In today’s Finshots, we decode how a little-known defence electronics firm is quietly building a big-bang future.

The Story

A month ago, Apollo Micro Systems was a blink-and-miss stock. Unless you closely followed India’s defence sector, it wouldn’t have crossed your screen. But today, it’s popped over 70%.

Now that alone doesn’t mean much. Stocks can rise for all kinds of reasons like momentum, speculation, even a viral social media forward. Especially if they are small caps, like Apollo.

But this time, there’s more to the story than just price action. Because the company’s business itself is changing. So let’s start there.

What exactly does Apollo Micro Systems do?

Well, it builds the invisible backbone of modern defence. It doesn’t make fighter jets or tanks but the intelligence inside them. Like the control systems, the sensors, guidance modules, the embedded electronics.

That’s where the company seems to have found its edge. While most players chase big hardware contracts, Apollo carved a niche in high-performance electronics. The kind that can survive extreme heat, pressure and electromagnetic interference in the middle of battle. It began as a supplier to ISRO and DRDO. But over time, it’s moved up the value chain — designing its own systems, partnering with state-run giants, and expanding across land, sea, air and even underwater. Its offerings now range from circuit board design and embedded software to torpedo tracking, concept-to-product development, drone-control systems and naval tech.

And last month, things really picked up.

First, the company bagged a ₹113 crore export order for avionic systems (the electronics used in aircrafts). Now, this was not a headline-grabber on its own, but this wasn’t just another average components deal. Because in the defence business, trust is everything. Governments and companies don’t hand over control systems to just anyone. So when a relatively small Indian firm breaks into the global supply chain, it signals that Indian defence tech may finally be turning a corner.

Then, came the bigger twist.

Apollo Micro Systems bought IDL Explosives — a 60-year-old ammo-maker with deep roots in India’s defence sector.

Think about that for a second. Apollo built its reputation as a specialist in embedded systems like circuit boards, sensors, software. With IDL under its belt, it has entered the world of ammunition and it can now pitch itself as a one stop solution. As the company puts it… “This marks a new chapter for Apollo Micro Systems as we move closer to becoming a fully integrated Tier-1 defence OEM.” It’s a small but noticeable shift from defence subcontractor to become a full-spectrum supplier.

And this move didn’t come out of nowhere. Over the past year, Apollo has been methodically expanding its reach. It signed a partnership with Munitions India Ltd. to co-develop advanced weaponry. It joined forces with Troop Comforts Ltd., a state-owned PSU, to build anti-drone and anti-aircraft systems. It collaborated with private firms on drone landing modules and underwater mines. And it’s developing torpedo guidance systems and software-defined tracking technologies.

So add it all up, and you see the silhouette of a company quietly bulking up and building capability.

And it’s also raising money to fuel this transformation.

Just this week, Apollo secured over ₹416 crore via a preferential allotment. LIC Mutual Fund came in. The promoter group chipped in. A board member joined too. Shares and warrants were priced at ₹114. And the company says the money is headed toward working capital, R&D, and expanding in defence, aerospace and homeland security. So it’s a strong signal, not just that Apollo wants to grow, but that institutional players are now willing to bet on that growth too.

And the timing couldn’t be better.

Because right now, India’s defence ecosystem is undergoing a structural shift.

The government is spending more on military modernisation. The defence budget this year is up 9.5%. Import restrictions are tightening. And there are clear indigenisation targets, incentive schemes and fast-tracked procurement processes for local players.

Defence manufacturing has been dominated by big PSUs like HAL, BEL, BEML for years in India. But today, they can’t do it all. The government wants private players too to fill the gaps. Especially agile ones that can co-develop cutting-edge tech with DRDO, iterate quickly and scale globally.

And Apollo seems to be slotting itself into that opportunity.

Its order book is growing. Its huge R&D investments are finally translating into products. And with the IDL deal, it can now offer end-to-end solutions. It’s an advantage in government contracts where bundling systems gives you an edge.

In fact, management says its core defence business (excluding explosives arm) could grow at 45–50% CAGR over the next two years. A bold claim for sure, but when you look at the export orders, partnerships, the new platforms being developed… it doesn’t seem that far-fetched.

But that’s just the business side of the story. Let’s also talk about the numbers to see if they back the story.

In FY25, Apollo Micro Systems achieved its highest-ever revenue of ₹562 crore, marking a substantial 51% increase from the previous year. Net profit surged by 81% to ₹56 crore, and the operational profit margin remained steady at 23%, indicating efficient cost management even amidst rapid growth.

However, beneath these numbers lie some areas that warrant attention.

Operating cash flow? Just ₹11 crore. Yes, it flipped from a negative ₹80 crore last year. But it’s still tiny compared to net profit. That means a lot of earnings are stuck in working capital, particularly in receivables. And that’s a common pain point for companies working with government orders.

Then there’s the debt. The debt-to-equity ratio is a reasonable 0.5x. But long-term borrowings have jumped from ₹9 crore to ₹38 crore in just a year. So there’s growing reliance on loans to expand and keep the wheels turning.

Another point of concern is the high percentage of pledged shareholding. As of March 2025, nearly 48% of promoter holding was pledged, up from 20% the year before. That’s a serious jump. And if Apollo’s stock were to fall, it could trigger margin calls. If the promoter can’t meet them, it risks a forced sell-off, something no shareholder wants to see.

And lastly, the valuations. The company's stock is trading at a price-to-earnings (P/E) ratio of over 100. Plus, it’s trading at 10 times its book value. This is higher than its peers and also suggests that the market has high expectations for future growth. 

And that’s fine, as long as performance keeps pace.

But what happens in a downcycle? When small caps lose steam? Or if defence orders dry up? Or if return on equity (ROE), which has hovered around 8% for the last three years, fails to improve?

So yeah, there are risks. Valuations are rich. Execution needs to match ambition. Defence contracts can be lumpy and unpredictable.

But every now and then, a small company catches a big policy wave and paddles with precision. And only time could tell if Apollo Micro Systems could do both over years.

Will it go the distance and make shareholders happy? Maybe. Maybe not. You tell us.

Until then…

Don’t forget to share this story on WhatsApp, LinkedIn and X.

Only 17% of millennials have a term plan❗

Here’s why getting a term plan early can do wonders for you & your family:

✅Protection: Simply put, term insurance is where you pay a small amount of money in exchange for a large amount of protection. This protection usually kicks in in the event the policyholder passes away.

But not just that, if you ever develop a critical illness (eg. cancer) and have to quit your job, a term plan can give you a lump sum amount to make up for the lost income.

✅Secure Your Parents: As your parents near retirement, they may start to rely on your income. And so, a term plan will give you peace knowing that they'll be financially supported even in your absence.

✅Low Premiums Forever: A term plan of ₹1 crore will cost you much lower premiums at 25 years than at 35. You can even get a ₹1 crore cover for as little as ₹10,000 a year if you are young and healthy. Plus, once these premiums are locked in, they remain the same throughout the term!

So don’t delay it! As they say, “The best time to buy term insurance was yesterday; the next best time is today.”

Click here to book a FREE call with Ditto Insurance’s certified advisors and get your personalised term insurance guidance.