S T O C K I D E A 0 1 N o v 2 0 1I3 nitiating C overage

tiating C overage

t i n g C o ve ra ge

g C ove ra ge

Astra Microwave Products Ltd

C overage

verage

Recommendation CMP

BUY

Exponential Growth on the way! Astra Microwave Products Ltd (Astra) is engaged in designing and manufacturing of high value added RF and microwave super components and sub-systems finding applications in Defence, Space and Civil communication systems. The companys products are widely used in VSAT operations, radars, navigational equipments, Public mobile trunk radio (PMTR), WLL, Cellular GSM/DCS or PCS networks. Some of the domestic clients include Bharat Dynamics, Bharti Airtel, Hutchison Essar, Bharat Electronics, Centre for Airborne Systems amongst others. Q2FY14 results of the company were very good and management has indicated similar kind of performance in the subsequent quarters on the back of robust order book of Rs.1150 crore which it has to execute in the next 2 to 2.5 years. The company has received orders from Israel Defence Company for two products which are in the ramp up stage. Company has been receiving consistent orders from this client and the orders would be replaced with new orders with execution. Astra has been able to carve a niche for itself and build strong relationship with its customers by getting associated with them right at the conception stage of new product development. In addition, management has indicated for robust growth in revenues which would result in good earnings as well. At CMP, the stock is trading at a P/E of 6.8x its expected earnings for FY14E and we recommend investors to BUY the stock for 15-20% in near term and long term outlook continues to remain positive. Robust Order Book resulting in healthy guidance -Astra has robust order book of Rs.1150 (Rs.660 crore of exports). 95% of the export order is from an Israel Defence Company IIA. This order book is to be executed in the next 2 to 2.5 years. Company had in the preceding years developed 2 products for this company which has been accepted by them post tests and trials. This client has ramped up its orders and this is expected to continue in the subsequent quarters. Management is confident of receiving similar kind of orders from the export markets and has guided for 76%+ YoY growth in revenues for FY14E to Rs.400 crore and ~ 50%+ YoY growth for FY15E at ~ Rs.600 crore. Niche products with very less competition Astras products are one of its kinds with hardly any competition even internationally. Company spends nearly Rs 40 to Rs 50 crore on R&D every year. Astra associates itself initially with the client at the initial stage of designing and develops the same. Once it is approved and accepted by the client, Astra then starts the production for the same.
Margin (%) PAT (Rs cr) Margin (%) EPS (Rs) PE (x) EV/EBITDA

Rs.41 NA

rage

Target Price Sector

Telecom Equipments

Stock Details
BSE Code NSE Code

532493 ASTM IN 347 54.91 47.4/30 39084 2.00 40%

ASTRAMICRO

Bloomberg Code Free Float %

Market Cap (Rs cr) 52- wk HI/Lo (Rs) Avg. volume BSE (Quarterly)

Face Value (Rs)

Dividend (FY13) Relative Performance 1Mth 24.0% 5.0% 3Mth 20.0% 3.60% 1Yr

Astra Sensex

4.20% 11.2%

Shareholding Pattern

30 Sep 13

Promoters Holding Institutional (Incl FII) Corporate Bodies Public & others

21.90% 7.19% 25.82% 45.09%

Kavita Vempalli Research Analyst (022 3926-8173) kavita.vempalli@nirmalbang.com Sunil Jain HOR Retail sunil.jain@nirmalbang.com (022 3926-8195/96)

Year Consolidated

Net Sales (Rs cr)

Growth (%)

EBITDA (Rs cr)

FY10 FY11 FY12 FY13

106.2 161.2 203.8 227.5

-9.1% 51.8% 26.4% 11.6%

24.2 39.5 58.1 61.1

22.8% 24.5% 28.5% 26.9%

ge

7.1 18.6 31.4 37.3

6.7% 11.5% 15.4% 16.4%

0.9 2.3 3.8 4.6

47.4 18.2 10.8 9.1

15.0 8.9 6.3 4.4

P age |1

S T O C K I D E A 0 1 N o v 2 0 1I3 nitiating C overage

tiating C overage

t i n g C o ve ra ge

g C ove ra ge

Astra Microwave Products Ltd

Astra was incorporated in the year 1991 by a team of senior professionals and eminent scientist. They have revolutionized the realm of microwave technology with a range of innovative products. Their manufacturing facilities are located at Bollarum and Rangareddy in Andhra Pradesh. Astras products are widely used in VSAT operations, radars, navigational equipment, public mobile trunk radio (PMTR), WLL, Cellular GSM/DCS or PCS networks. Their products meet ITU, MIL and Space standards, and stand testimony to the Company's R&D breakthroughs using ISO quality processes, world class manufacturing facilities and equipment, and trained manpower. The phenomenal success can be directly linked to the fact that the company operates in a customer centric manner supplying innovative, cost-effective solutions of superior quality with zero defects in the shortest possible time.

