Please refer to important disclosures at the end of this report

1

Incorporated in 1997, Apollo Micro Systems Limited (AMSL) is a

Hyderabad based

company engaged in the business of electronic, electro-

mechanical, engineering

designs, manufacturing and supply. Company designs, develops and sell high

performance, mission and time critical solutions to Defense, Space and Home Land

Secu

rity for Ministry of Defense, government controlled public sector undertakings

and private sectors. AMSL’s manufacturing facility is located at Hyderabad.

Huge opportunity in defence sector: The defence electronics

manufacturing sector

is expected to create a `4 trillion worth market opportunity over FY16-

FY26E. The

demand for electronics hardware in the country is projected to

touch USD 400

billion by 2020, which would create unique opportunities

for companies in the

ESDM (Electronic System Design & Manufacturing) space.

We believe that AMSL is

in a good position to tap the growing opportunity from the sector.

Developing new technological systems and order execution – key strengths: AMSL

started its journey with designing specialized electronic systems and sub-

systems.

The key strengths of the company are

specialized technical skills, strong research

and development expertise and a competent management, which has

aided AMSL

to enhance the ability to design, develop and manufacture complex electronic

control systems and associated digital electronics. We believe that the company’s

expertise and proven track record in implementation of projec

ts provides significant

competitive advantages.

Strong financial track records: AMSL has delivered strong financial

performance

over FY2014-17. The company has registered strong numbers both on the top-

line

and bottom-line fronts CAGR of ~43% and ~52% respectively over FY2014-17,

backed by healthy growth in order book and improvement in margin. AMSL

witnessed improvement in return ratios from ~19% to 29% over the same period.

Outlook & Valuation: In terms of valuations, the pre-

issue P/E works out to 29x

1HFY2018 annualized earnings (at the upper end of

the issue price band), which is

lower compared to its peers like Astra Microwave (trading at 36.2x

its 1HFY2018

annualized earnings). Further, AMSL has strong financial record and return ratios

compared to Astra Microwave. Hence, considering the above posi

tive factors,

growth in the defence industry we recommend SUBSCRIBE on the issue.

Key Financials

Y/E March (` cr) FY2015

FY2016

FY2017

1HFY18

Net Sales

108

159

211

109

% chg

49.2

46.7

32.8

-

Net Profit

7

10

19

7

% chg

39.6

34.4

85.7

-

OPM (%)

16.7

15.9

19.2

17.7

EPS (Rs)

5.0

6.7

12.4

4.7

P/E (x)

55.4

41.3

22.2

-

P/BV (x)

11.9

9.2

6.5

-

RoE (%)

21.4

22.3

29.3

-

RoCE (%)

15.2

19.4

24.3

-

EV/Sales (x)

4.3

3.0

2.3

-

EV/EBITDA (x)

25.8

18.9

12.1

-

Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end

of the price band

SUBSCRIBE

Issue Open: Jan 10, 2018

Issue Close: Jan 12, 2018

QIBs 50% of issue

Non-Institutional 15% of issue

Retail 35% of issue

Promoters 64.2%

Others 35.8%

Fresh issue:

`

156cr

Issue Details

Face Value:

`10

Present Eq. Paid up Capital:

`15.0

cr

Post Issue Shareholding Pattern

Post Eq. Paid up Capital:

`20.7

cr

Issue size (amount):

`156

cr

Price Band:

`270

-275

Lot Size: 50 shares and in multiple

thereafter

Post-issue implied mkt. cap: *

`558

cr -

**

`569

cr

Promoters holding Pre-Issue: 88.5%

Promoters holding Post-Issue: 64.2%

*Calculated on lower price band

** Calculated on upper price band

Book Building

Amarjeet S Maurya

+022 39357600, Extn: 6831

amarjeet.maurya@angelbroking.com

Apollo Micro Systems Ltd

IPO Note | Financials

Jan 08, 2018

Apollo Micro Systems Limited | IPO Note

Jan 08, 2018

2

Company background

Incorporated in 1997, Apollo Micro Systems Limited is a Hyderabad based

company engaged in the business of electronic, electro-mechanical, engineering

designs, manufacturing and supply. Company designs, develops and sells high

performance mission and time critical solutions to Defense, Space and Home Land

Security for Ministry of Defense, government controlled public sector undertakings

