The Hyderabad-based defense hardware supplier, Apollo Micro Systems’ public offer opened for subscription today. The company designs, develops and sell 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. While investors may be mulling whether to subscribe to the issue, we take a look at five key details, and what brokerages have to say about the issue.
The company has set a price band of Rs 270-275 for the issue, and looks to raise upto Rs 156 crore at the higher end of the band. The company looks to sell 56,72,727 equity shares (of which Employee reservation of upto 20,000 eq sh), in a fresh issue. Apollo Micro Systems will offer a Rs 12 discount to employees and retail investors. The issue will remain open for subscription from 10th January to 12th January 2018. The lot size is fixed at 50 shares and in multiples of 50 shares thereafter. The company will dilute 27.4% (at upper price band) of its post-offer paid-up equity share capital.
About the company
Apollo Micro Systems Limited (AMSL) is a Hydearbad-based electronic, electro-mechanical, engineering designs, manufacturing and supplies company incorporated in 1997. AMSL offers custom builts COTS (Commercially off-the shelf) solutions based on specific requirements to defence and space customers. The systems undergo various stages of approvals right from design, prototyping, functional acceptance, manufacturing and qualification testing.
Pointing to the strengths of the company, HDFC Securities says that the company has a Proven track record in developing new technological systems and order execution; Recurring orders from existing programs; Strong R&D Capabilities and Qualified and experienced workforce and senior management and Quality control. “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,” Angel Broking said in a note.
In its IPO note, HDFC Securities says that the company’s business is significantly dependent on various Public Sector Undertakings and Government entities for projects undertaken by OEM. Any adverse changes in government policies concerning these sectors could adversely impact the company. Further, the research firm says that Apollo’s business is working capital intensive. The revenue depends to a large extent on a limited number of customers, and its revenue could decline if AMSL lose a major customer.
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,” noted Angel Broking.
Outlook and valuation
Given the growth in defense industry and the company’s strengths, brokerages have a subscribe rating on the issue. “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 positive factors, growth in the defence industry we recommend SUBSCRIBE on the issue,” Angel Broking said. “On its upper band of price of Rs 275, the issue is priced at PE ratio of 27.1x of its H1FY2018 annualised EPS of Rs 10.2. We believe that the IPO is fairly priced leaving a room for upside. Hence, we recommend to Subscribe the IPO,” SSJ Finance said in its note.
(First published on 9th January 2018 at www.financialexpress.com)