verage

Company Description

C overage

rage

During the year 2002-03, the company has commissioned a state-of-art MMIC facility at Hardware Technology Park in Hyderabad. The company has expanded the production and R&D facilities with an investment of Rs 10 crore during the year 2003-04. Also, they further invested Rs 25 crore for expansion during the financial year 2004-05. During the year 2006-07, the company has acquired majority stake in Komoline Electronics Pvt Ltd, Ahmedabad.

Quarterly Table

Q2FY14 Result Analysis (in Rs Crs.)

Revenues
Raw Material Cost

Q2CY14 115.3
84.0 7.5 7.4

Q1CY14 37.2
14.2 9.8 8.3

ge

QoQ 209.8%
491.6% (22.8%) (10.7%)

Q2CY13 38.5
18.2 5.2 6.5

YoY 199.3%
361.4% 45.2% 14.4%

Employee expenses Other Expenses EBITDA

Margin

16.4
14.2% 3.6 1.1 3.4 0.0

5.0
13.5% 3.2 0.8 2.1 0.0

227.8%
78 bps 42.7% 61.3%

8.7
22.5% 3.3 1.0 2.0 0.1

89.2%
(829)bps 10.4% 71.3%

Depreciation
Interest Expenses Other Income Exceptional

Profit Before Tax

Margin Total Tax

15.2
13.2% 3.5

3.2
8.5% 1.0

379.5%
466 bps

6.3
16.4% 0.5

139.4%
(329)bps

Profit After Tax

Margin

11.7
10.1%

2.2
5.9%

435.2%
427 bps

5.8
15.0%

101.8%
(490)bps

Basic EPS

1.4

0.3

435.2%

0.7

101.8%

Source:Nirmal Bang Retail Research

Highlights of the Quarter Net Sales grew by 200% YoY/210% QoQ to Rs.115.3 crore on the back of ramp up in production for the Israel client. EBIDTA margins went down by 230 bps YoY to 14.2% and management has guided for 22% for FY14E. Company made margins of 27% in FY13. PAT margins came in at 10% during the quarter and has guided for 12-13% for FY14E.

P age |2

S T O C K I D E A 0 1 N o v 2 0 1I3 nitiating C overage

tiating C overage

t i n g C o ve ra ge

g C ove ra ge

Astra Microwave Products Ltd

C overage

verage

Companys Robust Guidance

Sales PAT PAT Margins % EPS Rs. Equity (FV Rs.2)

FY13 227.5 37.32 16.4% 4.56 16.37

ge
FY14E 400.0 50.00 12.5% 6.11 16.37 FY15E 600.0 75.00 12.5% 9.17 16.37

1 year Forward Chart

Key Risks to our Rational 1. Any cancellation of Orders: 95% of export orders are from one single client which increases the risk of client concentration. Any cancellations of these orders can adversely affect the financial performance of the company. 2. Unable to introduce new products through R&D: Company has created a niche for itself by developing new products through years of research and also spends heavily every year on the same. Any failure or major delays in launching new products can affect the performance of the company going forward.

rage

P age |3

S T O C K I D E A 0 1 N o v 2 0 1I3 nitiating C overage

tiating C overage

t i n g C o ve ra ge

g C ove ra ge

Astra Microwave Products Ltd

verage

Financials

C overage

Profitability (Rs. In Cr) Revenues % change EBITDA EBITDA margin (%) Depn & Amort Operating income Interest Other Income PBT PBT Margins (%) Extraordinary items Tax PAT EPS Quarterly (Rs. In Cr) Revenue EBITDA Depreciation Op Income Interest Other Inc. PBT Tax PAT PAT Margins % EPS Performance Ratios EBITDA margin (%) PAT margin (%) ROE (%) ROCE (%) Valuation Ratios Price Earnings (x) Price / Book Value (x) EV / Sales EV / EBITDA Per Share Data Reported EPS BV per share Cash per share Dividend per share

