Avantel Limited — Q4 FY23 earnings call

Call held 23 Jun 2023

Management summary

Avantel reported a strong performance for FY23 with significant growth in both revenue and profit, driven by successful execution of key orders like the real-time train information system. The company outlined ambitious growth targets for the coming years, supported by capacity expansion, indigenous SDR development, and diversification into medical devices. Management also confirmed plans for an NSE listing and a stock split to improve market liquidity.

Highlights

  • Revenue for FY23 increased to ₹154 crores from ₹104 crores, a YoY growth of 48.1%.

  • Profit for FY23 grew to approximately ₹27 crores from ₹18 crores, a YoY growth of 50%.

  • Net Profit After Tax (PAT) margin for FY23 was reported at 23%, up from around 20% in the previous year.

  • Current order book stands at ₹188 crores, with ₹68 crores already executed in the current quarter.

  • Company targets ₹200 crores turnover for FY24 and ₹550 crores over the next two years (FY25-FY26), comprising ₹250 crores and ₹300 crores respectively.

  • Capex of ₹5-6 crores is planned for FY24 and ₹10 crores for FY25, funded through internal resources.

  • New facilities in Vizag Electronic City and AMTZ Visakhapatnam are expected to be operational by May-June 2024.

  • NSE listing is planned for June-July 2024 to enhance liquidity and small investor participation.

Key financials

  1. Revenue ₹154 Cr +48.1%YoY
  2. Profit ₹27 Cr +50%YoY
  3. Net Profit After Tax Margin 23%
  4. Order Book ₹188 Cr
  5. Inventory ₹44 Cr
  6. Effective Tax Rate 13.2%

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

  • Turnover Revenue · FY24 · High confidence 200 crores
    we should be comfortable and achieving 200 crores turnover during the financial year 2023 and 24.

    — Chairman

  • Turnover Revenue · FY25 · Medium confidence 250 crores
    after completing 200 crores this year, we should be able to do next two years around 550 crores. So, 250 and 300 crores. That is the target we kept for ourselves.

    — Chairman

  • Turnover Revenue · FY26 · Medium confidence 300 crores

    — Chairman

Overall Growth

  • Revenue Growth Overall Growth · next three years · Medium confidence 0.20 to 0.25
    we are expecting a healthy growth of 20 to 25% for the next three years.

    — Chairman

Profitability

  • Net Profit After Tax Margin Profitability · next three years · Medium confidence 20-23%
    around 20% net profit after tax and this year it's slightly higher 23%. With that around, with that kind of ratios we should be able to maintain.

    — Chairman

  • Medical Products Break-even Profitability · 24-25 · Medium confidence break even
    the break even of the company will be in 24-25. 23-24 also we may have some losses.

    — Chairman

Development

  • SDR Development Completion Development · from 2025 onwards · High confidence all flavors of SDR
    we'll be completing the development of almost all the flavors of SDR covering frequency range from HF to S band.

    — Chairman

Commercialization

  • Medical Products Commercialization Commercialization · 2024-25 · High confidence commercialized
    these products will be commercialized in 2024-25.

    — Chairman

Capacity

  • Vizag Electronic City Facility Operational Capacity · May-June 2024 · Medium confidence operational
    it should be operational by this time next year. Maybe by May, June it should be operational.

    — Chairman

  • AMTZ Visakhapatnam Facility Operational Capacity · May 2024 · Medium confidence completed
    hopefully we should want to complete that by May 2024 that facility also.

    — Chairman

Order Inflow

  • HF Systems Tender Order Inflow · next couple of months · Medium confidence coming up
    there will be a tender coming up in a couple of months from now most probably.

    — Chairman

  • RTS Repeat Order Tender Order Inflow · end of this financial year · Medium confidence 10,000-12,000 numbers
    there could be a requirement of another say 10 to 12,000 numbers. And that tender also may come by the end of this financial year.

