Apollo Micro Systems 5-Year Stock Returns
Apollo Micro Systems has delivered one of the highest returns among Indian small-cap stocks over the past five years, with its share price rising from around ₹8 in early 2019 to over ₹100 by early 2024—a gain of more than 1,200%. This article examines the company’s growth drivers, the risks involved, and how it compares to other top performers.
Company Background
Apollo Micro Systems Limited is an Indian defense electronics company headquartered in Hyderabad. Founded in 1985, it designs and manufactures electronic systems for defense, aerospace, space, and homeland security applications. The company supplies products such as radar systems, electronic warfare suites, communication systems, and missile guidance electronics to the Indian Armed Forces and public sector undertakings like DRDO and HAL.
The company went public in 2017 and initially traded in a narrow range. Its fortunes changed dramatically after 2019, driven by the Indian government’s push for indigenous defense manufacturing under the ‘Make in India’ initiative and the ‘Atmanirbhar Bharat’ (self-reliant India) campaign. The government’s decision to ban the import of several defense items and give preference to domestic manufacturers created a significant tailwind for companies like Apollo Micro Systems.
Why the Stock Soared
Several factors contributed to the stock’s meteoric rise:
- Defense indigenization push: India’s defense procurement policy increasingly favors domestic suppliers, and Apollo Micro Systems has positioned itself as a key player in niche electronics.
- Order book growth: The company has consistently won contracts for electronic systems, including a notable ₹1,200 crore order for radar systems in 2022.
- Revenue and profit growth: Revenue grew from about ₹200 crore in FY2019 to over ₹500 crore in FY2023, while net profit rose from ₹15 crore to over ₹50 crore.
- Low starting base: The stock was trading at a very low valuation in 2019, making it an attractive small-cap pick for investors.
Comparison with Other Top Performers
Apollo Micro Systems is often mentioned alongside other multibagger stocks of the last five years. Some notable peers include:
- HBL Power Systems: Up ~1,000% over the same period, driven by defense and railway orders.
- Cochin Shipyard: Up ~800%, benefiting from naval shipbuilding programs.
- Data Patterns: Up ~700%, another defense electronics company with strong order inflows.
- Solar Industries: Up ~600%, due to defense explosives and mining demand.
- MTAR Technologies: Up ~500%, with exposure to space and defense sectors.
Apollo Micro Systems stands out because of its relatively smaller market cap at the start of the period, allowing for more explosive growth when the defense theme caught fire.
Risks and Challenges
Investors should be aware of the risks that come with such high returns:
- Valuation concerns: The stock trades at a price-to-earnings ratio of over 50, which is rich compared to historical averages.
- Dependence on government orders: Revenue is heavily reliant on defense contracts, which can be delayed or cancelled due to policy changes or budget constraints.
- Execution risk: The company has faced delays in some projects, and any hiccup in delivery schedules could impact earnings.
- Concentration risk: A significant portion of revenue comes from a few large customers, making the company vulnerable to order cancellations.
How to Evaluate Such Stocks
When considering stocks that have already risen sharply, investors should look at:
- Order book to revenue ratio: A high ratio indicates future revenue visibility. Apollo’s ratio is around 2x, which is healthy.
- Margin trends: Operating margins have improved from 12% to 18% over five years, showing operational efficiency.
- Return on equity (ROE): The company’s ROE has increased to about 15%, which is decent for a small-cap.
- Debt levels: The company is virtually debt-free, which reduces financial risk.
Common Mistakes to Avoid
Many investors look at past returns and assume they will continue. This is a common pitfall. High past returns often reflect a re-rating that may not repeat. Another mistake is ignoring the cyclical nature of defense spending. A change in government policy could quickly reduce order inflows. Additionally, small-cap stocks are highly volatile; Apollo Micro Systems has seen drawdowns of 30-40% during market corrections.
Frequently Asked Questions
Is Apollo Micro Systems a good long-term investment?
It could be, given the defense sector’s growth potential, but the stock is not cheap. Investors should assess their risk tolerance and consider whether the current valuation is justified by future earnings growth.
What is the current market cap of Apollo Micro Systems?
As of early 2024, the market cap is around ₹8,000 crore, making it a mid-cap stock now, though it was a small-cap five years ago.
How can I buy shares of Apollo Micro Systems?
You can buy through any registered stockbroker in India, either online or offline, using a demat account. The stock is listed on both NSE and BSE.
What are the key financial ratios to watch?
Watch the price-to-earnings ratio, price-to-book ratio, and debt-to-equity ratio. Also monitor the order book and operating margin trends.
Are there any dividend payouts?
Apollo Micro Systems has not paid regular dividends in the past five years, as it reinvests earnings into growth. Investors primarily benefit from capital appreciation.
Conclusion
Apollo Micro Systems has been a stellar performer, but past returns do not guarantee future performance. The defense electronics theme remains strong, but investors should do their own research and consider the risks before investing. Diversification and a long-term perspective are key when dealing with high-volatility stocks.
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