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ASTRA MICROWAVE PRODUCTS LTD.

Alisha Johney UM15002Ankit Thakur UM15008Lipsa Mishra UM15028

Priya Ranjan Mohanty UM15036Trisha Agrawal UM15058Upgeet Singh UM15059

Technical analysis of

Submitted By: Group 8

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Table of Contents• Company Profile• Shareholding Pattern of Astra Microwave • Industry and Peer Analysis• Impact of macroeconomic environment on Astra Microwave • Major Risks the Company faces• Company performance • Financial Analysis• Final Recommendation

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Company Profile• Year of incorporation: 1991• Core competency: Designing and Manufacturing of Radio

Frequency (RF) and Microwave super components and sub-systems• Sectors catered to: Defence, Space, Telecom, Meteorology, Civil

Communication• Clientele includes: DRDO, ISRO, Indian Meteorological Dept.,

Vikram Sarabhai Space Research Centre, HAL, Bharti Airtel, Vodafone etc. incl. exports to Europe & Asia

• Operations from: Andhra Pradesh, Bengaluru & Delhi• Revenue inflow segregation:

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Share Holding Pattern

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Industry & Peer Analysis• RF & Microwave Component is an oligopolistic one with few but large

players in the industry mainly due to the following entry barriers:– High capital investment requirement to enter this industry– Knowledge intensive industry with necessity of high skilled employees– Collaboration with machine manufacturers for knowledge transfer– Creation and building up of clientele for recurring purchase orders– Limited pool of potential customers

• Quality is a huge contributing factor for growth of business• Industry is non-cyclical in nature with demand from few major projects of

customers• Very Few direct competitors

across the globe:

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Macroeconomic EnvironmentDefense expenditure almost 2% of the Indian GDP & 14% of Central Government Expenditure

Procurement expansion & modernization needs of Indian defense forces through indigenous sources - 30% to 70% over the next decade.

Up to 49% FDI allowed & requirement of single largest Indian ownership of 51% of equity removed

Increased allocation to Infrastructure sector, including telecommunications, in the Union Budget 2016-17.

Increased spending in the Union Budget 2016-17 as compared to the last budget for the Department of Space (DoS).

Major RisksSt

rate

gic

Risk

Research and Development- Ongoing R&D could result in higher costs without a proportionate increase in revenuesRevenue Concentration-The top 5 customers contribute over 91% of total incomeUneven Order Flow and Government Policies- Conversion of orders to a recognizable quantum lies with the GovernmentDelayed Collection of Receivables- Operations involve high working capital and need timely paymentsDefense Export- Business driven by offset provisions of government which are lumpy and controlled by export regulations

Fina

ncia

l Ris

kForeign Exchange Currency Exposure- Risks arise from mismatch between financial reporting currencies, currency of revenue, expenses and indebtedness, as well as timing differences

Inability to Obtain financing for operations, expected capital expenditure and working capital requirements on favorable terms, or at all.

Com

plia

nce

RiskLawsuits- These could be due

to government regulations, deficiency in the quality of products, inability to keep up with environmental laws etc.

Ongoing legal proceedings- The company has outstanding legal proceedings and litigation is incidental to its business and operations

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Company performanceThe EBITDA margin improved 8% to 28.7% which demonstrates improved operational efficiency of the company.

The company is paying nearly 20% of the net profit as dividends which is a significant improvement from previous year clearly demonstrating its earning potential in future.

The analysts from different sources project that Astra Microwave Products Limited will have a median target share price of 148.50 INR, with a high estimate of 180.00 INR and a low estimate of 134.00 INR, in next 1 year.

Increase in the foreign direct investment in defense has provided new opportunities for bringing in new technologies, which when coupled with high entry barrier can help Astra microwave in grabbing significant market share in defense sector of India (Totaling INR 1 lakh crore a year) in coming future

Company performance• The EBITDA margin improved 8% to 28.7% which demonstrates improved operational

efficiency of the company.

• The company is paying nearly 20% of the net profit as dividends which is a significant improvement from previous year clearly demonstrating its earning potential in future.

• The analysts from different sources project that Astra Microwave Products Limited will have a median target share price of 148.50 INR, with a high estimate of 180.00 INR and a low estimate of 134.00 INR, in next 1 year.

• Increase in the foreign direct investment in defense has provided new opportunities for bringing in new technologies, which when coupled with high entry barrier can help Astra microwave in grabbing significant market share in defense sector of India (Totaling INR 1 lakh crore a year) in coming future

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Leverage

RatiosLong term debt/Total Assets

• Maintained a value range of 2-10% over 10 years implying the company is slightly levered and investing in it will be less risky

Debt to equity ratio

• Low debt to equity ratio is a healthy sign as the company has slowly reduced its debt dependence over the last 10 years

Leverage Ratios Liquidity Ratios

Profitability Ratios &

MultipliersMiscellaneous

Financial Analysis

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Liquidity

Ratios

Current Ratio

• Remained greater than 1 throughout the last 10 years, indicating the company will be able to meet its short-term obligations if the need arisesQuick Ratio

• Shows a similar trend as the current ratio. However, high values of both current ratio and quick ratio have partly been because the value of account receivables have increased over years

Leverage Ratios Liquidity Ratios

Profitability Ratios &

MultipliersMiscellaneous

Financial Analysis

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Profitability

Ratios

ROE - ROCE – EPS• ROE and ROCE have averaged more

than .18 over a period of 5 years and EPS has been more than 6 in the last 3 years indicating that the company has generated substantial revenue continuously over a period of time

Multipliers

P/E -P/B• Average P/E over a period of 10 years

has been around 21 (Above market average) and P/B has been around 5 implying that the Market value of equity is higher than book value of the company

Leverage Ratios Liquidity Ratios

Profitability Ratios &

MultipliersMiscellaneous

Financial Analysis

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Misc

Market capitalization • Market capitalization increased to more

than INR 12000 Million in 2015 from INR 4000 million in 2014 due to high growth prospects of the company

Z-scoreThe z-score in FY16 was 9.98 and its average value over the past 10 years is above 6, which implies that the company has very low probability of becoming insolvent.

Leverage Ratios Liquidity Ratios

Profitability Ratios &

MultipliersMiscellaneous

Financial Analysis

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1. Company growth forecasted around 7.5% in 2017

2. Govt. Policies like 49% FDI in Defense sector

3. High Entry Barrier in sectors like defense makes it the sole domestic player in manufacturing of defense equipment which has a current market of more than 1 lakh crore a year

Future Factors

Current Factors

Recommendation: Buy the Stock

Current Market Price: 118.85 (BSE)

1. Company growth by sales volume in last five years is 176.1%.

2. Advantage in terms of low debt-equity ratio and high growth in EBIDTA over the last 10 years (225%)

3. Average Z-score is 6.5 which means that there is less risk of insolvency

4. Backing by highly reputed investors like L&T, JP Morgan, HDFC, AXIS

5. Strong R&D team and more than two decades of experience in defence and space sector