RESULTS REVIEW 2QFY17 1 NOV 2016

Astra Microwave Products

BUY
INDUSTRY DEFENCE Improved performance; long term story intact
CMP(As on 30 Oct 2016) Rs 117 Astra’s 2QFY17 results were above our estimates as Key highlights
Target Price Rs 154 it reported strong EBITDA margins of 31.9% (+310  Strong 2HFY17E: While 1HFY17 revenue declined
Nifty 8,626
bps YoY). Higher contribution of domestic orders 28% YoY, execution is likely to pick up substantially in
and clearance of deferred deliveries (of 1QFY17) led 2HFY17E (~40% YoY) driven by scheduled deliveries
Sensex 27,930
to the strong margins in the quarter. Execution also for Project Uttam, AWACS and other development
KEY STOCK DATA improved sequentially (+60% QoQ), though it projects of DRDO/ ISRO.
Bloomberg ASTM IN declined 15% YoY (high base). As a result, AMP
 Improved visibility for FY18E: With Rs 3bn worth of
No. of Shares (mn) 87 reported APAT of Rs 160mn (vs. loss of Rs 24mn order inflows expected in 2HFY17E, we expect AMP
MCap (Rs bn) / ($ mn) 10/151 QoQ). The mgmt has maintained its Revenue/ PAT to end FY17E with an order book of ~Rs 5.8bn (+8%
guidance of Rs 4.5bn/ Rs 650 mn for FY17E. YoY). Development phase for Seekers is ~60%
6m avg traded value (Rs mn) 72
Order inflow cycle for defence companies would complete and the prototype would be ready in next
STOCK PERFORMANCE (%)
continue to lumpy depending on the development 6-9 months. The same would be key order inflow
52 Week high / low Rs 155/101 and approval process. Similar is the case for AMP. driver (in addition to radars) for AMP over the next 1-
3M 6M 12M 1HFY17 order inflows stood at Rs 1.6bn (-30% YoY). 2 years.
Absolute (%) (9.9) (4.7) (11.6) However the mgmt expects to bag over Rs 3bn  Margin outlook robust: Despite the large offset
Relative (%) (9.0) (13.9) (15.0) worth of orders in 2HFY17 (including large offset order, FY18E margins are likely to remain robust at
order of Rs 1.4bn). The long term visibility led by ~25.6% as the offset order would have long execution
SHAREHOLDING PATTERN (%)
increased domestic defence spend and AMP’s cycle. FY18E export contribution is likely to be at Rs
Promoters 16.11 700mn (~14% of revenues).
positioning in the radar subsystems (in terms of
FIs & Local MFs 32.15 technology, infrastructure and track record) makes  Near term outlook: Material downsides are limited
FIIs 2.71 it the best play in the defence space. We reiterate from current levels in our view. Corrections would
Public & Others 49.03 BUY with TP of Rs 154/sh (17x Sep’18 EPS). provide attractive entry point.
Source : BSE Financial Summary
(Rs mn) 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%) FY15 FY16 FY17E FY18E FY19E
Net Sales 906 1,062 (15) 566 60 6,336 4,188 4,350 5,050 5,555
EBITDA 289 305 (5) 25 1,048 1,105 958 1,054 1,295 1,411
APAT 161 181 (11) (24) (764) 628 562 592 742 820
Diluted EPS (Rs) 1.9 2.1 (11) (0.3) (764) 7.7 6.5 6.8 8.6 9.5
Pawan Parakh, CFA P/E (x) 15.6 18.4 17.5 14.0 12.6
pawan.parakh@hdfcsec.com RoE (%) 23.6 16.3 14.0 15.6 15.1
+91-22-6171-7314 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>
 ASTRA MICROWAVE : RESULTS REVIEW 2QFY17

