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Apollo Micro Systems FY26: Strong Growth, Bigger Ambitions, and a Tough Cash Flow Reality

Apollo Micro Systems ended FY26 with its strongest reported year yet, supported by sharp growth in consolidated revenue and profit. For the full year, consolidated revenue from operations rose to Rs 904.3 crore, up 61% year on year. EBITDA excluding other income increased to Rs 218.2 crore, up 69%, while PAT climbed to Rs 107.4 crore, up 91%.

The March quarter was equally headline-worthy. Q4 FY26 consolidated revenue from operations was Rs 293.3 crore, up 81% year on year, and management described it as the company’s highest-ever quarter on revenue, EBITDA, and PAT.

But beyond the numbers, FY26 also marked a strategic inflection. The company is positioning itself as a fully integrated defence manufacturer spanning electronics, systems, weapons, and now explosives. The year brought a combination of capacity expansion plans, deeper R&D spending, and a major regulatory milestone in the form of a lifetime arms manufacturing license.

FY26 performance: Growth with improving margins

Apollo Micro Systems reported a steady expansion in profitability at the consolidated level. In FY26, consolidated EBITDA margin improved to 24.1% from 23.0% in FY25, while PAT margin increased to 11.9% from 10.0%.

In Q4 FY26, the company reported EBITDA margin of 23.1% and PAT margin of 12.5%. Compared with Q3 FY26, margins also improved as EBITDA margin moved from 20.0% to 23.1% and PAT margin from 9.1% to 12.5%.

Management also highlighted a standalone profitability milestone. During the earnings call, the company stated it had targeted a 15% standalone PAT margin and ended FY26 at 16%.

A lifetime arms manufacturing license changes the scope

In April 2026, the company announced it received a lifetime arms manufacturing license from the Government of India, issued by DPIIT under the Arms Act, 1959. The disclosure states the license authorises Apollo Micro Systems to manufacture, assemble, integrate, and proof-test high-value strategic systems.

The licensed product set includes missiles, anti-tank guided missiles, torpedoes, underwater mines, safety and arming mechanisms, chaffs, flares and decoys, and also aerial bombs, rockets, and loitering munitions. The company stated the license permits commercial manufacture and proof-testing at two company-owned facilities in Hyderabad. The accompanying press release also mentions an annual production capacity of 1,000 units per category.

Strategically, this matters because Apollo has historically been positioned as a supplier of mission-critical electronics, subsystems, and integrated assemblies for defence programmes. The license supports a move further up the value chain, where the company can potentially act as an end-to-end platform manufacturer for select weapon categories.

IDL Explosives: Vertical integration with near-term pain

A key strategic bet is the acquisition of IDL Explosives. The investor presentation states Apollo Defence Industries Pvt Ltd completed the 100% acquisition of IDL Explosives for Rs 107 crore in an all-cash transaction.

The acquisition rationale is clear in the presentation: it increases the addressable market, creates a one-stop value chain across energetics and weapons, and is expected to enable cost efficiencies through integration.

However, management also acknowledged the near-term challenges. In the presentation, the company lists headwinds at IDL including gross margin volatility, a temporary ban by Coal India, and underutilised capacity. It then outlines actions taken, including securing alternate raw material sourcing, margin protection steps, entry into military explosives manufacturing, and conversion of capacity into revenue through contracts.

The ban issue appears to have been resolved. The company included an update that Coal India reduced the ban period from two years to one year, and as that period had already ended, IDL became eligible for future tenders. A subsequent update cited a running contract worth Rs 419.4 crore for bulk explosives supply to Coal India subsidiaries and a smaller export order.

Yet, on the earnings call, management stated that IDL had been loss-making for the last few years and remains in a transformation phase. They said the operational loss has reduced significantly and that they expect to start giving clearer guidance from Q3 onwards.

This is a key area for investors to track because it can affect consolidated profitability and cash flows until the turnaround stabilises.

Capacity buildout and R&D: The company is spending to expand

Apollo Micro Systems continues to highlight capacity expansion as a central enabler for moving from development and qualification into scaled production.

The investor presentation outlines a greenfield expansion plan with a stated total investment of Rs 300 crore and a land bank of about 2,47,441 sq ft adjacent to Unit 3 at TSIIC Hardware Park, Hyderabad. The planned scope includes manufacturing, assembly, integration, and testing for products such as Grad rockets, anti-submarine warfare rockets, anti-tank mines, artillery munitions, and similar weapon systems.

On R&D, the presentation states R&D spend was Rs 72.5 crore in FY26, which it describes as 8% of revenue, and also claims zero attrition in the R&D team during the year. Management highlighted development work including a mini torpedo, sensor suite for underwater autonomous vehicles, and fiber optic gyro based inertial navigation systems.

The earnings call also pointed to ongoing efforts in RF seeker development and the setup of a specialised RF seeker testing facility at its upcoming unit in the Hardware Park.

The financial trade-off: Profit growth vs cash conversion

While the reported profitability improved, FY26 also revealed pressure on cash generation. The historical consolidated cash flow table in the presentation shows cash flow from operating activities at negative Rs 129.8 crore in FY26. Investing cash flow was also materially negative, while financing cash flow was positive.

Working capital remains a structural feature of the business. The presentation reports working capital cycle improved from 626 days in FY21 to 359 days in FY26, but that is still extremely high in absolute terms.

Management addressed this directly in the presentation and on the call. They attributed high working capital to the need for defence-critical inventory, longer prototyping and testing cycles, and elongated production and qualification timelines. They also suggested that as more programmes move into production and as more testing facilities are brought in-house, holding periods should improve.

What management said about the near-term outlook

The company’s order book as of 31 March 2026 was reported at Rs 1,432 crore (consolidated). On the call, when asked about FY27 to FY28 inflows, management stated it expects large-ticket orders to come during FY27 and that the order book should increase significantly.

However, management did not provide numerical revenue guidance for FY27. It reiterated that it expects to continue growing at a similar pace or an accelerated pace.

On IDL, management said it is not yet giving guidance and expects to become more vocal from Q3 onwards.

Takeaways

Apollo Micro Systems delivered a strong FY26 on reported financials, supported by sharp growth in consolidated revenue and PAT and modest margin expansion. The company is also expanding its strategic scope. The lifetime arms manufacturing license and the acquisition of IDL Explosives both push Apollo into a broader, more vertically integrated defence manufacturing model.

At the same time, the documents highlight risks that need monitoring, especially negative operating cash flow, high working capital intensity, and the execution risk involved in turning around IDL Explosives.

FY27 will likely be judged on three things: order inflow conversion, cash flow improvement as production scales, and whether the explosives subsidiary moves from transformation to predictable profitability.