    — Chairman

Market Entry

  • Radar Market Participation Market Entry · from FY25 onwards · Medium confidence participate
    From next financial year onwards, we would like to work, put more resources on that. So, that from 25 we should be able to participate in the market opportunities for radars also.

    — Chairman

Capex

  • Capital Expenditure Capex · FY24 · High confidence 5-6 crores
    capex will be there five to six crores in this financial year

    — Chairman

  • Capital Expenditure Capex · FY25 · Medium confidence 10 crores
    something like 10 crores next year. So, around 15 to 16 crores will be there.

    — Chairman

Listing

  • NSE Listing Listing · June-July 2024 · Medium confidence apply for listing
    We are planning to go for NSE listing in 2000, next year. After the results are out, audited results are out maybe in May, June. Once the balance sheet is ready, then we will apply for NSE listing. That may happen in June-July of next year.

    — Chairman

Corporate Action

  • Stock Split Decision Corporate Action · today afternoon · High confidence decided
    today afternoon we have the board meeting, the Board will decide and by the end of the day you will get the information about the split shares.

    — Chairman

Risks & concerns

  • Medical equipment certification process

    medium

    The certification process for medical equipment is very long and takes time, impacting commercialization timelines.

    Management acknowledged

  • Competition in defense tenders

    medium

    Avantel faces competition from established players like Bharat Electronics, L&T, Alpha Design, Data Pattern, and Shastra in various tender opportunities.

    Management acknowledged

  • Initial losses in medical devices (IMAX) subsidiary

    low

    The IMAX subsidiary may incur some losses in FY24 before breaking even in FY25.

    Management acknowledged

Q&A highlights

3 direct
OCF generation, capacity expansion, long-term growth outlook, and IMAX subsidiary targets Direct
So firstly, what is the reason for the same? Second thing is how do we plan to rectify this thing? And like what is the stable state OCF to EBITDA that we can generate in probably the medium term or so? Second question is on the capacity front. So, we have doubled our capacity and the new capacity shall come on board in 2023 itself. So if you can elaborate on the same. What exactly it caters to and what hardware equipment that we will be making there? Third question is on the growth outlook in the medium term. So, given the industry related developments that are happening as in the new Indian Space Policy also has come up in 2023. And the way we have also delivered growth in the past, so, do we aspire generating maybe a 500-600 crore revenue in next five years? Or is that estimate conservative for you? And then, like with the rising scale, what will be our margin trajectory? Do we see any improvement? If you can probably talk about that. And last question is about the IMAX revenue target, as in, what do we target over there in next three to five years? And when do we expect to break even for IMAX?

This comprehensive question covered critical aspects of operational efficiency (OCF), future growth drivers (capacity, market outlook), and the strategic direction of the new medical devices segment, providing a holistic view of the company's future.

Asked by Ms. Neha Kharodia

SDR indigenous content, market opportunity, capex project status for radar/satellite systems, 5kW HF transmitter import substitution, and IMAX subsidiary roadmap Direct
Sir, now can you let us know what would be the indigenous content in the orders that would be bidding versus what was earlier when we were importing the radio part from Germany? Sir, second question on SDR was there are a lot of orders being floated as we see from Ministry of Defense more specifically for Army and other segments. And they are from what we read is on 30 to 500 megahertz frequency range and around three kilometers range as well. So, can you briefly let us know what are our segments of SDRs that we are into and are we kind of going to build in other orders in 30 to 500 megahertz as well or there is a specific segment of SDRs that we are more focused into? If you can broadly highlight to us that would be helpful. And sir, in terms of SDR, if you could highlight that what you have said that you want to start trials for Indian Air Force and Navy. So, any quantitative figure if you could tell us how big is this opportunity or what kind of SDR numbers are we looking at in this particular tender that we are bidding for Navy and Army? Sir, other thing is on our capex part on the four acre land that we are going to develop products for radar systems as well as small satellite systems. Can you let us know if the project I mean, what is the status of the capex project and when would this be operational? And if you could throw some more color on the kind of products, which we are planning to make for this nano satellites as well as radar systems? We would be glad to hear from you. Also sir, on the Navy requirement, we have developed this five kilowatt HF transmitter systems. Can you briefly let us know, what is this import substitute opportunity for Indian Navy? If you could broadly give us some quantitative number that would be helpful. And lastly sir, I'd like to hear from Siddharth as well on the IMAX subsidiary. So what kind of products are we developing? What stage we are in developing those products? And what's the roadmap for next two to three years for this company?

