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Temporary glitch; robust outlook maintained

MTAR Technologies 4Q23 results were below expectations. Revenue doubled to INR1.96bn (a tad higher vs our estimates), while EBITDA missed estimates, growing 77% YoY to INR 491mn, 14% below JMFe. Gross margins were impacted due to higher share of clean energy segment and increased employee costs (INR10mn impact) to retain its talent base, which led 310bps EBTIDA margin decline to 25%. Order book remained healthy at INR11.7bn (+81%), as the company booked orders worth INR11bn in FY23. Near term hiccups led to lower than expected margins, but management has been able to deliver a strong growth and reduce its working capital intensity over last 4 quarters. With a strong growth outlook from its marquee clients (Bloom Energy and NPCIL), management conservatively guided for 45-50% revenue growth in FY24 with EBITDA margins at c.28% and expects its NWC cycle to reduce to 180- 200 days. Order inflows are expected at INR12bn, as contribution is likely to pick up from exclean energy segment, new products (ASP assemblies, roller screws, semi-cryo engine) and new customer addition (GE renewables, Andritz, Voith, GKN Aerospace, Fluence Energy). Maintain BUY with a revised TP of INR2,300 (35x Mar25E EPS).

* Healthy growth across segments: Net sales stood at INR1.9bn (+99% YoY) largely driven by clean energy segment reporting growth of 133% YoY to INR1.4bn, while ex-clean energy segment grew by 44% YoY to INR544mn. Gross margins for the company declined, given higher share of exports revenue (majorly sales to Bloom Energy) and airlift of inventory, which came in at 48.6%. EBITDA grew 77% YoY to INR491mn, as margins came in at 25% vs 28.1% in 4QFY22 on the back of higher one time employee costs (INR100mn). PAT grew by 57%YoY to INR311mn, 20% below JMFe.

* Order book to further bulk up: Order book at end-FY23 stood at INR11.7bn, +81% YoY, as inflows stood at INR1.1bn. In addition, MTAR expects major inflows in nuclear (INR5bn), aerospace/defence and products segment (EMAs, roller screws). Management guided for FY24-ending order book of INR15bn (inflows of INR12bn in FY24), as orders from ex-clean energy and other new customers like GE Renewables, Andritz, Thales, GKN Aerospace etc. is expected to pick up.

* Working capital to improve further: Net working capital improved for the company to 232 days vs 298 days in FY22 this was largely due to higher creditor days to 139 vs 65 in FY22, while inventory days continued to remain high at 246 vs 193 in FY22. The company intends to reduce working capital further to 180-200 days, led by better inventory and receivables management with better credit period from suppliers.

* Maintain BUY with a revised TP of INR2,300: Management guided for 45-50% sales growth in FY24, based on strong growth outlook given by its marquee clients (Bloom Energy and NPCIL). Also, it expects to sustain margin atc.28% with a reduction in NWC cycle to below 200 days. We forecast 40% CAGR in sales and EPS over FY23-25E, led by healthy growth in clean energy, new product ramp up and new client addition. We maintain BUY with revised TP of INR2,300, based on 35x Mar’25E EPS. Key risks: Inordinate delays in order placement and technology shift from SOFC based fuel cells.

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