Defense Stock Zooms 30% in 5 Days. What's Driving the Rally?

Recent weakness on Dalal Street has been driven by the recent surge in US Treasury yields which reached a 16-year high. This has ignited a wave of risk aversion among investors.

However, certain stocks have defied the odds and garnered bullish interest during Wednesday's trading session. Apollo Micro Systems shares are one of them.

After three consecutive days of declines, Apollo Micro Systems' shares staged a remarkable 8% rally on Tuesday. The stock continued the upward momentum, surging to hit the upper circuit on Wednesday.

In this article, we will delve into the factors contributing to this impressive performance.

Establishes Defence Manufacturing Facility

On October 3, 2023, the company announced an ambitious capital expenditure plan of Rs 1.5 billion (bn) to establish a defence equipment manufacturing facility at Hardware Park in Hyderabad.

The company intends to conduct a Bhumi Pooja ceremony for the plant during the upcoming Dusshera festival and aims to complete the project within nine months.

The proposed new units will expand the existing infrastructure by an impressive 300,000 square feet and will serve as a home for a defence electronics and electro-mechanical manufacturing facility, capable of handling bulk production.

These new units will include a dedicated clean room for the production of Inertial Systems, RF Systems, and equipment for Space Applications.

It will also be equipped with comprehensive Environmental Test Facilities, including an EMI-EMC facility accredited with NABL Laboratories. Additionally, this facility will feature an exclusive Test Facility for the testing and calibration of Navigational Systems such as INS, IMU, AHRS, and more.

In a strategic move towards advancing cutting-edge technologies and establishing a comprehensive defence ecosystem, the company has recently incorporated a wholly owned subsidiary named Apollo Defence Industries Private Limited.

Its primary focus will be on forming alliances and technological partnerships with international companies to develop state-of-the-art defence solutions and contribute to the nation's defence capabilities.

Apollo Micro Systems also announced significant agreements with the Defense Research and Development Organisation (DRDO), marking a significant milestone in their ongoing partnership.

These agreements underscore the company's unwavering commitment to achieving excellence in technology and fostering innovation in the realm of defence.

Strong Growth Prospects

The government allocated Rs 5.9 trillion (tn) to the Ministry of Defence in the Budget 2023-24. It has also introduced its fourth positive indigenisation list of 101 items subject to import restrictions.

This presents a significant opportunity for the Indian defence industry to leverage its indigenous design and development capabilities to meet the armed forces' demands by manufacturing these items domestically.

The company is actively engaged in discussions with various international companies interested in producing their goods under the 'Make in India' initiative, and this state-of-the-art facility will be utilized to fulfil their manufacturing needs.

The company specializes in designing, developing and marketing high-performance solutions vital for the aerospace, defence, space, and homeland security sectors.

The government of India has set an ambitious target of achieving Rs 1.8 tn in defence production by 2025, which also includes an export objective of US$ 5 bn i.e. about Rs 405 bn.

India has already begun exporting various defence sector equipment such as helicopters, naval vessels, aircraft, missiles, and armoured vehicles, highlighting its potential in the global market.

Indian space startups have also attracted substantial funding, exceeding US$ 200 million since 2021. With the Indian Space Research Organisation (ISRO) planning to establish its space station by 2030, there's considerable potential for increased private sector investments in the space industry.

This favourable policy environment positions the sector for sustainable growth, further benefiting the company's expansion and development.

How Apollo Micro Systems Shares have Performed Recently

On Wednesday, the shares of Apollo Micro Systems closed at 10% upper circuit.

In the last 1 year, the stock has generated a multibagger return of 273.2% and the scrip has rallied 131% so far in 2023.

The company touched its 52-week high of Rs 71.6 on 10 October 2023 and its 52-week low of Rs 17.6 on 11 October 2022.

About Apollo Micro Systems

Apollo Micro Systems specializes in designing, developing, and marketing high-performance solutions tailored for mission-critical applications in the defence, space, and homeland security sectors.

Their clientele encompasses the Ministry of Defence, government-controlled public sector undertakings, and private sector firms.

It's engaged in the supply of electronics and electro-mechanical systems and components. It also actively participates in design research and development initiatives for systems deployed in various programs, including missile systems, underwater missile programs, avionics systems, and more.

The company also offers customized COTS (Commercially Off-The-Shelf) solutions, designed to meet the unique demands of their defence and space sector clients.

For more details, see the apollo Micro Systems company fact sheet and quarterly results. For a sector overview, read our engineering sector report.

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