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

Ladies and gentlemen, good day, and welcome to the Astra Microwave Products Limited Q3 and 9 Months FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gurunatha Reddy, Managing Director, Astra Microwave. Thank you, and over to you, sir.

Thank you, and good afternoon, everybody. A warm welcome to all the participants to the post results earnings of our company. I am with my colleague, Mr. M.V. Reddy, Joint Managing Director; and SGA, our Investor Relations Advisers. The results and the investors' presentation for the quarter ended financial year 2022 are uploaded on our company website and the stock exchange. I hope you had an opportunity to have a look at it. With over 30 years of experience in the RF and microwave frequency applications, Astra has moved up the value chain from the subsystems to high value-added systems. The company's products find application in high-end markets of defense, sales, telecom, metrology and other civilian communications. Astra has a proven track record of making high value-added systems, RF and microwave subsystems and super components, which are becoming more relevant due to various government initiatives like IDDM, MAKE-II, et cetera. The company has been able to create a diversified and healthy order book on the back of its strong capabilities, and we are very well placed to capture a bigger pie of the growing Indian defense sector with a deep domain expertise, high focus on R&D and a robust strategy in place. Astra is well poised to capitalize on government thrust and domestic manufacturing as it has successfully transformed itself from a subsystem supplier to a system player today. Astra has been instrumental as a development partner in the various DRDO programs in the areas of radars, missiles and EWs, a feat very few can boast of in the Indian private defense sector. As a development partner, these opportunities have a good margin with a limited competition. We are poised for a significant move up in our scale of operations, and we are expecting orders upwards of about INR 3,000 crores over the next 3 years with a high degree of confidence as these programs are expected to move to commercial segment. As against the current mix of 50% revenues from the domestic customers, we are expecting to increase the share to about 80%, resulting into a significant jump in the profitability. We are expecting to deliver these orders with a little incremental capital expenditure as significant capabilities have been built into over the years, and we are ready to make use of the existing [indiscernible] as when the requirement arises. In quarter 3 of financial year 2022, on a stand-alone basis, the company reported INR 199 crores of sales, marking a growth of about 34% year-on-year basis, EBITDA about INR 26 crores with a margin of 13%. Our order book, as of 31st March 2021, stood at INR 1,702 crores, which is executable in the next 12 to 30 months' period. Our current order book is 3x our financial year 2021 revenues, which gives enormous visibility over the next few years in terms of revenue achievements. During the year, we have received orders for about INR 662 crores until the end of December 2021. Astra has been able to create a diversified and healthy order book on the back of its strong capabilities, and we are focused on strengthening our portfolio and establishing our position as a systems provider in the years to come. Astra is very well placed to capture bigger pie of growing defense sector market with a deep domain expertise, high focus on R&D and a robust strategy in place. Existing domestic and export orders and projects like Akash and opportunities in radar systems give us a revenue visibility on a sustainable basis. We shall continue to reap benefits of sectorial tailwinds by doing extensive investments to strengthen our position as a systems vendor. We see huge opportunities in the areas of radars, EWs, small satellites, anti-drones, SDRs and electro-optics, which will add up to a significant order book and which enables us for a significant top line growth in the coming years. With these remarks, we will now open this call for question-and-answers.

We have the first question from the line of Dinesh Kotecha from KRIC.

I'm Dinesh Kotecha from [indiscernible]. Sir, first of all, congratulations for a very good performance, much more than expected. I've got only 2 questions right now. First is that our interest cost for the quarter for 9 months has gone up from nearly INR 10 crores to nearly more than INR 15.5 crores. I mean -- and how are you going to control the interest cost? That is the first thing. Second thing is, is there any plans for any vertical or horizontal takeover envisage since we have said that we would like to have a domestic market share up to 80% in 2 or 3 years? So will it help to get some vertical or horizontal takeovers in this? These are my 2 questions. Other than that, I'm very happy with the performance, all round performance in all the divisions that we operate, sir.