and private sectors. Apollo Micro Systems offers custom built COTS (Commercially

Off-The Shelf) solutions based on specific requirements to defense and space

customers. Company has participated in several indigenous missile programs,

underwater electronic warfare, underwater missiles, surface to air missiles, nuclear

missile programs, surface to surface missile programs, indigenous submarine

programs, UAV’s long and short endurance ships, space programs. Company’s

manufacturing facility is located at Hyderabad.

Exhibit 1: Journey of the company

Source: Company, Angel Research

Exhibit 2: AMSL offering

Source: Company, Angel Research

Apollo Micro Systems Limited | IPO Note

Jan 08, 2018

3

Issue details

AMSL is raising `156cr through fresh issue of equity shares in the price band of

`270-275. The company will dilute 27.4% (at upper price band) of its post-offer

paid-up equity share capital.

Exhibit 3: Pre and Post IPO shareholding pattern

No of shares (Pre-

issue)

%

No of shares (Post-

issue)

%

Promoters

13,271,

700

88.5

%

13,271,

700

64.2

%

Others

1,728,300

11.5%

7,401,027 35.8%

15,000,000

100.0%

20,672,727 100.0%

Source: Source: RHP, Note: Calculated on upper price band

Note: A discount of `12 per equity share is offered to Retail Investors & Employees.

Objects of the offer

The objects of the Offer for the Company are to:

 Funding working capital requirement

 General corporate purpose

Outlook & Valuation

In terms of valuations, the pre-issue P/E works out to 29x 1HFY2018 annualized

earnings (at the upper end of the issue price band), which is lower compared to its

peers like Astra Microwave (trading at 36.2x ts 1HFY2018 annualized earnings).

Further, AMSL has strong financial record and return ratios compared to Astra

Microwave. Hence, considering the above positive factors, growth in the defence

industry and lower valuations we recommend SUBSCRIBE on the issue.

Key Risks

 The company’s business is significantly dependent on various Public sector

and government entities; hence, any change in the policies or spending

from government could impact the earning.

 Increase in competition from other players can impact the business of

AMSL.

Apollo Micro Systems Limited | IPO Note

Jan 08, 2018

4

Income Statement

Y/E March (` cr) FY2014

FY2015 FY2016

FY2017 1HFY18

Total operating income 73

108

159

211

109

% chg 94.7

49.2 46.7

32.8 -

Total Expenditure 63

90

134

171

90

Raw Material 54

76

116

151

71

Personnel 3

6 7

6 3

Others Expenses 6

8 11

14

16

EBITDA 10

18

25

41

19

% chg 51.5

78.8 39.4

61.3 -

(% of Net Sales) 13.9

16.7 15.9

19.2 17.7

Depreciation& Amortisation

0

4 3

EBIT 10

14

22

37

16

% chg 55.3

44.8 58.9

63.3 -

(% of Net Sales) 13.4

13.1 14.1

17.4 14.9

Interest & other Charges 3

5 8

11

6

Other Income 0

0 0

2 0

(% of PBT) 2.9

3.7 3.3

6.7 1.3

Share in profit of Associates

-

Recurring PBT 7

9 15

27

11

% chg 64.5

29.2 58.0

82.7 -

Tax 2

2 5

9 4

(% of PBT) 26.7

20.8 32.6

31.5 33.1

PAT (reported) 5.33

7.44 10.00

18.57

7.11

% chg 80.7

39.6 34.4

85.7 -

(% of Net Sales) 7.3

6.9 6.3

8.8 6.5

Basic EPS (`) 3.6

5.0 6.7

12.4 4.7

Fully Diluted EPS (`) 3.6

5.0 6.7

12.4 4.7

% chg 80.7

39.6 34.4

85.7 -

Source: RHP, SH - Share Holder

Apollo Micro Systems Limited | IPO Note

Jan 08, 2018

5

Exhibit 4: Balance Sheet

Y/E March (` cr)

