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Moving up the value chain

Specialized deep technology firm in strategic electronics

Astra Microwave (ASTM IN), set up in 1991, is engaged in designing, developing, and manufacturing microwave & RF systems, sub-systems and components. It has five manufacturing facilities at Hyderabad in Telangana. It caters to key segments of defence, space, meteorology, and exports. The company aims to move up the value chain from sub-systems to systems, and wants to provide complete solutions in radars, given its 30-year domain experience coupled with strong in-house R&D. ASTM has set a target to ramp up the defence business in the next 2-3 years (FY21: 30% contribution in total sales, and FY22 at 45% and FY23 at 56%), led by complete solutions offerings and new products.

Total addressable market of INR 240-250bn until FY28

The total addressable market (TAM) for ASTM across sectors amounts to INR 240-250bn during FY24-28 vs cumulative order inflows worth INR 31bn over FY19-23 (Source: company). This marks a huge jump in business operations & opportunities, and it would include radars, turnkey projects, special projects, missiles & telemetry, exports, space, and electronic warfare. A major portion of opportunities comes from radar systems (radars formed 83% of orderbook as on FY23) wherein ASTM moved up the value chain, from making AAAU for Uttam AESA Radar to a complete radar system. Other focus areas are a counter drone system, multifunctional & Doppler radar, as well as bird detection and deterrence radars. These programs are currently in the development phase and management expects to launch them and win orders in the next five years.

Margin to scale up further on better mix 

As on FY23, exports (including deemed exports) formed 40% of total revenue while domestic stood at 60% (including defence, space, and meteorology). Management aims to increase domestic contribution to 70% in the next 2-3 years, aided by new launches and a robust defence pipeline. The domestic business earns a gross margin of up to 40-45% while exports’ is restricted to 8-10%. During FY21-23, exports fell from 59% of total sales to 40% in FY23. During the same period, EBITDA margin rose 580bp to 18.1% in FY23. This implies a further uptick in margin as exports continues to reduce.

Strong contender to reap benefits from defence & space themes

The government’s thrust to indigenize and scale up domestic defence production augurs well for ASTM. With five PIL covering 4,666 components, sub-systems , systems & LRUs, domestic firms such as ASTM are well positioned to aim for a high-growth phase in the upcoming decade. Post the PSUs, we believe small & medium defence companies like ASTM will be biggest beneficiary of the defence & aerospace sector. We expect further re-rating to continue in the defence sector as small companies thrive to become system integrator.

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