Buy Apollo Micro Systems Ltd For Target Rs. 200 - Choice Broking Ltd
Transformation into a fully integrated OEM unlocks long-term value
We expect by acquiring IDL Explosives, AMS is strategically tapping into the vast market potential both domestically and internationally. This move marks AMS’s evolution from a niche defense electronics player to a fully integrated Tier-1 defense OEM, enabling entry into India’s high-barrier explosives and ammunition market, which is estimated to have a TAM of INR 250-300 Bn over the next 5 years. Through this vertical integration, AMS now commands control over the full value chain, covering warheads, rocket motors, and propellants, while also enabling in-house production of critical inputs such as TNT, RDX, and HMX, which are essential for indigenous weapon systems.
We expect this strategic shift is expected to drive margin expansion, reduce dependency on external suppliers, and enhance execution speed. In addition, the company has secured long-term sourcing of ammonium nitrate, further strengthening supply chain reliability. AMS is also well-positioned to benefit from India’s INR 500 Bn emergency procurement initiative.
3x of order book by FY26 & tailwinds support multi-year growth visibility;
The company’s current order book stands at INR 6,150 Mn which translates to 1.1x of FY25 revenue. And is expected to triple i.e 3.3x of FY25 revenue by March 26. We expect the order pipelines are underwater weaponry, indigenous missile programs like QRSAM, ASTRA, and Akash-NG, scalable production of torpedoes and mines.
Revenue and EBITDA were in line with expectations; however, the PAT came in below estimates;
* Revenue for Q4FY25 up by 19.4% YoY & up by 9.0% QoQ at INR 1,618 Mn (vs CEBPL est. INR 1,620 Mn).
* EBIDTA for Q4FY25 up by 25.2% YoY and down 5.2% QoQ at INR 360 Mn (vs CEBPL est. INR 363 Mn). The EBITDA Margin stood at 22.2%, improved by 103bps YoY (vs CEBPL est. of 22.3%).
* PAT for Q4FY25 up by 8.0% YoY and down 23.5% QoQ at INR 140 Mn (vs CEBPL est. INR 170 Mn). PAT Margin contracted by 92bps YoY, reaching 8.6% (vs CEBPL est. 10.5%).
View & Valuation:
We maintain our bullish stance on AMS, underpinned by its transformation from a component supplier to a Tier-1 integrated defense OEM, strong visibility on hyper growth, and a robust order pipeline. According, we revise our FY26E/FY27E EPS estimates upward by 7.0% and 12.0%, respectively, and now project Revenue/EBITDA/PAT to grow at a CAGR of 47.4%/52.2%/71.2% over FY25-27E. Based on this outlook, we reiterate our “BUY” rating with a revised TP of INR 200 from (earlier TP is INR 156), we maintaining our valuation multiple of the stock at 40x FY27E EPS.
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