Astra Microwave Products : Investor & Analyst Meet Transcript Q4 FY24.

"Astra Microwave Products Limited

Q4 FY '24 Earnings Conference Call"

May 24, 2024

Disclaimer: E&OE. This transcript is edited for factual errors. In case of discrepancy, the

audio recordings uploaded on the stock exchange on May 24 2024, will prevail

MANAGEMENT: MR. S. G. REDDY - MANAGING DIRECTOR - ASTRA

MICROWAVE PRODUCTS LIMITED

DR. M.V. REDDY - JOINT MANAGING DIRECTOR -

ASTRA MICROWAVE PRODUCTS LIMITED

MR. ATIM KABRA - DIRECTOR-STRATEGY AND

BUSINESS DEVELOPMENT - ASTRA MICROWAVE

PRODUCTS LIMITED

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May 24, 2024

Moderator:Ladies and gentlemen, good day, and welcome to Astra Microwave Products Limited Q4 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinion and expectation of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. S.G. Reddy, Managing Director. Thank you, and over to you, sir.

S. G. Reddy:Thank you, and good evening, everyone. A warm welcome to all the participants to the post result earnings call of our company. I am with my colleagues, Mr. M.V. Reddy, and Mr. Atim Kabra, and SGA, our Investor Relations operators. The result and investor's presentation for Q4 and FY '24 are uploaded on our company website and stock exchanges. I hope you had a chance to look at it. I'm delighted to share with you that the FY '24 has been an excellent year for our company as we have grown exponentially in multiple parameters including financial performance, developing capabilities and improving quality of our product mix.

We have registered our highest ever financial performance across all metrics. Revenue, EBITDA, PAT. We have also witnessed good margin expansion driven by improvement in the product mix. This performance is in line with our expectations and guidance. Recently, we also entered into a collaborative agreement with Teledyne E2v Hirel, in order to provide semiconductor services to support the aerospace, defense and the reliability electronics market. This agreement will pave the way for numerous new possibilities for us in the future.

Coming to our order book, as on 31st March 2024 at a stand-alone level, we have about INR1,956 crores of orders in hand and our order win continues to be healthy. We have booked about INR472 crores of orders in Q4, out of which close to INR446 crores of orders are from defense. It's in the defense segment, a good number of orders are booked in Radars, EW segment, followed by metrology and hydrology and the little bit from exports.

Subsystems for Arudhra radar and homodyne receivers building significant products for which above different products are received. Overall, our order book capex of 88% of defense markets, which are largely BTS, which command higher margins and 12% of exports which is largely suppressed to Indian EOUs, which carry reasonably good margin, unlike our offset basic export orders.

In terms of various parameters, which are already shared through website and all, we have recorded a good improvement in percentage terms across all parameters. I request all of you to go through the website to know more details about that.

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R&D is our cornerstone of our growth and this year, we have spent close to about INR38 crores in R&D which was focused mainly on radar systems, critical subsystems for radar, seekers, SSPAs and EW subsystems. As we are aware, Astra is incorporated a subsidiary company to undertake a sales-related business.

This company has started recruiting personnel and setting up basic infrastructure for satellite integration at its Bangalore facility. The objective is to get qualified for satellite integration and launch -- launching business. And this endeavor -- in this endeavor, it is preparing itself to launch its own basic satellite in the next two years to three years. It will be making use of SAR payload technology, which was taken under TOT.

For JV Company, ARC, it was a breakout year, which we have been waiting for a long time and its bottom line has improved in a big way. For the last year, it has bagged close to about INR386 crores of orders and has a healthy order book of about INR456 crores at end of the year. There is potential to bag big orders in the coming years to the extent of about INR900 crores and will record at least about 10% to 15% year-on-year growth in the next few years with a PBT of around 10% to 15%.

As you are aware, Astra owns 50% of this JV Company and has earned about INR12 crores of profit as its share from the JV company for the year gone by. LCR Mantech radio, which is under development at the JVC under NCNC basis is due for final technical trials in the next couple of months and the company's gearing up for the same.

