This smallcap defence stock is up 2800% in 5 years

This triumph has thrust the TDP into the national spotlight as a pivotal player in the formation of the national government.

Stocks with close ties to the TDP, such as Amara Raja Energy & Mobility, Heritage Foods, and KCP Ltd, have seen a sharp rise in the past few trading sessions. These companies benefit from their substantial presence in Andhra Pradesh and their connections to the TDP.

For instance, Amara Raja’s managing director Jay Dev Galla was a former Member of Parliament (MP) from the party, and Heritage Foods is promoted by Nara Lokesh, son of party chief Chandrababu Naidu. KCP’s cement plant is located near Amaravati, one of the three capitals of Andhra Pradesh.

The TDP has promised to reinstate Amaravati as the capital city, a project previously shelved by the former government. The return of TDP leader Naidu is expected to revive his ambitious plans for Amaravati, potentially driving further growth for companies based in the region.

Spotlight on Avantel

Among the companies gaining attention is Avantel, a small-cap telecom and defence equipment player with its registered office in Visakhapatnam, Andhra Pradesh. While political connections can influence stock performance, the underlying fundamentals of the business remain crucial.

Avantel recently secured a significant defence order, with expectations of more orders in the coming months. The company’s stock has rallied over 28 times in the past five years, driven by strong fundamentals and strategic growth.

About Avantel

Avantel specializes in designing, developing, and maintaining wireless and satellite communication products, defence electronics, radar systems, and network management software applications, primarily for aerospace and defence sectors. The company achieved a record turnover of ₹2.2 billion for FY24, marking its highest since inception.

This year, Avantel successfully executed several key projects, including 6,300 RTIS systems for Indian Railways and MSS helicopter units for Lockheed Martin. The company also developed and demonstrated advanced HF Software Defined Radios for the Indian Air Force and initiated the development of new products, including multi-band airborne SDRs and advanced medical devices through its subsidiary, Imeds Global.

The road ahead

The Indian government’s focus on self-reliance in defence has led to numerous policy initiatives under the 'Make in India' program, with a significant portion of defense procurement contracts awarded to Indian vendors.

Avantel is well-positioned to capitalize on this trend, with a strong order book and plans to introduce new products, including SCA-compliant HF software defined radios and MSS Xponders for fishermen.

The company is also establishing a new facility in Hyderabad, scheduled to be operational by October 2024, to support its expansion into space technologies. Additionally, Avantel is developing a state-of-the-art R&D and production centre for Imeds, set to be operational by Q3 FY25.

Key risks and opportunities

While supply chains have stabilized post-pandemic, procurement challenges for semiconductors with long lead times persist. Avantel has implemented a robust supply management process to ensure timely availability of materials, crucial for its product development in the communication domain.

The privatization of the space sector has opened new business avenues for Avantel, which is exploring opportunities to offer customized solutions to the Indian defence sector. In the medical segment, Imeds is poised to introduce various indigenous products in the surgical and respiratory domains, responding to the growing demand for local medical devices.

Recent order wins

Recently, Avantel’s share price surged over 6% after securing a ₹1.1 billion order from the Ministry of Defence for SATCOM equipment, to be delivered within 12 months. The company also received a ₹53 million contract from the Naval Headquarters for developing satcom baseband equipment, enhancing the Indian Navy’s communication capabilities.

Avantel has an order from NSIL (New Space India) for 30,000 MSS terminals for shipping boats, scheduled for FY24-25. These orders reinforce Avantel’s strong financial performance and commitment to supporting India’s strategic requirements.

In the past month, Avantel’s share price has rallied over 45%, and in the past year, it has increased by more than 280%. The stock hit a 52-week high of ₹168 on 14 June 2024, showcasing an impressive rally of over 2,800% in the past five years.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com