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MTAR Technologies Ltd

manufactures hi-precision indigenous components, subsystems, assemblies for projects of national importance.

Complex product manufacturing capability with healthy order book:

MTL manufactures a wide range of critical engineered products and thus enjoys high entry barriers, increased customer dependency and long standing clients’ relationship. Infact, MTL has been a sole supplier from India to USbased Bloom Energy (BE). Its revenue is well diversified: clean energy (49% of 9MFY21 sales), nuclear (27%), space and defence (21%) and others (3%). >50% of its revenue come from the export market. Its order book is healthy at INR3.4bn which is 1.6xFY20 revenues.

New product launches and Indigenization to aid growth:

MTL is developing hydrogen boxes and electrolyzers to serve BE. Clean energy can be used in multiple sectors to generate power and is expected to grow at ~15% CAGR and thus MTL is in process to tap existing customers too. It is also building a sheet metal facility and plans to take up specialized fabrication jobs. India has 22 operational reactors and the Government has sanctioned 10 more which would double nuclear capacity to 11.5GW, thus presenting huge opportunity for MTL. Further indigenization in defence space opens plethora of opportunity for the MTL given its experience.

Healthy Financials:

Over FY18-20, MTL’s Revenue/EBITDA/PAT grew at a CAGR of 16%/35%/140% while EBIITDA margins expanded 714bps to 27.1% due to rising export share (higher margin). In 9MFY21, Revenue/EBITDA/PAT grew 16%/22%/25% YoY, while EBITDA margin further improved to 29.9%. It has negligible debt on its books which post IPO will further reduce to zero. However it is working capital intensive (~180 days) and its asset turnover stands at ~0.8x, thus resulting in RoE of ~14% (FY20).

Issue Size:

The INR6.0bn IPO consists of fresh issue of INR1.2bn and OFS of INR4.7bn which would result in promoter’s stake reducing from 62.2% preIPO to 50.3% post-IPO. MTL also raised pre-IPO money worth INR1bn at INR540/share from SBI MF and Axis MF. The funds raised will be utilized to repay debt (INR630mn) and fund working capital (INR950mn).

Valuation & View:

We like MTL given its complex/wide product portfolio, presence in niche space, strong client relationship and high entry barriers. The issue is valued at 47.3x FY21E P/E and 3.7x P/BV on an annualized and post issue basis. We believe MTL could benefit from the government impetus on the indigenization. Hence we recommend Subscribe for Long Term. Further given the current buoyant market and high interest for defence stocks, the issue could see listing gains as well. Risk: 49% of its revenues is derived from a single customer - Bloom Energy, US

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