Thank you, Dinesh. Regarding the finance costs, we are making our best possible efforts to minimize the outgo on interest. But as you know, we are operating in a very working capital-intensive industry. Therefore, there will be -- working capital-related expenditures will be there. But we'll see that to the extent possible, we will minimize the cost in the next maybe left out period of about 45 days. Going forward, yes, we are always -- we are on a lookout for not only a strategic partner, but also in terms of right acquisition, if it is available, that is always there in our radar. But as of today, the efforts are there. But we don't have much to share with you. But otherwise, I would say that, yes, that is one of the focus areas of the company.

[Operator Instructions] We have the next question from the line of Subrata Sarkar from Mount Intra Finance.

Sir, I have 2 questions. Just kindly, if you elaborate on a more quantitative basis and [indiscernible] some specific names, that when we are saying we have transformed from a subsystem player to a system player. So can you elaborate a little bit by naming which other systems we are like, is ready to provide or will be provided? This is number one. And second, the pipeline, which you are sharing of INR 3,000 crores, if you make it a little bit specific in terms of which are like Akash, how much we are planning, so for each project, if you can mention a little bit on that.

Yes. This will be taken by my colleague, Mr. M.V. Reddy.

Yes, the first question is you are saying from subsystem to systems. As we mentioned in our previous calls also and also in the opening remarks, we have been working in a couple of few radar systems and as well as in electronic warfare. To name a few, as we have started with ground GSRS systems, and then also we are into the telemetry radars. And also, we have licensed from DRDO to manufacture this anti-drone radars. And also we have CSR, coastal surveillance radar. And we are also into like the multifunction radar we are developing right now for ground applications. And for airborne platforms, we have products like AAAU for AESA radar. So these are all systems, which, in fact, we have focused. And apart from radars in the electronic warfare segment, we also have taken up development of BSM system for the end user application. And in the satellite segments, we have just initiated in developing these small satellites. These are all to name a few in the systems domain which we would like to focus in the years to come. Last question is about the breakup of the INR 3,000 crores. In that, the large chunk is from the projects which we have already completed in the development, which are going into the production phase, which covers all radar, electronic warfare and missile systems from BPSUs and all. So that actually there is a big list of projects which in fact time won't be sufficient, but I would cover like, if we may take it in radar segment, we have AWC, NPR, HPR and QSR, [indiscernible]. And then we have projects like Akash Prime, Akash NG, so these are all -- and LRR [indiscernible] These are all radars where we are into the subsystems, the development phase is already completed. And then [indiscernible] of course, we have projects like Varna, Shakti, Nayan. These are all systems where we have completed development, and we are expecting the production [indiscernible]. And similarly, we are also into the [indiscernible] portable terminal. And also, we have been working on the Doppler weather radar, it is another system, which, in fact, I've forgot to mention in the system domain where we have successfully completed the first order of 10 numbers, and we are expecting more orders in this particular domain. So yes, these are the few projects which in fact -- which we have considered when we -- given the figure of INR 3,000 crores. I hope I answered your question.

Sir, just to clarify one thing. Sir, we are saying like we have an endeavor to reach 80% in India. So is it fair to assume out of this INR 3,000 crore order, like INR 2,400 crore order is from -- will be like a high-margin business of India and not like that's a fair assumption, sir?

[Foreign Language] This INR 3,000 crores pertains to potential domestic order booking available to us in the next 3 years. But when it comes to the sales performance, with existing exports, whatever we have and a little bit of future orders that are likely to come in. But when you look at our sales breakup, maybe 2 years down the line, 80% will be around domestic and the balance will be exports. That is what we meant with that statement.

Okay. Okay, sir. Good. Sir, like you have mentioned a lot of -- so sir, can you at least give us some breakup of this projected INR 3,000 crore order book? Like, how much will come from system and how much will come from subsystem, sir?

In this INR 3,000 crores, I think just approximately about INR 500 crores will come from the system and INR 2,500 crores is subsystems.

Okay. And sir, just on the electronic warfare, 2 questions. One is on the anti-drone. Sir, like DRDO [Foreign Language] the prototype like the design which has been approved, so like we will be executing based on that or we have our own -- like what I mean to say, is it like a build-to-print kind of environment for us? Or like we have some design also approved?

