Newsletter
Apollo Micro Systems just posted its Q1 FY26 results and by most operational metrics, it’s their strongest first quarter yet. Revenue rose 46% year-on-year, PAT more than doubled, and margins expanded smartly. But despite this momentum, the stock didn't see a celebration rally. In fact, investors seemed cautious, possibly weighed down by the broader market correction or Apollo’s high working capital cycle.
Still, this report marks an important milestone. Especially with Apollo clocking its first-ever export order, completing a major acquisition, and prepping its new manufacturing units for scale. This is a company that started out in 1985 building CAD designs, but today plays a key role in the brains, nerves, and eyes of India's smart weapons — from missiles to mines.
Their DNA has always been indigenous innovation. Over four decades, Apollo has grown from a small systems integrator into a key supplier for DRDO, BEL, BDL, and Indian Navy platforms. Whether it’s sonar tech for warships or embedded sensors for missiles, Apollo’s deep design-led positioning is now starting to translate into commercial scale.
What this quarter tells us is simple: they’re readying for that next leap from a niche Tier 2 vendor to a Tier 1 OEM across the munitions and defence electronics value chain.
How this quarter stacks up*
After a blockbuster Q4, Q1 still held strong on profits and margins despite a seasonal dip in revenues.
*Consolidated | Data taken from Apollo Microsystems Q1FY26 result and investors PPT
What changed this quarter
Even as revenues dipped quarter-on-quarter due to the lumpiness of defence contracts, Apollo pulled off a big win: its first export order worth $13.37 million (₹113.8 crore). This avionics system deal; applicable for both civil and military aircraft, signals a long-awaited entry into global markets.
Margins saw sharp expansion thanks to better mix, higher capacity utilisation, and improved cost controls. The revenue jump (up 46% YoY) also reflects multiple product lines now shifting from prototype to production. The Q1 base was low, but the margin narrative is turning real.
Profitability, capital, and everything in between
Apollo’s PAT jumped 110% YoY and 27% sequentially; a rare feat in a seasonally softer Q1. The drivers were margin expansion, a drop in material costs, and moderate finance expenses. Interest costs were ₹120 crore in Q1, slightly up from ₹105 crore in Q4.
The company’s return ratios are also climbing. RoE stood at 12% for FY25 vs 10% in FY24, while RoCE moved to 13% from 10%. Cash flow from operations turned positive in FY25 at ₹11.27 crore, a reversal from -₹78 crore in FY24.
Despite high inventory and receivables, the working capital cycle reduced from 600 days to 445 days. Management expects further compression once the new manufacturing units go live and scale kicks in.
No changes in GNPA/NNPA as this isn’t a lender, but the capital structure saw dilution this quarter, Apollo raised funds via a preferential issue of shares and warrants, most of which were fully subscribed.
The next bets
Apollo is entering a new phase of manufacturing scale. Its Unit II is set to go live in Q2, while Phase 1 of Unit III will be ready by September 2025. These facilities, totalling over 4 lakh sq. ft. will support weapon integration, system-level testing, and mass production.
Meanwhile, the acquisition of IDL Explosives for ₹107 crore was completed via its subsidiary ADIPL. This gives Apollo access to a strategic explosives capability and a sizable land bank for future expansion. It's a vertical integration move aimed at capturing more of the munitions value chain.
On the R&D front, Apollo is doubling down. A ₹100 crore R&D allocation has been earmarked for FY26, with new developments in underwater sensors, secure datalinks, and actuation systems underway. The company also continues its collaboration with BEL and GRSE for joint development of naval platforms.
Challenges for the next few quarters
- Execution delays on new unit scale-up or order deliveries
- High working capital and debtor days remain a drag on cash flows
- Rising competition in defence electronics from larger peers and global players
- Regulatory risk on defence capital procurement timelines
- Any shortfall in defence budget execution amid geopolitical volatility
What to track before the next earnings call
The management has guided for 45–50% revenue CAGR over the next two years, excluding contribution from IDL Explosives. Investors should track order inflows, particularly in the underwater and naval segment where Apollo has deep competence.
Progress on export orders, including new geographies and avionics solutions could also become a strong growth lever.
The monetisation of the IDL acquisition will reflect from Q2 onward, so margin trends and scale benefits there will be closely watched.
Lastly, keep an eye on inventory turnover and the working capital cycle. That’s where cash flow performance can surprise, positively or otherwise.
The road ahead
Apollo’s Q1 FY26 isn’t just about better margins or a strong PAT. It marks a strategic pivot from being a niche systems vendor to a scaled-up, full-stack OEM across weapons, electronics, and explosives.
The broader defence electronics space is heating up. With India’s capital defence budget rising, and Make-in-India incentives growing deeper, there’s room for a handful of tech-led players to shine. But scale, execution, and integration will be the true differentiators.
Apollo’s playing the long game. It’s not chasing every defence contract. But in the segments it knows best: missiles, naval systems, and underwater warfare, it’s quietly building a moat.
FAQs
Why didn’t Apollo Micro Systems stock rally after strong Q1 FY26 results?
Despite solid numbers, the stock stayed muted due to broader market weakness and lingering concerns around Apollo’s high working capital cycle, which continues to impact cash flows.
What was Apollo Micro Systems' revenue growth in Q1 FY26?
Apollo reported a 46% year-on-year growth in revenue for Q1 FY26, driven by scale-up in production lines and improved operational execution despite a seasonal sequential dip.
How much profit did Apollo Micro Systems post in Q1 FY26?
Apollo clocked a net profit of ₹176.8 crore in Q1 FY26, up 110% year-on-year and 27% quarter-on-quarter, supported by better margins and lower material costs.
What are the key reasons behind Apollo’s margin expansion this quarter?
The margin boost came from higher capacity utilisation, better product mix, and tighter cost controls. EBITDA margin expanded from 22% to 31% QoQ, while PAT margin rose to 13%.
What is the significance of Apollo’s first export order in Q1 FY26?
Apollo secured a $13.37 million export order for avionics systems applicable to civil and military aircraft. This marks the company’s formal entry into global defence electronics markets.
Has Apollo Micro Systems improved its working capital position?
Yes, the working capital cycle dropped from 600 days to 445 days, showing better cash conversion. Further improvement is expected as new plants go live in FY26.
What’s the update on Apollo’s new manufacturing units?
Unit II is set to go live in Q2 FY26, and Phase 1 of Unit III will be operational by September 2025. These units are designed to support scaled production and integration.
What is the strategic importance of Apollo acquiring IDL Explosives?
Through its subsidiary, Apollo acquired IDL Explosives for ₹107 crore, enabling vertical integration into the munitions value chain and providing land for future manufacturing expansion.
What is Apollo’s R&D focus in FY26?
Apollo plans to invest ₹100 crore in R&D during FY26, focusing on underwater sensors, secure datalinks, and advanced actuation systems to deepen its technology-led product edge.
What are the key risks for Apollo Micro Systems going forward?
Risks include execution delays on new units, cash flow strain from receivables, rising competition in defence electronics, and any policy slippage in defence capital procurement.
