Buy Astra Microwave Products Ltd For Target Rs.370 - Sushil Finance
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STRONG ORDER BOOK POSITION ALONG WITH IMPROVEMENT IN REVENUE & PROFITABILITY.
The company has a strong order book position of Rs.1,734 cr (more than 2x of revenue) as on December 2022, which is to be executed in next 12 to 38 months. Strong order booked coupled with healthy execution capabilities, the company has managed to achieve a revenue of Rs.557 cr in 9MFY23 as against Rs.511 cr in 9MFY22. Further, the company has been focusing on domestic order book which has resulted in significant improvement in gross margins to 39% in 9MFY23 from 30% in 9MFY22. The management will continue to focus on domestic order book, hence the gross margins are likely to hover around 40% in FY24E and FY25E resulting in significant improvement in PAT margins.
GOVERNMENT'S PUSH FOR DEFENCE MANUFACTURING PRESENTS GREAT OPPORTUNITIES.
India has the third largest defense budget in the world, out of which around 30% is spent on capital acquisitions. Out of the total capital acquisitions ~90% is imported from countries like USA, RUSSIA & FRANCE. Under the ‘Make in India’ initiative, the government had been trying to increase domestic defence manufacturing and create jobs. The renewed impetus under “ATMANIRBHAR BHARAT” is aimed at reducing dependence on imported military hardware. The Government has allocated USD 72 billion (Rs. 5,93,537.64 crores) in Budget FY23-24, which is 13.18 % of the total budget for defence sector.
OUTLOOK & VALUATION
We expect the company’s topline to grow by ~9% to Rs. 820 Cr in FY23E, Rs. 943 Cr in FY24E (15% growth) and 12% to Rs. 1,057 Cr in FY25E. Additionally, the operation profitability is likely to remain in the range of 39%-42% and bottom line at 9% to 10% levels from FY23E to FY25E. Hence, with a PAT margin of 10% in FY25E, we expect the PAT and EPS to be at Rs. 107 Cr and Rs. 12.3 respectively. We have assigned a P/E multiple of 30X to arrive at a price target of Rs. 370 which provides an upside of ~41% within 18 to 24 months from the current market price of Rs. 263.
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