Avantel Limited — Q4 FY24 earnings call

Call held 30 May 2024

Management summary

Avantel concluded its Q4 FY24 earnings call with a strong emphasis on future growth drivers, particularly diversification into Software Defined Radios (SDRs), the space sector, and medical equipment (I-Max). While specific Q4 FY24 financial metrics were not disclosed, management expressed confidence in the company's overall sales growth and profitability. The call highlighted significant order inflows, a robust order book, and ambitious targets for new segments, alongside progress on strategic projects and an upcoming NSE listing.

Highlights

  • Current order book stands at approximately ₹287 crores, including a recent order of ₹107 crores.

  • Targeting to be among the top five companies in India's defence communication space within the next 3-5 years.

  • The Indian defence market for Software Defined Radios (SDRs) is estimated at $300 million per annum.

  • The company aims for ₹100 crores in revenue from its I-Max medical equipment segment by 2030.

  • I-Max medical equipment segment is expected to break even and achieve cash profit by next year (FY25).

  • Secured five IDEX projects from the Ministry of Defence, with grants totaling ₹24.5 crores.

  • Ground station and satellite assembly facility in Hyderabad is expected to be completed by year-end.

  • NSE listing process is anticipated to start next month and conclude within 3-5 months this year.

Key financials

  1. Order Book ₹287 Cr
  2. New Order Inflow ₹107 Cr
  3. Receivables Collected ₹39 Cr
  4. NSIL Order Value ₹27.6 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

Company Outlook

  • Quantum jump in performance Company Outlook · From 2027 onwards, three years from now · High confidence quantum jump
    And from 2027 onwards, the three years from now, there will be a quantum jump.

    — Dr. Abburi Vidyasagar

Market Position

  • Top companies in defence communication Market Position · next three to five years · High confidence top five companies
    establish itself as the top five companies in the country in the space of defence communication.

    — Dr. Abburi Vidyasagar

Market Opportunity

  • SDR market in Indian Defence Market Opportunity · per annum · High confidence $300 million
    Indian Defence market per annum. That is $300 million is per annum.

    — Dr. Abburi Vidyasagar

  • Space sector opportunity in India Market Opportunity · next eight to nine years · High confidence $50 billion
    government of India is looking for something like $50 billion, am I right? Approximately is the total opportunity they are expecting in the next eight to nine years.

    — Dr. Abburi Vidyasagar

Capex

  • Ground Station & Satellite Assembly Facility Completion Capex · by this year end · High confidence complete that facility in all respects
    The construction is going on and we should be able to complete that facility in all respects by this year end.

    — Dr. Abburi Vidyasagar

Order Inflow

  • Railways order pipeline Order Inflow · in a month or two · Medium confidence another 60 crores
    We are expecting another 60 crores order, approximately, and maybe in a month or two

    — Dr. Abburi Vidyasagar

Order Completion

  • NSIL order completion value Order Completion · by November this year · High confidence about 60 crores
    That order we will complete by most, probably by November this year, about 60 crores or something.

    — Dr. Abburi Vidyasagar

Revenue

  • I-Max Medical Equipment Revenue Revenue · next year · Medium confidence two and a half crores or so
    So we may do some two and a half crores or so next year.

    — Dr. Abburi Vidyasagar

  • I-Max Medical Equipment Revenue Revenue · following year maybe · Medium confidence ten crores, then 15 crores
    Then following year maybe, we may even go up to ten crores, then 15 crores.

    — Dr. Abburi Vidyasagar

  • I-Max Medical Equipment Revenue Revenue · by 2030 · High confidence 100 crores
    But we are confident that we will reach 100 crores by 2030.

    — Dr. Abburi Vidyasagar

Profitability

  • I-Max Medical Equipment Break-even Profitability · next year definitely · High confidence break even and get into cash profit
    Maybe if not this year, next year definitely it will break even and get into cash profit.

    — Dr. Abburi Vidyasagar

  • I-Max Medical Equipment Profits Profitability · 25, 26 for sure · High confidence make profits
    We'll make profits in 25, 26 for sure.

    — Dr. Abburi Vidyasagar

R&D

  • Manpower expenses in R&D R&D · next three to four years · High confidence grow a lot significantly
    So, the manpower expenses in R and D will grow a lot significantly in the next three to four years

    — Dr. Abburi Vidyasagar

Project Completion

  • IDEX Projects Development Completion Project Completion · one to one and half years, maximum two years on the outer side. But most likely by next Three-year, next December · High confidence complete the development
    We'll be completing the development in one to one and half years, maximum two years on the outer side. But most likely by next Three-year, next December we will be completing the trials and things like that for all these five I Dax projects.

    — Dr. Abburi Vidyasagar

Corporate Action

  • NSE Listing Completion Corporate Action · next month after this AGM and it may take about four months, three to four months, five months max · High confidence done this year
    NSE listing I think will take up next month after this AGM and it may take about four months, three to four months, five months max. So, it should be done this year.

    — Dr. Abburi Vidyasagar

Risks & concerns

  • Short-term growth rate uncertainty

    medium

    Management cannot assure specific growth rates for the next 2-3 years due to dependence on Indian market orders, though stability and profitability are expected.

