Hold Astra Microwave Products Ltd For Target Rs.250 - ICICI Securities
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Muted print; order accretion continues to impress
Astra Microwave (AMW) has reported a disappointing Q2FY22 margin performance. Revenue (standalone) increased 69% YoY; however, gross margins declined 1,845bps QoQ and ~600bps YoY to 20.6%. The growth in top line has been majorly driven by exports (57% of Q2FY22 top line), leading to such a steep margin drop. Standalone EBITDA margin at 6% was down 1,150bps QoQ. Order booking continues to be strong with 34% YoY growth in H1FY22. Orderbook stood at Rs23.7bn, up 13% QoQ. We believe AMW’s valuation has benefitted from i) significantly improved outlook on defence capital spending and higher probability of domestic manufacturers getting a share of that; this has been coupled with a strong orderbook accretion witnessed in AMW over the past 5-6 quarters and ii) various IPOs of private defence sector entities and the valuation that those entities have seen. As of now, we don’t see any meaningful earnings upgrades in AMW. We maintain HOLD with an increased target price of Rs250/share (18x FY24E EPS).
Order accretion continues to impress.
Consol. orderbook stood at Rs23.7bn, while domestic orderbook stood at Rs17.5bn, both executable over 12-30 months. Standalone order booked in Q2FY22 is Rs4.7bn while consol. order inflow in Q2FY22 is Rs5.19bn. Order booking (standalone) is well on course to beat previous management [FY22E] guidance of Rs7.5bn. With INR23.7bn of consol. orders, H1FY22 book to bill stood at ~4x. Subsidiary orderbook continues to stay robust at ~Rs7-8bn (exact print expected in the call today), which includes order for integration of Software defined Radios (SDR) and supply to Rafale.
Expected FY22E (and beyond) order inflow.
Management expects Rs7.5bn of order inflow in FY22E; Defence would add Rs5.5bn, Exports would add Rs1.5bn and rest was expected from Meterology. Space was expected to add only Rs100/150mn. Some kind of a delay in new programs from space was visible; hence not much order inflow was built in from space in FY22E. Post H1FY22 performance, we look forward to possible changes in the order inflow guidance. Medium Power Radar (MPR) order in expected over next two years. The company will also provide subsystems for Akash and Astra missiles. There are discussions going on with ELTA for follow-on offset orders. Also, there are discussions with ELBIT and Rafale.
Higher export orders execution is not allowing earnings upgrades; Maintain
HOLD. Significantly higher execution of export orders, while helping top line, is not allowing for upgrade in earnings estimates (due to lower margins). In the call scheduled today at 2:30pm (link), we look forward for revenue guidance (standalone revenues previously pegged at Rs7bn). Also, given proliferating (expected) missile order book of Bharat Electronics (BEL) and Bharat Dynamics (BDL), we expect domestic defence and space orders to soon start occupying higher share of standalone orderbook.
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