Apollo Micro Systems Ltd:Annual Report 2023-24 Analysis

Apollo Micro Systems Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Apollo Micro Systems Ltd. was established in 1985. It started as a design house for electronic products.

Headquarters Location and Global Presence #

The company’s headquarters are located in Hyderabad, India. While primarily focused on the Indian market, Apollo Micro Systems also has a growing international presence through exports.

Company Vision and Mission #

• Vision: To be a globally recognized leader in providing comprehensive technology solutions for mission-critical applications.
• Mission: To deliver innovative, reliable, and cost-effective solutions that enhance the performance and capabilities of our customers’ systems.

Key Milestones in Their Growth Journey #

• Early Years: Focused on design and development of electronic products.
• Expansion into Manufacturing: Gradually expanded into manufacturing of electronic and electro-mechanical components, subsystems, and systems.
• Focus on Defense and Aerospace: Shifted strategic focus towards serving the defense, space, and homeland security sectors.
• IPO: Successfully launched an Initial Public Offering (IPO) to raise capital for expansion.

Stock Exchange Listing Details and Market Capitalization #

Apollo Micro Systems is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Recent Financial Performance Highlights #

• Recent financial reports indicate revenue growth driven by increased orders from the defense and aerospace sectors.
• The company has been focused on improving profitability through cost optimization and operational efficiency.

Management Team and Leadership Structure #

The company is led by a team of experienced professionals with expertise in engineering, manufacturing, and business management. The leadership structure includes a Board of Directors and a management team responsible for day-to-day operations.

Their Products #

Complete Product Portfolio with Categories #

Apollo Micro Systems’ product portfolio spans several categories:

• Avionics Systems: Data Acquisition Systems, Flight Control Systems, Display Systems, Radar Systems.
• Navigation and Guidance Systems: GPS, Inertial Navigation Systems (INS), and integrated navigation solutions.
• Electronic Warfare Systems: Jammers, surveillance equipment, and countermeasures.
• Simulation Systems: Training Simulators and testing equipment for defense applications.
• C4I Solutions: Command, Control, Communications, Computers, and Intelligence (C4I) solutions for enhanced situational awareness and decision-making.
• Defense Electronics: DC to DC Converters, Power Supplies, and other specialized electronic components for defense applications.
• Railway Signaling Systems: Safety-critical signaling solutions to improve safety and efficiency.
• Software Solutions: Embedded Software, System Software, Application Software

Flagship or Signature Product Lines #

Their signature product lines include Avionics Systems and Navigation and Guidance Systems, particularly those tailored for defense applications.

Key Technological Innovations or Patents #

Apollo Micro Systems focuses on proprietary technologies and custom solutions. They hold multiple patents in the area of signal processing, and defense electronics.

Manufacturing Facilities and Production Capacity #

The company operates multiple manufacturing facilities equipped with modern machinery and testing equipment. They have expanded production capacity over the years to meet the growing demand.

Quality Certifications and Standards #

Apollo Micro Systems adheres to stringent quality standards and holds certifications such as:

• AS9100D (Aerospace Quality Management System)
• ISO 9001:2015 (Quality Management System)

Any Unique Selling Propositions or Technological Advantages #

Their key differentiators include:

• Customization: Ability to design and develop solutions tailored to specific customer requirements.
• Domain Expertise: Strong domain knowledge in defense, aerospace, and related sectors.
• Reliability: Focus on delivering high-reliability products for mission-critical applications.
• In-House Capabilities: Design, Manufacturing, Testing, and Integration all handled in-house.

Primary Customers #

Target Industries and Sectors #

• Defense: Indian Armed Forces, Defense Research and Development Organisation (DRDO), and other defense establishments.
• Aerospace: Space agencies, aircraft manufacturers, and aviation companies.
• Transportation: Railways, infrastructure developers.
• Homeland Security: Law enforcement agencies, border security forces.

Geographic Markets (Domestic vs. International) #

• Domestic: Predominantly focused on the Indian market.
• International: Growing export business with focus on Southeast Asia, Middle East, and other regions.