Actually, as I mentioned in my previous earnings call, this question was asked again, a repeat. The anti-drone system, the basic technology will be provided by DRDO. We are optimizing the radar in consultation with DRDO to enhance more features -- with more features and also to optimize the cost. That is how actually we are working on that. So our design efforts are also going into that.

Okay. So that means, sir, our margin will be higher than the typical build-to-print kind of environment?

Yes. Yes. You're right.

Sir, just 1 question from your presentation on this electronic warfare, if you can elaborate a little bit, we are seeing a INR 10,000 crore kind of opportunity, sir. So a little bit like a light on this will help us?

No, I think I have already given you the programs where we are now trying to get -- which are in pipeline. And individually, each project is difficult to give you the numbers and the figures. But overall, in the scenario I have mentioned to you on these programs, which we already completed development, we are expecting the orders from PSU center for the production.

Okay. No, I'm not talking about like giving each project, sir. But since sir, INR 10 crores is a big opportunity, so I was just trying to get a feel of you like, what is a rough, rough estimate? Like why we are bullish -- like why we are asserting this INR 10,000 crore opportunity? I'm not talking about from a project to project what will be the opportunity, but still if you can throw some color on that, sir, overall scenario? INR 10,000 crores is a big opportunity, sir, so that's what I'm asking.

In fact, we have read out almost about 10 to 12 programs where we have already completed the development phase, and we are expecting these programs to move into the production phase. At that point of time, the expected order booking is likely to materialize. So beyond that, what else you are expecting from us?

We have the next question from the line of Vivek Ganguly from Nine Rivers Capital.

I have one quick question...

Mr. Ganguly, I'm sorry to interrupt, but we cannot hear you clearly. The audio is slightly low.

Can you hear me now?

Yes, sir. You may have to speak a little louder.

Okay. So 1 quick question. So of the INR 17-odd thousand crore order book, what is that is for exports and for the domestic and what would be the time line for fulfilling this, except the average time line?

We have already given you, about next 12 to 13 months is the time line to execute this order book. In terms of the breakup, the defense and the public sector or defense PSUs is about 49%. Space is about 13%, 1-3%. Metrology and other sectors is about 3%, and exports is about 35%. That is a breakup for this INR 1,702 crores of orders on hand.

Okay. And you said 12 to 13 months or 12 to 30 months?

12 to 30 months, 3-0.

[Operator Instructions] We have the next question from the line of Bhavik Shah from [ MK Ventures ].

Sir, last call, you said you have identified new opportunities like anti-drones, SDR, electro-optics. So -- and we were told like there will be like maybe a requirement to raise funds for the same. So what kind of CapEx will be required to capture these opportunities? And how will these opportunities be funded?

See, SDRs and electro-optics, this is a business which we will be carrying out through our joint venture company with Rafael okay? So therefore, the SDR program, already the joint venture company is identified as one of the development partners under NCNC base by Defense Ministry and the company is working on that. That program, approximately about INR 30 crores, we are spending as a share of our commitment for that program. Whereas electro-optics, we said that the discussions are still going on. Even today, the status remains same. Probably when we meet you again at the end of the year, we should be able to share more information on electro-optics. But otherwise, the SDRs and electro-optics business is something which is going to be carried out through our joint venture company.

Okay. The Rafael one?

Sorry?

The Rafael JV?

Yes, Rafael JV, yes, the existing one.

And sir, the anti-drone opportunity will be directly...

Mr. Shah, this is the operator. I'm sorry to interrupt. Please could you use the handset, sir. The audio is not clear, sir.

Yes. I mean for the anti-drone opportunity, like do we -- will we be doing in our own business or for that also you will make a JV or maybe in a subsidiary?

No, no, no. It will be done within the company. We have already signed LAToT with DRDO Labs, the technology is already available to us. And as shared by my colleague, we are improving on that, and it will become in-house by Astra.

Okay. And sir, what will be the CapEx for that anti-drone, like how much investment will be required for that?

As for the present estimates, it is close to about INR 15 crores is the estimate.

