The Investing Opportunity in India's Chandrayaan Success

Jun 26, 2023

Yesterday was a historic day for India. The country’s Chandrayaan-3 landed on the lunar south pole.

We say this is a historic day for a few reasons.

First, Elon Musk has time and again inspired businesses all over the world to go bigger. And he continues to do so.

For example, the brainchild of Musk – SpaceX - is developing the Starship rocket for its satellite launch business as well as to ferry NASA astronauts to the moon’s surface under a US$ 3 billion (bn) contract.

Apart from this, SpaceX is also looking to spend big, around US$ 2 bn, on Starship this year.

Make no mistake, SpaceX's list of achievements is truly staggering, especially when you consider the speed with which they have come.

Following Musk’s footsteps, India is leaving no stones unturned. More so rapidly in recent years.

Here’s what our Co-head of Research at Equitymaster Tanushree Banerjee wrote in her recent editorial…

Chandrayaan-3 is a one of its kind spacetech mission.

If Chandrayaan-3 succeeds, India's space sector will capitalise on its reputation for cost-competitive engineering.

The Indian Space Research Organisation (ISRO) had a budget of around just ₹6.1 bn (US$ 74 m) for the mission.

NASA, by comparison, is on track to spend roughly US$ 93 billion (bn) on its Artemis moon programme through 2025.

Chandrayaan-3's success will open a bunch of opportunities for companies involved in the space industry, directly or indirectly.

Experts say the success of Chandrayaan-3 might support a future lunar colony, explore mining operations on the moon and eventually more missions to Mars.

Make no mistake, the government has introduced new draft policies for space communication, navigation, and remote sensing.

This is with a view to usher and enable a regulatory environment, making it easier for private players to leverage their technology, innovations, and capital for the advancement of the industry.

These efforts surely point that India’s space industry continues on the current path of progress and there is a high likelihood that numerous products (cheaper and more efficient) will be manufactured in space.

As soon as we head down that path, there will be an explosion of companies trying to hitch a ride on India’s starships and rockets so they can create economic output in space.

These stocks, directly or indirectly involved in the space tech sector, should be on your watchlist.

#1 Larsen & Toubro (L&T)

First on the list is L&T.

The company confirmed in July this year that it has supplied various components for India's moon mission Chandrayaan-3.

Components like "middle segment and nozzle bucket flange" were manufactured at L&T’s facility in Powai, while components like ground and flight umbilical plates were from the company's aerospace manufacturing facility at Coimbatore.

L&T was also involved in the production of some components for Chandrayaan-1 and 2, Gaganyaan and Mangalyaan missions of ISRO.

Prior to this, in 2022, a consortium led by Hindustan Aeronautics (HAL) along with L&T bagged a ₹8.6 bn deal from New Space India to build five Polar Satellite Launch Vehicle rockets.

There were also reports of L&T being in discussion with Jeff Bezos-owned space exploration firm Blue Origin to supply orbital launch capabilities.

From semiconductors, green hydrogen, to 5G telecom, L&T is looking for a pie in every segment. No wonder Tanushree believes the stock could be a part of Sensex 2023.

Second on the list is Avantel.

The company is engaged in the business of designing, developing and maintaining wireless and satellite communication products, defense electronics, radar systems, and development of network management software applications.

Most of its customers primarily cater to the aerospace and defence sector. ISRO, Boeing, DRDO, Bharat Electronics, L&T, Indian Navy, National institute of Ocean Technology, among others are some of the prominent names.

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 ₹18 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.

Third on the list is Mishra Dhatu Nigam (Midhani).

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.

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

The company has played a key role in developing and supplying cobalt base alloys, nickel base alloys, titanium alloys, and special steels for various components of the three-stage heavy lift launch vehicle used in the lunar mission.

In its latest concall, the company mentioned that the space segment accounts for 30% of its order book while aero segment accounts for around 10%.

The company’s management said that order books are not an issue as it continues to get inquiries about missile orders and even for big exports. But the execution part is a bit tricky and that’s why some of its projects related to space tech are delayed.

Next up we have Data Patterns.

The company has made strong inroads in the space segment by becoming a member of the consortium of space sector companies incubated by the Indian Institute of Technology Madras (IITM).

It earlier made small satellites for a satellite company and Thapar Institute of Engineering & Technology.

The company has also supplied the cable harness health checkout, among other systems for ISRO's Gaganyaan mission.

Being a vertically integrated defence and aerospace electronics solutions provider, the company has proven in-house design and development capabilities.

Unlike large defence giants catering to specialised defence equipment, Data Patterns caters to the entire spectrum of defence and aerospace platforms like space, air, land, and sea.

Shares of the company have been on a roll ever since listing on the back of healthy order inflows which provides long term revenue visibility.

Next on the list is Walchandnagar Industries.

The company provides engineering, procurement, and construction solutions as well as machinery and equipment to the aerospace and defence sectors.

When it comes to missiles, the company has a lot going on. In FY23, it was involved in 4 missile programs, thereby qualifying for a total of 10 missile programs of DRDO.

During the year, it also received the first sample batch order of ASTRA missile. Large-scale production of these missiles will be executed in the coming years.

It was also involved in manufacturing and delivery of key sub-assemblies of crew escape system for Gaganyaan.

Moreover, it also had a lot of things working in manufacturing, delivery and assembly of core equipment for the first ultrasonic wind tunnel for ISRO.

Apart from the above, there are a few more listed companies like HAL and BHEL involved in the space sector.

Last year, HAL inaugurated its integrated Cryogenic Engine Manufacturing Facility at Bangalore.

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.

While BHEL was behind the batteries for Chandrayaan-3. Welding Research Institute (WRI) of BHEL was responsible for manufacturing and supplying bi-metallic adaptors.

But the real opportunity is in the startup space. Tanushree shared these stats in her editorial…

Currently, there are over 100 space startups in both the upstream and downstream segment of the space value chain in India.

A thriving micro, small and medium enterprises (MSME) ecosystem in India is the perfect bedrock for the spacetech startup to develop. Companies can take advantage of the already established supply chain of ISRO for manufacturing and testing of satellites and rockets.

To add to it, startups are able to greatly benefit from experienced space scientists in India who have significant mission experiences as well as leverage world-class academic institutions.

According to her, most spacetech startups in India are yet to mature in terms of financial strength. And as an investor you need to be patient to ride the boom.

To restate what Neil Armstrong once said when he put his left foot on the lunar surface – “One small step for man, one giant leap for mankind".

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