Major Client Segments #

• Government (Defense, Space Agencies)
• Public Sector Undertakings (PSUs)
• Private Sector Companies

Major Competitors #

Direct Competitors in India and Globally #

• Bharat Electronics Limited (BEL)
• Hindustan Aeronautics Limited (HAL)
• Data Patterns (India) Limited
• Other global players in defense and aerospace electronics.

Competitive Advantages and Disadvantages #

• Advantages: Customization capabilities, strong relationships with domestic defense clients, agility.
• Disadvantages: Smaller scale compared to larger competitors, dependence on government contracts.

How They Differentiate from Competitors #

Apollo Micro Systems differentiates itself through:

• Focus on niche markets and specialized solutions.
• Agile development and faster time-to-market.
• Strong customer relationships and responsiveness.

Future Outlook #

Expansion Plans or Growth Strategy #

• Expanding into new markets and geographies.
• Increasing investment in R&D to develop innovative products.
• Strengthening partnerships with global technology providers.

Upcoming Products or Innovations #

• Development of advanced avionics systems.
• Expansion of C4I solutions portfolio.

Sustainability Initiatives or ESG Commitments #

Apollo Micro Systems has not publicly released information regarding specific sustainability initiatives or ESG commitments.

Industry Trends Affecting Their Business #

• Increasing defense spending in India.
• Growing demand for indigenous defense technology.
• Technological advancements in areas like AI, IoT, and cybersecurity.

Long-Term Vision and Strategic Goals #

Apollo Micro Systems aims to become a leading provider of technology solutions for defense and aerospace sectors, both in India and globally.

Financial Analysis: Apollo Micro Systems Limited (FY 2023-24) #

Report Details #

• Date of Report: September 4, 2024
• Company: Apollo Micro Systems Limited (AMS)
• Scrip Code/Symbol: APOLLO
• ISIN: INE713T01028
• Reporting Period: Financial Year Ended March 31, 2024 (FY24) vs. Financial Year Ended March 31, 2023 (FY23)

Executive Summary #

Apollo Micro Systems Limited demonstrated robust financial performance in FY24, characterized by significant revenue growth, improved profitability, and expansion in operational capabilities. The company benefited from a favorable Indian defence sector outlook and government initiatives promoting indigenous manufacturing. Key financial indicators, including revenue, EBITDA, and PAT, showed strong year-on-year (YoY) increases. The company is undertaking capacity expansion and backward integration initiatives to support future growth.

Key Financial Highlights (Consolidated) #

Note: Standalone PAT for FY24 was ₹316.69 million and for FY23 was ₹190.68 million. Standalone EBITDA for FY24 was ₹864.96 million and for FY23 was ₹621.75 million. Consolidated figures are used for consistency where MD&A refers to them, but the report provides both standalone and consolidated financials. Cash profit for FY23 is derived from MD&A statement “net cash profit of ₹ 561.95 million, up by 41.16% over FY23.”

Observations #

• The 24.91% growth in consolidated revenue is attributed to strong order execution capabilities.
• EBITDA margin expansion by 237 bps to 23.27% (consolidated) indicates improved operational efficiency and potentially better cost management.
• A significant 66.01% increase in consolidated PAT underscores enhanced profitability, driven by both revenue growth and margin improvement.
• The company projects revenue growth of 20-25% and EBITDA margins of 22-24% in the coming fiscal years, driven by defence sector opportunities and government initiatives.

Comparative Analysis of Assets, Liabilities, and Equity (Standalone) #

Assets (Standalone) #

Observations #

• Total assets grew by 37.92%, driven by increases in both non-current and current assets.
• Significant increase in PPE (34.45%) and a large jump in non-current loans (99.06%) indicates ongoing investments and financial support to subsidiaries (loan to subsidiary of ₹97.63 million outstanding).
• Current assets saw substantial growth, with inventories up by 27.31% and trade receivables by a significant 60.49%, suggesting increased operational scale. The rise in receivables needs monitoring to ensure timely collection.