And lastly, for the coming years, we are targeting order book in the range of INR1,200 crores to INR1,300 crores and the top line in the range of about INR1000 crores to INR1,100 crores, while maintaining the existing profit margins. We'll continue to grow our capabilities strategically and achieve our targets step by step. Major business updates, potential business opportunities and the strategies to be followed to achieve the same will be shared by my colleagues.

Now, I will hand over to Mr. M.V. Reddy, then later on to Mr. Atim Kabra. Thank you.

M. V. Reddy:Thank you. Good evening, everyone. As Mr. SG has mentioned, last quarter performance was remarkably well and surpass guidance given in both order book as well as sales. The overall performance in the year FY '24 was a par with the guidance given in the beginning of the year. We have booked INR472 crores in Q4, which constitutes almost 95% in the different sectors of the domestic market. We have had INR350 crores from the Radar segment, which is our prime focus area for the last few years, INR84 crores from the EW and INR18 crores from the Defense Communication segment.

We also booked INR26 crores from the space and metrology sector. In the last quarter, we have booked INR27 crores development orders from DRDO Labs and rest all from the production is in nature. Overall, we have booked INR1,325 crores in FY '24, resulting standalone order book of INR1,956 crores brought out for the financial year FY '25.

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	Ladies and gentlemen, it gives me immense pleasure to inform you all that with few orders
	which will be booked in April '24, that is in the current financial year, we have reached a
	landmark of INR2,000 crores order book for the first time and we have a bright visibility to
	book INR1,200 crores to INR1,300 crores for FY '25. Majority of them are production in
	nature from the domestic segment. In the first quarter itself, we have a plan to book INR300
	crores.
	With regard to sales, we have surpassed figures mentioned in the last quarter earnings call and
	we could successfully execute development contracts which we missed out in Q3. Going
	forward, we have geared up to reach INR1,000 crores plus milestone in FY'25. First quarter,
	we have planned to book sales of INR180 crores.
	With strong R&D capabilities built over three decades, we have delivered products with
	cutting-edge technology and more in pipeline. To name a few, we are the first company to
	deliver AAAU for Uttam, AESA Seeker Head high-power SSB and high-frequency bands,
	Digital Active Phased Array subsystems, digital multichannel transmission for native
	applications, etcetera. We have also successfully executed AAA of SDR, which is one of the
	major orders which we booked last three, four years. And also DWS in various frequency band
	in FY'24.
	And other development of critical new technologies like photonics radar subsystems and
	subsystems for submarine communication and systems like APS radar are in advance stage of
	completion. As Mr. S. G. Reddy has mentioned, our JV company ARC demonstrated splendid
	performance in FY'24. I'll not repeat with the figures what we did in the FY'24, but even FY'25
	looks more promising. We have INR900 crores plus orders which are in pipeline. And
	hopefully, these all contracts gets materialized in the next two quarters of FY'25.
	Now in terms of sales, we have a plan to book sales of $40 million, which is about INR330
	crores in FY'25. Going forward, we have a very good visibility to maintain sustainable growth
	with the opportunities emerging in the domain of our operation.
	With this brief note, now I hand over to Mr. Atim Kabra to share his thoughts. We would be
	happy to answer your questions. Thank you.
Atim Kabra:	Good evening, and thanks everyone for the opportunity to speak to you again and convey and
	share with you our vision at Astra. But before I start, I wish to thank our entire team under the
	able guidance of S.G. Reddy and M.V. Reddy for their hard work. And yes, we are indeed
	excited by this set of opportunities that we see and excited to partner with the Defense Labs
	and the Defense PSUs under whose tutelage we have blossomed and have reached the stage
	where we are developing new exciting products and have emerged as a systems-level entity
	with systems integration capabilities.
	And we just spoke about a few of our products which we have developed in-house, and they
	form the cornerstone around which we are delivering our margins and our growth story.
	Numbers are numbers, but I think what is being conveyed across is that the opportunity set is

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huge and companies like Astra and it's not limited to us, but the defense sector itself, are fairly well placed to capitalize on this extremely large opportunity.

