Avantel Ltd Stock Research Report by HDFC Securities
Sector: Telecommunication – Equipment
CMP Rs. 496.60, Target Rs. 591 (19% upside potential)
Target Period: 12 Months
Avantel Ltd Stock Research Report:
Avantel Limited. (Avantel) is technology driven company in India; the company is engaged in the design, development and manufacturing of electronic, communication, satellite communication products/services, software products & services development and research & development activities. The company has developed Mobile Satellite Services based products and UHF Systems and continues to offer solutions for various applications and is looking for growth in this segment by offering integrated solutions for Airborne, Underwater platforms and special operations.
An established track record of over two decades in the electronics and telecom equipment business has enabled it to offer a unique combination of embedded systems and related software used in the defence sector, as well as Radio Frequency (RF systems) used in the civilian telecom segment. Avantel designed and developed various first of its kind, customized wireless/Satcom products and solutions to meet the special requirements of Indian Defense Services & allied institutions. Avantel’s unique value proposition is in integration of wireless, embedded firmware and software technologies to create innovative solutions.
The company’s performance is strongly backed by the in-house R&D facilities. The company’s growth plans include the set-up of a new corporate office and a new manufacturing unit by FY24 which could help further strengthen the market position of the company. The company has been contributing to self reliance in the strategic segment for close to three decades and has been offering fully indigenous solutions through its well spread product offerings. The push given by government in terms of increased capital overlay and emphasis on domestic sourcing would help it to venture into new technologies, roll out new product lines and strengthen the strategic capabilities of India.
The company has an unexecuted order book of ~Rs 240 crore to be executed over the next two years inclusive of a major order worth ~Rs 126 crore, which ensures short to medium term revenue visibility, book to bill ratio stood at 1.6x FY23. Taking into the consideration of efficient and timely order execution and strong order inflow in near to medium term, we expect that the company could report ~22% and ~15% revenue growth in FY24E and FY25E, respectively.
Avantel Ltd Stock Research Report: Valuation & Recommendation:
Avantel is in the niche defence supplies segment for the past three decades and provides customised wireless and satellite communication (SATCOM) solutions and products. The company mainly operates in Aerospace & Defence sector and holds Defence Industrial Licenses issued by government and its customers mainly come from the strategic sector such as space, defence, transport and telecommunications.
The company has established strong relationship with large domestic as well as global defence OEM and service provider companies. The company maintains healthy and long term relationships of over two decades with a reputed clientele that includes Indian Army, Indian Railways, Indian Airforce, Indian Navy, ISRO, DRDO, Goa Shipyard Limited, The Boeing Company, Larsen & Toubro Ltd (L&T), etc. The extensive industry experience of the promoters of around three decades, comfortable financials and long standing relationships with low counter party risk customers including Ministry of Defence (MoD) helps to execute the order in time.
Investors can buy in the Rs 492-502 band and add more on dips to Rs. 442-450 band (16.25x FY25E EPS). Base case fair value of the stock is Rs 551 (20x FY25E EPS) and the bull case fair value of the stock is Rs 591 (21.5x FY25E EPS) over the next two to three quarters. At the CMP of Rs 496.6 the stock trades at 18.1x FY25E EPS.
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