After the new government raised the foreign direct investment limit in defence from 26 percent to 49 percent, stocks of defence companies haven’t stopped buzzing yet.
Astra Microwave, which develops products used in defence, space, meteorology and telecommunication, is in no hurry to make the maximum use of the hike in defence FDI. According to MD B Malla Reddy, the company, at the moment, is not in talks for FDI investment with foreign companies.
According to him, even if FDI comes any time soon, its benefits will be reaped only after 3-4 years from now.
"It is long-term, not in next one-two years kind of thing either direct FDI into our company or FDI flowing into other companies and then the business resulting to us, it will be at least three-four years away from now," he adds.
The company does not have any huge requirement of funds and may liquidate Rs 500 crore order book by FY15-end.
Below is verbatim transcript of the interview:
Q: Are you in conversation with any of the companies for investments into your company after the increase in FDI notification has come through because currently you do not have much by way of FDI investments?
A: We have not started any discussions with anyone as of now.
Q: Some of the concerns that analysts have is that despite notification coming through now, the potential benefit to Indian players could be very limited over the next two-three years; a much longer term horizon is what a company would need to keep. So, in case you were to be in talks with interested parties for FDI or someone who were to approach you. When could you see any sort of benefits trickling into your company?
A: It is long-term, not in next one-two years kind of thing either direct FDI into our company or FDI flowing into other companies and then the business resulting to us, it will be at least three-four years away from now.
Q: Any particular reason why the company is not interested in tapping FDI limit increase anytime soon?
A: As such our promoter holding is very low at this point of time, so we do not want further dilute and go down and that’s the reason. Therefore, immediately we are not looking for direct investment into the company.
Q: Do you require capital and if yes then how are you looking to fund that?
A: As of now for our programmes, the one which are running currently and the profit we are making, like what we have been doing for the last three-four years, we are recycling those profits after paying dividends is enough unless we get any opportunity to expand drastically and create facilities otherwise we will be sufficient with our internal funds.
Q: What does your current order book stands at and what does the pipeline look like?
A: The present order book is about Rs 800 crore out of which Rs 500 crore-550 crore will be diluted by the end of this year; remaining thing will be carried into next year.
Q: You have indicated that a low promoter holding is the key reason for you not taking on FDI investment because then the promoter holding will come down even further. Is there a plan for the promoters to increase their stake into the company and where does it currently stand at or do they have a target, a percentage stake that would be interested in having?
A: Increasing means we should have fund. As of now we do not have that much fund to increase drastically. Therefore, maximum we can increase 0.5 percent or less than 0.5 percent per annum kind of thing.
Also, the fund requirement should be there. As of now the existing business plans - absolutely there is no requirement of large amount of funds that’s why we are not immediately looking for any FDI infusion into the company.
Q: What kind of impact will this have on other companies, on the industry as a whole, how much by way of FDI do you see in FY15 and going forward?
A: This policy will affect in long-term and because of this increase immediately this year and next year, we should not be expecting too much of funds coming in. Some companies come together and decide to enter in a particular area and then start building up their capabilities internally. Large amount of funds will not be coming in and business also will not be coming so easily.
Q: Are you aware of Larsen and Toubro’s (L&T) interest in increasing the stake in the company; I believe it currently stands at 10 percent?
A: At the moment they are around 9.7 percent and as of now we do not have any indications whether they will increase or not.
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