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

Ladies and gentlemen, good day, and welcome to Astra Microwave Products Limited Q4 and FY'23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the belief, 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. S. G. Reddy, Managing Director. Thank you, and over to you, Mr. Reddy.

Thank you, Nirav. Good morning to everyone and a warm welcome to all the participants to the post results earnings call of our company. I'm with my colleague, Mr. M. V. Reddy, Joint Managing Director; and Mr. Atim Kabra, Director, Strategy and Business Development; and SGA, our Investor Relations Advisors. The results and investors presentation for the Q4 and year ended are already uploaded on public stock platform. I hope that you had an opportunity to look at it. It has been a milestone year for us, as we have successfully completed our PAT and registered our best financial performance ever across all matrices. We closed the year with a top line of INR 807 crores, EBITDA of about 18%. Our order book position is very healthy at INR 1,544 crores. We are also happy that the amount of confidence expressed in our abilities by leading institutional investors in India and outside in our capabilities and growth prospects. Before we talk about our performance in detail, I wish to inform you that during the quarter, we have booked about INR 115 crores worth of orders, mainly comprising of INR 48 crores from Radar, INR 17 crores from AW and INR 7 crores from Missile and Telemetry. On the sales front, out of INR 253 crores, Radars have contributed to INR 56 crores, AWs about INR 29 crores, Missile and Telemetry INR 16 crores and [ exports ] about INR 138 crores. During the quarter, the company has responded to INR 350 crores worth of businesses through RFPs and closed purchase negotiations for [ INR 134 crores ], which is entirely for the domestic market. During the quarter, company has signed MOUs and other means of partnerships with Indian and foreign partners to deepen our products and the technology expertise. I'm not able to get into the specific details because of the strategic reasons. Overall, there are various tailwinds in the defense space for players like us. Globally, the countries are spending large amounts of money in the military. Our government who we spends about close to 3% of GDP on defense every year. We highly focused on increasing self-reliance. The commission is driven by increase in R&D spend by DRDO labs and also by increasing private sector to invest in developing products on NCNC model. With our long-standing relationship with our customers under several years of experience in high-tech oriented products, we plan to penetrate [indiscernible]. In fact, we are working on various items which are part of government's [indiscernible] base and this presents a gamut of opportunities for us. Coming to our stand-alone performance for the Q4, the revenue stood at about INR 256 crores as against INR 239 crores for corresponding year of last year, a growth of about 7.3%. Gross margin is at [ 4.8% ]. The domestic sales contributes higher margin compared to the export sales. In the last 2 quarters, the margins have improved in a very strong way because the domestics were more compared to the exports. However, in the quarter ended Q4, there is a slight correction because the export revenues are higher compared to the domestic sales. Talking about full year performance, the revenue stood about INR 807 crores as against INR 735 crores for the last year. Gross profit has increased by about 36.7%. Due to changing geographical mix as compared to the last year, the overall domestic sales are higher in the current year. Similarly, the other gross margins have improved. Profit margins have improved essentially because of the sale in the product mix of the company, where domestic sales have contributed more compared to the export sales. The Board of Directors have recommended a dividend of about INR 1.60 per share, that is 80% for the year ended financial year 2023. At the end of the quarter, our stand-alone outlook, as I said earlier, is at about INR 1,244 crores. This order book consists of 24% of exports and 76% domestic orders. From this order mix available, it is clear that in the coming years, domestic business will be a major competitor to the overall business of the company, which means improved gross margins. In the other order book update, I would like to share with you our joint venture partner, a joint venture company, Astra Rafael has very recently won an order of about INR 158 crores from Hindustan Aeronautics Limited for supply of software-defined radios, which is executable in the next financial year. With a strong order book and inflow for financial year FY '24, we are confident to have a top line of about INR 900 crores to INR 950 crores and at a PBT of about INR 150 crores, it's plus 10% basically under Rafael. We have improved our profitability compared to the last financial year as explained above, and this is likely to improve further because of achieving the overall product mix of the company and also with the proper utilization of the [ CAP ] fund, which are very recently. That CAP of [ INR 225 crores ], which will give a strong boost to our future growth by investing in newer technologies and develop newer products. Company has identified about 10 products or projects to invest proactively and expect to come out successfully in the next 3 to 4 years. This proactive investment should help the company to sustain and improve its top on bottom line in the long run. The company is also in discussions with start-ups and the small private companies with unique expertise to jointly develop newer products with a joint ownership and sharing of profits. The idea is to have a larger pool of products to target wider market sales within defense and aerospace. To conclude my opening remarks, I would like to highlight that [indiscernible] Bharat is becoming a reality and the industry is making great strides and also is very poised to capture this opportunity. Now I will hand over to Mr. Atim Kabra, Director, Strategy and Business Development; and to Mr. M. V. Reddy, Joint Managing Director, to share their thoughts. To start with, Mr. Atim Kabra will take over.

