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-
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.maur[email protected]elbroking.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
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
14
14
14
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
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)
(2)
(3)
(1)
Others 0
0 0
0
0
Cash Flow from Operations (7)
(4)
4
12
1
(Inc.)/ Dec. in Fixed Assets (11)
(10)
(10)
(16)
(15)
(Inc.)/ Dec. in Investments 0
0 0
0
0
Cash Flow from Investing (11)
(10)
(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
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: rese[email protected]lbroking.
com Website:
www.angelbroking.com
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