FY10 106.2 -9.1% 24.2 22.8% 11.2

FY11 161.2 51.8% 39.5 24.5% 12.4 27.1 4.6 1.9 24.4 15.2% 0.0 5.8 18.6 2.3

FY12 203.8 26.4% 58.1 28.5% 12.4 45.6 5.4 1.5 41.6 20.4% 0.0 10.2 31.4 3.8

rage

FY13 227.5 11.6% 61.1 26.9% 13.4 47.8 4.1 6.9 50.6 22.2% 0.0 13.3 37.3 4.6

13.0 3.6 1.7 11.0 10.4% 0.0 3.9 7.1 0.9 Dec.12 49.9 13.2 3.6 9.6 1.1 1.2 9.6 3.4 6.2 12.4% 0.8 FY10 22.8% 6.7% 5.7% 8.7% FY10 47.4 10.2 3.4 15.0 FY10 -3.5 4.1 0.7 0.3

Financial Health (Rs. In Cr) EQUITY & LIABILITIES Share Capital Reserves & Surplus Equity Application Money Total Shareholders Funds Total Debt Other Liabilities Total Liabilities

ge

FY10 10.8 117.2 1.1 129.1 45.7 0.0 174.8

FY11 423.6 312.3 0.0 144.8 33.9 3.1 181.7

FY12 423.6 369.4 0.0 171.3 59.3 1.7 232.3

FY13 483.4 728.3 0.0 200.9 46.3 2.2 249.4

Mar.13 121.1 39.8 3.6 36.3 0.5 0.6 36.3 9.3 27.1 22.4% 3.3 FY11 24.5% 11.5% 13.6% 17.6% FY11 18.2 2.4 2.2 8.9 FY11 -1.2 17.4 0.4 0.5

Jun.13 37.2 5.0 3.2 1.8 0.8 2.1 3.2 1.0 2.2 5.9% 0.3 FY12 28.5% 15.4% 21.0% 25.0% FY12 10.8 2.2 1.8 6.3 FY12 1.4 18.7 0.8 0.7

Sep.13 115.3 16.4 3.6 12.9 1.1 3.4 15.2 3.5 11.7 10.1% 1.4 FY13 26.9% 16.4% 20.0% 24.0% FY13 9.1 1.6 1.2 4.4 FY13 1.6 25.1 2.3 0.8

APPLICATION OF FUNDS Net Block Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Current Liabilities Provisions Total Current Liabilities Net Current Assets Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Other Assets TOTAL Cash Flow (Rs. In Cr) Operating OP before WC Change in WC Tax CF from Operation Investment Capex Other Income change in Investments Total Investment Financing Change in equity Change in Borrowings Dividend paid Interest Paid Others Total Financing Net Chg. in Cash Cash at beginning Cash at end

94.7 2.2 46.0 82.6 21.6 12.6 162.7 73.8 5.5 79.3 83.4 0.0 5.6 -5.6 0.0 174.8 FY10 11.0 (4.7) (3.9) 13.7 (15.0) (3.6) 0.3 (18.3) 0.7 7.3 (2.3) (3.6) 6.6 8.7 4.1 17.5 21.55

90.3 2.2 53.0 81.5 19.0 17.6 171.1 73.5 5.4 78.9 92.2 1.0 5.4 -4.4 1.4 181.7 FY11 24.4 (11.3) (5.8) 19.8 (7.1) (4.6) 0.0 (11.7) 2.9 (11.8) (2.3) (4.6) 5.2 (10.6) (2.5) 21.6 19.03

89.3 0.0 74.7 87.5 34.5 15.7 212.3 56.4 12.9 69.2 143.1 0.6 5.4 -4.8 4.8 232.3 FY12 41.6 (35.4) (10.2) 8.4 (11.3) (5.4) 2.2 (14.6) 0.0 25.4 (4.8) (5.4) 6.4

107.9 23.6 73.8 143.4 113.3 33.8 364.3 230.9 12.9 243.8 120.5 0.7 6.3 -5.6 3.0 249.4 FY13 50.6 101.3 (13.3) 152.0 (31.2) (4.1) (23.6) (58.8) 0.0 (13.0) (5.5) (4.1) 8.3

Source: Company data, Nirmal Bang Research

21.6 (14.4) 15.4 P a g e | 4 78.8 19.0 34.5 34.46 113.27

S T O C K I D E A 0 1 N o v 2 0 1I3 nitiating C overage

tiating C overage

t i n g C o ve ra ge

g C ove ra ge

Astra Microwave Products Ltd

C overage

verage

rage

Disclaimer:
This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities Pvt Ltd). The information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in any way be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.

Nirmal Bang Research (Division of Nirmal Bang Securities Pvt Ltd) B-2, 301/302, Marathon Innova, Opp. Peninsula Corporate Park Off. Ganpatrao Kadam Marg Lower Parel (W), Mumbai-400013 Board No. : 91 22 3926 8000/8001 Fax. : 022 3926 8010

ge

P age |5