A proxy smallcap stock in India's spacetech boom
Summary
- The big winners in India's spacetech megatrend are not hiding in plain sight.
At the start of 2024, while the world was counting down to the new year, the Indian Space Research Organisation (Isro) was focused on a different countdown—the launch of the X-Ray Polarimeter Satellite (XPoSat) from Sriharikota, Andhra Pradesh. This mission, set to unfold over five years, is expected to deepen our understanding of the radiation mechanisms and geometry of celestial sources such as black holes and neutron stars.
The strides India has made in space exploration in recent years are not just significant; they surpass those of the past few decades. Yet, this might only be the beginning of a space economy boom.
Consider this: industry estimates show that the global space economy grew by 8% to $546 billion in 2022 and is expected to expand by 41% over the next five years. India, having successfully landed on the moon's south pole ahead of Western economies like the US and Russia, is poised for rapid growth. Isro projects that by 2025, India's space economy could reach $50 billion—nearly a sixfold increase.
So, what has sparked these bold projections for the Indian space economy? The answer lies in the liberalization of the space sector. The government has introduced policies to open 'space' for all, marking a shift as significant as the economic liberalization of the 1990s. Initiatives like Make in India, PLI schemes, and the push for indigenization have created a level playing field and a favorable regulatory environment for private players in the space ecosystem.
Moreover, PSUs and government bodies in the space domain have been mandated to transfer technologies to private sector players, providing the momentum needed for growth. The results are already visible, with nearly 140 firms registered as spacetech startups. This is far from a fleeting trend.
Public sector players like Hindustan Aeronautics Ltd, Midhani, and Bharat Electronics, along with Isro, are as critical to realizing India’s space ambitions as startups like Skyroot Aerospace, Satsure, Dhruva Aerospace, and Pixxel, or listed private sector companies like L&T, Avantel, MapmyIndia, Centum Electronics, Data Patterns, Premier Explosives, Paras Defense and Space Technologies, Dynamatic Technologies, Astra Microwave, and MTAR Technologies.
This is a long-term theme, and identifying the winners early in the cycle will be crucial.
Macpower's aerospace and defence push
Today, I want to focus on an unexpected player contributing to the space mission: Macpower CNC Ltd.
Led by a first-generation promoter, Macpower CNC specializes in manufacturing computerized numerically controlled (CNC) machines and lathe machines. The company claims to be the lowest-cost producer in the industry, enabling it to achieve the highest profit margins and return ratios among its peers.
Macpower's clientele spans various sectors, including defense (DRDO, Indian Ordnance Factory), government PSUs (Isro, Railways), education, agriculture, and export markets. The company serves 35 defence factories and four aviation factories, including Isro and HAL.
I wouldn't have associated this small-cap machine manufacturer with spacetech, but the management revealed that Macpower participated in Isro's Chandrayaan 3 project and contributed to the DRDO BrahMos project.
The management aims for an 18-20% CAGR over the next three to five years, driven by opportunities in the aerospace and defense sectors. Notably, the company has a debt-free balance sheet.
Macpower's growth strategy includes capacity expansion, premiumization, and leveraging the Make in India policy push, along with the rising opportunities in the space economy.
For the average investor, spacetech startups might not be the best vehicle to ride the space economy boom. Instead, it's essential to identify beneficiaries where valuations are still reasonable and potential is yet to be fully recognized.
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