I read a report recently, it speaks about the share of defense capital outlet is expected to increase to 37% of the total defense budget in FY'30 as compared to 26% in FY'24. And that is a cumulative capital outlay of $186 billion over FY'24 to '30. I'm saying this is a large opportunity space that we need to attack and are operating in.

But suffice it to say that over the next two years, based on the orders in hand and the visibility thereof, we are fairly confident of delivering CAGR growth in sales of around 18% to 22%, with a better CAGR growth in our profitability numbers as higher sales slowdown disproportionately to the bottom line in face of limited increase in fixed cost base. So I'm fairly confident that S.G. and M.V. will meet these forecasts quite handily.

But I want to talk to you more about our broader vision which will position us firmly on a path towards sustainable and predictable growth over the next decade. And Astra will become a much, much larger entity than what it is today. So what we have tried to do is put a framework around our various growth initiatives, some of which I have touched upon in my earlier conversations with you and which encapsulate our various efforts which are targeted towards building a much larger and much more capable Astra. And the framework also puts our various initiatives in a structured format. We call this our LEAP strategy, L-E-A-P, Astra's LEAP strategy.

To reiterate, the LEAP framework is in addition to our 20% on an average targeted organic growth strategy. This is in addition to this. It seeks to capitalize on the significant IP, which has been created in the company over the last three decades. It acknowledges the tremendous contribution by various Defense Labs and Defense PSUs in helping us -- help create and imbibe various technologies and it seeks to build on our vision to create high-tech products, which are made in India, but for a global market, not only for the domestic market.

We seek to capitalize on the reusable building blocks and the library of products and technologies, which have been created over time in-house. The framework, if I may say, seeks to capitalize on our sustained investment in R&D over decades and products. And Astra if you see is in the IP enhancement and IP encashment business. With tailwinds in our favor, we have grappled with putting together various phases of growth for a sustainable growth path. And as and when these initiatives bear fruits, they will add to our organic growth, leading to enhanced sales and margins.

So in the LEAP framework, L stands for lean and learn. Lean and learn implies we are looking at Astra as a collaborative platform. We collaborate with Defense Labs, with Defense PSUs, start-ups,early-stage companies and various academic institutions to increase our IP base in the shortest possible time, while adding to our IP-driven product capabilities, acknowledging the fact that IP is built across companies, institutions, labs, educational institutions. And we seek to synthesize the various elements of these IPs and put them together for more relevant products in the shortest period of time.

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It is tied around our capabilities to deliver, our proven capabilities to deliver. And our technological base, which can imbibe the new tech, provide them a framework to create newer sales products, newer sales and newer sales channels. E in the LEAP framework denotes our commitment to adjacencies and expansion, E is expansion, expansion into areas which can be significant in themselves and where the future lies in our assessment and where our current set of capabilities can be deployed to make a meaningful impact going forward.

Astra is already a significant player in the space sector and we see immense opportunities for expansion in the space sector. We will be one of the major companies major players out there ranging from space-grade components, subsystems to designing satellites, to satellite bus as well as payloads. I think we will be able to deliver our first satellite, sizable size satellite maybe in the next 12 months to 15 months.

This activity is being co-ordinated by both our Bangalore as well as Hyderabad facilities and a lot of folks with significant experience have been onboarded for this initiative. Similarly, we have spoken about our MMIC capabilities being one of our core strength. And after looking around we have zeroed in on MMIC expansion. S.G. Reddy just spoke to you about the Teledyne e2v HiRel collaboration wherein we are seeking to provide semiconductor services which will support various domains like aerospace, defense and high-reliability electronics markets over the next few years.

As a collaboration unfolds it will provide Astra a capability to market its product globally while developing its MMIC portfolio. Similar such initiatives are being thought about as we speak. Another pillar of our LEAP strategy A, revolves around accretiveness where we have a clear focus on ROE enhancement and sales profitability and margin enhancement.

You have already seen a very steady uptick in our return on equity and this is something which is one of the key parameters which we focus on. Working capital efficiency accretiveness is something on which S.G. Reddy spends a lot of his time on as ours is a receivables heavy business. We are well aware that the holy grail lies in free cash flow generation significantly and we are working towards that.

