Key takeaways of the call

The company entered FY21 with concerns such as delay in finalisation of LCA order finalisation impacting the year start order book, cash flow and national lockdown impacting the production in first quarter. Currently the company is sitting pretty compared to last year with all concerns are addressed.

Order book of the company as end of Mar 31, 2021 was Rs 80639 crore up from 52965 crore as end of corresponding previous period.

Key orders part of the order book are – LCA order of 83 numbers bagged in Feb 2021 is about Rs 32270 crore, LCA existing order balance is Rs 4900 crore, balance of ALH (36 nos) order is Rs 10000 crore, SU30 balance order of Rs 377 crore. L31FB Engines Rs 1700 crore; IJT balance order of Rs 5490 crore, midlife upgrade of 17 Dornier MLU worth about Rs 1000 crore, Jaguar daring upgrade of Rs 2100 crore. Mirage upgrade of about Rs 780 crore; Aerospace Structure orders worth of Rs 1000 crore; LM2500 Engines (8 nos) for Navy/Ship-yards for about Rs 700 crore, Dornier order of Rs 360 crore and others of about Rs 700 crore. In addition it has yearly RMSO orders of Rs 7500 crore. And exports orders were of Rs 104 crore.

Overall manufacturing order book was about Rs 65500 crore. RMSO orders of RS 7500 crore plus spares is over Rs 14500 crore alike last year. The design development orders were about Rs 1400 crore.

Expect order backlog to grow to about 1 lakh crore but because of COVID pandemic some of order could not get clearance from MoD and expected that to happen soon. So the company is expect to close current fiscal with healthy order book as well.

Anticipated order for this year will be – HT 40 (Basic Trainer) of 70 nos; SU30 additional order for 12 nos along with certain modifications; LUH 12 nos expecting anytime; 25 LHS from army which is in the process. Top of that expect large order on engine for both SU30 that is SAL39FB and for MIG 29 that is RD30.

The basic trainer order is Rs 7000 crore, 12 no of SU30 is Rs 10000 crore, 15 nos of LCH is about Rs 2600 crore, 73 nos of SU30 engines is about Rs 6000 crore and MIG 29 is about Rs 2500 crore.

Immediate visibility/potential for helicopter orders – the company is concluding LHP/LUH orders. The company is expecting additional 147 nos of LHP orders. Apart from initial 70 nos of HT40 bagged another 36 of HT40 is expected. Similarly after LOA of 12 nos of LUH there is potential of 187 nos of order. Apart from that there is engine orders. LCA Mk 2 and amka are the next set of business in the long term.

Time line for delivery of 83 LCA order - first delivery has to happen 3 years from date of signing i.e. Feb 2021. So by March 2024,two numbers of LCA Mk 1 will be delivered. Thereafter the delivery numbers will increase to 8 nos and then 16 nos. The order has to be completed six year from date of first delivery.

Planned supply for current fiscal – Balance of old order of LCA and Helicopter for Cost Guard, Navy, and Army. The company will be supply balance engine available with the company for SU30 project.

Just like last year the first quarter is problematic. The company have sufficient workload and thus if no further interruption the company expected to make good the loss of first quarter in remaining part of current fiscal alike last year. Supply chain lines are progressively getting opened up and vendors have also up and started supply of materials.

Revenue growth for FY22 will be about 7-8% CAGR of last 3 years. Operating margin will be maintained at 17%.

Growth for FY22 is not an issue. Getting growth next year i.e. FY23 will be a problem as platform delivery get completed this year and new order will be in pipeline but not deliverable next fiscal. What the company is intending to do in FY23 is gear up revenue from other sources such as engines, SU30s, LCA Trainer/Helicopter orders. Not expect a sharp drop in FY23 but there will not be a growth. But the growth will start coming from FY23-24 onwards as 83 LCA order and LUH/LCH will start come to execution/delivery.

Revenue mix of FY21 will continue in FY22 and FY23. It will change in FY23-24 onwards only with new orders come up for delivery/execution.

During FY21, the company operationalised second production line of LCA and 2 aircraft produced from that during the year.

Cash flow is now improved record collection of Rs 34476 crore vs 18000 crore previous year.

The company got Rs 5900 crore advance received towards 83 nos of LCA orders.

Normal salary for FY21 excluding one of for the company will be Rs 4450 crore with escalation of 3-4% for FY22. Fy21 manpower cost of Rs 4300 crore include one-time element of RS 190 crore.

Manpower cost that was 2 year back of about 23% to 19%. It consistently show improvement inching toward industry average of 16%. Inventory days came down to 440 days to about 270 days (from about 24000 crore in 2017-18 to about 16500 crore in FY21) and it is the optimal inventory days with further cut of another 30 days as the company has to long lead items which the company has to procure from foreign OEMs.

Tumkur facility – Work on Phase I completed and the work is in progress in case of Phase II & III. By August 22 the company is expected to start production in Tumkur. Expect to start LUH production from Tumkur by August 2022.

Six more LCA (old order) to be delivered this year and with that FOC part of the order will be over. Then only 8 nos of trainers will be pending with this. Design is getting finalised and will be delivery by FY23. With that the order for 40 nos of LCA will get completed. By the time the 40 nos of LCA get completed, the 83 LCA order will come in for execution.

There are handful of design projects. Once the new order comes in the design order book will go up. On design boards is IMRH (covering Navy, Army & AF) the design component of it alone is about Rs 9600 crore. Then there is LCA Mk 2, for which the design work is done by ARDC wing of the company. The work on LCA Mk2 will start next year. There are also two design projects for engines.

Sukoi upgradation is going on. Due to pandemic Russian could not on board. This year the work is expected to get finalised and the work will commence this fiscal. Large portion of that to be covered but as per the decision of IAF.

83 LCA order – have tight pricing Rs 309 crore per piece. So forced to reduce input cost to make decent price. So negotiating with supplier with volume and is also successful. Negotiated with engine supplier and got good price. The company is getting volume benefit.

For pending order book, more are less LTBA finalised with the foreign vendor. Except for exchange variation all other factors are factored in. For future orders also the company is negotiating with vendor and were successful in reducing the cost.

All LUH/LCH/IMRH programmes will concurrently developed. IMRH the initial projected at the beginning is 325 nos but that has increased as navy has joined the programme.

ALH the initial numbers were 350 nos and of that the company has delivered 300 nos. Now the company expect it to be 350 only. LUH – The present Cheetak strength is 400 nos in the client fleet and that has to be replaced by 200 nos of LUH and balance by Kamok. If KAmok numbers were lower the number of LUH will go up. The initial estimate of 200 does not include the requirement of Navy/Coast Guard/Miscelleanuous. So LUH line to continue for long time. In case of LCH what initially projected is 150 nos and that will continue to be at that number.

ROH activities will continue to grow even though it may come down for one platform and growth in other.