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Order book improving…

Astra Microwave Products Ltd. (AMPL) is a leading designer and manufacturer of a wide array of radio frequency systems, microwave chips, and microwave-based components and subsystems for defence, telecom, and space.

* In Q1FY25, AMPL reported a 16% increase in revenue, driven by healthy order execution, which was in line with estimates.

* EBITDA grew by 7.8x YoY, and margins expanded to 15.5% versus 2.3%, attributed to a better execution mix.

* Order inflow was healthy at Rs.302cr, and increased by 58% YoY, with ~80% of these orders being from domestic defence. The current order backlog is at Rs.2,100cr, which is 1.94x FY25E projected sales, providing visibility for the next 1.5 years.

* Order pipeline improving, with cumulative opportunities of Rs. 8,000cr within AMPL's Rs.39,000cr of total addressable market until 2030.

* With a shift in order execution mix towards domestic orders (~86% mix), we anticipate EBITDA margin in the range of ~22.2% for the next 2- 3 years.

* Considering the robust order pipeline and improving margin profile, we value AMPL at a P/E of 44x on FY26E, and upgrade to Accumulate rating from Reduce with a target price of Rs.976.

Higher domestic execution...

order pipeline healthy. The management's guidance remains consistent, projecting a Rs.8,000cr order inflow for FY24-30E, from a total addressable market of Rs.39,000cr. The current order backlog is at Rs.21,000cr, which is 1.9x FY25E projected sales and provides visibility for the next 1.5 years. The order inflow for Q1FY25 was Rs. 302cr, with higher domestic defence orders. The order execution mix was 79% domestic, with the remaining exports. Going ahead, with an execution mix of ~86% of domestic orders, profitability growth is expected to outpace revenue in the medium term. The order visibility is gradually improving; however, the order pipeline is expected to improve, led by ASEA radars for LCA-MK 1A, EW, counter-drone measures systems, and space business. Management has guided Rs.1,200-1300cr of order inflow for FY25. We anticipate revenue to grow by a 22% CAGR over FY24- 26E

EBITDA margin improves...

Q1FY25 EBITDA jumped by 7.8 times on a YoY basis, led by higher execution though at lower base, but still it was healthy. While given higher domestic order execution, which was at ~80% led to a healthy margin of 15.6% versus 2.3% a year ago. Reported PAT grew by 207% YoY, was also supported by other income and profit shares from JV. Going ahead, with an execution mix of 80-85%:20-15% between domestic & exports, for the next 2-3 years, we expect the EBITDA margin to be in the range of 22.2% versus 14% (the average of the last 5 years). We marginally upgrade our EPS estimates for FY26E by 3.2%, respectively, on account of the likely improvement in margins. We estimate profitability to grow by 32% CAGR over FY24-FY25E.

Valuations 

Indian defence manufacturing's long-term outlook is improving, led by the government's push for self-reliance and ongoing defence modernization. A notable upswing in the order inflow pipeline in defence electronics is evident. AMPL's higher domestic order execution bodes well for margin expansion and earnings. We value AMPL at P/E 44x FY26E, and upgrade to Accumulate Rating from Reduce with a target price of Rs.976.

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