Lastly, the P in the LEAP strategy signifies our vision of delivering high tech products to the market which blend our core capabilities with a systems integration approach. These products will be IP-driven and provide solutions to address various market needs. I'm glad to report that we have recently bagged order for Precision Approach Radars also and we are super excited by our anti-drone capability set which is being introduced in our product format.

We are working on multiple other products which will be addressed towards the global market, and I refer to a few of them in our earlier conversations. So as mentioned earlier, these initiatives are centered around the framework which will add about 20% odd average organic growth rate and we put them separately. As the framework spells the vision that we stand for for an overarching umbrella that we operate in.

Lastly, I need to emphasize that we are constantly re-evaluating and reassessing our various initiatives and trying propel them in a direction which make us cost competitive and gear

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	towards timely delivery of products. We will not hesitate to add projects or products or put
	them on a back bench if they are not delivering or where we'll not be cost competitive with
	finished products.
	On a positive note as shareholders of Astra we not only have ownership interest in Astra, but
	also another profitable company with a marquee partner namely ARC where Astra owns 50%
	equity interest and it's sitting on a nice significant order book which M.V. Reddy alluded to.
	It's profitable and has the product range which has the potential to even hopefully over shadow
	Astra over a period of time.
	So we will have ownership interest in Astra and owner interest in ARC combined, it's a well
	interesting combination. We are very thankful for our JV partners for imposing faith in us. Our
	shareholders are already seeing a positive impact on the consolidated bottom line through this
	initiative. We'll touch upon the order books which MV has already mentioned earlier.
	So a lot to do and a lot of exploratory initiatives are underway in multiple areas ranging from
	AI, machine learning, GPS capability enhancements, etc to better our products and meet the
	requirements clearly brought out between the conflict -- because of the conflicts which are
	raising around the world.
	I can go on, but I have already taken a lot of your time. And if you have questions, let's address
	them in the Q&A session to the best of our abilities. Thank you.
Moderator:	Thank you very much. We will now begin the question and answer session. The first question
	is from the line of Amit Dixit from ICICI Securities. Please go ahead.
Amit Dixit:	I have a couple of questions. The first one is actually around working capital. So this year, if
	you see there is a significant buildup of receivables as well as inventory. So is it a one-off
	factor or is it due to some development work that we are taking for and what will be the
	guidance for working capital days going ahead?
Management:	Yes, Amit complete your questions. You said a couple of questions.
Amit Dixit:	Yes. The second question is on this Teledyne collaboration if it is possible to provide some
	more details at this stage while you have mentioned it will provide semiconductor services and
	I hope it will dovetail into MMIC, but for which platform specifically and how much
	incremental revenue and strong profitability it can generate?
Management :	Okay. I'll take the first question. Probably second question Mr. Atim can take it. Regarding the
	receivables are shooting up it is largely because of the bunching of the sales towards end of
	the year. Q4 we did close to about INR270 crores of business are in excess of that I think
	INR300 crores. So the entire sale of Q4 essentially will be sitting in the balance sheet which is
	close to about INR354 crores. That is one of the big factors for the higher receivables
	appearing in the balance sheet. Working capital days you know very well we keep discussing
	about this almost every day. We are trying our best. We would like to bring it down to around
	240 days kind of things. But unfortunately, as of today, it is slightly on a higher side.
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	In addition to that, as the nature of industries is such that the company will be forced to
	maintain inventories for the project duration cycle and not only because of a niche nature of
	the semiconductor devices, which are required and also because of the project duration itself,
	which runs close to about 2 to 3 years kind of thing. So these are the cumulative factors, which
	are making us to have higher inventories and the receivables I already explained to you why it
	is that.
Management:	Yes. I'll take the Teledyne part. So Amit, Teledyne is more a testament to our MMIC
	capabilities, which you are very well aware, is one of the cornerstone pillars around which
	Astra has developed it's capability set. We started our MMIC initiative in 2005, 2006 and
	various developments and abilities which we have generated through that, have brought us on
	to a very strong platform.
	We are actually governed by a fairly tight confidentiality agreement. So we will not be able to
	talk specifics about the Teledyne deal. But I can tell you that from our MMIC division's
	perspective, the whole idea of entering into such a collaboration is to scale up our business in a
	meaningful manner over the next 2 to 3 years, so that it moves the needle for everybody, for us
	also and for Teledyne also. I don't think a large company such as Teledyne would enter into a
	formal agreement unless they can see that there is potential to move the medium dramatically.
	We are undertaking specific initiatives to get this going, which have already started. But I
	think we would like to let the numbers speak to themselves over a period of time on how the
	collaboration pans out. So it's going to be -- if it's -- I hope that it would be a really long-term
	collaboration, which will put us on a global map.
Amit Dixit:	Okay. That is helpful. One more last question, if I can squeeze one. Is that we have kept our
	guidance for cumulative revenue at INR7,000-odd crores not till FY '28 impact despite a good
	performance this year and the next year guidance is also quite good. And we expect growth in
	revenue. And of course, with Tejas Mk 1A project gathering momentum beyond 40th,41st we
	will have Uttam radar also coming in. So don't you think the INR7,000 crores is a tad
	conservative at this stage?
Management:	But will we rather not be conservative. Well you know us, we like to be conservative.
	Actually, I can put it this way, that the opportunity set is really huge, right? But we are
	comfortable giving you guidance for a year or 2 as the story unfolds, right? In the long term,
	we have already mentioned the multiple initiatives which we are working on, which hopefully
	will lead to an expansion in the TAM itself and TAM, SAM everything should increase
	significantly. But as and when visibility comes in very clearly, we will love to increase the
	numbers. Our idea is what we tell you, we'd like to achieve that.
Moderator:	Next question is from the line of Bhavik Shah from MK Ventures.
Bhavik Shah:	So first, can you just reiterate the guidance which you gave because there were some
	disturbance. What kind -- what is the revenue PBT order book and order inflow guidance we
	are seeing for FY '25?