Okay. INR 15 crores for the anti-drone. Sir, in last call, we had also mentioned about a start-up, which we had invested in for robotics. So what is the update on that?

See, it is a startup project. So they are working on robotic solutions for defense applications and also civilian applications. In terms of size and all, it is too small today. But otherwise, maybe in the next 12 months down the line, you should be doing close to about INR 10 crores of top line sales. But otherwise, its area of focus is not restricted to defense, it is defense and the general civilian applications.

Okay. Okay. So it's purely an investment, and we don't -- like, we don't plan to merge or synergy benefits anything from there, right?

See, we are in a defense space. Therefore, any -- if there is any robotic requirements going to be there, we are definitely going to fall back on our investee company to work together. That is the idea of actually -- basically, that is an idea for investment to that company.

Right, sir. And sir, for this new -- like, you have mentioned in presentation, you have the opportunity like around INR 16,000 crores. So we'll require any funds to be raised for this opportunity to be met?

What is this INR 16,000 crores? I didn't say anything on that 16,000 crores.

No, no, sir, in the presentation, you have mentioned the overall market opportunity of -- sorry, INR 14,650 crores. So for that, like to achieve the -- maybe even 20% or 30% of that, do we require any additional funds to be raised?

No, to carry out the existing operations, either in terms of the subsystems or systems kind of thing, as I mentioned in the opening remarks, we are not expecting too much of capital expenditure. But yes, as we move into the systems in a bigger way, depending on what kind of requirement that is going to come up, there will be CapEx requirement. But as of today, I will not be able to give any specific number on that.

Okay, sir. And sir, last question, so kind of, what is the net debt figure like as of December?

Net debt figure, yes, the working capital borrowings are about INR 120 crores, and the long-term loan is about INR 15 crores.

[Operator Instructions] We have the next question from the line of Hansal Thacker from Lalkar Securities.

Gentlemen, congratulations on a good quarter. My question relates to our gallium nitride business, which I believe is an ally of semiconductor. Sir, can you throw some light as to what is our vision with that subsidiary? And also, I just was interested in knowing, I mean, there were some recent reports that suggested that gallium nitride could be a significant improver in the electric vehicle ecosystem. So I'm wondering if we have any vision or foresight to be kind of headed in that direction at all?

Well, actually, the gallium nitride MMIC designs what we have in our company, basically to cater to the defense and space applications, not for automobile, as it requires a different design skills and all. So the products, what we have taken it up, already, we have rolled out GaN devices in many frequency brands started from S brand, C brand and even X brand also recently, we have completed the design. And these products are already going into the subsystems being developed by Astra for the captive consumption. And also we are exporting these components to various countries. The allies in Singapore, they are exporting these components to other countries, so therefore -- especially in the defense applications. But otherwise, we are not focused into the automobile and other applications. And in defense, yes, we are continuously working on this. And recently, we have just initiated development of same devices in higher frequency bands like in Ku and Ka frequency band.

Sir, a follow-up question on that. Ideally, the purpose of this division is purely to cater to the existing business that we are doing, and there is no, I mean, a bigger aspiration over there, is it?

Actually, we are focusing into only strategic applications as on today. And also, we are trying to venture into the other industrial applications, especially in the communication area, like microwave radios and all, wherein some trials are going on, but it is too in the initial premature stage. So I think probably in months to come, I think we should be in a position to inform you. But as on today, basically, the focus is more on strategic area.

Okay. So would I be right in just assuming that we are going to basically just head towards MMIC chips only with this?

Yes, MMIC chips.

[Operator Instructions] We have the next question from the line of Prabir Adhikary from Ratnabali.

Sir, my question is like this budget, government has allocated around INR 1.5 lakh crores, where 68% has been allocated to domestic companies. So how do you foresee the opportunity size for the private companies and role of Astra Microwave in that?

