Astra MicroWave is India’s foremost supplier of sub-systems for radar, missile, and electronic warfare systems and is well placed to benefit from an expected increase in spending on defence capex by the new government and from relaxation in FDI norms for the sector.
Permission for FDI in the defence sector could result in: 1) growth in Astra’s customer base; and 2) increase in the potential for its eventual takeover – a scenario we consider likely over the long term. Larsen & Toubro owns a 10% stake in Astra and has appointed a nominee director on Astra’s board
Astra’s order book, which currently stands at Rs9.8b, offers good visibility into 30% revenue growth in FY15 with net profit at c.Rs700m. However, revenue and profit could come under pressure in FY16 if certain large export order wins don’t materialize.
Longer-term, Astra’s domestic business – which generates the vast majority of its profits – should maintain a healthy growth rate of 20-25%. At 13x FY15E P/E, valuations are not expensive considering growth prospects and takeover potential.
One can enter the stock if it corrects to Rs 100 Level. Existing Investors can HOLD.