Quarterly Financials Snapshot

Rs mn 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%)
Net Sales 906 1,062 (15) 566 60
Material Cost 317 498 (36) 253 25
Execution improved Employee Expenses 141 138 2 128 10
sequentially (+60% QoQ), Other Expenses 159 121 32 160 (1)
though it declined 15% YoY Total expenditure 617 757 (19) 541 14
(high base effect). EBITDA 289 305 (5) 25 1048
Depreciation 57 56 1 51 10
EBIT 232 249 (7) -26 (980)
Interest 26 21 23 18 43
Other income 13 5 152 13 5
Other operating income 2 0 nm 2 0
PBT 221 233 (5) -30 (842)
Tax 60 52 16 -6 (1186)
APAT 161 181 (11) -24 (764)
Source: Company, HDFC sec Inst Research

Margin Analysis
High margin domestic orders as % of net revenues 2QFY17 2QFY16 YoY (bps) 1QFY17 QoQ (bps)
led to substantial Material cost 35.0 46.9 -1191 bps 44.6 -961 bps
improvement in gross margin Employee expenses 15.6 13.0 260 bps 22.7 -708 bps
Other operating expenses 17.5 11.4 617 bps 28.3 -1073 bps
EBITDA 31.9 28.7 314 bps 4.4 2742 bps
Adjusted net profit 17.8 17.1 75 bps (4.3) 2212 bps
Source: Company, HDFC sec Inst Research

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 ASTRA MICROWAVE : RESULTS REVIEW 2QFY17

Quarterly Performance Over 1QFY14-2QFY17

Net Sales APAT EBITDA Margin (%)
Rs mn %
2,000 35.0%
30.0%
1,500
25.0%
1,000 20.0%

500 15.0%
10.0%
0
5.0%

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17
-500 0.0%
With Rs 3bn worth of order
inflows expected in 2HFY17E, Source: Company, HDFC sec Inst Research
we expect AMP to end FY17E
Snapshot Of Key Assumptions And Financials
with an order book of ~Rs
Rs(mn) FY15 FY16 FY17E FY18E FY19E
5.8bn (+8% YoY).
Order book at the end of the year 5,180 5,380 5,830 6,480 7,480
%YoY -47% 4% 8% 11% 15%
Orders booked during the year 1,897 4,374 4,800 5,700 6,555
%YoY -61% 131% 10% 19% 15%

Despite the large offset order, Sales 6,336 4,188 4,350 5,050 5,555
FY18E margins are likely to %YoY 19% -34% 4% 16% 10%
remain robust at ~25.6% as the EBITDA 1,105 958 1,054 1,295 1,411
offset order would have long % EBITDA 17.4% 22.9% 24.2% 25.6% 25.4%
execution cycle. Recurring PAT 628 562 592 742 820
%YoY 23% -10% 5% 25% 11%
Source: Company, HDFC sec Inst Research

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 ASTRA MICROWAVE : RESULTS REVIEW 2QFY17

Peer Valuations
MCap CMP TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) ROE (%)
Company Rating
(Rs bn) (Rs) (Rs) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
Larsen & Toubro 1,379 1481 NEU 1,461 52.1 60.4 70.3 28.4 24.5 21.0 13.0 12.4 11.3 11.4 12.2 13.0
Cummins India 235 849 BUY 940 27.1 27.0 29.4 31.3 31.5 28.9 30.5 29.2 26.5 24.8 22.6 22.5
Voltas 128 387 NEU 325 10.8 13.2 15.2 35.9 29.4 25.4 27.9 22.5 19.0 15.9 17.1 17.4
Thermax 101 851 SELL 686 23.1 26.4 27.4 36.8 32.2 31.1 21.1 19.9 17.7 12.2 12.8 12.2
Suzlon 91 15 BUY 28 -0.3 1.0 2.0 -44.3 14.9 7.5 14.2 9.6 7.0 2.4 -9.1 -21.3
Carborundum Universal 53 282 BUY 391 10.7 13.0 15.6 26.4 21.6 18.0 14.1 11.7 10.0 15.8 16.8 17.4
Crompton Greaves 48 77 NEU 76 1.9 3.2 4.3 39.8 23.9 18.0 14.3 9.8 8.6 2.7 4.3 5.6
Inox Wind 47 212 BUY 422 21.0 22.9 27.0 10.1 9.3 7.9 7.9 6.1 5.0 28.8 24.3 23.4
Triveni Turbine 42 127 BUY 128 3.3 3.7 4.3 38.9 34.3 29.7 24.3 21.0 17.9 41.3 36.9 33.9
Kalpataru Power * 38 251 BUY 330 13.0 15.5 17.5 19.3 16.2 14.4 9.2 8.5 7.7 9.2 10.0 10.3
Techno Electric 36 311 NEU 339 12.3 15.6 18.9 25.2 19.9 16.5 17.0 12.1 10.4 13.0 17.0 18.3
KEC International 32 124 BUY 160 7.4 9.8 10.6 16.6 12.7 11.7 7.9 6.9 6.5 13.5 15.5 14.7
Astra Microwave 10 117 BUY 154 6.5 6.8 8.6 18.4 17.5 14.0 10.6 9.7 7.9 16.3 14.0 15.6
*Note - represent SA numbers
Source: HDFC sec Inst Research

