Apollo Micro Systems reports 81% profit surge, but stock nosedives – explained

Why Did Apollo Micro Systems Stock Drop Despite Strong FY25 Earnings?

Apollo Micro Systems Limited (NSE: APOLLO, BSE: 540879) reported its strongest-ever financial performance for the fiscal year ended March 31, 2025, with revenue reaching ₹562 crore, an impressive 51% increase year-on-year. Despite this historic performance, the company’s share price fell sharply by 9.62% on May 23, closing at ₹136.15 compared to the previous close of ₹150.65. This paradox between record financial growth and market reaction raises key questions for investors and analysts alike.

What Drove Apollo Micro Systems’ Record-Breaking FY25 Performance?

The growth story for Apollo Micro Systems in FY25 was anchored in its expanding footprint in India‘s indigenous defense ecosystem. The company posted a Profit After Tax (PAT) of ₹56 crore, up 81% from ₹31 crore in FY24. EBITDA grew to ₹132 crore from ₹86 crore a year ago, with a healthy margin of 23.5%. The fourth quarter alone saw revenue of ₹1,617.7 million, up 19% year-on-year. These numbers confirm Apollo’s ability to scale revenue and maintain profitability despite volatility in quarterly margins due to the nature of defense contracts.

Managing Director Baddam Karunakar Reddy emphasized that FY25 marked a “landmark year” driven by the successful transition of complex, high-value products into production, strong execution of defense programs, and a growing order book. The management’s focus on indigenous technology and strategic alignment with India’s Atmanirbhar Bharat vision has strengthened the company’s position as a dependable partner in critical national projects.

How Is the IDL Explosives Acquisition a Game Changer?

One of the most significant developments during the year was Apollo’s acquisition of IDL Explosives Ltd. This acquisition, which management described as a “strategic milestone,” is expected to elevate Apollo Micro Systems into the league of fully integrated Tier-1 defense OEMs. The integration will expand its manufacturing capabilities and diversify its product base across key segments of the defense supply chain.

The acquisition also positions Apollo to capture more opportunities as defense indigenization becomes a central pillar of India’s geopolitical strategy. Management projects revenue to grow at a 45%–50% CAGR over the next two years even without including contributions from IDL Explosives, highlighting confidence in the company’s organic growth trajectory.

What Explains the Negative Stock Reaction Despite Strong Earnings?

While Apollo Micro Systems posted robust FY25 numbers, short-term investor sentiment appeared shaken due to several possible reasons. First, the Q4 PAT of ₹139.6 million was down 23% sequentially from ₹182.4 million in Q3FY25, even though it showed an 8% rise YoY. Margins also contracted on a quarterly basis, with EBITDA margin slipping to 22% from 26% in Q3. This sequential decline may have disappointed investors who were expecting a sustained upward trajectory quarter-over-quarter.

Second, concerns may also stem from the company’s capital expenditure plans. While management guided for operating leverage gains in the first half of FY26, they also acknowledged that planned investments could moderate margin expansion in the second half of FY26 and FY27. Investors may have interpreted this cautious forward guidance as a reason to lock in profits.

Third, with the stock having recently touched a 52-week high of ₹157 (as on January 21, 2025), some level of profit booking was likely. The stock’s adjusted P/E ratio stood at an elevated 77.17, suggesting valuation concerns in light of moderating short-term earnings visibility.

How Strong Is Apollo Micro Systems’ Financial Position Going Into FY26?

Apollo Micro Systems continues to show a healthy balance sheet. Equity share capital rose to ₹306.5 million from ₹282.4 million a year ago, while reserves grew to ₹5,769 million. Borrowings increased significantly to ₹3,353 million from ₹2,080 million, reflecting ongoing investments into manufacturing and R&D capabilities.

On the assets side, inventory jumped from ₹4,335 million to ₹6,006 million, aligning with the company’s ramp-up for production deliveries. Cash and cash equivalents increased from ₹207 million to ₹625 million, providing a cushion for short-term obligations. Total assets stood at ₹12,995 million, up from ₹9,562 million in FY24, affirming a broader scale-up across the board.

How Do Broader Sectoral and Geopolitical Trends Impact Apollo?

Apollo’s performance in FY25 was also shaped by a conducive macro-environment for Indian defense firms. With geopolitical tensions, especially the India–Pakistan conflict, triggering heightened focus on domestic defense capabilities, demand for indigenous solutions has surged. Apollo confirmed that several of its systems were successfully tested and demonstrated during this time, sparking interest from defense stakeholders.

The government’s policy push for self-reliant defense manufacturing under Atmanirbhar Bharat and expanding procurement budgets offers further tailwinds. Apollo’s proven execution in mission-critical applications puts it in a favorable position to benefit from this shift. Institutional investors are likely monitoring these tailwinds closely, especially given Apollo’s expanding order book and diversification post-acquisition.

What Is the Outlook for Investors in Apollo Micro Systems?

The medium-term outlook for Apollo Micro Systems remains positive, especially given management’s revenue guidance of 45%–50% CAGR. However, near-term volatility is expected to persist due to execution cycles, quarterly margin fluctuations, and elevated valuations. Long-term investors may find comfort in the company’s trajectory toward becoming a vertically integrated defense OEM, its alignment with national strategic goals, and its aggressive expansion strategy.

For traders, the stock’s high daily volatility of 3.56% and annualized volatility of 68.01% could offer swing opportunities, although the narrow free float may amplify price movements. Retail investors should weigh the strong fundamentals against the current valuation and market sentiment, while institutional players may prefer to accumulate on dips, especially during broader market corrections.

Apollo Micro Systems Limited has delivered a record-breaking fiscal year, not just in numbers but in strategic direction. With robust financials, a major acquisition, and alignment with national defense goals, the company is positioning itself as a long-term play in India’s defense sector. The recent stock decline likely reflects profit booking and margin concerns rather than a structural issue. For patient investors, Apollo’s trajectory suggests an emerging defense powerhouse worth watching closely in FY26 and beyond.