Ride India's Space Economy Boom with These Companies

Nov 29, 2022

Ride India's Space Economy Boom with These Companies

Better late than never.

It may have taken long, but India's space tech sector seems to be finally taking off.

Recently, HAL inaugurated its integrated Cryogenic Engine Manufacturing Facility at Bangalore. Production will start next year.

The company will cater to the manufacturing of entire rocket engines under one roof for ISRO. It's a big step in boosting self-reliance in manufacturing of high-thrust rocket engines.

This is a big achievement for the country's space tech sector...and a far cry from its dismal past.

Two decades ago, none other than the current President of the US, Joe Biden, was among the politicians who denied India much-needed cryogenic technology to power its rockets. Sanctions were imposed as Russia came to our aid.

It wasn't just the external roadblocks. Internal politics and corruption derailed the progress on building our own cryogenic engine to participate in the satellite market. The pioneer in this field was framed (and later acquitted) under false espionage charges.

The event inspired a recent movie Rocketry: The Nambi Effect. It was an embarrassing episode for the country.

Cut to the present...

Last week, Skyroot Aerospace - a barely four-year-old startup - launched Vikram-S, India's first privately built rocket.

Skyroot now aims to put a satellite in orbit in 2023 at half the cost of established agencies in the developed world. With 3D printing, it expects to make a new rocket in just two days. And aims to launch a thousand small satellites in the coming years.

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It has 400 potential customers already.

Two other startups, Dhruva Space and Pixxel, launched their satellites this month. Their applications include supply chain monitoring, soil and crop quality monitoring in remote locations, forest fire detection to name a few.

Potential applications of these satellites span from 3D maps, supply chain monitoring, disaster management, communications, defense, imagery, soil and crop quality, monitoring of remote locations, remote management, tracking assets, and so on.

The growth potential and excitement among investors regarding space exploration is hard to ignore.

2022 has seen global liquidity drying up. The tech funding and venture capital has been scarce. Most startups have resorted to layoffs.

However, the space tech industry is different. It has witnessed a deluge of funding in the last two to three years.

Most of the funds have come post 2020, when space was opened to the private sector. Until then the space sector was dominated by ISRO.

The sector saw its deregulation moment in 2020-21 with the launch of Indian Space Association (ISpA). Its founding members included L&T, Tata Group, MapmyIndia, Walchandnagar Industries, and OneWeb.

As per Indian Space Association (ISpA), Indian space startups witnessed infusion of US$108.52 m in 2022 itself, a year-on-year growth of 62%. And a CAGR of over 94% since 2016.

The reforms of 2020 allow private sector to use ISRO's infrastructure. Thus India's space sector is witnessing its post liberalisation phase.

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And if you invest well, there could be significant wealth generating opportunities.

Now for a common investor, space tech startups won't be a vehicle to ride the boom in the space economy. So let me talk about two lesser known smallcaps that could witness a boost in their business prospects from these developments.

The first is Avantel. Within the space sector, satellite launch services are going to be the fastest growing segment with increasing private participation.

Avantel, with its experienced promoters, established track record, and strong balance sheet, is well placed to make the most of this opportunity.

A microcap valued at just Rs 7 bn, it develops customised solutions for INSAT based mobile satellite services with wireless communications. The company focuses on small software defense radios and small satellites.

Its strong in-house R&D facilities are certified by the Department of Scientific and Industrial Research (DSIR), government of India.

Its promoter is a technocrat with over three decades of experience. Its customers include ISRO, Boeing, DRDO, Bharat Electronics, L&T, Indian Navy, National institute of Ocean Technology, among others.

Apart from space tech, the company is also a key beneficiary of the indigenisation of the defense sector in India.

It has set up a manufacturing facility in Andhra Pradesh to offer indigenous medical devices too.

Avantel has acquired four acres of land in Telangana - Electronic City. Here, it will build a facility for radars and small satellites. The facility should be operational by the end of 2023.

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What are the key risks in the business?

Well, so far, it's revenue has primarily been based on tenders. As such, a shrinking of budget towards space sector investment could have an impact on order inflow.

Given the nature of the industry, there is high receivables. The client concentration risk is also high with 80% of its revenue coming from clients that come under Ministry of Defense.

The near-term risks could be semiconductor shortage and supply chain disruptions.

However, these are the risks common to the entire industry.

The company enjoys healthy financials. It recently crossed a milestone with touching a revenue base of Rs 1 bn for the first time along with healthy profitability.

The management has said there is assured business over next two to three years. The company has an unexecuted order book of about Rs 2.3 bn to be executed over the next two years. It expects order inflow of Rs 600-700 m this year.

The management is confident of achieving 25% growth with an increase in profitability of 15-20%.

Another smallcap that could ride India's space tech boom is Midhani or Mishra Dhatu Nigam Ltd, a PSU based in Telangana and listed in 2018. The company operates one of the few metallurgical plants of its kind in the world.

It supplies high strength steel for rockets and satellites and castings for semi cryo engine of satellite launch vehicles and fuel tanks. It manufactures superalloys, special purpose steel and other special metals.

It also makes Titanium alloys with applications in the aerospace industry due to its low weight, high strength, and ability to function at high temperatures. The company has supplied alloys for ISRO's Gaganyaan mission.

The space segment accounts for 35% of its current order book.

Apart from space, Midhani caters to the defense sector too with bullet proof jackets, armour applications, atomic energy, and the aeronautics industry. The company has been a supplier in the development of the Akash missile.

Now you must be wondering why I'm not talking of famous names like L&T or Tata Group, despite their huge and commendable efforts in space economy development.

I believe these players are already too big and diversified to have this lever move them much. The mainstream media, unfortunately, only sheds light on such players. The real wealth in space economy, in my view, will be created in lesser-known companies.

The companies I have mentioned here should not be considered recommendations. But they deserve to be in your watchlist.

Stay tuned, for more space tech updates...

Warm regards,

Richa Agarwal
Editor and Research Analyst, Hidden Treasure

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1 Responses to "Ride India's Space Economy Boom with These Companies"

Jamshed Jesia

Nov 30, 2022

Many thanks Richa, learnt a lot

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