Astra Microwave – Q1 updates and AGM comments

Hyderabadi AGMs are a mix of company procedures and weddings. Every AGM is accompanied by a grand lunch and a return gift if you may 🙂 Sometimes i wonder if it would be better to hold the meetings after the AGM’s so that all the “speech givers” can return home and leave the meeting to people who are greedier , i.e the ones who want dividends and price appreciation.

Anyway, AMP is getting more interesting with the recent Modi govt developments. The primary points to note are these.

1. AMP makes SUBSYSTEMS and sells to those who make SYSTEMS. The new 49% hike in FDI limits will initially bring in more companies like BEL who are SYSTEM makers, which is great for AMP as it means more customers. In the later stage however, more competition in the SUBSYSTEMS space too will happen. However, “later” in the defence space means at least 5 years or so, by which time AMP hopes to move up the value chain and will probably be building a system by itself.
2. DE-LICENSING of all but 16 items, which was brought about recently matters only to those that make FINISHED products and sell to end users. AMP supplies are to OEMs and therefore this too will have no impact on AMP.

Other updates

1. The R&D facility at Bengaluru was inaugurated today. Till date most of the direction of R&D was clearly outlined and defined by vendors. This is the first AMP is attempting to do its own inspired research. This does not mean that AMP is working in silos, just that this time it may just be research before orders. This research is under constants guidance from DRDO. The team of 50 assisted by the 200 support staff will continue to cost the company between 5-8% of the sales in the years to come.
2. While AMP has capacity in command guidance and radio proximity in missiles, its R&D is majorly focused towards the FULL SEEKERS. This is likely to yield results, if it does only after 3-4 years. Electronic Warfare, is obviously the future.
3. Current Akash production is 120-150 missiles. This is to be ramped up to 500 in the next 2-3 years.
4. The shareholding largely remains the same with
   1. HDFC – 8.1%
   2. L&T – 10% ( all eyes on this one )
   3. Strategic Venture Fund/ Atim Kabra – 8.1% ( Owns Titagarh Wagaons and Shilpa Medicare too)
   4. Reliance – 4.5%
   5. other MF – 12%
   6. Promoters – 20%
   7. Misc Public – 38%
5. AMP’s moat of regulation, first mover advantage and OFFSET is still very much in play.
6. New domestic orders in Radars, Missiles and Space are awaited. Clarity will come in December 2014.
7. Talks with ELTA for non-india geographies are in progress in addition to the 90 Mil$ thats already fast approaching.

AMP is moving as fast as a company in the Indian Defence can move. It is small, with huge respect and accreditation and there is a huge chance that someone will look at picking up this company from the market. Maybe L&T !

As for now. Enjoy the ride.