This question delved into the strategic importance of indigenization, market sizing for key defense products, and the status of significant capex projects, providing crucial insights into Avantel's competitive positioning and future revenue streams.

Asked by Mr. Smita Ashwin Shah

Stock split decision and ratio Direct
Sorry for this afterthought, but it would be nice if you could also let us know the decision on the stock split and the ratio but and by when can we expect that please? ... Someone is asking about the split of shares. Of course, obviously to improve the liquidity of the company and increase participation of small investors. Yes, this is going on. And today afternoon we have the board meeting, the Board will decide and by the end of the day you will get the information about the split shares.

This question addressed a direct corporate action that impacts shareholders, particularly small investors, and management provided a clear timeline for the decision.

Asked by Mr. Kamal Sodhi

2 min read 6 chapters

Detailed narrative

FY23 Financial Performance and Order Book

Avantel delivered a strong financial performance in FY23, with revenue growing by 48.1% YoY to ₹154 crores from ₹104 crores. Profit also saw a significant increase of 50% YoY, reaching approximately ₹27 crores from ₹18 crores. The Net Profit After Tax margin improved to 23% from around 20%. The company currently holds an order book of ₹188 crores, with ₹68 crores already executed in the current quarter, indicating a healthy pipeline for future revenue recognition.

Strategic Focus on SDR Development and Market Opportunity

Avantel is heavily investing in the development of SCA compliant Software Defined Radios (SDRs) across various frequency bands (VHF, UHF, L, and S band) for both terrestrial and aerospace applications. The company aims to complete the development of all SDR flavors by 2025, positioning itself to capture a significant share of the Indian defense SDR market, estimated at ₹2500 crores annually. Indigenous content in SDRs has improved to 35% from 100% import previously, enhancing self-reliance and competitiveness.

Capacity Expansion and New Facilities

To support its growth and diversification plans, Avantel is expanding its infrastructure. A new 70,000 square feet facility in Vizag Electronic City, dedicated to SDRs, radars, and other electronics equipment, is expected to be operational by May-June 2024. Additionally, a two-acre facility in AMTZ Visakhapatnam for medical equipment manufacturing is planned, with construction starting in August-September and completion targeted by May 2024.

Entry into Medical Devices (IMAX) Segment

Avantel is venturing into the medical equipment sector, focusing on import substitution products like non-invasive ventilators, CPAP, BIPAP, patient monitors, and syringe pumps. These products are expected to be commercialized in FY25, with the segment projected to break even in FY25, though some losses may occur in FY24 due to the long certification process. The strategy aims to make healthcare more affordable and accessible with indigenous solutions.

Future Growth Outlook and NSE Listing

The company projects a turnover of ₹200 crores for FY24 and aims for ₹550 crores over the next two years (FY25-FY26), with ₹250 crores in FY25 and ₹300 crores in FY26. Management anticipates a healthy growth rate of 20-25% for the next three years while maintaining PAT margins of 20-23%. To enhance liquidity and broaden investor participation, Avantel plans to apply for NSE listing in June-July 2024, following the audited results.

Key Orders and Pipeline

Avantel is executing a significant order for 6300 loco terminals for the real-time train information system, expected to be completed by August 2023. A repeat order for 10,000-12,000 loco devices is anticipated by the end of FY24. The company has also secured a 50-crore order from the Indian Coast Guard for MSS systems and expects a tender for 5kW HF systems from the Indian Navy in the coming months, further strengthening its defense portfolio.

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