Apollo Micro Systems Ltd Q1 FY27 Earnings Call Summary

Event Participants

Executives

3 Addepalli Krishna Sai Kumar (Whole Time Director, Operations), Karunakar Reddy Baddam (Managing Director), Sudasthan Shiluvedu (CFO)

Analysts

11 Amit Dixit (Goldman Sachs), Amit Kumar (HDFC Securities), Ashit Kothi (Almondz Global Securities), Deepak Sharma (Individual Investor), Deepanshu Bhatia (Finviz), Hiral Nandu (Kalpvruksh Capital), Jaykant Kasturi (Bandhan AMC), Meet Gada (Sangri Family Office), Ronak Singhvi (NAFA Capital), Shreyans Gattani (S.G. Securities), Vikash Singh (ICICI Securities)

Financials & KPIs

Geographic & Segment Commentary

Defense Electronics (Core Standalone Business): Delivered 17% YoY revenue growth at ₹156 crores with margins expanding to 31% EBITDA and 18% PAT - the highest June quarter performance in company history. Order book stands at ₹1,224 crores standalone. Management emphasized that YoY comparisons are more meaningful than QoQ due to milestone-based execution of defense contracts and uneven revenue recognition across quarters.

Ideal Exposures (Explosives Subsidiary): Consolidated revenue includes ₹480 crores order book at Ideal. The subsidiary turned PAT positive in Q1 FY27 but with minimal profitability due to reduced volumes in bulk explosives after the Coal India ban was lifted - management selectively participated in chosen circles where margin economics worked. EBITDA positive was achieved in Q4 FY26; full profitability expected from next financial year as restructuring completes and new manufacturing of accessories (erstwhile GOCL products) begins.

Premier Explosives (Proposed Acquisition): Definitive agreement signed to acquire 41.33% promoter stake at ~₹1,550 crores (all cash). Company already working on 155mm artillery shell testing for Indian Army. Strategic intent is to create integrated defense platform company across weapons, arms and ammunition value chain - backward integration for Apollo's propulsion/propellant needs and forward integration for complete weapon manufacturing.

Company-Specific & Strategic Commentary

Premier Explosives Acquisition: Acquisition of 41.33% stake valued at ₹1,550 crores (all cash) positions Apollo across the entire missile and guided weapon value chain. Management cited core rationale as backward integration (propulsion, propellant) plus forward integration toward becoming prime OEM for in-house developed weapons. Fundraise of ~₹3,300 crores allocated as: ₹2,500 crores for acquisition, ~₹500 crores for working capital/debt repayment, balance for corporate purposes. Management noted consumption of explosives/propellants in current business is minuscule, but will scale meaningfully from next financial year with MIGM/rocket orders.

New Product Development Programs: Successfully handed over indigenously designed and developed Safety & Detonation Device (SDD) to Indian Navy with 100% indigenous content - strengthens MRO and future weapon/missile program potential. Received Make-2 Prototype Sanction Order from Indian Navy for "Savior" ASW semi-submersible autonomous vessel for ISR and anti-submarine warfare. Appointed by IAF as prime development agency for i-PRAK program under Make-2 (DAP 2020) - conversion of dumb bombs into precision-guided, range-extended bombs.

Autonomous Systems Push: Company making significant investments in autonomy across land, air and sea domains. Management indicated "few thousands of crores per order" is the opportunity size in autonomous systems. Strategy combines internal R&D with partnerships - retired DRDO scientists as advisors, academic partnerships for deep research. New USV swarm program already initiated.

Unit 3 Capacity Expansion: New facility in first phase has started production; complete production activity expected before March 2027. Once fully operational, company will provide revised guidance and pursue export orders more aggressively. Export revenue currently nil; export opportunities tracked separately from the 40-45% growth guidance.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Premier Explosives Acquisition Synergies

• Question: How will Premier synergies materialize and change product economics? (Amit Dixit - Goldman Sachs)
• Answer: Apollo already has strong presence across weapon systems electronics (fuse to seeker to actuation); Premier brings propulsion strength for space and weapons applications. Combined entity enables complete in-house weapon manufacturing without third-party dependency. Margin impact limited currently as explosive consumption is minuscule, but will matter from next financial year when MIGM and rocket orders scale. (Krishna Sai Kumar)

QRSM and HAL Order Status

• Question: What is the status of QRSM order and HAL-related business? (Amit Dixit - Goldman Sachs)
• Answer: QRSM electronics order to BEL anytime - bidding/negotiation complete; missile portion to BDL. Total order value expected ₹11,000-12,000 crores; first tranche 1,000 missiles. Apollo supplies 5 subsystems including complete guidance system, onboard computer, and front-end rail activation - more than ₹1,000 crores per tranche. From HAL currently doing ~₹150 crores order, expecting another ~₹150 crores. Also supplying systems for Tejas Mark 1A/Mark 2. (Karunakar Reddy)