Yes. Many of these programs like whatever DRDO has planned and also for the other MAKE-II opportunities from MoD. So we have a number of opportunities which are coming. And wherein Astra also, of course, we cannot participate in every program like -- which are not related to the -- our domain. But the -- yes, definitely, we could see a lot of opportunities coming out, especially in our domain, like in radar and the electronic warfare systems. And even the missiles front also, of course, though, we're not into the main systems area, but we can contribute in the form of subsystems. So definitely, it's going to be a huge opportunity. In fact, that was the reason why we had mentioned that going forward, our revenue mix will increase in the domestic area rather than today, the last 3 years, we were into the basically 50%, we were getting it from the offset opportunities. But going forward, we could see at least 75% to 80% from the domestic market segment itself. And we have clear opportunities, about INR 3,000 crores for the next 3 years. And then going forward, yes, there will be another total about INR 10,000 crores to INR 15,000 crores of opportunities are there. So there is a good amount of opportunities are there. That much I can tell you.

Okay. So my next question is, in this budget only, government has decided like 25% of defense R&D will go to the industry. So how this will help you because you have an aspiration to be a subsystem to system player, how this will help you out?

Yes, definitely, like there are various schemes under which, in fact, the government is funding to the private industry. One is that like technology development fund, where we already got 1 contract to develop the Course Correction Fuze, and this is a good potential. So similar to that, there will be many projects which probably we can take up, the government to develop this technology in-house and as well as to the projects.

We have the next question from the line of Anurag Patil from Roha Asset Managers.

Sir, any revenue guidance you would like to give for Q4 and FY '23?

Yes. Q4, we are expecting order book of INR 200 crores. I'll just give you the breakup. Yes, it's about INR 180 crores from the domestic and the INR 20 crores in the export. That again, INR 100 crores, which we probably -- we'll be getting orders from the radar segment and INR 58 crores around that from electronic warfare, and from the telemetry and missiles segment, it is about INR 20 crores. This is the breakup of order booking forecast of Q4. And even sales also, like we are projecting sales of close to INR 200 crores for Q4.

Okay. In FY '23, any sales guidance you can provide?

Yes. For FY '23, as on date, we have planned like about close to INR 850 crores worth of sales revenue for the next year, next financial year. In that, close to around INR 300 crores is from the export segment and INR 550 crores from the domestic.

Okay. And sir, exports revenue contribution goes up from next year onwards. Can we go back to our earlier FY '20 level gross margins of 43%, 44% plus?

Definitely, the gross margins will improve for the next year, but exact figure and all, probably, I think how much would the margins and all, we will, I think, share maybe in the year-end call.

We have the next question from the line of Abdul Kadir, an investor.

So just a couple of questions. So the first one, like for Astra, what is the scope of the DCPP projects and margin expected from the same? And is there any competition there? And the second is, like, if you can just throw some light on the new products in the pipeline of Astra?

Yes. Development Cum Production Partner, like the margins are fairly good compared to the other segment. But here, as you said, many of these projects, in fact, we are also optimizing the design, as we have strong R&D team in-house. So we are optimizing the design to reduce the cost of the material or cost of the overall bond that is how actually we are trying to increase the margins. So that's what actually the approach what we've followed in Astra. And the new products, yes, we are working in a high-frequency band in Ku/Ka band, in some of the subsystems we are working in the missile segment. And in the radar, we already have taken up, as we have mentioned, in anti-drone and other systems that also we are working. And in the satellite segment also, we've just taken an initiative to get into the small satellites. These are some of the new ventures that we are getting into that.

[Operator Instructions] We have the next question from the line of Santanu Chatterjee from Mount Intra Finance.

My first question is what is our total CapEx plan for FY '23.

FY '23 for the programs, which are there, maybe we'll be spending about INR 20 crores.

Okay. And sir, despite our revenue is going up, actually continuously from FY '19, but our bottom line is lumpy in nature. So what steps we are taking to negate this problem?

No, I don't know, when you say lumpy, does it mean from quarter-on-quarter or something like that?

Yes, sir, quarter-on-quarter and year-on-year also.

Yes. See, the lumpiness is directly related to the sales mix what we have. As we said in the opening remarks, as we move maybe about 1 year down the line, where the domestic business is going to constitute a major portion of the sales, you see a steady margin in the profits of the company. But otherwise, today, the lumpiness or lower margins are there only because the product mix, what we have, where exports are close to about 50% to 60%.