Good day, everybody. I want to take this opportunity to sketch out the broad controls of our vision at Astra. As you are very well aware, we have today completed a significant milestone in our journey so far, where we have progressed from being a sub-component manufacturer to a system-level entity, as we have continuously moved up the value chain over the years. This journey is no different from what has been successfully accomplished and demonstrated by India's very successful IT industry. Likewise, we moved from being a sub-component supplier to a component supplier to being a subsystem for [ guys ]. And now we deliver complete systems also. At this point in time, we wish to also focus on creating multiple solutions. On a day trade, Astra branded solutions around our core competencies in RF and microwave domains. We want to transition from merely supplying radars and subsystems and systems to possibly supplying complete solutions, which will encompass radars and sub-components and subsystems as their core and around which solutions will be built, leveraging our extensive R&D capabilities as well as in-house expertise supplemented as SG very rightly pointed out by externally sourced capabilities through collaborations. And exercise is on within the company to identify strategic growth areas with large total addressable markets where we can identify specific market opportunities and issues where specific solutions can be offered. Yes, I'm going to illustrate this with some broad examples since its early days. Should we be content with offering anti-drone systems? Or shall we be expanding our offering and offer complete anti-drone solutions is a question, which we are debating. Are there other areas where the core tech powering anti-drone solutions can be applied to address different customer bases and both horizontal expansion of our offering can be achieved with a vertical deepening of our capabilities. Or should we be just supplying ground penetration radars, for example, or create solutions around ground penetration radars, which can help in, let's say, disaster management or better surveillance in our border area, et cetera, et cetera. Should we be exploring further extended applications of our RF receivers and data loggers to expand our weather-related offerings and other such related offerings, which arise from such capabilities? Should we be exploring launching Astra made satellite payloads? Should we be exploring the next frontline of warfare, which is space? Should we be focusing on establishing satellite communication systems or take our vision as we had mentioned, of a self-sufficient in window by exploring controlling satellite communication links both ways. These are a few areas and domains which are being explored as we speak. Work has commented on this and this transition from almost exclusively based -- being a tender-based business to an on-demand ready solutions company comes at a very unfortunate time where we have the required skill set and the tech within the company; 2, achieve higher margins and an extended product range, which will give a further significant boost to our top line. We expect to start seeing results from these initiatives over the next couple of years and expect that our solutions will become a significant contributor to our overall revenues over a period of time. I will add that we further intend to undertake a few initiatives to link Astra with various research-based institutions of higher learning and harness resources and the tech being developed there for our solutions. Besides extending this collaborative framework to other defense companies and early stage companies, we are not the only guys here. There is a whole range of companies, which are engaged in myriad activities under the overall umbrella of defense capabilities. We hope to keep you posted as concrete plans take shape. I wish to reiterate that our overall target of achieving INR 10,000-odd crores worth of sales execution over the next 5 years remains very much insight. And all these initiatives, which I mentioned, are meant to add a further impetus to the sales and margin enhancement efforts of the company while building on our core strengths. I'm confident that with your blessings and support, we will be able to achieve a higher trajectory of both top line as well as margin growth. This is a broad vision, which has been put in place, and as a successful QIP with significant demand for us demonstrate. I think we are operating in a very, very favorable environment with headwinds helping us. With this I'll hand it over to M.V. Reddy to further take you into more details on the order book, et cetera. M.V.?

Yes, good morning to all of you. And I think and Mr. S.G. and Mr. Atim Kabra already shared the plans and also the vision of Astra. And I don't want to repeat the same thing. No, I think we can open for the questions and answers.

[Operator Instructions] The first question is from the line of Amit Dixit from ICICI Securities.