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	May 24, 2024
Management:	No, you mean you miss it our interact everything?
Bhavik Shah:	I was there. Did I hear NR1,000 to INR1,100 crores revenue? I'm just curious, there was some
	disturbance.
Management:	In terms of the order book, our guidance is INR1,200 crores, INR1,300 crores. That is a stand-
	alone order book. In terms of revenue…
Bhavik Shah:	inflow guidance? Is the INR1,200 crores to INR1,300 crores is the inflow guidance?
Management:	Sorry
Bhavik Shah:	Is the order inflow expecting in FY '25?
Management:	Yes. Order inflow. In terms of the revenue guidance, it is INR1,000 crores to INR1,100 crores.
Bhavik Shah:	And so in terms of PBT margin?
Management:	We should be able to maintain the current PBT levels with a slight on the positive side.
Bhavik Shah:	Okay. So current PBT level. When we say we are seeing about 18% to 22% CAGR growth in
	revenue over next years. So sir, if I calculate like my revenue guidance is on -- it should be
	around INR1,100 crores only. Like are we seeing any one-offs happening so that we are giving
	the INR1,000 crores range also?
Management:	Sometimes numbers don't turn out the -- your -- the other products -- product delivery gets
	delayed, client picks up the products a little bit later. So we want to make sure that there is
	enough flexibility in the system. But as I said, 18% to 22%, growth rate is the targeted number.
Bhavik Shah:	Okay. Astra Rafael JV was supposed to turn positive by this year, if I recall that. Actually in
	the cash flow statement, I can see a INR12 crores loss? So what is that? So it's the operating
	loss or is the one-off loss ?
Management:	S G. can you please take this
Management:	Again, Bhavesh, I didn't get your question.
Bhavik Shah:	Astra Rafael JV. In the tax flow statement, we can see a INR12 crores share of loss from there.
	Is it a normal operational loss or have we written off something, so that's a one-off loss?
Management:	INR12 crores loss?
Bhavik Shah:	In the cash flow statement, you can see share from -- loss from joint ventures.
Management:	No it is share of profit from the joint venture, we got INR12 crores of share of profit from the
	joint venture.
Bhavik Shah:	Profit, and stronger to expend from this -- so the JV has turned profitable, right?
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