What is the actually status of our Uttam radar because there is a news flow in the media that Astra Microwave to supply upgraded X-Band ultra radar that is Uttam Mk2 to Tejus Mk2. So what would be the actually opportunity size over there, sir?

Yes. See, this was the same question again asked in the last investor call. See we have taken up the development of -- or the manufacturing of AAAU of the Uttam Radar. That is about in the pilot order we have got it from DRDO, and we are in the execution phase. Once after we complete that and we expect production for the production quantity, and this is shared between 2 companies as on date. And it all depends upon how we make cost competitive going forward for the production quantity. But as you must have seen that whatever the LCA Mark 1 and the other aircraft, they are trying to incorporate this Uttam Radar. So this production quantity Astra can expect from them.

Okay. Okay. And last, as you have stated that in case of your anti-drone opportunity, you are actually executing whatever technology is coming from the DRDO itself. So do we have, sir, any in-house technology in that space, the anti-drone space, sir? Or we have to totally rely on JVs and DRDO?

Yes. Actually, in that the radar portion, we are optimizing the design in consolidation with the DRDO. This, I think, I have been repeatedly explaining this same issue. So we have been optimizing that radar front. And other radar and another one is the jammer portion. The rest other things like we are planning to take it from the DRDO approved sources.

[Operator Instructions] We have the next question from the line of Bhavik Shah from [ MK Ventures ].

Sir, I just wanted to understand in the INR 10,000 crore opportunity, which you have mentioned for radars and counter drone, how much is for shipborne radars and coastal surveillance technology?

See shipborne radar is like a contract which we have already backed from DRDO. It's like we are expecting a similar class of radars going forward, maybe down the line after a few years. And that would be like each radar like about close to about INR 400 crores to INR 500 crores, and that's the potential we have. And the other one, anti-drone, like, there's about potential of INR 3,000 crores to INR 5,000 crores, around that. In that, again, there are soft-skill options and then hard-skill options, so various features are there. So the total all put together, we have said about INR 10,000 crores opportunities existing from next 5 to 6 years.

Okay. So like after 2, 3 years, we'll have the opportunity of shipborne radars and the coastal surveillance techology, right?

Yes. Yes, that's right.

[Operator Instructions] We have the next question from the line of Siddhant, an investor.

Sir, my first question is, sir, what will be the product mix going forward between defense and nondefense?

For FY '23, we have about 70% is from the domestic and 30% is around the exports.

Okay. Okay. And my second question will be, sir, given that India is focusing on more on radar than missiles, sir, what will be the scope of Astra going forward?

Yes. For the radar, like as I have mentioned in my -- the previous answer that we have various -- we are into the various programs. We already developed many subsystems which are all those radars are going for production. That is the one thing which we can bank on that. And apart from that, the system as the radar systems, we have taken up this development of like CSR and the anti-drone radar and GSRs, we are already there. And of course, we are already developing the telemetry radars and the multifunctional ground-based radars like PPTR, which we got it from the DRDO under the final execution phase. So these are the class of radars which we have taken up for development and supply. And apart from that, the opportunities like bird detection radar, which are likely to come in near future from Air Force and all, we are trying to gear up ourselves to make for NCNC. So this is what actually we are there into the radar domain. In electronic warfare, we have taken up development of ESM system, which is going on. Two quadrants, we have completed the development. Maybe I think in next 1 or 1.5 year time frame, probably we should be in a position to complete the ESM system. Apart from that, yes, we are also setting up facilities like test simulators and all for DRDO. And recently, we backed this order from DRDO, we are trying to complete it by April, May in this year. So these are all the brief about the systems, what we are taking up in the near future. And in the missile segment, we are not into the systems, we are only into the subsystems as far as the missile segment is concerned.

[Operator Instructions] As there are no further questions, I would like to hand the conference back to Mr. Gurunatha Reddy for closing comments. Please go ahead, sir.

Yes. Thank you for your participation, ladies and gentlemen, and we look forward to talk to you again at the year-end. Thank you very much.

Thank you.

Thank you, members of the management. Ladies and gentlemen, on behalf of Astra Microwave Products Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.