    Management acknowledged

  • Competition in diversified segments impacting margins

    medium

    Entering new areas requires diversification into markets with other leading players, which may affect current high EBITDA margins, though it's still considered a niche market.

    Management acknowledged

  • Supply chain issues

    low

    Mentioned as a shareholder question, but management did not elaborate on how they are addressing it in the prepared remarks.

    Analyst not addressed

Areas of evasion (1)

  • Specific margin targets for new diversified segments

Q&A highlights

2 direct
Potential replacement of RF technology by laser-based communication Direct
Laser based technology will complement the RF technologies in some areas. Like for example in maybe in inter satellite communication. It's had a major role and also it will have a major role in air defence systems. Okay. It has its own place but it will not be replacing the RF. They will complement RF in some areas. Okay.

Addresses a potential technological disruption to Avantel's core RF business, clarifying that laser tech will be complementary rather than a replacement.

Asked by Mr Vipul Dhami

New product development strategy and sustainability of high EBITDA margins Partial
Actually we are continuing that initiative in developing intellectual property. The fundamental focus of the company is on innovation... So, when you are looking for growth, you have to diversify into areas where other leading players are also there. So then only the top line will increase. So that way, I mean, the kind of margins you are, what we are having, whether the same margins will be there or not, is not. We cannot say anything on that.

Clarifies the company's innovation-driven strategy for competitive advantage but acknowledges uncertainty regarding margin sustainability in new, more competitive diversified segments.

Asked by Mr Sumit Kothari

SDR export market potential and update on Indian Army trials Direct
Yes, top five. Not in the global level, but in the India level... these products are generic in nature and then because they are terrestrial communication they will be required in from in all countries and whatever we are developing as per global standards. So obviously there will be an opportunity to enter global market in SDRs... HF 1 kw system, Bartholin's Limited is the l one and they are likely to get the order. So that order we will not be getting.

Provides clarity on the global market potential for SDRs developed by Avantel and a specific, transparent update on a key defence trial, including the loss of a particular order.

Asked by Mr Darshan

3 min read 7 chapters

Detailed narrative

Q4 FY24 Performance & Order Book

Avantel reported a strong performance in the last financial year with increased top-line and profits, though specific Q4 FY24 figures were not provided in the transcript. The company currently holds an order book of approximately ₹287 crores, including a recent order worth ₹107 crores. Management also highlighted successful collection of receivables, with ₹39 crores received from a total of ₹68 crores in the last quarter, and an additional ₹11 crores expected by June or July.

Strategic Diversification into Software Defined Radios (SDRs)

Avantel is strategically diversifying into Software Defined Radios (SDRs), targeting the Indian defence market, which is estimated at $300 million per annum. The company aims to be among the top five players in this segment in India within the next three to five years. Avantel is developing SDR products compliant with global standards for various frequency bands and platforms, including portable, handheld, vehicle-borne, and shipborne versions, with potential for global market expansion.

Expansion into the Space Sector

The company is expanding its presence in the burgeoning space sector, which the Indian government projects as a $50 billion opportunity over the next eight to nine years. To leverage this, Avantel is establishing a facility in Hyderabad's Electronic City for ground station as a service, encompassing satellite operation and mission control, and for the assembly, integration, and testing of satellites up to 1000 kg. This facility is expected to be fully completed by the end of the current year.

Medical Equipment (I-Max) Venture

Avantel is developing medical equipment under its I-Max initiative, focusing on respiratory devices, endoscopy, and surgical staplers, having secured a contract for 25,000 surgical staplers per month. Management projects I-Max revenue to reach approximately ₹2.5 crores next year, growing to ₹10-15 crores the following year, and targeting ₹100 crores by 2030. The I-Max segment is expected to break even and achieve cash profit by next year (FY25), with profitability anticipated in FY25-26.

Defence Acquisition Procedure (IDEX Projects)

Avantel has secured five IDEX projects from the Ministry of Defence, with two contracts already signed and another in the final stages for June/July. These projects are supported by government grants totaling ₹24.5 crores and position Avantel as a potential single vendor for specific Indian Army requirements. Development for these projects is expected to be completed within 1.5 to 2 years, with trials anticipated by December of the third year.

R&D Investment & NSE Listing Plans

The company is significantly increasing its R&D investment, particularly in software-defined radios and satellite subsystems, anticipating manpower expenses in R&D to grow substantially over the next three to four years. Additionally, Avantel confirmed its plans for NSE listing, which is expected to commence next month after the AGM and be completed within three to five months this year, aiming for completion within the current year.

Near-Term Outlook & Railways Orders

While Avantel anticipates stability and profitability for the next two years, it refrained from providing specific growth rate guidance due to dependence on Indian market orders. However, the company expects an additional ₹60 crores order from Indian Railways within one to two months, with a potential tender for 12,000 terminals. The NSIL order, valued at approximately ₹27.6-30 crores, is expected to be completed by November this year.

This is an AI-generated summary of a publicly available earnings call transcript.
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