Apollo Micro Systems IPO – Should you Invest in this IPO?

Apollo Micro Systems IPO review-minApollo Micro Systems IPO – Should you Invest in this IPO?


Astron Paper IPO Share price has listed with premium of 130% on day-1 on Friday. This shows that quality IPOs would continue to attract investors. If you have missed the chance, don't worry. Another strong IPO is coming up now. Hyderabad based, Apollo Micro Systems IPO would open for subscription on 10th January, 2018. Apollo Micro Systems Ltd is one of the leading electronic, electro-mechanical, engineering designs, manufacturing and supplies company in India. Its revenues multiplied by 5.6 times (137% CAGR) in last 5 years. It profits improved at 150% CAGR in the last 5 years. What are the positive factors in Apollo Micro Systems IPO? Are there any hidden factors in Apollo Micro Systems Ltd IPO?  Apollo Micro Systems IPO Price is under priced? In this article, I would provide some interesting insights and do Apollo Micro Systems Limited IPO Review.

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About Apollo Micro Systems Ltd


They are an electronic, electro-mechanical, engineering designs, manufacturing and supplies company. They design, develop and sell high-performance, mission and time critical solutions to Defence, Space and Home Land Security for Ministry of Defence, government controlled public sector undertakings and private sectors. Company customised solutions are developed using common hardware 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 company has developed since inception is a strong base to outperform the competition and be abreast in the market. This supports company to constantly upgrade the technologies to meet present and futuristic requirements of company customers.

Apollo Micro Systems IPO Issue details


IPO open date: 10-Jan-2018

IPO close date: 12-Jan-2018

Face Value: Rs 10 per share

Issue price band: Rs 270 to Rs 275 per share

Issue size: Rs 156 Crores on higher price band

Apollo Micro Systems IPO Lot size:  50 shares.

Minimum investment:  Rs 13,750

Leading Managers: Aryman Financial Services

Listing: BSE / NSE

Download Apollo Micro Systems IPO RHP Prospectus at this link.

Objects of the Apollo Micro Systems Ltd IPO issue


They  intend to utilize the Net Proceeds towards the following objects:

1) To meet additional working capital requirement of the Company.

2) General corporate purpose incl issue related expenses.

Who are the promoters of Apollo Micro Systems IPO?


The promoters of the company are Mr.Karunakara Reddy Baddam.

Company Financials (reinstated)


1) The company generated revenue of Rs 37.45 Crores for the year ended Mar-13 and Rs 211.79 Crores for the year ended Mar-17.  

2) The company posted a profit of Rs 2.95 Crores for the year ended Mar-13 and profit of Rs 18.57 Crores for the year ended Mar-17.

3) Its restated basic EPS for Financial Year ending Mar-17 is Rs 13.54 and last 3 years weighted EPS was Rs 10.1.

What are Apollo Micro Systems Key Strenghts?


Here are Apollo Micro Systems strengths.

1) Proven track record in developing new technological systems and order execution.

2) Recurring orders from existing programs.

3) Strong R&D Capabilities.

4) Qualified and experienced workforce and senior management.

5) Quality control.

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What are Apollo Micro Systems Ltd Key Strategies?


Company is focusing on few key strategies.

1) Focus on R&D to develop complete systems to enhance the long-term prospects of company.

2) Improving company productivity and competitiveness.

3) Leverage Build To Print opportunity.

4) Expand company business and geographical footprint through selective acquisitions.

5) Continue to grow company overall market share by leveraging company presence in existing business verticals.

6) Business Diversification.

Reasons to invest in Apollo Micro Systems IPO


1) Its posted strong revenue growth in the last 5 years. Its revenues multiplied by 5.65 times (137% CAGR) in the last 5 years.

2) Its profits are stable and on increasing mode. Its profits increased from 6.8% in FY15 to 8.8% in FY17. However, it generated profit of 6.5% for 6 months ended Sep-17.

Risk Factors / Reasons not to invest in a Apollo Micro Systems Ltd IPO


1) Company business is significantly dependent on various Public Sector Undertakings and Government entities for their projects undertaken by OEM or other system integrator companies and could be materially and adversely affected if there are adverse changes in the policies of such Government entities.

2) If they are unable to collect company dues and receivables from, or invoice company unbilled services to, company customers, company results of operations and cash flows could be adversely affected.

3) Company business is working capital intensive. If they are unable to generate sufficient cash flows to allow us to make required payments on company debt or fund working capital requirements, there may be an adverse effect on company results of operations.

4) They have not disclosed the details of one of the members of the Promoter Group of company Promoter in the Red Herring Prospectus, including information regarding the companies in which he holds more than 10% shares, as required by SEBI ICDR Regulations, since they have not received any information from such person.

5) Company works with government clients exposes us to additional risks inherent in the government contracting environment.

6) Company business will suffer if we fail to anticipate and manage increasingly large and complex projects, or develop new services and enhance existing services in order to keep pace with rapid changes in technology and the industries on which they focus.

7) Company revenue depends to a large extent on a limited number of customers, and company revenue could decline if they lose a major customer.

8) They are dependent on a few suppliers for supply of raw materials and any major disruption to the timely and adequate supplies of company raw materials could adversely affect company business, results of operations and financial condition.

9) There are outstanding litigations involving company and Promoter Director. An adverse outcome in any of these proceedings may affect company reputation and standing and impact company future business and could have a material adverse effect on business, financial condition, results of operations and cash flows.

10) Company has unsecured loan availed from Karunakar Reddy Baddam, Promoter of company, that may be recalled by him at any time.

11) Company Promoter, Karunakar Reddy Baddam has entered into a pledge agreement for a portion of the equity shares held by him in company in favour of lenders, who may exercise their rights under the pledge agreement.

12) Some of company corporate records are not traceable in the records of the RoC and there are certain discrepancies in the records available with us.

13) They have issued Equity Shares in the last 12 months at a price which may be lower than the Issue Price.

14) Company had negative cash flows in the past years. Sustained negative cash flow could impact company growth and business.

15) Other risk factors (Internal and external) can be viewed in the draft prospectus.

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Recommendation / Investment strategy – Apollo Micro Systems IPO


On the upper price band of Rs 275 and on FY17 EPS of Rs 13.5, P/E ratio works out to 20x. Even based on last 3 years EPS of Rs 10.1, P/E ratio works out to 27x. Means, company is asking higher price band of Rs 275 in the P/E ratio of 20x to 27x. Its listed peers like Bharat Electronics is trading at P/E ratio of 28x (Highest), Centum Electronics at P/E of 27.5x and Astra Microwave at P/E Ratio of 18x (Lowest). Hence the issue price of Rs 275 at P/E of 20x to 27x is reasonably priced.

Company revenues multiplied by 5.6 times (137% CAGR) in last 5 years. Its profits are in increasing mode.  Its issue price is also reasonably priced. Considering all these positive factors, investors can invest in this IPO for 2-3 years tenure. One may or may not get listing gains. Since this is a small cap stock which has a size of Rs 156 Crore Size, getting allotment might be difficult, however, one can still apply.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

Apollo Micro Systems IPO – Should you Invest in this IPO

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