasons why these amounts appear in a higher set compared to the normal standards. We are making our efforts to improve on this. But up to now, this is what we can achieve.

Okay. Sir, in terms of next year, order inflow, sir, what are the key prospects? And what is the expectation in terms of the domestic and exports out of [indiscernible] out for next year, sir?

Yes. Mr. M.V. Reddy will take this.

Yes, next year, we are expecting about INR 550 crores if possible. So in that -- from the Defense segment is about INR 550 crores. And the exports is about INR 150 crores and the rest is from the Metallurgy Group is about INR 40 crores. [ Grand total ] is around [ INR 750 cores ], we're expecting the order book.

Anything on Space [ point ], sir, next year?

Space, we have not taken much just about INR 10 crores to INR 15 crores, we have taken, as you are aware that there are reforms took place in Space and waiting for the positive guidelines and also the -- based on the priority, these projects are moving. So there is some kind of a delay in the new programs. That is the reason we are not taking much in this current year.

The next question is from the line of Jonas Bhutta from PhillipCapital.

Two questions, and I don't know if you've answered this before. The roughly INR 600-odd crores order book that we have in our subsidiaries, which you mentioned is a $60 million order for testing and integration. So I just wanted to understand the margin profile of this particular order? Is it similar to the erstwhile offset orders that we used to get for radar integration and stuff like that? If you can touch upon that first, and then I'll come back with my second question.

More or less, it carries similar kind of margins of the offset orders, what upside it is looking as of today.

Okay. And this is for the Rafael project? Or this is by Rafael, the Israeli company.

Yes. Yes.

It's from the Israeli company?

Yes. It is from Israel, Rafael, Israel. Yes.

It is Rafael. Okay. Got you. And is there a follow-on as we typically used to get follow-on orders like this as it is 3, 4 years like with one from a similar follow-on orders after a gap of 1 or 2 years. Is that, again, a possibility, sir?

Yes. Actually, the programs, which our joint venture has taken, has the potential to get follow-on orders from the same customer. But of course, it is in a competitive manner. So we have to bid and they have to grab those opportunities. But there are opportunities and definitely, there will be follow-on orders down the line after a couple of years.

So this is for the SDR, is it?

SDR. And similarly, the other program, probably, yes, there may be some follow on orders. But as on date, nothing is visible, but they have a projections down the line after 4 or 5 years.

Okay. So for instance, like Elbit is a supplier to this new HAL Tejas Mark 1A. So is there a potential for that to turn as an offset opportunity for us as they'll have to meet some offset guidelines regarding that? Or that project is without offset guidelines?

You're talking about the Elbit project to Tejas?

Yes, that 205, the radar 205-2 or something like that. That gets fit into the Mark 1A set, the recent order that HAL won.

It's an LCA [indiscernible].

LCA, sorry, I beg your pardon. LCA. So does that...

I really got confused here. So actually, we were discussing about some asset opportunity in that particular segment also is in the discussion stage as of [ new ].

Okay. Okay. This is something that can [indiscernible] -- it's not part of the INR 150 crore target that you have given to keep these answer on the order you still guide...

We have not considered that in this current year order book.

Okay. Okay. My second question was, sir, if you can give us some granularity into what you're building into this INR 550 crore order from the domestic defense market for FY '22 in terms of program? And what could that be even in FY '23? Because the way it looks is that first quarter, again, like last year and first half, particularly, will be weak as the ministry is not spending any money or unlikely to spend any money. So there is a chance that things get pushed off. So but it will be helpful if we know the kind of projects that we are bidding for or likely to be over a 2-year period, sir. And that's my final question.

Many of these programs, basically, in the domestic sector, the major contribution will come from the radar domain, where we have already qualified. And we have succeeded in improving the proto. So like SDR is the one program where we got that proto delivered, and we won that [indiscernible] similarly for the digital active [indiscernible], and that also we are expecting order from DRDO. And also this time also, we have taken a reasonable quantitative business for the next 1 or 2 years. And the other programs like [indiscernible], which we are doing already proven, and we are there in as a major supplier. And these 2 programs, also we are expecting the business for the next 2 years, which is around about radar. And as far as measures are concerned, still the [ Takash ], we are expecting that order from army to [indiscernible] that our top systems are there. That is one major prospects. And also the Astra missile is a system, so that is also growing on production. So in that we have at the quantity we have already received and the balance we are expecting in the next couple of years. And also like the [indiscernible] missile, where we have our top system. So that is also going on production. So in that we have [ bought quantity ] we have already [indiscernible] and the balance we are expecting in the next couple of years. And also like the in [ GRM ] where we have developed the [ BHH ] so that is also something that is which we are expecting orders in the next couple of years. Apart from this, yes, we have a few programs in avionics and other things. Of course, on the value-wise, it is not so large. But otherwise, these are the major programs as far as the domestic is concerned. On the export front, we are expecting repeat orders from Elbit and Rafael, which is have placed orders on us. And also, there are some discussions that are going with ELTA and [indiscernible] as I've discussed just now. So these are all major prospects for the next 2 years' order book.

