Article

Apollo Micro Systems Ltd-IPO Note

07 Aug 2019 Nikita Bhoota

Issue Opens: January 10, 2018
Issue Closes: January 12, 2018
Face Value: Rs.10
Price Band: Rs.270-275
Issue Size: ~Rs.156 cr
Public Issue: 57.64 lakh shares (at upper price band)
Bid Lot: 50 Equity shares       
Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 88.5 63.9
Public 11.5 36.1

Source: RHP

Company Background

Apollo Micro Systems (AMS) designs, manufactures and supplies electronic and electro-mechanical solutions. It caters to defence, space, transport and home land security for Ministry of Defence, Govt. controlled Public Sector Undertakings (PSUs) and private sector. It has participated in several indigenous missile programmes, underwater electronic warfare and underwater missiles amongst others. The defence system supplies are classified into On-Board Systems (on Weapon or Vehicle) and Ground support (associated or communicates with On-Board) equipment. AMS key products include defence avionic systems, defence naval systems, defence aerospace systems and satellite space systems.

Objective of the Offer

The offer consists of Fresh Issue of 5.8mn shares (aggregating up to ~Rs156cr) at the upper end of the price band. A discount of Rs.12 is offered for eligible employees (20,000 shares reservation) and retail investors. The proceeds will be used for working capital (WC) requirements (~`119cr) and general corporate purposes (~Rs.37cr).

Financials

Standalone `cr. FY14 FY15 FY16 FY17 1HFY18
Revenue 73 108 159 211 109
EBITDA Margin % 13.9 16.7 15.9 19.2 17.7
Adj. PAT 5 7 10 18 7
EPS (`)* 2.6 3.6 4.8 8.5 3.4
P/E* 107.1 76.7 57.1 32.2 --
P/BV* 20.8 16.4 12.7 9 --
EV/EBITDA* 59.6 34.6 25.2 16 --
RONW (%)* 24.8 23.9 25.1 32.8 --

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares

Key Investment Rationale

The company’s participation in several defence, ships and space programmes and proven track record of order execution have given it a competitive edge. The company enjoys strong brand equity on account of its longstanding presence and continuous improvement and adoption of technologies. The company has been able to do so via continuous investments in product research and development. We believe that its association with Ministry of Defence and other Govt. PSU programmes should enable it to garner larger repeat orders.

In BTP business, the customer provides work instructions, assembly drawings, etc., which is used in building its parts along with the specification of component’s functional requirements. Apollo has established BTP business vertical with existing infrastructure and skills sets. This vertical has helped in generating incremental revenue and profits with low working capital cycle. Thus, the company expects BTP to be a strong revenue driver in the defence electronics space.

 Key Risk

The company has significant dependence on various PSUs and Government entities for projects. Change in Government’s stance on defence policies could adversely affect its financials.

Conclusion

At the upper price band, the company commands PE multiple of 32.2x on FY17E EPS (post dilution). This is, in-line with other defence sector companies i.e. – BEL and Astra Microwave. Considering the high traction expected in the defense sector for AMS, we recommend SUBSCRIBE on the issue.

Research Disclaimer

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Apollo Micro Systems Ltd-IPO Note

07 Aug 2019 Nikita Bhoota

Issue Opens: January 10, 2018
Issue Closes: January 12, 2018
Face Value: Rs.10
Price Band: Rs.270-275
Issue Size: ~Rs.156 cr
Public Issue: 57.64 lakh shares (at upper price band)
Bid Lot: 50 Equity shares       
Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 88.5 63.9
Public 11.5 36.1

Source: RHP

Company Background

Apollo Micro Systems (AMS) designs, manufactures and supplies electronic and electro-mechanical solutions. It caters to defence, space, transport and home land security for Ministry of Defence, Govt. controlled Public Sector Undertakings (PSUs) and private sector. It has participated in several indigenous missile programmes, underwater electronic warfare and underwater missiles amongst others. The defence system supplies are classified into On-Board Systems (on Weapon or Vehicle) and Ground support (associated or communicates with On-Board) equipment. AMS key products include defence avionic systems, defence naval systems, defence aerospace systems and satellite space systems.

Objective of the Offer

The offer consists of Fresh Issue of 5.8mn shares (aggregating up to ~Rs156cr) at the upper end of the price band. A discount of Rs.12 is offered for eligible employees (20,000 shares reservation) and retail investors. The proceeds will be used for working capital (WC) requirements (~`119cr) and general corporate purposes (~Rs.37cr).

Financials

Standalone `cr. FY14 FY15 FY16 FY17 1HFY18
Revenue 73 108 159 211 109
EBITDA Margin % 13.9 16.7 15.9 19.2 17.7
Adj. PAT 5 7 10 18 7
EPS (`)* 2.6 3.6 4.8 8.5 3.4
P/E* 107.1 76.7 57.1 32.2 --
P/BV* 20.8 16.4 12.7 9 --
EV/EBITDA* 59.6 34.6 25.2 16 --
RONW (%)* 24.8 23.9 25.1 32.8 --

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares

Key Investment Rationale

The company’s participation in several defence, ships and space programmes and proven track record of order execution have given it a competitive edge. The company enjoys strong brand equity on account of its longstanding presence and continuous improvement and adoption of technologies. The company has been able to do so via continuous investments in product research and development. We believe that its association with Ministry of Defence and other Govt. PSU programmes should enable it to garner larger repeat orders.

In BTP business, the customer provides work instructions, assembly drawings, etc., which is used in building its parts along with the specification of component’s functional requirements. Apollo has established BTP business vertical with existing infrastructure and skills sets. This vertical has helped in generating incremental revenue and profits with low working capital cycle. Thus, the company expects BTP to be a strong revenue driver in the defence electronics space.

 Key Risk

The company has significant dependence on various PSUs and Government entities for projects. Change in Government’s stance on defence policies could adversely affect its financials.

Conclusion

At the upper price band, the company commands PE multiple of 32.2x on FY17E EPS (post dilution). This is, in-line with other defence sector companies i.e. – BEL and Astra Microwave. Considering the high traction expected in the defense sector for AMS, we recommend SUBSCRIBE on the issue.

Research Disclaimer