FY2014

FY2015

FY2016

FY2017

1HFY18

SOURCES OF FUNDS

Equity Share Capital

14

Reserves& Surplus

14

21

31

50

62

Shareholders Funds

27

35

45

63

76

Total Loans

35

58

71

88

97

Deferred Tax Liability

0

1

4

8

10

Total Liabilities

63

94

120

159

184

APPLICATION OF FUNDS

Net Block

6

23

21

30

31

Capital Work-in-Progress

12

1

10

13

20

Investments

-

Current Assets

67

110

172

203

244

Inventories

23

42

73

114

137

Sundry Debtors

40

61

86

71

89

Cash

2

4

7

9

6

Loans & Advances

2

3

6

9

Other Assets

-

3

Current liabilities

22

41

83

87

111

Net Current Assets

45

69

88

116

133

Deferred Tax Asset

-

Total Assets

63

94

120

159

184

Source: RHP

Apollo Micro Systems Limited | IPO Note

Jan 08, 2018

6

Exhibit 5: Cash Flow Statement

Y/E March (Rs cr) FY2014

FY2015 FY2016

FY2017

1HFY18

Profit before tax 7

9 15

26

11

Depreciation 0

4 3

4

3

Change in Working Capital (15)

(21)

(20)

(27)

(17)

Interest / Dividend (Net) 3

5 8

11

6

Direct taxes paid (2)

(2)

(3)

(1)

Others 0

0 0

0

Cash Flow from Operations (7)

(4)

4

12

1

(Inc.)/ Dec. in Fixed Assets (11)

(10)

(16)

(15)

(Inc.)/ Dec. in Investments 0

0 0

0

Cash Flow from Investing (11)

(10)

(16)

(15)

Issue of Equity 0

0 0

0

6

Inc./(Dec.) in loans 20

20

11

14

11

Dividend Paid (Incl. Tax) 0

0 0

0

Interest / Dividend (Net) (2)

(4)

(3)

(9)

(6)

Cash Flow from Financing 18

16

9

6

10

Inc./(Dec.) in Cash 0

1 3

2

(3)

Opening Cash balances 2

2 4

7

9

Closing Cash balances 2

4 7

9

6

Source: Company, Angel Research

Apollo Micro Systems Limited | IPO Note

Jan 08, 2018

7

Exhibit 6: Key Ratios

Y/E March FY2014

FY2015 FY2016 FY2017

Valuation Ratio (x)

P/E (on FDEPS) 77.4

55.4 41.3 22.2

P/CEPS 72.6

36.2 32.4 18.3

P/BV 15.0

11.9 9.2 6.5

Dividend yield (%) 0.0

0.0 0.0 0.0

EV/Sales 6.1

4.3 3.0 2.3

EV/EBITDA 44.0

25.8 18.9 12.1

EV / Total Assets 7.1

5.0 4.0 3.1

Per Share Data (Rs)

EPS (Basic) 3.6

5.0 6.7 12.4

EPS (fully diluted) 3.6

5.0 6.7 12.4

Cash EPS 3.8

7.6 8.5 15.0

DPS 0.0

0.0 0.0 0.0

Book Value 18.3

23.2 29.9 42.2

Returns (%)

ROCE 15.6

15.2 19.4 24.3

Angel ROIC (Pre-tax) 16.2

15.8 20.7 25.8

ROE 19.4

21.4 22.3 29.3

Turnover ratios (x)

Asset Turnover (Gross Block) 8.8

3.7 5.2 4.9

Inventory / Sales (days) 114

143

167

197

Receivables (days) 201

206

198

123

Payables (days) 92

113

164

117

Working capital cycle (ex-

cash) (days)

224

237

201

203

Source: Company, Angel Research

Apollo Micro Systems Limited | IPO Note

Jan 08, 2018

8

Research Team Tel: 022

-

39357800 E

-

mail: research@angelbroking.

com Website:

www.angelbroking.com

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