Fastest-Growing Emerging Companies Rank: 1
Group: STANDALONE COMPANIES
Segment: REVENUE Rs 500-1,000 CRORE
The commissioning of the indigenously developed Multi-Object Tracking Radar (MOTR) in March this year was a proud moment for India. Built by the Satish Dhawan Space Centre, the rocket launch facility of the Indian Space Research Organisation (ISRO) in Sriharikota, this radar can track multiple objects in space simultaneously, unlike conventional radars, which track just one at a time. Only a few other countries - the US, Japan, Israel and some European ones - possess this technology. What is not widely known is that much of the hardware for the MOTR was provided by a 24-year-old Hyderabad-based company, Astra Microwave Products, which specialises in components for radars. "Much of our business today is manufacturing subsystems that go into the making of 'phased array radars', or 'active array radars'," says B Malla Reddy, Managing Director of the company and one of its three founders.
Niche business opportunities in defence and space sectors
Growing subsystems sales; supplier to companies making radars
To make complete systems, JVs to make communication equipment for defence
Likely diminishing role of the offset policy with the government's focus on "Make in India"
Rs 1,000 crore revenue in the next three to four years
Rs 551.78 crore
Rs 50.88 crore
THREE-YEAR AVERAGE TOPLINE GROWTH:
In defence, apart from radars, Astra provides components and subsystems for missiles, electronic warfare or electronic counter measures. Its main local clients are Bharat Electronics Ltd (BEL) for radars and electronic warfare equipment, and Bharat Dynamics Ltd (BDL) for missiles. Both BEL and BDL work with specifications developed by Defence Research and Development Organisation (DRDO) laboratories, which are shared with the private manufacturers they award contracts to. How severe is the competition? Though there are giants such as the Tatas, Mahindras and Larsen & Toubro in defence production, none operates in the niche area that Astra does. "Usually there are between three and 10 companies competing with us for a tender, but most of the others are either very small or companies in digital electronics eyeing the microwave field," says Malla Reddy. He adds that, in recent times, BEL has been competing with Astra in most tenders.
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But an equally big share of Astra's revenue has lately come from exports. Revenue has shot up in the last two years - it was Rs 243.97 crore in 2012/13 and Rs 551.78 crore in 2013/14. "Exports have contributed over 50 per cent of our top line during this period," says Malla Reddy. "This is mainly due to the offset policy India has implemented in defence for the past five years." The offset policy requires overseas suppliers, which have won defence contracts in India above Rs 300 crore, to source 30 per cent of the order value from Indian manufacturers. "The components Indian companies provide get integrated into the equipment that the foreign company is supplying to India," adds Malla Reddy. Astra mainly supplies to an Israeli firm based on the designs shared by the company.
The use of offset policy, however, may get diminished over time with the Narendra Modi government's emphasis on "Make in India". "Revenue from exports will fall to around 25 per cent of the total this year as orders are getting completed and the government's focus is on indigenous manufacture instead of imports," says Malla Reddy. "Instead of offsets, there could be joint ventures in India. New orders are not coming because the situation is fluid." He is prepared for an overall revenue drop to around Rs 450 crore this year, but with policy clarity coming, expects it to climb back in 2016/17. "Indian companies will not be affected in the long term as they are all backend suppliers," he says. Instead of exporting components and subsystems, companies like Astra will be supplying to the local JVs that foreign players set up.
FULL COVERAGE: India's Emerging Companies 2015
Industry insiders agree that opportunities can only grow with the new thrust. The increase in the foreign direct investment limit to 49 per cent in the defence sector is bound to make India more attractive as a manufacturing centre for global majors. "There will be an impetus to bring in new technology," says G.K. Pillai, CEO and MD of Walchandnagar Industries, which focuses on defence, aerospace and nuclear power. "The total defence market in this region would be around Rs 1 lakh crore a year, of which 70 to 80 per cent is imported. If local manufacturing lowers imports to around 50 per cent, it means a Rs 25,000 crore to Rs 30,000 crore per year market opening up."
Astra is also looking at new areas of growth. Last year, it opened a systems R&D centre in Bangalore. "We have been a subsystems company so far, but the centre indicates our new focus on making the complete radar," says Malla Reddy. "One of our subsystems is the 'transmit-receive' module for which we imported semiconductor devices from the US. But now we have been making these devices ourselves. There is a global market for them. To exploit this, we have set up a 100 per cent subsidiary in Singapore. The Singapore-Malaysia-Taiwan belt is an important hub for semiconductor manufacture and distribution." Astra is also setting up a JV with 51 per cent stake to make communications equipment for defence. Malla Reddy maintains it will be distinct from radar, but is tightlipped about details. He has shareholder approval to raise Rs 170 crore to fund the new ventures.
Astra Microwave employs around 1,000 people, 250 of whom are in R&D. "Getting people with sufficient experience in our niche area is the biggest challenge," says Malla Reddy. "There aren't readily available and new entrants in the field keep taking away our people. Mostly, we recruit fresh graduates in electronics and train them. We also tap people from ISRO or DRDO, sometimes even retired personnel." Still, Astra Microwave has been managing all right. "The good thing about the company is that it is driven by technocrats with long years of experience and a clean track record," says Srini Raju, whose family owned company Skanda Aerospace held a 10 per cent stake in Astra from 2011 to 2014, exiting with a 2X return. "It now needs to focus on building the next line of leadership and diversifying its global customer base."