Avantel Limited — Q4 FY21 earnings call

Call held 15 Jun 2021

Management summary

Avantel delivered a stellar performance in Q4 FY21, achieving over 40% growth in both top and bottom lines, with FY21 revenue at ₹77 crores. The company boasts a robust order book of ₹150 crores and projects over ₹100 crores in revenue for the next two fiscal years. Strategic diversification into new technology areas and continued R&D investment are key growth drivers, while management actively addresses supply chain challenges and maintains strong employee welfare.

Highlights

  • Reported revenue of ₹77 crores for FY21, with 40%+ YoY growth in both top line and bottom line.

  • Profit increased by 50% YoY in FY21.

  • Cash flow from operations surged from ₹3 crores to ₹44 crores, with a current cash and bank balance of ₹43 crores.

  • Order book stands at ₹150 crores, with a target to achieve over ₹100 crores in revenue for FY22 and FY23.

  • Fixed asset base increased by ₹5.5 crores, supporting an asset turnover of 11 times.

  • Annual R&D spend is consistently ₹6-7 crores, focusing on creating a 3-4 year competitive lead.

  • Management plans to invest ₹40-60 crores in diversification into new areas like medical electronics, IoT, and nanosatellites.

  • No job cuts or salary reductions were implemented during the COVID-19 pandemic, with full employee support provided.

Concerns

  • Imported Semiconductor Component Shortage

Key financials

  1. Revenue ₹77 Cr +40%YoY
  2. Top Line Growth 40%
  3. Bottom Line Growth 40%
  4. Profit Growth 50%
  5. Cash Flow from Operations ₹44 Cr
  6. Cash & Bank Balance ₹43 Cr

What they filed

Q1 FY27: revenue up 35.7%, net profit up 66.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue77 71 49 52 55 −28%52 −27%64 +30%70 +36%
EBITDA35 32 12 10 11 −67%13 −61%14 +17%17 +67%
Net profit23 20 6 3 4 −81%3 −86%5 −22%5 +67%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Revenue

  • Revenue Revenue · FY22 and FY23 · High confidence over ₹100 crores
    definitely we should touch 100 crores during this year and next couple of years also activity.

    — Chairman

Profitability

  • Bottom Line Profit Profitability · FY22 · Medium confidence better than this year
    the bottom line is the profit centre for next year should be better than this year. Definitely. So, I'm hoping that particularly CPS should be very well possible next year.

    — Chairman

Order Book Conversion

  • Revenue Recognition Phasing Order Book Conversion · FY22 · High confidence 30% in Q1/Q2, 50-70% in Q3/Q4
    actual turnover will start coming from third quarter and fourth quarter even though we have 100 crores s more than 50% 60% to 70% or more will come from last two quarters only 30% will come from the first 2 quarters

    — Chairman

Project Completion

  • HF Communication Systems Production Project Completion · October 2022 · High confidence by October 2022
    the production will start and they should be completed in nine months. Actually, we have time off with a February 23 but we should be able to complete it by October 2022.

    — Chairman

  • RTS Project Debut & Completion Project Completion · 18 months · High confidence 18 months after order signing
    RTS will be debut around 18 months after the signing of the order and there will be very comfortable in the completing the order in 18 months goes on.

    — Chairman

Investment

  • Diversification Investment Investment · future · Medium confidence ₹40-60 crores
    invest 40- 50 crores or 60 crores should know whether this kind of investment that we're making, you should see that issued returns will be there in the next five to six years.

    — Chairman

Risks & concerns

  • Imported Semiconductor Component Shortage

    high

    The major challenge for the next two years will be the availability of imported semiconductor components, affecting all companies dependent on them.

    Management acknowledged

  • Raw Material Cost Increase

    medium

    Raw material costs may increase by 10%, though other costs are expected to reduce by 10% to maintain profitability.

    Management acknowledged

  • Market Volatility (VUCA)

    medium

    The defense and aerospace market is characterized as volatile, uncertain, complex, and ambiguous (VUCA), making long-term predictions difficult.

