Apollo Micro Systems Limited IPO Review

Apollo Micro IPO

Apollo Micro Systems Limited (Apollo Micro) caters primarily to the defence and aerospace sectors and is an electronic, electro-mechanical, engineering designs, manufacturing and supplies company based at Hyderabad. Apollo Micro IPO comprises. Apollo Micro IPO plans to raise Rs 156 core and is the first IPO to be launched in 2018. The company operates in a high growth defense hardware sector,and  government’s thrust on indigenous procurement for defence bodes well for the company. 

Apollo Micro IPO Details
Issue Period  Wed, Jan 10, 2018 – Fri, Jan 12, 2018
  Issue Closes On: Friday, January 12, 2018
Issue Size (Rs.) Fresh Issue of Rs.156 Cr 
Issue Size ( No of Shares) 5,672,727 Equity Shares
Price Band Rs.270 – 275
Bid Lot 50 Shares and multiple thereof
Retail & Employee Discount Rs.12/-per Equity share
Issue Structure :  
QIB 50% of the Net offer-2,826,364 equity shares-Rs.77.73 Cr
NIB 15% of the Net offer- 847,909 Equity Shares- Rs.23.32 Cr
Retail 35% of the Net offer-1,978,455 Equity Shares-Rs.52.03 Cr
Applications needed for 1x Retail Subscription 39,569
BRLMs Aryaman Financial Services
Registrar Bigshare Services Pvt. Ltd.
About Apollo Micro Systems Limited
  • Incorporated in 1997 at Hyderabad, Apollo Micro Systems Limited is an electronic, electro-mechanical, engineering designs, manufacturing and supplies company. It 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 sectors.
  • The company’s  customized solutions are developed using common hardware and software technology. It offers custom built COTS (Commercially off-the shelf) solutions based on specific requirements to defence and space customers. 
  • Company has its participation in several Indigenous Missile programs, underwater electronic warfare, underwater missiles, surface to air missiles, nuclear missile programs, surface to surface missile programs, indigenous submarine programs UAV’s long and short endurance, ships, space programs.
  • The Company offers Avionic Systems which are integrated in Aircrafts or UAV. The solutions which they have offered till date for Avionics applications are PCM Encoder and Decoder, Gimbal Payload Electronics, Spread Spectrum Modem.
  • Major segments in whiich Apollo Micro Systems Limited operates are:
    • Defence-Aerospace Systems: The Company offers On-Board Weapon System Electronics solutions and Ground Checkout and Launcher controller Systems for Missile System requirements. The qualification requirements of weapon system electronics vary for different types of missiles. The On-Board solutions offered by the company includes On-Board Computer, Missile Interface Unit, Seeker Signal Processor, RPF-DSP, Actuator Controller for Missile Fins, Integrated Avionics Modules, PCM Encoder and many more. The ground support equipment solutions offered includes Launcher Interface Unit, Missile Launcher Command System, Ethernet Controller, Platform Levelling & Launcher Controller etc.
    • Defence -Naval Systems: The Company offers On-Board Weapon system electronics and Ground Support Systems for Under Water Missiles (Torpedoes), Anti Torpedo Decoys and Jammers, Submarines and Ships. The On-Board solutions offered by the company includes On-Board Computer, System Manager Card, Five Processor DSP Board, Gyro Actuation Interface Box, Homming System, Front End Cage Electronics, SPU Section, Instrumentation Section, Signal Analyzer Card, Indigo Modules, Abhay Transmitter System, Turret Control System, Turret Power Systems etc.
    • Satellite Space Systems:The Company offers Ground Checkout Systems and Earth Station acquisition systems for Space applications. Their solutions are configured for communication and other satellite programmes. The solutions offered are Frame Synchronizer, Bit Synchronizer, Pay Load Checkout System, Data Simulator and similar ground support equipment.
    • Homeland Security & Telematics: The Company offers telematic and integrated surveillance systems like GPS based vehicle tracking system, integrated surveillance systems consisting of CCTV and boom barriers. They have developed live tracking solutions for cargo carriers and transport vehicles and for effective productivity monitoring for Ore Mining companies.
    • Transportation: In Transportation sector, the company has worked on solutions related to telematics, data handling systems and automotive electronics. Their solutions are configured for Indian railways for applications such as Coach Guidance Display Systems, Tyre Pressure Monitoring Systems for Off Road vehicles such as Dumpers in mining, Token Display System, Arrival/ Departure Information Display System, Destination Display Boards, Advertising Displays, Station Announcement Systems (Digital Tape Recorder).
Apollo Micro: Financials:
(Rs. In Cr)
  HY FY18 FY 17 FY 16 FY 15
Revenue from Operations 109.33 211.27 159.04 108.42
Revenue Growth (%) 32.84% 46.69%
Profit Before Tax 10.62 27.11 14.84 9.4
Net Profit 7.11 18.57 10 7.45
Net Profit  Margin 6.50% 8.79% 6.29% 6.87%
EPS (Rs.) 5.12 13.54 7.29 5.43
Share Capital 14 13.71 13.71 13.71
Reserve 62.25 49.66 31.09 21.09
Net worth 76.25 63.37 44.8 34.8
Long Term Borrowings 29.93 1 15.68 18.81
Short Term Borrowings 67.03 65.56 48.99 34.42
RoNW (%) 9.33% 29.30% 22.32% 21.40%
NAV Per Equity share (Rs.) 54.46 46.22 32.68 25.38
Post Issue IPO Equity 20.67      
Face value (Rs.) 10      
IPO Price (Rs.) 275      
EPS (Post  IPO) FY17 8.98
PE Post IPO- Fy17 30.61
CAGR Sales (Fy13-17) 54%
CAGR Net Profit (Fy13-17) 58%
Objectives of Apollo Micro IPO