Liabilities (Standalone) #

Detailed Analysis #

Cash Management #

Cash Flow and Liquidity Analysis #

Detailed Cash Flow Components (Standalone & Consolidated, FY24 vs FY23, ₹ Lakhs) #

Standalone Cash Flow Statement Summary: #

Consolidated Cash Flow Statement Summary: #

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## Revenue and Profitability Analysis: Apollo Micro Systems Limited (FY 2023-24)

### Consolidated Revenue

*   **FY24 Revenue:** ₹3,716.34 million
*   **YoY Growth:** 24.91% increase from ₹2,975 million (FY23)

Financial Risk Analysis: Apollo Micro Systems Limited (FY 2023-24) #

Strategic Risks #

Severity #

High. The company operates in a dynamic defence and space sector influenced by government policies and geopolitical factors.

Likelihood #

Medium. Opportunities are present, but competition and policy shifts are ongoing.

Trend #

Positive, driven by government initiatives like ‘Make in India’ and ‘Atmanirbhar Bharat’, and an anticipated increase in defence production and exports.

Mitigation Strategies #

• Shift in business development towards production-based contracts for revenue stability.
• Focus on developing solutions with export potential.
• Collaboration for larger platform development.
• Investment in R&D (averaging 7-8% of revenue, specifically ₹2,978.83 lakhs in FY24, or 8.01% of revenue from operations) to create indigenous intellectual property.
• Backward integration and capacity expansion (new IPiDS facility, two additional facilities under development totaling 390,000 sq. ft.).
• Strategic focus on missile and naval systems with reconfigurable hardware/software.

Control Effectiveness #

Indicated by meeting key financial measures (revenue and EBITDA double-digit growth in FY24).

Potential Financial Impact #

• Positive: Achievement of projected revenue growth (20-25%) and EBITDA margins (22-24%).
• Negative: Failure to capitalize on government initiatives or adapt to market changes could impact growth targets.

Quantitative Risk Metrics & YoY Change #

• FY24 Revenue from Operations: ₹3,716.34 million (+24.91% YoY).
• FY24 PAT: ₹311.07 million (+66.08% YoY).
• FY24 EBITDA: ₹864.96 million (+39.12% YoY).
• FY24 EBITDA Margin: 23.27% (vs. 20.90% in FY23).

Operational Risks #

Severity #

Medium to High. Relates to manufacturing, supply chain, project execution, and talent.

Likelihood #

Medium. Common in manufacturing and project-based industries.

Trend #

Efforts to de-risk through backward integration and capacity expansion. Employee retention identified as a challenge.

Mitigation Strategies #

• Backward integration through new manufacturing facilities (IPiDS expected by end of FY25, other facilities by 2025) to reduce reliance on outsourced processes. Current manufacturing space: 55,000 sq. ft.; planned expansion to over 445,000 sq. ft.
• Adoption of newer technologies for value efficiency and capacity utilization.
• Development of new product lines (Universal Homming System, Landing Gear Actuators, etc.).
• Focus on employee development, engagement, and retention.
• EHS management systems at plants.

Apollo Micro Systems Limited (FY 2023-24) Financial Analysis #

Long-term Strategic Goals and Progress #

Apollo Micro Systems Limited (AMS) aims to transform into a Tier-I Original Equipment Manufacturer (OEM) and a comprehensive solutions provider with “Total Solutions Under One Roof” in the Indian defence, space, and homeland security sectors. Key long-term goals include expanding manufacturing capabilities, achieving self-reliance in alignment with “Atmanirbhar Bharat,” enhancing product innovation, and growing export revenues.

