Astra Microwave: Operating in a challenging industry environment

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26 Aug, 2025 12:21

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Jitendra Kumar Gupta
Moneycontrol Research

Astra Microwave has maintained a lean balance sheet and silently built capabilities, which is now helping it tide over a difficult period that the industry is going through. It is sitting on a cash equivalent of about Rs 160 crore, which helps in working capital management. The management is confident of repaying its long term debt, which is maturing soon.

On the capabilities front, it has built a huge manufacturing base and formed key joint ventures with Rafael Advanced Defence. This JV has already started working with equity contribution from its partner and key executive recruitments are underway. The JV is expected to go commercial in FY20.

During its analysts call, the management indicated that there is a significant downturn in the defence industry. Most industry players are awaiting awarding of projects as many government flagship programmes are getting delayed. The situation has come to a point where companies like Astra Micro are barely able to cover their operating cost. Excluding the benefits of past export incentives (under dispute), which it booked in the June quarter, the company has just managed to break-even at the operating level.

One-time income boost to profitability
Despite a 6.25 percent year-on-year growth in sales during Q1, its operating profit before other income dropped 24 percent to Rs 6.33 crore. If one deducts interest cost and depreciation of Rs 9 crore, it would have reported a loss. On the contrary, it has reported a net profit of close to Rs 8 crore, up 91.4 percent, led by other income of close to Rs 13 crore as against Rs 4 crore in the corresponding quarter of last year. During the quarter gone by, operating margin fell to 11.8 percent as against 16.5 percent YoY.

This fiscal, the company is facing margin pressure on account of increasing competition and pricing pressure in the market, along with adverse changes in the product mix. Contribution of one of its products, which had an operating margin of about 75 percent and accounts for over 50 percent of sales, dropped and is thus impacting margin.

Outlook and valuationsMargin would continue to drift lower because of a high base. Contribution of high margin products will fall to about 10 percent of sales this year and that would hit margin. Most businesses operate at a margin of about 8-12 percent.

Barring that, the order pipeline is looking robust this year. The management is expecting order inflows of close to Rs 600 crore, which is good considering its current order book of close to Rs 474 crore. This optimism is also reflected in its guidance. This fiscal, the management has guided to about Rs 425-430 crore in revenue as against about Rs 361 crore in FY18, a growth of about 18 percent.

At the current market price of Rs 101 per share, the stock is trading at 14.5 times its FY18 earnings. Lower valuations reflects market’s apprehensions about earnings growth, which could be muted this year on account of lower margin and slow growth. Much of the growth is seen to be coming in FY20, which the market would mostly start to factor in from Q3 or Q4 of FY19.

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