I have a couple of questions. The first one is on your defense order book ended -- year ended FY '23, which is can set INR 914 crores. If you could throw some more like on the composition of this book, particularly with respect to the [indiscernible] and the orders that you received in defense, particularly, if you could also [indiscernible] That is the first question.

Yes, overall order book as of 31st March is about INR 1,543, in that, we have close to INR 914 crores in the defense. You want -- since you ask for the breakup. With Radar, we have INR 497 crores. In AW segment, we have INR 267 crores. Missile about INR 150 crores. And from space sector, we have INR 212 crores. Metallurgy and Hydrology segment, we have INR 55 crores. And in export front, we have INR 362 crores. This is the breakup of order book, what we have as on 31st March 2023. And coming to your question about the orders which we booked in the last quarter that is in Q4, we have booked close to INR 115 crores, in that the breakup is -- all are like the defense segment, we have not booked any orders as such from the space or a core front. That's [ INR 50 crores ] from R&D and [indiscernible] R&D and production orders of INR 55 crores. And further, the breakup is INR 47 crores from Radar and INR 17 crores from AW and INR 7 crores from Missile Electronics. I hope I answered your question.

Yes. That's very clear, sir. The second question is…

Amit, sorry to interrupt you. May I request you to come in a better reception area, please? Your voice is breaking.

Is it better now?

No, Amit, your voice is still breaking.

Is it better now?

Yes.

Yes. So my second question is around contribution of revenue. This quarter, we found that more export order -- export was much higher at [ 15 percent to 20-odd-percent ]. So going ahead, despite or will this export be roughly 30% or there would be an hard quarter if we have this kind of precise export goes to 50% and above?

Yes. In FY '24, again up INR 950 crores guidance what we have given, INR 300 crores, we are trying to book from export segment. The rest INR 650 crores is from the domestic segment.

Next question is from the line of [ Udip Trivedi from Mission Market Securities ].

My question is that could you please share me the development revenue mix of financial year '22 and '23 in the domestic defense revenue segment?

Domestic development and…

Am I audible? Yes, it's domestic defense revenue segment.

Yes. I think we will come back to you on that. If you have any other questions, you can ask. We'll reply during the course of...

My next question is on the line of MOU, which I think signing [indiscernible] EL, DIS. What's the start-up on that? Have we started working on that? And what's the revenue that we are expecting from that?

On the NavIC front, right? So our products are almost now being approved and official approval is still waiting. The testing has been completed in the last 2 weeks. I think we -- more or less, we are making all the requirement. Official approval will be turning in next couple of weeks’ time. And once after that, I think the parallelly the development of products are going on. As I mentioned in the last earnings call, we have launched development of [indiscernible] unit COTS receivers and timing receivers. These are the products which we are developing for NavIC application using the baseband chips.

And I do -- I have one more question. And I would like to know your view on the [ Infinite Dome ] MoU exclusive manufacturing for the Indian market. So your take on that, sir?

Yes, actually, we entered MoU with them, and we are working out modality from that. I think maybe soon, we will come out with the detailed modality from that.

[Operator Instructions] The next question is from the line of Jatin Jadhav from Sahasrar Capital.

Sir, my question is regarding the order book. I really wanted to get an idea regarding how much percentage of the entire order book is executed in one particular quarter or it varies quarter-over-quarter? And the second question is I wanted to understand since you are planning to expand into the anti-drone solution. So based on our existing capabilities, will it be easier to enter into that domain? Or do we need to acquire probably a new company or some expanding talent in order to get into that. Those are 2 questions I have.

First 2 questions I have not understood. Yes. In terms of the delivery of INR 950 crores, you are asking whether it is going to be uniform kind of business, or there will be fluctuations from quarter-on-quarter. I think definitely, there will be fluctuation. We have the quarter wise... We'll give you the quarter wise number. Q1, we are targeting about INR 150 crores. And Q2, we have about INR 175 crores. And in Q3, around INR 200 crores-plus and Q4 around INR 250 crores plus. And the second question, you talked about anti-drone system. In the anti-drone, yes, we have completed our developments of indigenous counter-drone radar with the basic [ DOT from LRDA ], and we have optimized the technology. And this particular system is being tested internally. And now we are taking into the field. From July onwards, we are planning to go for NCNC trials for a couple of customers, what we identified.

