Apollo Micro Systems IPO kicks off; can it match returns delivered by BEL, others in long term?

NEW DELHI: Apollo Micro Systems (AMSL) has many listed peers, such as Bharat Electronics and Centum Electronics, which have delivered up to 1,320 per cent return in last five years, thanks to surging demand for defence electronics amid push for indigenous development by the government .

At pre-issue P/E of 29 times 1HFY2018 annualised earnings, can this Hyderabad-based manufacturer of electronic, electro-mechanical and engineering designs be a good long-term buy?

The company has fixed the IPO price band at Rs 270-275 per share.


The opportunity is unique for companies in the electronic system design & manufacturing (ESDM) space, as the industry is expected grow to $228 billion by 2020 from $100 billion at present. That said, sectors like this generally have stretched working capital cycles and can only be long-term buys, analysts noted.

The company reported a 54.2 per cent increase in profit on a 43 per cent rise in sales, compounded annually, over FY2014-17.

"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 in a note.

Also Read: Apollo Micro Systems IPO subscribed 59% on Day 1

But not all brokerage are sanguine on the issue.

Choice Broking noted the highly stretched working capital cycle is key concern for the company and the sector it deals in. Given the valuations, the business looks fairly priced, leaving limited space for further upside, it said.

"The defence investment theme is long term in nature. Given the strong sector outlook, we believe that the stock would provide returns in medium to long term. We assign a Subscribe with Caution” rating for the issue," it said.

The company plans to use the proceeds of the Rs 156 crore issue to meet additional working capital and other general corporate purposes.

Retail investors and eligible employees will be offered a discount of Rs 12 on the issue price of the IPO. The minimum lot size for subscription is fixed at 50 shares. The issue will close on Friday.

GEPL Capital expects the company to gain from operating leverage. "AMSL has a unique business model and strong growth metrics which will make it lucrative. We assign a Subscribe rating to the IPO," the brokerage said.