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In line results; management ups growth guidance

MTAR Technologies 4Q22 results were in line with estimates. Revenue grew by 43% YoY, while EBITDA was down 8% YoY (high base effect), both in line with JMFe. Growth was led by 56% growth in clean energy segment, driven by robust volumes of SOFC volumes, while ex-clean energy vertical reported a growth of 43%, largely driven by growth in space and defence (+73% YoY) and new product launches, even as nuclear energy segment declined by 9% YoY. Management increased in FY23 revenue growth guidance to ‘55-60%’ vs ‘45- 50%’ earlier with EBITDA margins in 29-31% range, as increased volumes in clean energy is likely to drive 50% revenue growth, while ex-clean energy vertical will grow by 65%. Supply chain bottlenecks are leading to increased lead time for RM procurement, but the company is able to counter the same through higher inventory and indigenisation of certain components. We maintain BUY with a revised TP of INR1,800 (35x FY24E EPS).

* Clean energy remained buoyant; ex-clean revenue picked up: Net sales were in line with JMFe and stood at INR986mn (+43 YoY). Clean energy segment grew by 56% YoY, while ex-clean energy segment grew by 44% YoY, particularly in space and defence (+73%), but nuclear segment continued to face execution challenges (-9%). Gross margins contracted by 410 bps QoQ and sustained at 61% level largely on the back of RM inflation and supply chain issues. Base quarter not comparable given low base due to some adjustment and mix benefit. Also, a sharp increase in employee addition (caused 10% increase in employee costs) and variable pay structure (increase of 24%) led to 34% increase in total employee costs. EBITDA declined by 8% YoY to INR277mn, as margins came in at 28.1%. PAT clocked growth of 11% YoY to INR 198mn, given strong growth in other income (+316% YoY) and lower tax rate (16.9% vs 29%).

* Order inflow robust; backlog provides fair revenue visibility: Order book was up 56% YoY to INR6.5bn of which ex-clean energy was up 29.4% YoY at INR3.5bn. Order inflows picked up sequentially on the back of healthy growth across segments. Large orders of INR600mn in nuclear energy segment will be booked in 1QFY23, where company has was declared as L1, resulting in guidance miss of OB of INR7bn in FY22. Company witnessed an order inflow of INR 2.7bn in 4QFY22, largely led by clean energy.

* Guidance increased further: Inflows in clean energy remained buoyant, while new product development and customer additions in ex-clean energy, led the management to step up its revenue guidance for FY23. Management increased their FY23 revenue growth guidance to ‘55-60%’ vs ‘45-50%’ earlier EBTIDA margins of 29-31%. Company expects to end FY23 with INR10bn of order book, implying order inflows of INR 8-8.5 bn.

* Maintain BUY with a revised TP of INR1,800: We cut our EBITDA/EPS estimates for FY23/24 by 5%/11% and 10%/16% respectively, considering inflationary environment and increase in fixed costs due to new projects undertaken by the company. We forecast 56%/61% CAGR in sales/EPS over FY22-24E. Maintain BUY with revised TP of INR1,800, based on 35x Mar’24E EPS. Key risks: Inordinate delays in order placement and technology shift from SOFC based fuel cells

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