I think to add to your question to add to MD's answer to your question. As far as the anti-drone system is concerned, we are, I think, almost there on our own capabilities. But as we develop further solutions around it, we may be partnering with a few entities for very specific inputs, which may be required. We are primarily looking at a collaborative model.

The next question is from the line of Bhavik Shah from MK Ventures. Bhavik, may I request you to unmute your line from your side and go ahead with the question please. Bhavik, your voice is not coming clear. Can I request you to speak through the handset?

Yes, is it better now?

Yes.

Sir, in the last question, you did mention the breakup of the sales, which are going to do, right?

Come again, Your voice is not very clear.

Sir, in the last question, you gave a quarterly breakup of the revenue you're going to book in FY '24, right?

Yes.

So that doesn't come to INR 950 crores. So it comes to around INR 750 crores or INR 800-odd crores, right. You said Q1, you do INR 150 crores, right?

Q1 is INR 150 crores. And -- okay. Actually some small correction here. Q2 about INR 170 crores.

Yes. Sir, can you just repeat Q1 INR 150 crores, Q2 INR 170 crores?

Yes. And Q3, I think I mentioned INR 200 crores to INR 250 crores. Okay. And the rest in Q4.

Okay. The remaining will be done in Q4. Okay. Yes. And sir, regarding the margins, going ahead, so like in FY '24 and FY '25, what kind of margins are we looking at sustainable levels? Like what is our order book margins right now, right?

The coming year FY '24, the PBT will be close to about 15% to 18%.

So this is at the PBT level or EBITDA level?

I'm talking about the PBT what I mentioned to you, 15% to 18%. The EBITDA level should be close to about 20% to 25%.

Okay. Yes. And sir, for any guidance for FY '25 going ahead, like, seen in your order book?

'25 guidance is not there, but we can assure you that this will be an improvement over whatever we are likely to do for FY '24.

And so the new orders which we are booking right now, what kind of margins are we getting on that? Like is it the same levels which we are like showing in FY '24?

Yes, mostly, the majority of these orders will come in from the domestic sector, again, mostly from the defense. The exports are likely to thin down over a period of time.

Okay. Okay. And sir, regarding the QIP, can you like -- are you more specific on the QIP front? What kind of proceed usage are we looking at?

Sorry, what kind of...

Usage of proceeds are we looking at? Like where will be the proceeds used?

See, as mentioned in the offer document, the majority of this money is going for the working capital, okay? But again, working capital is a general definition of what we have given. But the intent of the company is investing in coming out with the new products. As I mentioned in my opening remarks, we have already identified about 10 programs and the people have started working on that. So I would say that the major of the money is going for proactive development of various products.

Okay. Okay. So we'll basically repay the working capital loan will we have and from the free up capital, we will be investing in new avenues, that's what I understand. All right. And sir, any new specific developments which we get to know about in coming quarters?

In developments in terms of product developments or otherwise in terms of business developments?

Business developments maybe kind of JV or any new orders which we are expecting like building orders which we are expecting?

The JV has a potential to book big orders in the coming year -- in the coming period. Only the timing is an issue there. But otherwise, it has a huge order book pipeline to be booked in the next 1 year.

Space sector, we were expecting a good year this year, like FY '24, we're expecting to book some revenues over there and like execute our order book. So is there any development on that front?

Yes. In fact, it is already due for a good amount of revenue to be booked. But only thing is there is a small issue in terms of the export license, which is required is getting sorted out. In the current year, it should be doing INR 200-plus crores of revenues. And it should be turning profitable by the end of the year.

Okay. Okay. So we start seeing the numbers. And these numbers are included in your guidance or this will come as an optionality?

They are not included in our guidance because the share of profit or loss is going to be shown out of the JV. [Operator Instructions] Next question is from the line of [ Sarjeet Yadav from Mount Intra Finance ].

Congratulations to all of you for the wonderful results. I'm [indiscernible] and I'm representing Mount Intra Finance...

Your voice is not coming clear.

It is better now.

That's still the same.

Okay.

This is better.

This is better. Okay. So Mr. Reddy I met you like a couple of times in DefExpo and other events. And I've been associated with the SDRs and the various radar programs through Bill since I was serving in Army Air Defense for 22 years. Presently my question firstly is regarding the software-defined radio, the order of INR 150 crores which you have been received. I just missed out during the brief that order is from whom in case you can share that. This is the first question. And then I will move to the next question. Can you please let us know?