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Order visibility improves...premium valuation

Astra-microwave products Ltd (AMPL) is leading designer and manufacturer of wide array of radio frequency systems, microwave chips, microwave based components and subsystems for Defence, Telecom and Space.

* Q4FY21 Revenue grew by 38% YoY, largely due to strong execution .

* EBITDA margin improved by 9.1% to 18.2% and PAT grew by 133% YoY on account higher execution & lower cost.

* Order backlog is at Rs1,559cr, which is 2.6x FY21 sales. Order inflow was at Rs916cr, showing signs of improvement.

* We believe that headwinds like order inflow & execution delays have seen some improvement. While order inflow visibility has shown improvement in recent times.

* Order intake guidance of Rs750cr for FY22E is encouraging. Going ahead with given order execution mix, we expect EBITDA margin remain in the range of 12-13% versus 20% (5yr avg.).

* However, likely hit on margin profile is expected to hurt the profitability and valuations in the long run.

* AMPL is trading at 1 Year forward P/E of 33x which seems to be at significant premium compared to historical valuation of 19x. We value AMPL at P/E 28x on FY23E and downgrade to Reduce with a target price of Rs150.

Q4 Revenue growth picked-up...order inflow stable

Q4FY21 revenue grew by 38% YoY to Rs238cr led by pick-up in execution of projects in Defence, exports, space & meteorology. The current order backlog is Rs1,559cr including export order worth Rs7230cr, which is 2.6x FY21 sales provides visibility for next 1.5 years. While FY21 order inflow was Rs.916cr. Management has guided an order intake of Rs750cr for FY22E including export order of Rs150cr. The likely execution mix expected to be 60:40 between exports & domestic. The execution guidance given for FY22E is Rs.700cr. We expect FY22E revenue to grow by 15% to Rs.6,743cr and expect Revenue to grow by 11% CAGR over FY21-23E.

EBITDA margin disappoints...

Gross margins declined by 90bps YoY to 30% largely due to execution of export orders. However, EBITDA margins improved by 9.1% led by lower employee cost & other administrative expenses which declined by 3% & 7% YoY. Going ahead, with execution mix of 60:40 between exports & domestic orders, we expect EBITDA margin to be in the range of 13-15% versus 20% (average of last 5 years). Given change in execution mix we bring down our EBITDA margin estimates from 18% to 12.5% for FY22E and factor FY23E margin at 13.3%. Consequently, our PAT estimates stand reduced by xxx for FY22E.

Valuations

In last couple of years, AMPL witnessed delay in order inflow and stretched execution timelines which impacted profitability. With gradual improvement in order pipeline, we expect revival in order inflow going forward. Though we may expect improvement in revenue growth on account of order inflow. However, given downgrade in margin profile and likely impact on profitability the valuation seems to at significant premium. We value AMPL at P/E 28x on FY23E and downgrade to Reduce with a target price of Rs150.

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