Progress in FY24: #

• Capacity Expansion: Significant progress was made with the inauguration of the Integrated Plant for Ingenious Defense Systems (IPiDS) in Hyderabad. Construction commenced on two new facilities (40,000 sq. ft. and 350,000 sq. ft.), expected to be completed by the end of FY25, which will substantially increase manufacturing capacity to over 445,000 sq. ft. A new weapon integration facility at Unit-III was also invested in.
• Revenue Strategy: A strategic shift towards production-based contracts was implemented to ensure long-term revenue visibility and stability.
• Backward Integration: Initiatives were undertaken to strengthen in-house capabilities and reduce reliance on outsourced processes, notably through the IPiDS facility.
• Market Focus: While strengthening its domestic position, the company is also developing solutions with export potential.
• Financial Outlook: Management anticipates robust revenue growth of 20-25% in the coming fiscal years, with EBITDA margins projected at 22-24%, driven by opportunities in the defence sector and government indigenization policies.

Competitive Advantages and Market Positioning #

AMS leverages several competitive advantages:

• Experience & Specialization: Over 39 years of experience in designing, developing, and manufacturing high-performance, mission-critical electronic and electro-mechanical solutions.
• End-to-End Capabilities: Offers “Total Solutions Under One Roof,” from design and development to manufacturing, assembly, and testing, including custom-built COTS solutions.
• R&D Focus: Strong emphasis on innovation and Intellectual Property (IP) creation, with an average R&D investment of 7-8% of revenue (₹2,978.83 lakhs in FY24) and a dedicated R&D team of over 165 professionals. Possesses CEMILAC certification for its R&D center.
• Manufacturing Prowess: State-of-the-art manufacturing facility (currently 55,000 sq. ft.) with ongoing significant expansion. Inspection processes align with DGQA standards.
• Strategic Alignment: Well-positioned to benefit from government initiatives like “Make in India” and “Atmanirbhar Bharat,” particularly the Indigenously Designed, Developed, and Manufactured (IDDM) category.
• Customer Base: Established relationships with the

Financial Analysis Report: Apollo Micro Systems Limited (FY 2023-24) #

Auditor’s Opinion and Qualifications #

• Standalone Financial Statements: The Independent Auditor’s Report on Standalone Financial Statements, issued by S.T. Mohite & Co., Chartered Accountants, opines that the statements give a true and fair view in conformity with Indian Accounting Standards (Ind AS) and the Companies Act, 2013. No qualifications were made to the opinion.

Key Audit Matters (KAMs) - Standalone #

1. Capital Work in Progress (CWIP): Appropriateness of recording costs (₹2,397.75 lakhs for testing tools/instruments and ₹3,075.59 lakhs for civil works) as CWIP, particularly the management’s judgment in assessing if costs meet Ind AS 16 recognition criteria. Auditors assessed processes, tested controls, reviewed business plans, performed substantive tests on additions, and scrutinized ledgers. No inappropriate capitalization was identified.
2. Inventories: Significant inventory holding (₹43,351 lakhs, 45.40% of total assets) with specific customer focus, posing remote obsolescence risk and difficulty in NRV estimation. Auditors assessed internal controls, reviewed physical verification procedures, tested management’s physical counts, analyzed order book alignment with WIP/finished goods, and evaluated disclosure appropriateness.

• Consolidated Financial Statements: The Independent Auditor’s Report on Consolidated Financial Statements, also by S.T. Mohite & Co., opines that the statements give a true and fair view of the consolidated state of affairs. No qualifications were made to the opinion.

Key Audit Matters (KAMs) - Consolidated #

1. Capital Work in Progress (CWIP): Similar to standalone, focusing on the appropriateness of CWIP recording (₹2,397.75 lakhs for testing tools/instruments and ₹1,182.70 lakhs for civil works under projects in progress). Auditor response mirrored the standalone approach.
2. Inventories: Similar to standalone, concerning significant inventory holding (₹43,333.27 lakhs). Auditor response mirrored the standalone approach.

• Note on Internal Financial Controls (Standalone & Consolidated Auditor’s Report): While the overall opinion on internal financial controls was that they were adequate and operating effectively, a specific observation was made in the “Report on other Legal and Regulatory Requirements” section [Para 2(i)(vi) for Standalone, Para 1(i)(vii) for Consolidated]. The accounting software used by the holding company (and its subsidiaries) did not have the audit trail (edit log) feature enabled throughout the financial year under review. Consequently, reporting on tampering or preservation of the audit trail was not applicable.

