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    Avantel

    AVANTELGood
    Capital Goods·30 May 2022
    Management Summary

    Avantel Limited reported a strong FY22, achieving a record ₹100 crore turnover and good profits. The company outlined ambitious growth plans, focusing on expanding its defence electronics portfolio, developing small satellites, and entering the medical devices sector. Management provided clear guidance on order book conversion, future revenue growth, and strategic initiatives, including plans for NSE listing by 2024, while acknowledging and addressing supply chain challenges.

    Highlights

    8
    • Achieved a turnover of ₹100 crores for the first time in FY22.

    • Reported a very good profit for FY22.

    • Current pending order book stands at approximately ₹240 crores.

    • Anticipates FY23 revenue of ₹130-140 crores, with an additional ₹60-70 crores in new orders.

    • Projects a 25% increase in top line and 15-20% increase in bottom line for FY23.

    • Aims for NSE listing by 2024, with equity base increasing to ₹16 crores post-bonus to meet eligibility criteria.

    • Investing approximately ₹25 crores in capex over the next 1.5 years for new facilities, funded from reserves.

    • New facilities for small satellites, radars, and medical devices expected to be operational by November/December 2023.

    Concerns

    1
    • Supply Chain Disruptions (Semiconductors, Connectors)

    Key financials

    Single quarter

    05 metrics
    1. 01Revenue₹100 Cr
    2. 02Net Worth₹75 Cr
    3. 03Imported Raw Material Cost₹41 Cr
    4. 04Change in Inventories₹-4 Cr
    5. 05Reserves Utilization12,16,24,790 rupees

    Guidance & targets

    15
    CategoryTargetPriority
    Revenue
    Annual Turnover
    130-140 crores
    Medium
    Order Inflow
    New Orders
    60-70 crores
    Medium
    Order Book
    Orders in Hand for Next Year Execution
    160-170 crores
    Medium
    Revenue Growth
    Top Line Growth
    25%
    High
    Profitability Growth
    Bottom Line Growth
    15 to 20%
    Medium
    Exchange Listing
    NSE Listing
    2024
    High
    Capital Structure
    Equity Base
    16 crores
    High
    Project Completion
    Lockheed Martin 2M USD Order
    2 million dollars
    High
    Project Completion
    Lockheed Martin 1.3M USD Production Order
    1.3 million
    High
    Project Completion
    125 HF Systems Order
    complete the order
    High
    Project Completion
    Indian Railways 6300 Locomotive Order
    complete
    High
    New Business Development
    Medical Products Certification
    at least nine months
    Medium
    New Business Development
    Small Satellites Maturity
    a couple of years
    Medium
    Facility Operationalization
    New Facility (Radar, Small Satellites, Medical)
    operational
    High
    Capex
    New Capacity Investment
    25 crore
    High

    Risks & concerns

    4
    RiskSeverity

    Supply Chain Disruptions (Semiconductors, Connectors)

    Supply chain disruptions, particularly for semiconductors and connectors, are a significant concern, with management actively working on design changes and advance procurement to mitigate risks.Management acknowledged

    high

    Working Capital Management (High Debtors)

    High debtor levels are attributed to standard defence procurement conditions, where 25% of payment is received only after installation and commissioning, typically 9-12 months post-supply.Management acknowledged

    medium

    New Subsidiary (Imeds) is Loss-Making

    The recently acquired medical devices subsidiary, Imeds, currently has negative reserves and surplus, and it will take at least nine months to bring certified medical products to market.Analyst acknowledged

    medium

    Geographical Concentration of Orders

    The majority of orders are from the domestic market, primarily from Bharat Electronics and the Indian Navy, prompting management to focus on expanding product spectrum for broader defence sector opportunities.Analyst acknowledged

    low

    Q&A highlights

    3

    “Firstly, we noticed that the majority of our orders from domestic market and mainly from Bharat Electronics and Indian Navy. So, going forward, how does the management think about the geographical risk in our order book? And so are we looking to add more orders from outside India or more private players? ... I think the current order book is roughly 260 to 270-odd crores. So, is this understanding correct? And can you give a broad timeline for this order book in terms of execution?”

    This question consolidates several critical aspects of the company's future: market diversification, order book size, and execution timelines, which are key indicators for capital goods sector investors.

    asked by Ayush Mittal

    3 min read7 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    07

    Addressing Supply Chain and Working Capital Challenges

    Management acknowledged supply chain disruptions, 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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.