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Well poised for strong growth ahead…

About the stock: Astra Microwave Products (AMPL), incorporated in 1991, is engaged in design, development and manufacture of sub-systems for Radio Frequency and microwave systems, primarily used in defence, space & meteorology

* Product range includes radars, missile electronics, electronic warfare, satellites, MMIC (Monolithic Microwave Integrated Circuit) and communication systems. 56% of revenue is from defence, ~40% from exports (including deemed exports) and balance ~4% from space & others. Order backlog stands at | 1580 crore as of June 2023

* Revenue has grown by 20.4% CAGR during FY20-23 while EBITDA and PAT have grown by 21.4% CAGR and 16.6% CAGR respectively over the same period. FY23 revenue was up 8.7% YoY to ? 815.5 crore with EBITDA margin improved sharply to 18.1% in FY23 from 11.9% in FY22. FY23 PAT stood at ? 69.8 crore, increased by 84.4% YoY 

Key Investment Thesis:

* Domain expertise in microwave & radio frequency systems and applications; Strong R&D and manufacturing capabilities: With strong domain expertise in microwave and radio frequency applications, AMPL has moved up the value chain from manufacturing sub-systems to development and manufacturing a wide range of high-end, critical microwave and radio frequency application-based equipments. Pursuant to advanced manufacturing as well as research and development facilities, company has strong in-house capabilities to execute orders

* Healthy order-book position with buoyant prospects & pipeline presents strong growth visibility: Company’s order book position stands healthy at | 1580 crore as of June 2023 end (1.9x FY23 revenue). With govt’s focus on allocating significant capital outlay in defence & space sectors, reducing defence imports and increasing domestic procurements with indigenising usage of raw materials, components, sub-systems, the future orders inflows opportunity for AMPL is huge in both domestic and export markets. Moreover, overall execution would improve as the risk of supply chain issues recedes with increase in domestic procurement of raw materials & sub-components 

Rating and Target Price

* We believe AMPL is well placed to witness healthy growth led by strong sector tailwinds. Govt’s focus on indigenisation, increasing usage of electronics in defence & space, strong order backlog, healthy orders pipeline and execution of high-margin domestic orders would drive earnings in coming period. We estimate revenue, EBITDA and PAT to grow at 15.5%, 26.3% and 46.7% CAGR respectively over FY23-25E

* We recommend BUY on AMPL with target price of | 510 per share (based on 32x FY25 EPS) 

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