The company has also recently forayed into the avionics segment and has developed some amplifiers for Hindustan Aeronautics (HAL) In the defence segment, induction of any product which APML has been working on will prove to be a significant driver of revenues. On induction with the armed forces, the company normally receives bulk orders for the product.

Space

The space segment is expected to contribute significantly to AMPL's topline. The company has on its books an order of Rs 450 million for the supply of T/R modules for the Radar Imaging Satellite (RISAT) to be launched by the Indian Space Research Organisation (ISRO) in 2008.

The company executed an R&D order of Rs 100 million for the same in FY07. The Rs 450 million order is expected to be executed by FY08. Repeat launches of the RISAT as planned by the ISRO would result in potential business for AMPL.

AMPL has also signed an agreement with Antrix Corporation, the commercial arm of Department of Space for the production and supply of the Automatic Weather Station (AWS) to be deployed in various parts of the country. The AWS was developed by ISRO and AMPL was involved in this development. The AWS is a data collection platform used to continuously record weather data like temperature, humidity, wind speed etc from different locations including remote areas. This data collected can be relayed to ISRO's INSAT satellites. This product is also required by the meteorological department of India.

The potential of this product is up to Rs 200 million per year. The company plans to enter the area of payload fabrication and satellite integration for ISRO. This venture is likely to take two years to materialize. Successful entry into these segments will provide signification traction for AMPL's business.

Telecom

The company's telecom division steadily contributes close to 15% of revenues. It operates in the segments of cellular and fixed line telephony. The company provides equipment for telecom operators The Company has been focusing on introducing new products in this segment.

Beneficiary of the "Offset clause"

With the government introducing the offset policy, APML is likely to benefit. The company is talks with certain foreign suppliers to form partnerships in this regard. The company is likely to partner with ELTA, an Israeli defence company. ELTA is likely to receive an order from the Ministry of Defence for the supply of radars. APML is likely to supply certain subsystems to ELTA for this order to execute their offset obligation. Larsen and Toubro is likely to be ELTA's offset partner for their hardware requirement.

Financials and Valuations

Earnings

We expect earnings to grow at 44% CAGR over FY08 and FY09.

Orderbook

The company's current order book stands at Rs 1.15 billion. We expect the company to report revenues of Rs 1.4 billion in FY08 and Rs 1.9 billion in FY09.

Operating Margins

The company's operating margins are likely to be 46.8% in FY08 and 49% in FY09.

Profit

The company is expected to report PAT of Rs 42 billion in FY08 and Rs 0.69 billion in FY09.

ROCE

The company's return on capital is expected to be 47% in FY08 and 50% in FY09.

ROE

The return on equity is likely to be 37.7% in FY08 and 38.4% in FY09.

At CMP, the company trades at 18.8x FY08 and 13.4x FY09. We rate the company BUY with a price target of Rs 195.