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MTAR Technologies Ltd. - IPO - Huge Opportunities from Clean Energy Bodes Well - Reliance Research

Posted On: 2021-03-01 20:18:00 (Time Zone: Arizona, USA)


About the Company

MTAR Technologies Ltd. (MTAR), incorporated in 1999, is a leading precision engineering solutions company. It manufactures mission critical precision components with close tolerances (5-10 microns) and in critical assemblies to serve projects of high national importance. The company primarily serves customers in the Clean Energy, Nuclear and Space & Defence sectors. Currently, MTR has seven state-of-the-art manufacturing facilities in Hyderabad, Telangana that undertake precision machining, assembly, specialized fabrication, brazing and heat treatment, testing and quality control and other specialized processes. It currently has a wide-range of complex product portfolios meeting the varied requirements of India's nuclear, defence and space sector. ISRO, NPCIL, DRDO, Bloom Energy, Rafael and Elbit etc. are some of its esteem clients. Additionally, MTAR also focuses on clean energy as one of its key customer segments and is involved in the manufacture of power units, specifically hot boxes, hydrogen boxes and electrolyzers to serve Bloom Energy. Its order book as on 3QFY21 stood at Rs3.36bn, comprising Rs801mn from clean energy, Rs932mn from nuclear sector and Rs1.6bn from the space and defence sectors.

Financials in Brief

MTAR reported steady improvement in its financials over the years. While revenue recorded 16% CAGR through FY18-FY20, EBITDA and net profit clocked 38% and 141% CAGR, respectively during the same period. A sharp improvement in earnings is primarily on account for over 860bps jump in EBITDA margin over FY18-FY20. Its order book has recorded 31% CAGR through FY18-20. Further, cash flow generation has been modestly good with cumulative OCF and FCF of Rs1bn and Rs0.5bn, respectively through FY18-9MFY21. However, Asset Turnover ratio has been dismal in the range of ~0.9-1%.

Our View: SUBSCRIBE for Long-term

The IPO is valued at 56.5x and 47.4.9x EPS for FY20 and annualized FY21, respectively, which looks to be aggressively priced. However, the management is confident of healthy double-digit growth in subsequent fiscals on the back of healthy opportunity in clean energy and defence segment. As MTAR has developed a strong expertise in clean energy segment over the years, the imminent opportunities from this segment are likely to benefit the company immensely. Hence, an earnings growth of 25-30% cannot be ruled out in the coming fiscals, which may support premium valuations despite dismal asset turnover ratio and higher working capital cycle. Hence, we recommend SUBSCRIBE to this issue only from the long-term perspective.

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