Reduce Apollo Micro Systems Ltd For Target Rs.420 by Choice Institutional Equities Ltd
Strategic Integration Strengthens Growth Runway
We believe APOLLO delivered a strong quarter, consolidated revenue/EBITDA/PAT grew 88%/31%/43% YoY, highlighting strong execution. Moving beyond its traditional defence-electronics positioning towards a more integrated defence manufacturing platform following the acquisition of Premier Explosives. This provides backward and forward integration across the missile and guided-weapons value chain, potentially enabling APOLLO to develop complete systems with lower dependence on external suppliers.
The near-term opportunity remains sizeable; the management reiterated 40–45% revenue growth for the current year and beyond, while providing no specific EBITDA margin guidance. We expect the current margin momentum to continue, with further benefits from in-house production from next year. The consolidated order book stood at ~INR 1,704 Cr, while the management anticipates a single INR-2,500–3,000 Cr order, potentially taking the order book to INR 3,500–4,000 Cr by FY27-end. Execution of MIGM and QRSAM is projected to begin from FY28. The key monitorable, in our view, is the conversion of the large order and production ramp-up.
Strong Revenue Beat; Margins Below Estimates
* Revenue for Q1FY27 was up by 88.1% YoY and down by 14.3% QoQ at INR 2,513 Mn (vs CIE est. of INR 2,071 Mn)
* EBITDA was up by 31.3% YoY & down by 20.6% QoQ at INR 537 Mn (vs CIE est. of INR 600 Mn). EBITDA margin stood at 21.4%, contracting by 926 bps YoY and 168 bps QoQ (vs CIE est. of 29.0%)
* PAT was up by 42.6% YoY and down by 31.5% QoQ at INR 252 Mn (vs CIE est. of INR 287 Mn). PAT margin stood at 10.0%, contracting by 320 bps YoY and 251 bps QoQ (vs CIE est. of 13.9%)
View & valuation:
We remain positive on the structural opportunity and earnings trajectory, with Premier synergies and large defence order pipeline providing significant upside optionality. We, therefore, raise our FY27E/FY28E EPS estimate by 10.9%/17.0%, respectively, and now forecast Revenue/EBITDA/PAT to expand at a CAGR of 52.9%/53.6%/61.7% over FY27–29E. We raise our TP to INR 420, valuing the stock at 50x FY28E EPS. However, following the recent rally in the stock, we downgrade our rating, from ADD to ‘REDUCE’
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SEBI Registration no.: INZ 000160131
