Detailed narrative
Strong FY22 Performance and Growth Outlook
Avantel Limited achieved a record turnover of ₹100 crores for the first time in FY22, alongside reporting a 'very good profit.' The company projects continued robust growth, targeting ₹130-140 crores in revenue for FY23, with an additional ₹60-70 crores in new orders. Management anticipates a 25% increase in top line and a 15-20% increase in bottom line for the upcoming financial year, driven by a strong order book and strategic expansion.
Strategic Diversification into Small Satellites and Medical Devices
The company is actively diversifying its product spectrum, focusing on small software defence radios and small satellites, primarily for the Indian market with global aspirations. A new facility for radar and small satellites is planned on four acres in Electronic City, Hyderabad, expected to be operational by November or December 2023. Additionally, Avantel is entering the medical devices sector through its subsidiary Imeds, with certified products anticipated within nine months and the facility also operational by late 2023.
Defence Sector Focus and Indigenous Content Push
Avantel is strategically positioned to benefit from India's new Defence Procurement Policy, emphasizing Indigenous Design, Development, and Manufacturing (IDDM). The company aims for 60-70% indigenous content in its products, significantly exceeding the mandatory 50%. This focus is expected to create substantial growth opportunities by partnering with global leaders and contributing to India's self-reliance in defence manufacturing, leveraging initiatives like Atmanirbhar Bharat.
Robust Order Book and Execution Timelines
The current pending order book stands at approximately ₹240 crores, providing strong revenue visibility. For the Indian Railways order of 6300 locomotives, 50% is slated for execution in FY23 and the remaining 50% in FY24, with the entire project expected to be completed within one and a half years. The order for 125 HF systems is targeted for completion by August end 2022, with 71 units already delivered.
Capital Structure Enhancement and NSE Listing Plans
To improve liquidity for shareholders and facilitate future growth, Avantel issued bonus shares, which will increase its equity base to ₹16 crores. This move is a strategic step towards meeting the eligibility criteria for listing on the National Stock Exchange (NSE) by 2024, which requires a net worth of ₹75 crores for three consecutive years and a minimum equity of ₹10 crores. The company's net worth has already surpassed ₹75 crores.
Capex and Funding Strategy
Avantel plans a capital expenditure of approximately ₹25 crores over the next one and a half years to establish new capacities, primarily for its small satellite and radar initiatives, and to a lesser extent for medical devices. This investment will be funded entirely from the company's existing reserves, demonstrating a prudent financial approach to support its expansion plans without external debt.
Addressing Supply Chain and Working Capital Challenges
Management acknowledged supply chain disruption🌐s, particularly for semiconductors and connectors, as a significant concern, actively mitigating risks through design changes and advance procurement. High debtor levels were explained by defence procurement terms, where 25% of payment is received only after installation and commissioning, typically taking 9-12 months post-supply. The company emphasized its commitment to integrity and transparency in financial reporting.