31 Jul 2014  :Chairman's Speech at the 23rd AGM

CHAIRMAN’S ADDRESS TO THE MEMBERS OF ASTRA MICROWAVE PRODUCTS LIMITED

At The Twenty Third Annual General Meeting Held at Swagath-De-Royal Hotel, 2-36, Kothaguda X Roads, Kondapur, Hyderabad on Thursday, the 31st July, 2014 at 12.30 P.M

Ladies and Gentlemen,

On behalf of all of us here, it gives me great pleasure to extend a warm and hearty welcome to you all to the 23rd Annual General Meeting of your Company. I also take this opportunity to thank you on my behalf and on behalf of the Board of Directors of your Company for your interest and your presence here today.

Results of Operations

The Company recorded more than 130% growth in top line during the last year with an impressive performance, under the Defence Offset Programme of the Indian Government.

The Company continues to do well in securing export orders under the Defence Offset Programme. The Company’s proven track record in terms of adherence to stringent quality control measures, followed by timely delivery to customers, is providing good momentum for our export business. The Company has also been liberal in distributing dividends and rewarding shareholders with the bonus shares. Its dividend policy is to distribute 20-25% of post-tax profits as dividends to its stake holders. In keeping with this policy, this year it has declared dividend of 55% as against 40% for the last year.

Business prospects:

The Defense segment - both domestic and exports put together, is the major contributor of sales, with more than 90% of the total revenue coming in from this business segment. While Production programs in Missiles and Radars sub-systems are driving the domestic business, defence offset requirements is driving the export business. The business potential from this segment is likely to improve further in the coming years, in the context of the Government’s decision to deregulate manufacture of a number of items used by the defense forces. More relevant development to watch for would be in the area of defence exports, which the Government will encourage in the coming years. At the present juncture, the focus will be on developing newer markets and products and aim at achieving a sustainable annual growth at a desirable pace, over a longer period. The quality of growth will be a factor to be carefully planned to seize the emerging opportunities instead of focusing only on quarterly numbers.

As indicated in the previous year, the Space segment has made a turnaround during the year. It will continue the momentum during FY 15 also.

Other business comprising of the Metrology, Hydrology and Communication Sector has performed creditably, considering the existing product profile of the Company.

Business prospects-Long term view:

Our Country’s defence expenditure was close to Rs.1818 billion in the year 2013 and is likely to grow in the coming years. Out of total Defence expenditure, around 41% is spent on capital expenditure which is used to construct infrastructure, arms and other equipment. Presently we import close to 70% of our requirement, which the government would like to reverse and manufacture 70% or more of its requirements in India. This provides an immense opportunity for both domestic and foreign players.

In this direction Department of Industrial Policy and Promotion (DIPP) has suggested the FDI limit be raised to 74% from the present 26%. When accepted, this will raise foreign investment and enable the transfer of foreign technologies to India and widen the market base for entities like ours. Very recently the government has reduced Defense items requiring industrial license by 60%, which is a breakthrough in providing the thrust to manufacturing in this segment. DIPP has also clarified that in areas where industrial license requirement is lifted, FDI restrictions will not apply. This will open up doors for both domestic and foreign companies to participate more aggressively in this segment.

Defence capital expenditure is estimated to grow at least at a CAGR of 10% in the next 2-3 years. The increase in capital expenditure will lead to a higher acquisition of weapon systems and equipment by the armed forces. Your company being a leading supplier of critical sub-systems for the domestic market, and proven Defense Offset Partner for the export market, will stand to gain immensely in the coming years.

A Financial Times study has projected that about 15,000 defence contracts in the decade ending 2022 with offset obligation of $100 billion is likely to be released by our Country. This gives an estimate of the size of Defense Offset export business potential, which can be tapped by entities like your Company. As your Company is already an approved vendor for a couple of global companies, it is well positioned to take advantage of these business opportunities as and when they fructify.

R&D and Technology initiatives :

To harness growing market opportunities and to maintain its lead position of a quality, reliable and cost effective technology supplier, the technology strength of the Company is being enhanced to the next generation by assimilation of technology. A strong R&D base is providing more ways to diversify in the Defense Sector.

The Company is setting up an exclusive R&D centre in Bangalore for development of Radars for defence, security and other civilian applications like medical, etc. It has budgeted to spend about Rs.25 cr in the next 3 to 5 years, for this purpose.

The existing R&D center is working on bringing out new products to broad base the product offerings for the domestic market. It is undertaking development work on products like Seekers, Advance Radar Warning Receivers and Wind Profile Radar, which has the potential to deliver volume business down the line. .

Business cycles and quarter on quarter performance:

The Company has been delivering a consistent performance over the years. However, I must also share with you that the very nature of delivery cycle limits quarter on quarter growth, though the Company will strive to overcome this market reality.

Expansion programmes

There are no major expansion plans during the year. The Company has budgeted to spend about Rs.120mn during the year to augment Development and Production functions. The budgeted amount will be met out of internal accruals and term loans.

Awards and Recognitions:

We are happy to share with you that the Company has been awarded for Outstanding Achievements in “Quality/Above Rs.200 mn” for the year 2012-13 from Electronic Industries Association of India, New Delhi (ELCINA).

I would like to conclude by saying we had a very good year, and the coming years are looking even better. If you have any questions, we will be glad to answer them after a short video presentation on the Company and Presentation of Statutory Auditors report.

Sd/-

(Dr. Shiban K Koul)

Chairman