Apollo Micro Systems Limited - Should you subscribe?

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Incorporated in March 1997, Apollo Micro Systems Limited IPO opens on January 10,2018 and closes on January 12,2018. The tentative dates of allotment and listing are January 19, 2018 and January 22, 2018 respectively. The allotment status can be checked on this link http://www.bigshareonline.com. 

 The company is raising 153 Crore through issue of fresh shares. The company is highly working capital intensive and funds the majority of its working capital requirements in the ordinary course of business from its internal accruals and financing from various banks and financial institutions. After deducting the issue related expenses, the company shall utilize approx. Rs. 119 Crore to meet its working capital requirement and balance for general corporate purposes. 

Promoted by Mr Karunakar Reddy Baddam, Apollo Microsystem is an electronic, electro – mechanical, engineering designs, manufacturing and supplies company. It designs, develops and sells high-performance, mission and time critical solution to Defense, Space and Home Land Security for Ministry of Defense, government controlled public sector undertakings and private sectors. Its customized solutions are developed using common hard and software technology IP’s which can be re-configured to suit the end application and domain requirements of end customer. The huge repository of knowledge and technology base that our has company has developed since inception is a strong base to outperform the competition and be abreast in the market. This supports the company to constantly upgrade the technologies to meet present and futuristic requirements of its customers.

It offers customer built COTS (Commercially off-the shelf) solutions based on specific requirements to defense and space customers. The systems undergo various stages of approvals right from design, prototyping, functional acceptance, manufacturing and qualification testing. As the systems are exclusively developed for a program, the developed system enjoys proprietary status. Thus, specially developed and approved systems have no competition.
Should you subscribe? 
The company has set price range between Rs.270 - Rs. 275 per share. EPS as on March 31,2017 was Rs. 7.29. At upper and lower price band, PE Multiple ranges between 37.03 - 37.72. The company's peers namely; Bharat Electronics, Astra Microwave and Centum Electronics are trading at PE Multiple of 27.48, 18.44 and 30.76 respectively. From PE front, the share is little expensive.
It is to be noted that basic EPS as on September 30,2017 was Rs. 13.54. At this EPS, PE Multiple ranges between 19.94 - 20.31. Assuming the company maintain the same level of EPS, then the share price becomes cheaper than its peers.


The company has asked the price which is 4.96 - 5.05 times of its NAV as on September 30,2017 i.e. Rs. 54.46.  Its peers are trading at 5.97 (Bharat Electronics), 2.29 (Astra Microwave), 5.06 (Centum Electronics). From book value front, the share price is reasonable. 

The company's Return on Net Worth is 29.30% which is higher than all its peers. 
The company's revenue has increased at a CAGR of 41.43% from Rs. 37.33 Crore in Fiscal 2013 to Rs. 211.27 Crore in Fiscal 2017. The company has performed quite impressively over the last five years and will continue to grow. The initiatives of the Government of India in terms of smart cities, Digital India, Make in India and huge initiative to grow ESDM (Electronic System Design and Manufacturing) sector is an added advantage of the company. As on November 25,2017, the company has order book of Rs. 97.50 Crore
The company has many competitive strengths viz. Proven track  record in developing new technological systems and order execution, Recurring orders from existing programs,  Strong R & D Capabilities, Qualified and experienced workforce and senior management, Quality control etc.
The company has its limitations also viz. the business is significantly dependent on various Public Sector Undertakings and Government Entities for their projects undertaken by OEM or other system integrator companies, any change in Government Policy can adversely impact the business operations. The company is highly working capital intensive, huge amount remain blocked in debtors and inventories. Dependency on limited customers and vendors for raw materials etc. 
Conclusion :
Overall, the fundamentals of the company are good. The structure of the company is very simple - no subsidiaries, no holding, no associates. The remunerations of Managing Director, Whole Time Directors and other key managerial personnel are very reasonable. Though it is little expensive than its peers, the shares seem worth applying.
Thank you for reading...Jai Hind
CA Prashant Seta
(Note : I write reviews based on my knowledge and understanding, the reader of this article should his his/her own research before applying)

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