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 ASTRA MICROWAVE : RESULTS REVIEW 2QFY17

Income Statement Balance Sheet

(Rs mn) FY15 FY16 FY17E FY18E FY19E (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 6,336 4,188 4,350 5,050 5,555 SOURCES OF FUNDS
Growth (%) 18.2% -32.1% 3.9% 16.1% 9.9% Share Capital - Equity 164 173 173 173 173
Material Expenses 4,234 2,144 2,045 2,424 2,666 Reserves 2,755 3,820 4,287 4,904 5,600
Employee Expenses 415 530 650 700 767 Total Shareholders Funds 2,918 3,993 4,460 5,078 5,773
Other Operating Expenses 581 557 601 631 711 Minority Interest 0 0 0 0 0
EBITDA 1,105 958 1,054 1,295 1,411 Long Term Debt 434 686 559 433 0
EBITDA Margin (%) 17.4% 22.9% 24.2% 25.6% 25.4% Short Term Debt 489 10 10 10 10
EBITDA Growth (%) 28.7% -18.9% 7.3% 24.2% 7.7% Total Debt 923 696 569 443 11
Depreciation 220 240 284 338 381 Net Deferred Taxes 109 108 108 108 108
EBIT 885 718 770 957 1,030 TOTAL SOURCES OF FUNDS 3,950 4,796 5,137 5,628 5,892
Other Income (Including EO APPLICATION OF FUNDS
63 85 90 90 90
Items) Net Block 1,416 1,368 1,934 2,096 1,716
Interest 100 91 70 56 25 Investments 1 0 0 0 0
PBT 848 711 791 991 1,095 LT Loans & Advances 22 42 47 51 56
Tax (Incl Deferred) 220 148 198 248 274 Total Non-current Assets 1,439 1,411 1,981 2,147 1,772
Minority Interest (0) (1) (1) (1) (1) Inventories 1,732 1,224 1,251 1,453 1,522
RPAT 628 563 592 742 820 Debtors 1,119 1,773 1,788 2,075 2,435
EO (Loss) / Profit (Net Of Other Current Assets 361 234 247 260 275
1 (0) 0 0 0
Tax)
Cash & Equivalents 291 871 682 607 885
APAT 628 562 592 742 820
Total Current Assets 3,502 4,102 3,968 4,395 5,117
APAT Growth (%) 23.0% -10.5% 5.3% 25.4% 10.6%
Creditors 752 405 477 553 609
Adjusted EPS (Rs) 7.7 6.5 6.8 8.6 9.5
Other Current Liabilities &
EPS Growth (%) 23% -15% 5% 25% 11% 239 312 335 361 389
Provns
Source: Company, HDFC sec Inst Research Total Current Liabilities 991 717 812 914 998
Net Current Assets 2,511 3,385 3,156 3,481 4,120
TOTAL APPLICATION OF FUNDS 3,950 4,796 5,137 5,628 5,892
Source: Company, HDFC sec Inst Research

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 ASTRA MICROWAVE : RESULTS REVIEW 2QFY17

