Add Apollo Micro Systems Ltd for the Target Rs. 365 by Choice Institutional Equities
Strong Execution; Optionality Continues to Rise
APOLLO reported a strong set of numbers, ahead of our expectation and continues to show steady execution. We gleaned from the management commentary that the broader strategy remains on track, with a gradual shift towards system-level and backward integration. We believe this should support margin in the medium term as the company gains better control over its value chain. However, in the near term, margin is likely to remain range-bound, as the integration of IDL, product mix changes and execution ramp-up continue to absorb operating leverage. On exports, we expect the opportunity is visible but still at an early stage. Contribution remains limited (<5–10%) and, while the management highlighted initial traction across geographies, it does not yet translate into a meaningful revenue visibility. In our view, exports can become an important medium-term growth lever, especially as APOLLO strengthens its capability and cost positioning. That said, given the long approval cycles and dependency on partnerships, the ramp-up is likely to be gradual and execution-led rather than immediate.
Excellent Set of Numbers across the Board
* Revenue for Q4FY26 was up 81.3% YoY & 16.3% QoQ at INR 2,933 Mn (vs CIE est. INR 2,588 Mn)
* EBIDTA for Q4FY26 was up 88.0% YoY & 34.2% QoQ at INR 676 Mn (vs CIE est. INR 502 Mn). EBITDA margin expanded by 82 bps YoY, reaching 23.1% (vs CIE est. of 19.4%)
* PAT for Q4FY26 was up 163.5% YoY & 60.8% QoQ at INR 368 Mn (vs CIE est. INR 221 Mn). PAT Margin expanded by 391 bps YoY, reaching 12.5% (vs CIE est. 8.5%)
View & valuation:
We maintain our positive stance on APOLLO, backed by its strategic shift, from a component supplier to a full-fledged system integrator. The company’s expanding role, robust order pipeline and visible margin trajectory reinforce our conviction in its long-term growth story. Accordingly, we revise our FY27E and FY28E EPS estimate upwards by 27.5% and 19.5%, respectively, and now expect Revenue/EBITDA/PAT to expand at a CAGR of 52.9%/52.9%/54.6%, respectively, over FY27–29E. Following the recent sharp rally, we downgrade the stock to ‘ADD’ (from BUY) with a TP of INR 365, valuing it at 50x of FY28E EPS.
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