Krishna Defence & Allied Industries LtdQ1 FY24Aerospace & Defense

Krishna Defence & Allied Industries Ltd

Q1 FY24 Earnings Call Analysis

Management growth scorecard

Revenue

Category 1

Margin

Category 2

Fundraise

Yes

Order

Yes

Capex

Yes

4 of 5 growth signals are positive — a strong management growth story.

Full analysis

Revenue guidance

Category 1

→The company targets a growth of approximately 40% CAGR in sales/revenue over the next three years.
→Demand is expected to increase from the shipbuilding side for existing products.
→Existing capacity expansion plans aim to increase production capabilities, supporting revenue growth from around ₹180-200 crores to ₹350-400 crores.
→New products under development, including composite doors and electronic warfare communication systems, are expected to contribute to future revenues.
→The company aims to diversify its product portfolio with 7-8 products, each targeting ₹50-100 crores in revenue, reducing dependency on a single product.
→Export opportunities and tie-ups with foreign partners are being explored but specifics are currently confidential.
→Overall, management remains optimistic about scaling revenues with increasing market share and product pipeline expansion.

Margin guidance

Category 2

→The company targets approximately 40% CAGR growth over the next three years.
→Revenue is expected to grow significantly, driven by expanding shipbuilding orders and product ramp-up.
→EBITDA margins are anticipated to improve, aiming to reach around 20% in the next 1-2 years, though actual margins may settle between current (~15%) and aspirational levels.
→Operating leverage is expected to kick in with increased production, enhancing profitability.
→PAT margins increased to 10.06% in H2 FY24 and are likely to improve alongside revenue growth.
→The company plans capacity expansion (doubling manufacturing capacity) to support growth.
→Unit economics for products like bulb bars will improve with scale, supporting higher margins.
→Overall, earnings, operating profits, and EPS are projected to grow strongly aligned with 40% revenue CAGR and improving margins.

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Fundraise plans

Yes

→The company has recently done a fundraising round aiming to raise close to ₹15-20 crores for CapEx and ₹35-40 crores for working capital.
→No specific mention of plans for immediate new fundraising through debt or equity beyond this.
→Fund usage from the recent fundraising is aligned to support anticipated order flows and capacity expansion.
→No declared plans for shutting down the dairy business, implying ongoing interest in operational funding.
→The management did not disclose any explicit future fundraising intentions during the call.

Order book

Yes

→Current order book is above ₹230 crores as of early FY25 (Page 6, 8).
→Recent large order of ₹88 crores received on April 3, 2024, to be executed over ~8 months, spilling into Q3 FY25 (Page 11-12).
→Additional orders are in process, under evaluation or tendering stage, expected to close within the financial year (Page 13).
→Order pipeline expected to support 40% CAGR growth for the next three years (Page 20).
→Orders typically have a gestation period ranging from 6 to 24 months depending on complexity (Page 11).
→Total block capital employed around ₹14 crores; ₹11 crores deployed in defense business indicating ongoing capacity utilization for pending orders (Page 26).

Capex plans

Yes

→The company is undertaking a brownfield expansion adjacent to its existing facility in Halol, Gujarat.
→Planned CapEx of approximately ₹15-20 crore is allocated for this expansion.
→The new facility will manufacture weld consumables and bulb bars, increasing capacity from about 2,000-2,500 tons annually to around 4,000 tons.
→Civil infrastructure work and equipment orders are underway, with the facility expected to be operational by September-October 2024.
→Total CapEx block is around ₹14 crore, with over ₹11 crore deployed specifically in the defence business.
→The company raised ₹50-60 crore recently; around ₹15-20 crore intended for CapEx and ₹35-40 crore for working capital.
→Expansion aims to double capacity and increase revenue potential from ₹180-200 crore to about ₹350-400 crore from the existing facility.
→The company focuses on R&D and development of new defence products, targeting a diversified product portfolio.

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