Apollo Micro Sys

Apollo Micro Systems reported its highest-ever Q3 performance, with revenue growing 62.5% YoY to INR 1,483.9 million. EBITDA increased 58.1% YoY to INR 379.6 million, maintaining a strong margin of 25.6%, while PAT surged 83.1% YoY to INR 182.4 million. For the nine months ended December 31, 2024, revenue from operations grew 69.5% YoY to INR 4,003 million, and PAT increased 133.2% YoY to INR 424 million, demonstrating consistent operational efficiency.

The company has successfully completed its Unit 2 facility, which is now ready for operations. Construction of Unit 3, a 3.5 lakh square feet facility located in Hardware Park II, Hyderabad, is progressing and is expected to be completed by Q2 FY26. This expansion is crucial for enhancing production capabilities and supporting future growth, particularly for composite productions already initiated at Unit 2.

Apollo Micro Systems has entered into a consortium agreement with Redon Systems Private Limited to collaborate on manufacturing Loitering Munition, aiming for joint bidding on upcoming programs. Additionally, an MoU has been signed with Garden Reach Shipbuilders and Engineers Limited (GRSE) for joint research, development, co-production, and export of underwater weapons, vehicles, and air defense systems, leveraging each other's strengths in the defense ecosystem.

The company consistently invests 7-8% of its revenues in R&D annually to develop new technologies and augment existing ones. Plans are in place to increase R&D investments further, particularly for new platform development and product qualification. Approximately INR 130-140 crores from the recent fundraise are earmarked for general corporate purposes and R&D.

The current order book stands at INR 500-550 crores, with management aiming to increase it to a minimum of INR 2,500 crores by December 2025. A strong pipeline of orders from existing customers and an anticipated direct order from the Indian Navy are expected to drive future growth. Naval defense and missile defense areas are projected to be the primary contributors to the increased order book over the next 1-1.5 years.

The company recently raised INR 800 crores, with a detailed allocation plan. Approximately INR 550 crores will be utilized for working capital, INR 66 crores for subsidiary acquisitions and other strategic initiatives, and INR 130-140 crores for general corporate purposes and R&D. This capital infusion is intended to address the addressable market on time and ensure timely deliveries, especially given long lead times for certain raw materials.

Currently, the product mix is skewed towards development orders (70-75%) versus production orders (25-30%). Management expects this mix to shift to 60% production and 40% development by FY26. While EBITDA margins vary significantly based on product mix (some products yielding 40-45% and others less than 20%), the overall EBITDA margin is expected to remain stable at 25-30% and potentially grow to 30% over the next 1-1.5 years as production orders increase.

Apollo Micro Systems plays a crucial role in indigenous defense, participating in almost all DRDO missile programs (with minor exceptions like BrahMos). The company supplies a wide range of electronic and electromechanical systems, including seeker sections, navigation, telemetry, and actuation systems. It is also the sole Indian company to have developed all varieties of underwater mines and contributes to indigenous torpedo programs and nuclear submarine programs.