Key Accounting Policies and Changes #

• The financial statements (standalone and consolidated) are prepared under the historical cost convention on an accrual basis, complying with Ind AS, except for certain financial instruments measured at fair value.
• Consistency: The accounting policies adopted are consistent with those of previous years. Note 3.17 (Recent Pronouncements) in the Standalone Financial Statements confirms that the Ministry of Corporate Affairs (MCA) has not notified any new standard or amendments applicable to the company for FY 2023-24 that would necessitate a change in accounting policy.

Key Policies Summarized #

• Revenue Recognition (Ind AS 115): Recognized when performance obligations are satisfied, and control transfers to the customer. Measured at transaction price net of discounts, returns, and GST.
• Leases (Ind AS 116): Right-of-Use (ROU) assets and lease liabilities are recognized. ROU assets are amortized over the shorter of lease term or useful life.
• Property, Plant and Equipment (Ind AS 16): Carried at cost less accumulated depreciation and impairment. Depreciation is on a straight-line basis over useful lives prescribed in Schedule II of the Companies Act or as per technical assessment.
• Intangible Assets: Measured at cost less accumulated amortization and impairment.
• Inventories: Valued at the lower of cost (weighted average) and net realizable value (NRV).
• Financial Instruments (Ind AS 109): Initial recognition at fair value. Subsequent measurement based on classification (amortized cost or FVTOCI/FVTPL). Expected Credit Loss (ECL) model applied for impairment, with a simplified approach for trade receivables.
• Taxation: Current tax based on taxable income. Deferred tax recognized using the balance sheet approach for temporary differences.
• Employee Benefits: Short-term benefits expensed. Defined contribution plans (Provident Fund) expensed as incurred. Defined benefit plans (Gratuity) valued actuarially using the Projected Unit Credit method, with remeasurements through OCI.

Internal Control Effectiveness #

• Management’s Responsibility: Management is responsible for establishing and maintaining adequate internal financial controls.
• Auditor’s Opinion (Standalone & Consolidated - Annexure B): The auditors opined that the company (and the Group) has, in all material respects, an adequate internal financial control system over financial reporting and such controls were operating effectively as at March 31, 2024.
• Significant Deficiency Noted: As highlighted under Auditor’s Opinion [Section 1, point regarding Internal Financial Controls], both Standalone and Consolidated Auditor’s Reports [Para 2(i)(vi) and 1(i)(vii) respectively] pointed out that the accounting software used did not have the audit trail (edit log) feature enabled throughout FY 2023-24. This is a significant deficiency in IT general controls, impacting the ability to ensure data integrity and track modifications to accounting records, even though the overall opinion on IFC effectiveness was positive.

Regulatory Compliance Status #

• Secretarial Audit Report (Annexure-B to Directors’ Report):
  • Observation 1: ROC, Hyderabad issued a show-cause notice (04/06/2024) for non-filing of Cost Audit Report (Form CRA-4) for FY 2022-23. The company responded (12/07/2024), citing oversight, and filed the form on 12/07/2024. No further ROC action reported as of the audit report date.
  • Observation 2: BSE Limited levied a fine of ₹20,000 (plus taxes) for a one-day delay in filing the trading application for 2,29,99,990 equity shares allotted upon warrant conversion (SEBI ICDR Regs. & circular). Fine paid on 19/07/2023.
• Corporate Governance Report (Other Disclosures - Non-Compliance):
  • BSE fine for 1-day delay in trading application (as above).
  • NSE fine of ₹47,200 for 8-day late submission of RPT disclosure for quarter ended March 2023.
  • BSE & NSE fines of ₹1,35,700 each for improper Board Composition (period 13/10/2022 to 04/11/2022).
• Internal Financial Controls: The lack of an enabled audit trail in the accounting software throughout the year (Auditor’s Report on Other Legal and Regulatory Requirements) is a deviation from expected IT governance standards, although not explicitly cited as a regulatory penalty in this section, it’s a compliance concern.