| Astra Microwave Products Limited | ||||||
| Ratings reaffirmed ; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities and commercial paper programme of Astra Microwave Products Ltd (AMPL; part of the AMPL group).
The ratings continue to reflect the established market position of AMPL, its strong customer relationships, healthy order pipeline, and comfortable financial risk profile. These strengths are partially offset by the large working capital requirement and exposure to risks inherent in the tender-based business.
Revenue and operating margin of the AMPL group improved to Rs 390 crore and 7.4%, respectively, over the nine months through December 2020, from Rs 209 crore and 2.8%, respectively in the six months through September 2020. However, the operating margin dropped sharply to 7.4% from 23.2% over the same period during the previous fiscal, due to higher execution of low-margin export orders as against domestic orders fetching better margin. Operating margin may remain low for fiscal 2021, for similar reasons. That said, with more focus on domestic orders in fiscal 2022, the margin may improve from current levels and it remains a key monitorable.
Further, the pandemic-led disruptions continued to delay execution of domestic orders, as various quality checks and clearances at the customers’ end were awaited. This also resulted in stretch in receivables and stock up in inventory. With easing of travel restrictions and better coordination with domestic customers, the company is likely to execute more of domestic orders in fiscal 2022. This, coupled with expected moderation in working capital cycle, are key monitorables.
The AMPL group’s financial risk profile remains comfortable in the absence of long-term debt. Liquidity is adequate, aided by cash and cash equivalents of Rs 59 crore (unencumbered portion of around Rs 16 crore) as on March 17, 2021, moderate bank limit utilisation and enhancement in working capital limit.
Further, CRISIL Ratings has noted that the promoters have stepped down from AMPL’s board and their shareholding has been reduced to below 10% as of December 31, 2020. Any material change in business and financial policies will be a key rating sensitivity factor. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of AMPL, Bhavyabhanu Electronics Pvt Ltd (BEPL) and Aelius Semiconductors Pte Ltd (ASPL). That’s because the three companies, together referred to as the AMPL group, are under a common ownership and management, with strong business synergies. Further, CRISIL Ratings has moderately consolidated the joint venture company, Astra Rafael Comsys Pvt Ltd, citing operational and financial linkages.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: * Established market position, supported by strong in-house capability in the microwave radio-frequency (RF) applications domain and healthy customer relationships: The group derives its core business strength from its in-house capability to provide customised microwave RF solutions. It has four state-of-the-art facilities in and around Hyderabad, with research and development (R&D) capabilities for microwave RF applications, test equipment, and environment chambers for space applications. The R&D facility has been set up at Bengaluru to manufacture radars. Over the years, the group has diversified its business portfolio by providing microwave applications in the space and civil telecommunication segments.
It has maintained longstanding relationships with customers, and is recognised as a qualified vendor by defence research establishments. It is also acknowledged by the Indian Space Research Organisation (ISRO) for its space applications testing laboratories.
* Healthy order pipeline offering sound revenue visibility: As on December 31, 2020, the group had orders worth Rs 1,723 crore (standalone at Rs 1,695 crore), to be executed over the next 18-24 months. Orders being skewed towards exports (around 55% of total orders), and lumpiness in order inflow, primarily from space and defence public sector entities, also lead to volatility in sales. Further, technological joint ventures with firms based in Israel, could provide a potential upside in cash accrual over the long term. However, order inflow and development of required technology are key monitorables.
* Comfortable financial risk profile: Capital structure and debt protection metrics should remain healthy, despite the minimal debt-funded capital expenditure (capex) plan over the medium term. Gearing and total outside liabilities to tangible networth (TOL/TNW) ratios stood at 0.11 time and 0.65 time, respectively, as on March 31, 2020, and are estimated below 0.25 time and 0.75 time, respectively, over the medium term. Net cash accrual to total debt and interest coverage ratios were 113% and 6.70 times, respectively, as on March 31, 2020 and are estimated at 30-65% and 4.0-6.0 times, respectively, over medium term.
Weakness: * Large working capital requirement: Gross current assets (GCAs) were high at 488 days as on March 31, 2020, vis-à-vis 432 days a year before, led by large inventory of 277 days (vis-à-vis 195 days) primarily due to the stock up caused by Covid-19 related disruptions. As on March 31, 2021, GCAs are estimated to be around 430 days, led by large receivables and inventory days. The group primarily caters to domestic defence research and space establishments that usually have a long production cycle and longer working capital cycle, as compared with overseas orders. Though exports revenue may be realised faster, it would be set off by stretch in receivables from domestic orders. Further, the group has to maintain sizeable inventory to cater to all segments, as products are customised, and thus, requirements vary across segments.
* Susceptibility to risks inherent in a tender-based business, and long gestation period for projects: The business depends on success in bidding for tenders invited by defence public sector undertakings and research establishments. Establishments such as the Defence Research and Development Organisation (DRDO) invite tenders from qualified vendors for their R&D requirement, and commence bulk production on successful completion of product development. Long-term revenue visibility is primarily driven by the success of R&D projects at DRDO, and the subsequent mass production of products. |
Liquidity : Adequate Liquidity remains adequate, driven by expected cash accrual of Rs 40-70 crore per fiscal in 2021 and 2022, against minimal long-term debt or significant capex plans. As on March 17, 2021, cash and cash equivalents were around Rs 59 crore (unencumbered portion of around Rs 16 crore). Utilisation of the fund-based limit averaged 64% during the 12 months ended February 28, 2021. Sustenance of liquidity remains a key monitorable. |
Outlook Stable CRISIL Ratings believes the AMPL group will continue to benefit from its established market position and healthy order book. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Group AMPL was incorporated as a private limited company in 1991, and reconstituted as a public limited company in 1993. It is promoted by Mr P A Chitrakar, Ms C Pramelamma, and Mr B Malla Reddy. The company designs, develops, and manufactures customised sub-systems and components for microwave communication systems used in the defence, space, and telecommunication sectors.
In fiscal 2014, AMPL floated the 100% owned BEPL, as a captive supplier of raw material for overseas orders. In fiscal 2015, AMPL floated the 100% owned ASPL in Singapore, as a supplier of MMIC products for semi-conductors. In fiscal 2019, AMPL set up a joint venture, Astra Rafael Comsys Pvt Ltd, with Rafael Advanced Defence Systems for production of communication systems and sub-systems for defence. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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