    Management acknowledged

  • Vaccination Shortage for Employees

    low

    There is a shortage of vaccinations, but the company is in talks with Apollo Hospital to arrange vaccinations for staff next week.

    Management acknowledged

Areas of evasion (1)

  • exact margins on specific equipment

Q&A highlights

3 direct
Strategic Vision, Order Book & Diversification Direct
Siddharth would be trying to leverage the existing strengths and then see, find new markets and new applications for the existing products and technologies. And then try to get entry into the private sector, commercial sector and things like that, to improve the business, you know, that is that is our immediate target.

This question sought clarity on the new director's vision, future growth areas, and plans for market diversification, which are critical for long-term strategy.

Asked by Smitha Ashwin Shah

Product Strategy, Competition & R&D Direct
we are three to four years ahead of them if they want to get into that by the time you have already captured it. So that's how we survived all these years. So, he will be trying to do that. To start with and let's let's explore products and say medical Electronics is one area, IoT is one area cloud computing and then nanosatellites.

The analyst probed into Avantel's competitive advantages, R&D effectiveness, and the rationale behind diversifying into new, non-defense sectors, providing insight into their core strategy.

Asked by Amit Indra Dama

COVID-19 Impact & Employee Welfare Direct
the company has no single person has been removed, and no salary cut has been. Okay. And and in fact, it's not being a Fellow impact in fact, they have been doing much more than what we are doing with all this.

This question addressed the company's response to the pandemic, specifically regarding employee treatment and cost management, highlighting their commitment to social responsibility.

Asked by Santosh Kumar Saraf

2 min read 6 chapters

Detailed narrative

Q4 FY21 Performance & Financial Health

Avantel reported a stellar performance for FY21, achieving over 40% YoY growth in both top line and bottom line, with profit increasing by 50%. The company's revenue for FY21 stood at ₹77 crores. Cash flow from operations saw a significant improvement, surging from ₹3 crores to ₹44 crores, and the company currently holds a healthy cash and bank balance of ₹43 crores. The fixed asset base expanded by ₹5.5 crores during the year, contributing to a high asset turnover of 11 times.

Robust Order Book & Revenue Outlook

The company's current executable order book is strong at ₹150 crores. Management is confident in achieving over ₹100 crores in revenue for the current financial year (FY22) and the subsequent year (FY23). A significant railway order, valued at ₹161-165 crores for 165 Rosada, is in the final stages of clearance, with Avantel being the L1 bidder. Revenue recognition for FY22 is expected to be back-end loaded, with 50-70% of turnover anticipated in the third and fourth quarters.

Strategic Diversification & R&D Focus

Avantel is actively pursuing diversification beyond its core aerospace and defense segments, exploring new areas such as medical electronics, IoT, cloud computing, and nanosatellites. A substantial investment of ₹40-60 crores is planned for these new ventures, with expected returns within five to six years. The company maintains an annual R&D spend of ₹6-7 crores, which is crucial for developing new products and technologies that create a 3-4 year entry barrier against competitors.

Key Projects & Execution Timelines

Production for the HF communication systems for the Indian Navy is slated to commence from the third quarter of FY22, with completion targeted by October 2022. Similarly, the Real-Time Train Tracking System (RTS) project is expected to debut approximately 18 months after the order signing, with comfortable completion within the same timeframe. These projects are significant contributors to the company's assured business pipeline.

Addressing Challenges: Supply Chain & Costs

Management acknowledged significant challenges, particularly the global shortage of imported semiconductor components, which is expected to impact the industry for the next two years. They also anticipate a 10% increase in raw material costs. To mitigate these, Avantel is implementing various strategies, including alternate production methods and diversifying suppliers. Despite these headwinds, management expects the bottom line profitability for the next year to be better than the current year.

Employee Welfare & Corporate Governance

During the challenging COVID-19 pandemic, Avantel demonstrated strong commitment to its employees by ensuring no job cuts or salary reductions. The company provided comprehensive support, including healthcare and vaccination efforts for staff and their families. Management also highlighted the company's excellent corporate governance practices, stating they are comparable to industry leaders like TCS.

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