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Niche player in sunrise sector…
We recently met the CFO of Astra Microwave Products (AMP), Mr S
Gurunatha Reddy, to understand the business model of the company.
AMP is a leading player in designing, developing & manufacturing of subsystems
for radio frequency (RF) & microwave systems used in defence,
space, meteorology & telecommunication. The company was founded in
1991 by three Defence Research & Development Organisation (DRDO)
scientists - B Malla Reddy, PA Chitrakar and C Prameelamma. They still
continue to manage AMP. In the defence segment, the company’s
products include subsystems for radars, command guidance unit and
radio proximity fuse for missiles & other electronic counter measure
warfare products. The company’s products find applications in other
segments like space (microwave & ground based systems for satellites),
telecom (repeaters, jammers, antennas) & meteorology (automatic rain
gauge systems, automatic weather systems). Revenues for FY14 stood at
| 531.2 crore, with major concentration in the defence segment, which
forms ~90% of total revenues (export-63% domestic-26%). AMP’s major
customers in the domestic segment are Bharat Electronics, Bharat
Dynamics, DRDO and ISRO. With the increase in FDI cap in defence from
26% to 49%, opportunity for more export orders under offset policy and
expected step up in spending on defence capex by the new government,
the company is poised for an exciting growth journey ahead.
High entry barrier business
The business model of AMP is characterised by high gestation periods
and lumpy orders. A company involved in this business has to pass
through a stringent & long approval process before starting commercial
production for defence PSUs like Bharat Electronics & Bharat Dynamics.
Given the experience & technological expertise accumulated over the past
two decades, AMP is way ahead of its competitors, which are smaller in
size and currently going though their R&D phase of the approval process.
Beneficiary of improved industry environment
In recent years, AMP has been one of the major beneficiaries of the
defence offset provision, under which for all defence equipment imports
of value above | 300 crore, the foreign company has to source at least
30% inputs from Indian suppliers. This offset provision led to export
orders forming ~47% of the company’s outstanding order book, which
currently stands at | 850 crore. On the domestic front, AMP will benefit
from India’s missile programme, where the Akash missile (5000 missiles
to be produced over a five to eight year period) is in the commercial
production phase while Astra is in the design phase.
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