Apollo Micro Systems IPO Analysis

IPO Rating - 52 (Investment Recommended)*

About the Issue 

The issue will remain open for subscription from January 10 to January 12, 2018. The issue size is of Rs 156 crore with face value of Rs 10 per share. The issue price will range between Rs 270-275 per share. A discount of Rs 12 per share is offered to retail investors and the company's employees. The minimum lot size for subscription is 50 shares. The company will get listed both on the BSE and NSE. 

Purpose of the issue 

The net proceeds of the issue will be utilised towards –

- Meeting additional working capital requirement of the company
- General corporate purposes

Company Background 

Apollo Micro Systems designs, develops and sells high-performance, mission and time critical solutions to defence, space and home land security for Ministry of Defence, government-controlled public sector undertakings and private sector corporates. It offers custom-built COTS (commercially off-the shelf) solutions based on specific requirements to defence and space customers. These systems are exclusively developed for a programme and hence such systems do not have any competition. The company participates in several Indigenous missile programmes, underwater electronic warfare, underwater missiles, surface-to-air missiles, nuclear missile programmes, surface-to-surface missile programmes, indigenous submarine programmes, UAV’s long and short endurance, ships, space programmes. The classification of verticals and solutions offered by the company are as follows: 

Defence Avionic Systems : These offer solutions for avionic applications, such as PCM encoder and decoder, Gimbal payload electronics, spread spectrum modem which are integrated in aircrafts or UAVs. 

Defence Aerospace Systems : These offer on-board weapon system electronics solutions and ground checkout and launcher controller systems for missile system requirements. 

Defence Naval Systems : These systems offer on-board weapon system electronics and ground support systems for underwater missiles (torpedoes), anti-torpedo decoys and jammers, submarines and ships. 

Satellite Space Systems : These offer ground checkout systems and earth station acquisition systems for space applications. 

Homeland Security & Telematics:  These offers telematic and integrated surveillance systems like GPS-based vehicle tracking system, integrated surveillance systems consisting of CCTV and boom barriers and ore mining companies. 

Transportation : It provides solutions related to telematics, data handling systems and automotive electronics and for Indian railways. 

The company has spent Rs 12.86 cr, Rs 8.65 cr and Rs 1.46 cr towards R&D activities in FY17, FY16 and FY15, respectively. Its emphasis on R&D activities has given it a competitive edge over other companies in the market. 

Industry Outlook 

India has one of the fastest growing global defence markets and the country spends USD 40 billion annually (1.62% of GDP in FY17) on the sector. India is also one of the largest importers of conventional defence equipments and spends about 31.5% of its total defence budget on capital acquisitions. However, about 60% of India’s defence requirements are met through imports. In order to build a domestic industrial base, the Government of India has set for itself a challenging target of achieving 70% indigenisation. The government’s capital expenditure on defence has increased from USD 3 billion in 2000 to USD 55.9 billion in 2016. The Finance Minister in the FY18 Union Budget allocated Rs 2.74 trillion for the defence sector. 
The Government of India’s initiative, ‘Make in India’ aims to boost the nation’s domestic manufacturing sector as well as to create market by targeting exports. The defence electronics manufacturing sector is expected to create Rs 4 trillion worth market opportunity during FY16–FY26E. The demand for electronics hardware in the country is projected to touch USD 400 billion by 2020, which is expected to create a unique opportunity for companies in the ESDM (Electronic System Design & Manufacturing) sector to look at India as their next destination. 

Financial Performance 



The company’s revenue has grown at a CAGR of 54.2% over last five financial years. Its EBITDA margin in FY17 stood at 20.1%, while its PAT margin stood at 8.8% in FY17. We can see that the growth of the company has been robust since last five years. The company’s order book as on Nov. 25, 2017 was Rs 97.50 crore. It has managed to bag repeat and huge orders from its customers in the ESDM sector. 

Valuation & Peer comparison 

On the upper price band of Rs 275 with EPS of Rs 13.54 in FY17, the company’s P/E works out at 20.3x. We have considered some listed peers for comparison – 


(*EPS is of FY17 and market price is as on Dec. 29, 2017.) 

Our View 

The company’s revenue growth has declined on a YoY basis, but PAT is increasing consistently. The EBITDA and PAT margins have been decent over the last five years. As compared to its peers, it has delivered highest returns and P/E-wise we see that the company is fairly priced. It has established its brand recognition in the ESDM sector. Its technological development has led the company to execute the orders faster. It is planning to foray into non-defence sector to develop technology for railways. Make in India and Digital India initiatives will provide huge scope for defence electronics companies to grow and expand. Looking at these factors, investors can subscribe for the IPO for the long term. 

*40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment

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