Cash Flow Statement Key Ratios

(Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 848 712 791 991 1,095 PROFITABILITY (%)
Non-operating & EO items (63) (85) (90) (90) (90) GPM 33.2 48.8 53.0 52.0 52.0
Interest expenses 100 91 70 56 25 EBITDA Margin 17.4 22.9 24.2 25.6 25.4
Depreciation 220 240 284 338 381 APAT Margin 9.9 13.4 13.6 14.7 14.8
Working Capital Change (1,059) (314) 36 (405) (365) RoE 23.6 16.3 14.0 15.6 15.1
Tax Paid (194) (150) (198) (248) (274) RoIC (or Core RoCE) 21.4 15.0 13.8 15.1 15.4
OPERATING CASH FLOW ( a ) (148) 495 893 642 772 RoCE 19.9 14.5 13.0 14.6 14.6
Capex (376) (193) (850) (500) (0) EFFICIENCY
Free cash flow (FCF) (524) 302 43 142 772 Tax Rate (%) 25.9 20.8 25.0 25.0 25.0
Investments 22 1 0 0 0 Fixed Asset Turnover (x) 2.4 1.5 1.2 1.2 1.3
Non-operating Income 63 85 90 90 90 Inventory (days) 100 107 105 105 100
INVESTING CASH FLOW ( b ) (291) (107) (760) (410) 90 Debtors (days) 64 155 150 150 160
Debt Issuance/(Repaid) 315 (227) (126) (126) (432) Other Current Assets (days) 22 24 25 23 22
Interest Expenses (100) (91) (70) (56) (25) Payables (days) 43 35 40 40 40
FCFE (309) (16) (153) (40) 315 Cash Conversion Cycle (days) 43 143 135 133 142
Share Capital Issuance (4) 631 0 0 0 Debt/EBITDA (x) 0.8 0.7 0.5 0.3 0.0
Dividend (118) (118) (125) (125) (125) Net D/E (x) 0.2 (0.0) (0.0) (0.0) (0.2)
FINANCING CASH FLOW ( c ) 93 194 (321) (307) (582) Interest Coverage (x) 11.1 10.5 15.2 23.3 56.6
NET CASH FLOW (a+b+c) (346) 582 (188) (75) 280 PER SHARE DATA (Rs)
EO Items, Others (1) 0 0 0 0 EPS 7.7 6.5 6.8 8.6 9.5
Closing Cash & Equivalents 291 871 682 607 885 CEPS 10.4 9.3 10.1 12.5 13.9
Source: Company, HDFC sec Inst Research Dividend 1.4 1.4 1.4 1.4 1.4
Book Value 35.7 46.1 51.5 58.6 66.7
VALUATION
P/E (x) 15.6 18.4 17.5 14.0 12.6
P/BV (x) 3.4 2.6 2.3 2.0 1.8
EV/EBITDA (x) 9.4 10.6 9.7 7.9 6.7
EV/Revenues (x) 1.6 2.4 2.4 2.0 1.7
OCF/EV (%) (1.4) 4.9 8.7 6.3 8.1
FCF/EV (%) (5.0) 3.0 0.4 1.4 8.1
FCFE/Mkt Cap (%) (3.2) (0.2) (1.5) (0.4) 3.0
Dividend Yield (%) 1.2 1.1 1.2 1.2 1.2
Source: Company, HDFC sec Inst Research

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 ASTRA MICROWAVE : RESULTS REVIEW 2QFY17

RECOMMENDATION HISTORY
Astra Microwave TP Date CMP Reco Target
170 30-Jun-16 123 BUY 154
160
1-Aug-16 125 BUY 146
150
140 1-Nov-16 117 BUY 154
130
120
110
100
90
Rating Definitions
80 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Aug-16 NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
Apr-16
Jan-16

Feb-16

Jul-16

Sep-16
Nov-15

Nov-16
Jun-16
May-16
Dec-15

Mar-16

Oct-16
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 ASTRA MICROWAVE : RESULTS REVIEW 2QFY17

I, Pawan Parakh, CFA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
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Any holding in stock –No

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