The next question is from the line of [ Bhavik ] from MK Ventures.

Hello. Am I audible?

Yes. Yes.

Sir, regarding the quarter and quarter, other expenses have decreased by more than 50% compared to the previous 2 quarters. Is there any specific reason? And is this the decrease sustainable? This is my first question.

Yes. What is your next question, please?

Sir, like did you hear my first question?

Can you repeat your question?

Yes. Sir, so in this quarter, other expenses, which we have like have decreased by more than 50%, like 100%, from INR 14 crores in the last quarter, they are down to INR 7.8 crores this quarter. So is there any specific reason for the decrease? And is this decrease sustainable going ahead?

Come back to me on that. I don't have an immediate clarification on that to you.

Okay. Sir, the one next question is, other income has also like shot up by 4x in this quarter. So is there any specific income which has been booked this quarter?

Other than the normal thing, the 2 transactions. One is the export incentive, which is there until December 31, 2020, that was factored in. It is about 5 -- INR 5.5 crores. I think on accounting standard related adjustment between the holding company and subsidiary company. As you know, our Bhavyabhann, which is 100% subsidiary, is supported for working capital to be a corporate guarantee from the parent company. Because of that, the notional financial advantage derived by the subsidiary, which needs to be passed on to the holding company. I understand that is a new accounting standard requirement. Because of that notional income of about INR 1.05 crores has come in. So 2 new line items compared to the standard income.

Okay. Okay. And sir, like the employee costs in our current quarter are like way too higher than the previous quarters. So is there a [ guide ] which has been given or something?

Yes. Normally, the last quarter now, if you compare the Q4 of any of these previous years, it will be on the higher side because of the provisions that we make at the end of the year for the performance bonuses. Beyond that, there is no other special incentives out there. But the performance bonuses will add up at the end of the quarter.

Okay. And sir, we were -- in the last quarter, you said you were going to do some CapEx of around INR 30 crores going ahead. So sir, like, is that CapEx done in the last quarter? Or is it like being shifted to this year?

No, this is going to be done over a period of 12 months. That is what we told you last time also. We are implementing that.

Okay. So it's in process. And is it like a maintenance CapEx or additional CapEx?

It is normal maintenance CapEx.

[Operator Instructions] The next question is from the line of Vaibhav Badjatya from HNI Investments.

Sir, on the [ on our ] export orders, which are in actual JV. For example...

Mr. Badjatya, if you can speak closer to the handset, please, your voice is not clearly audible.

Is it better now?

Yes, sir.

Okay. So just an example of our export orders, for example, this new $60 million order. So I understand this would be an export order. So how would be the exchange rate risk will be taken care of in this order? Is it like completely hedged in our margins are completely protected from the moment of exchange rate? Or we will have to bear the implications of it?

Yes. This is not an export order. It is for the local [ UOU ] another Rafael [ UOU ]. It is a [indiscernible] export. And this is done over a period of 6 years. As of today, it is not hedged. So once the billing starts, then we look at that requirements.

But raw material will be imported, right? If I'm not wrong for this order. So we will have the [ the rest 100% ]...

Input that we'll be adding. It is largely a no assembly under testing what we'll be doing. Therefore, the raw material imports are negligible. I think you asked about this consolidated order book position, no? You are the one who asked this...

No, I was not the one. I think it was second speaker. I'm quite clear about the consolidated and stand-alone order book.

Yes. I would like to clarify the numbers whatever we told you earlier. Stand-alone, the order book is INR 1,561 crores. BEPL, that is a 100% subsidiary, is INR 54 crores. Aelius, that is another subsidy of Astra, is about INR 10 crores. Then the ARC joint venture company, INR 692 crores. So that will add up to INR 2,317 crores.

The next question is from the line of Prabir Adhikary from Ratnabali Investment.

Okay. I have 2 questions mainly. First of all, I want to know the sales breakup for this quarter. And next, if you can highlight the exact status of the autumn, and HPR? And whether you are talking about wood term systems or subsystems?

You want to have the sales breakup for the last quarter, right?

Yes, sir.

That is in the domestic sector, we did -- we booked sales of INR 214 crores and exports, INR 116 crores. And the Space and Metallurgy put together is about INR 15 crores. I repeat again, Defense, INR 115 crores. Space, INR 10 crores, exports, INR 116 crores and Metallurgy and Hydrology put together about INR 6.51 crores. So this is a sale of last quarter. The total about INR 246 crores.

Okay. And about the status of Uttam and HPR.

Yes. Uttam, as I said, we will be supplying the modules for the Uttam radar, which is being integrated at DRDO initially for first few numbers. And thereafter. In parallel, we are bidding for the technology to manufacture the complete radar. But as [indiscernible], we had to basically model what have projected the order book. It is basically for the modules.

