Multibagger small-cap defense stock Apollo Micro Systems gains 46% in just 10 sessions. What’s behind the rally?

Multibagger defense stock: Shares of Apollo Micro Systems, a small-cap company with a market capitalization of ₹4,000 crore, have made significant progress on Dalal Street in recent sessions, ending each day with stellar gains. Over the last 10 trading sessions, shares have risen ₹93.32 each to the current level of ₹135.65, resulting in a fantastic gain of almost 46%.

Demand for these defense-related stocks increased thanks to steady order gains achieved in recent months. In December, the company won several orders, including one worth ₹21.42 crore from Bharat Electronics.

In addition, it received an order value during the month ₹6.14 crore from the Defense Research and Development Organization (DRDO). The company closed the second quarter of the current financial year with new orders ₹130.96 crore (as per the company’s earnings filing), making it well-positioned for future growth and stability.

Based in Hyderabad, Apollo Micro Systems is engaged in electronic, electromechanical and engineering design, as well as manufacturing and supply. It designs, develops and sells high-performance, mission- and time-critical solutions for the defense, aerospace and homeland security sectors, targeting the Department of Defense, government-controlled public companies and private customers.

In the second quarter of FY25, the company achieved robust revenue growth of 84.38% ₹161 crore compared to ₹87 crore in the second quarter of FY24. For the half year, it recorded a total revenue increase of 73.91% ₹252 crore compared to ₹148 crore in H1 FY24.

The PAT for the second quarter of FY25 increased significantly to ₹15.7 crore, up from ₹7 crore in Q2 FY24. Notably, PAT saw a notable increase of 194.19% ₹24 crore in H1 FY25, up from ₹8.2 crore in H1 FY24.

Thanks to steady order wins and steady growth in fundamentals, the stock is up 1,016% over the past four years.

The strong momentum is likely to continue

India is expected to have a defense market opportunity worth $90-100 billion over the next five to six years, with the defense industry likely to grow at 13 percent per annum between FY24 and FY30.

Historically, India has been heavily dependent on imports of defense equipment, which has led to higher costs, delays and technological obsolescence. Over the past two decades, the Indian Army has modernized its system and added advanced weapons and advanced weapon systems.

Ranked as the fourth largest defense spender in the world, India has allocated a significant amount of $74.5 billion (Rs. 6,21,540.85 crore) to defense in the fiscal year 2024-25, a share of 13, 04% of the total Union budget.

The positive indigenization list makes it mandatory for the Indian Armed Forces, including the Army, Navy and Air Force, to procure listed items from domestic private sector players or DPSUs.

These are exclusively intended for the defense industry. The Department of Defense has approved five such lists, covering 4,666 items, of which 98 items have a value of more than $16.8 billion ( ₹1,40,000 million). This move not only reduces current account import costs but also increases MSMEs in the defense sector.

Disclaimer: The views and recommendations expressed in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to contact certified experts before making investment decisions.