Apollo Micro Sys

Apollo Micro Systems reported its highest-ever quarterly revenue and PAT in Q2 FY26. H1 FY26 revenue grew 42% semi-annually to INR359 crores from INR250 crores in H2 FY25. EBITDA for H1 FY26 reached INR100 crores, an 81% semi-annual increase, with the EBITDA margin expanding by 600 basis points to 28%. PAT for H1 FY26 rose 100% to INR48 crores from INR24 crores in H2 FY25, improving the PAT margin by 330 basis points to 13.3%. Q2 FY26 revenue alone surged 69% quarter-on-quarter to INR225 crores, with EBITDA at INR59 crores (up 45% QoQ) and PAT at INR30 crores (up 67% QoQ).

The company is significantly expanding its manufacturing capabilities with Unit 3. Phase 1 of Unit 3 is complete, and partial production has commenced. The civil structure for Phase 2 has also started, with full-fledged production expected to begin by the end of the current financial year or Q1 FY27, and fully operational by June end. The total capital expenditure for Unit 3 is INR250 crores, including INR60 crores specifically for new testing equipment, which will reduce reliance on external facilities.

Apollo Micro Systems acquired 100% equity of Ideal Explosives Limited for INR107 crores. This acquisition is a strategic backward and forward integration, aiming to establish Apollo as a full-fledged weapons manufacturer. The plan is to develop critical high-energy explosives and multiple filling lines for artillery and weapons. While IDL is currently loss-making, management expects it to turn profitable by Q2 FY27, with significant initiatives underway for its overhaul and integration.

The order book stood at "little less than INR800 crores" as of September end. Management reiterated its target to achieve an order book of almost 3x its FY25 order book. The company anticipates a revenue CAGR of 45-50% for FY26 and FY27 from its core business, excluding the recent acquisition. Significant pipeline opportunities exist in large defence projects like MIGM (INR4,000 crores shared with BDL), QRSAM, ESWT, and ALWT, with approvals for some expected by March or Q1 FY27.

Apollo Micro Systems is actively pursuing international opportunities, particularly for its matured naval domain technologies. Proposals have been submitted to companies in the Middle East and European regions, and the company has received a good order from the UK worth INR113 crores. Management expects more orders from Saudi Arabia and Europe, aiming to build an international footprint for its 100% indigenous technologies once Unit 3 is fully operational and audited by overseas companies.

The company emphasizes its 40 years of technological excellence and is evolving into a multidisciplinary defense system powerhouse. It focuses on retaining experienced talent and recruiting freshers, complemented by retired DRDO scientists and PSU experts. Apollo is working on a variety of technologies, including sonar, seeker electronics for missile applications, and mechatronic fuses. The product mix currently sees 25-30% from production orders, with a target to increase this to 45% going forward^⏳, which is expected to improve margins.

Management acknowledged current receivables at approximately INR360 crores, close to Q1 and Q2 revenue. They expect a significant reduction in receivables by the end of the financial year, particularly in Q4, as long-gestation projects reach final phases. Additionally, the promoter pledge, which was reduced to almost 35% in Q2, is planned to be completely closed within the next six months, addressing a key investor concern.