Funds to be raised in Apollo Micro IPO will augment working capital by Rs. 119 crore while the balance Rs. 37 crore will be used for general corporate purposes.

Apollo Micro IPO: Rationale for Investment
  • The Electronic System Design & Manufacturing (ESDM) sector is one of fastest growing sector in India with estimated market size of USD 100bn for 2017.
  • Apollo Micro Systems Limited is a leading service provider in electronic board design for the Aerospace, Defense and Space markets. Its in-house R&D center, is CEMILAC certified to develop airworthiness systems and the compny is also a R&D collaborative partner for BEL (Bharat Electronics Ltd.)  in embedded hardware & software design
  • The huge repository of knowledge and technology base that Apollo Micro Systems Limited has developed since inception is a strong base to outperform the competition and be abreast in the market.
  • The Company has been constantly upgrading  the technologies to meet present and futuristic requirements of its customers.
  • Apollo Micro Systems Limited has delivered good  financial performance
    in the past with 4 year CAGR in Revenues and profits in range of 50% +. 
  • Apollo Micro Systems Limited is well positioned to take benefit of opportunities arising out of the Digital India, Make-in-India and the renewed focus on defense by Government.
Risks & Concerns
  • Apollo Micro business requires high working capital.
  • There is considerable volatility and uncertainty in orders in defense sector.
  • Apollo Micro Systems Limited has high dependence on  government
Comparison with Peers 
FY 17 Figures in Crores
BEL Centum Astra Apollo Micro 
Revenues  8101.62 375.61 398.03 211.27
Net Profit 1523.37 30.82 56.56 18.57
NPM 18.80% 8.21% 14.21% 8.79%
Equity 223.36 12.75 17.32 20.67
Face Value 1 10 2 10
Market / IPO Price 179.95 734.25 118.25 275
EPS 6.82 24.17 6.53 8.98
PE 26.38 30.38 18.11 30.61
Market Cap 40193.63 936.17 1024.05 568.43
Market Cap/ Sales 4.96 2.49 2.57 2.69
CAGR Revenues 3 Years 11.12% 9.89% -7.16% 43%
CAGR Net Profit 3 Years 18.61% 3.46% 3.44% 52%

While Apollo Micro Systems Limited has exhibited high growth rates in Revenues and Profits its valuations are stretched at the upper end of its peers

  • The defence and space solutions require expertise in advanced technology development and engineering. Thus there is a high entry barrier Strong entry barrier.
  • Apollo Micro Systems Limited has a proven track record in developing new technological systems and long standing relationship with the defence sector.
  • Apollo Micro Systems Limited sales and net profit have grown at a compounded annual growth rate(CAGR) of 54% and 58% respectively  between 2013-2017.
  • At Rs. 275 per share, Apollo Micro IPO is valued at a P/E multiple of 30.61 x (to its  FY17 EPS of Rs. 8.98 on Post issue diluted Share capital). 
  • Despite higher valuations,  higher working capital requirements,  I shall apply in the Apollo Micro IPO due to Company’s growth rates in the past, good sector prospects and high entry barriers.Company results due to its nature of business could exhibit volatility, but due to its proven abilities in defense sector, it may qualify as a  long term bet.
  • Retail discount of Rs. 12 per share is a good gesture from management.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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