Ideal Turnaround and MIGM Timeline

• Question: What's the Ideal transformation plan and MIGM timelines post-DAC approval? (Shreyans Gattani - S.G. Securities)
• Answer: Ideal was EBITDA positive in Q4 FY26 and PAT positive in Q1 FY27 but minimal due to selective participation in Coal India circles. Manufacturing of accessories from erstwhile GOCL products to start in next 2 quarters, improving bulk explosive margins. Integration plans for defense will be announced post-Premier acquisition completes. MIGM inquiry expected next month from Indian Navy; purchase order expected Dec-Jan; ₹3,500 crores budget with 20% advance; ~70% share expected; execution from next financial year. (Krishna Sai Kumar, Karunakar Reddy)

Revenue and Margin Guidance

• Question: What is the revenue, EBITDA margin guidance for next 2-3 years and order conversion timeline? (Deepak Sharma - Individual Investor)
• Answer: Revenue growth guidance of 40-45% maintained on both consolidated and standalone basis. Company does not give EBITDA margin guidance - "momentum will continue to be same." MIGM production starts next financial year; QRSM execution also from next financial year. New guidance after December when Unit 3 fully operational. QRSM/MIGM orders land in current financial year with production from FY28. (Krishna Sai Kumar, Karunakar Reddy)

R&D Spend and Exports

• Question: What is R&D as percentage of revenue and export status/margins? (Sameer - Individual Investor)
• Answer: Current export revenue is nil. R&D spend in FY26 was ₹72.53 crores on revenue of ₹764 crores - that's ~9.5% of revenue (corrected from earlier figure of ₹27.6 crores/4%). Export orders expected once Unit 3 operationally ready - company targeting meaningful breakthroughs this financial year and sizable orders from next financial year, excluding exports from 40-45% growth guidance. (Krishna Sai Kumar, Karunakar Reddy)

Kusha Program Contribution

• Question: What is Apollo's role in Project Kusha (long-range air defense)? (Jaykant Kasturi - Bandhan AMC)
• Answer: Apollo supplied almost 7 critical subsystems for Kusha including critical front-end actuation systems and onboard systems. 150 km range version test completed; one appreciation letter from PMO expected shortly. Two more versions (250 km and final km) to be tested in next few months. Program progressing on fast track. (Karunakar Reddy)

Autonomous Systems Strategy and Order Visibility

• Question: What is strategy on autonomous weapons/platforms and engagement with forces? (Meet Gada - Sangri Family Office)
• Answer: i-PRAK smart bomb program leverages existing surface-to-surface experience and Tara program. Air Force has thousands of bombs in inventory under modernization - massive conversion requirement. Autonomy opportunity described as "humongous" - even with 2-3 players, everyone will enjoy few thousands of crores in orders. For aerial bombs, 9 variants (1kg to 25kg) testing completed with user acceptance received. Company building some capabilities in-house, partnering with domestic/international players where needed. (Karunakar Reddy, Krishna Sai Kumar)

Make-2 Programs Timeline (ASW, i-PRAK, SDD)

• Question: What are timelines for the three Make-2 programs (ASW, i-PRAK, SDD) and medium-term revenue potential? (Vinay Kumar - Individual Investor)
• Answer: PSOs expected to complete in ~18 months span, followed by orders within a year post-completion - roughly late 2029 for meaningful order inflow. ASW semi-submersible has minimal explosive/propulsion requirement; i-PRAK is primarily a conversion system; SDD has minuscule explosive content. TAM details already shared in press releases. (Krishna Sai Kumar)

Mode Mines and Limpet Mines Status

• Question: Status of mode mines and limpet mines? (Karthik - Individual Investor)
• Answer: Mode mine technical trials completed; handover to Indian Navy expected anytime this month - celebration planned. DCP (Development cum Production Partner) contract signing expected within two weeks. Limpet mines trials also completed; orders expected next financial year, not current year. (Karunakar Reddy)

Key Takeaway

Apollo Micro Systems delivered its best June quarter ever in Q1 FY27 with consolidated revenue of ₹251 crores (+88% YoY), standalone revenue of ₹156 crores (+17% YoY), and record margins (31% EBITDA, 18% PAT standalone), driven by continued defense electronics execution. The quarter was defined by strategic moves - the ₹1,550 crores Premier Explosives acquisition (41.33% stake) creating full-spectrum missile/weapons value chain integration, handover of 100% indigenous SDD to Indian Navy, Make-2 sanctions for the Savior ASW system and i-PRAK smart bomb program, plus unit 3 capacity expansion nearing completion. Management maintained 40-45% revenue growth guidance, expects order book to reach ₹3,500-4,000 crores by FY27 end on the back of large QRSM (₹11,000-12,000 crores program; Apollo content >₹1,000 crores per 1,000 missiles) and MIGM (₹3,500 crores; ~70% share) orders, with execution starting next financial year. Risks include uneven quarterly revenue recognition, Ideal subsidiary turnaround execution, and regulatory timing on the Premier open offer, while export revenues remain nil but are targeted to become a meaningful contributor from FY28 once capacity constraints ease.