Okay. And sir, about HPR?

HPR is in the TSE stage. And as we know, as we have informed in the previous call also, we joined with the [ BEM ]. And the TSE is going on. So probably by next year, I think the TSE may get complicated.

The next question is from the line of Abhijit Mitra from ICICI.

I mean, just to understand a bit more on the sales mix for the next couple of years. So this export order book, which you have mentioned is executable. I mean is there short size cycle execution? Or is it fully distributed over the next couple of years?

Exports were orders, which we have currently to be executed in next 15 to 18 months.

Okay. Okay. Okay. So essentially, this margin, the guidance which you gave, 10% to 12%, it should be similar for '23 also?

'23. Yes, we should be -- oh, I think it is too early to commit to that number. But as of today [indiscernible]...

Yes, the export mix will be higher. I mean, it's not sort of coming down in a hurry, if all understanding is right?

High, yes. More or less, it will be in the same ratio, maybe from 60-40 kind of thing, it may be from 50-50 kind of thing.

Okay. Okay. Okay. So in terms of general top line, while we are showing this kind of impressive but bottom line profitability is sort of suppressed because of this mix. So what are the thoughts? And on top of that, we are seeing incremental stressed working capital. So how -- I mean, are there any sort of strategy to work around it to improve top line, create a pivot or because while your expectations of bottom line is sort of come down because margins have replaced to this 10% to 12% level, start going back to the older 25%, 30% in a hurry and the working capital intensity is also not getting held, which was probably previously thought that probably domestic orders, high domestic orders have picked up more working capital-intense balance sheet, but that's not the case given with this [indiscernible]. So what are the broad thoughts? I mean, how to sort of get these 2 things back into towards a better mix and reduce working capital, how to sort of combine the -- target this [ to be ]?

Okay. In terms of the working capital cost, it is more like we have to work on realizations and inventory control that anyway it is a work in process is going on. But otherwise, in terms of the top line, the mantra is going to be more in terms of the mix of low margin, high volume, the standard domestic business is going to be the thing for the next couple of years. With that, we should be able to improve the margins, if not reach those decade back levels of 30% EBITDA margins, we should be able to reach somewhere around 15% kind of thing in the next 2 years.

The next question is from the line of Dhruv Saraf from Ratnabali Securities.

Sir, I had just one question. When you guide for 10% to 12% EBITDA margin next year, are you trying to tell us that the export execution will be much -- will be kind of the same level as of this year? Or do we see more of domestic going right? Because the margin profile tells me that there will be more of exports?

As we said, no, more or less, the next year, the ratio is going to be 50%, 50% kind of thing. We see a better mix of domestic margins as compared with the current year. Because of that, the overall margins are likely to improve.

The next question is from the line of [ Bhavik ] from MK Ventures.

I just wanted to understand, like what's the current status of the Space segment, like what -- you are facing some issue, right? And like when can that be sorted?

Space segment.

Space segment, as I mentioned, the -- currently, they are focusing only high priority projects. So the other projects are taking some time. And the orders which we have on hand, they got into some technical issues, and they are getting -- we are resolving it as all those projects are basically [ BTS ] from -- [ BTP ] from ISRO. So the design is being changed and now more or less, things are coming under control. Now this execution will start for the current -- whatever the orders we have, maybe from Q3 onwards. And as far as the new projects are concerned, I think because of the budget constraints and other ratios, there is no clarity as such from the new projects of this. So probably next couple of quarters, maybe may have clarity from ISRO.

Okay. Okay. And sir, just my one question was regarding the second wave of COVID. Like are we facing like lockdowns or executional challenges? And what can be the impact in the first quarter? And what do you think going ahead? How can it be?

Yes. As every company has been facing, so we are no exception, but we are operating with almost 60% to 70% manpower. And -- but thing is that since most of the customers they are in lockdown, and they're not operating. So obviously, it has some effect on the sales and even in our order book also in the first quarter. But I think if this may get picked up, I think, maybe another [ month ], probably once the situation comes under control, maybe, I think, June, I think we are expecting a good amount of sales to happen.

The next question is a follow-up from the line of Vaibhav Badjatya from HNI investment.

Yes. Sir, the estimate of INR 700 crores sales...

Sir, can you speak closer to the handset, please?

Yes. Sorry, again, from my side. So this estimate of INR 700 crores sales with PBT of around 9% is what you have given. So this is for stand-alone or consolidated business?

This is for stand-alone.

Do you have the working for consolidated as well? What would be your estimate on a consolidated basis? What is your target?

As of now, I don't have it. Probably next quarter, we'll share with you.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. S. Gurunatha Reddy for closing comments. Over to you, sir.

Thank you. Thank you, ladies and gentlemen, for interacting with us, and we look forward to meet you again at the end of Q1. Thank you very much, and take care.

Thank you.

Thank you.