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Fueling clean energy liftoff

MTARTECH derives the majority of its revenue (~60% in 1HFY25) from the clean energy segments, with most of it coming from one customer, Bloom Energy (BE). As the transitory impact of BE’s product changes is over now, we expect the company to report strong growth in the near term in this segment, led by the revival of orders from BE and the addition of new clients.

* MTARTECH witnessed a rough patch over the last couple of quarters due to product transition by BE. As the transition is completed, we are witnessing strong demand for BE’s fuel cells, thereby boosting our confidence on the company’s near-term growth outlook.

* BE is witnessing a surge in demand as it has signed large deals recently, e.g., an agreement with American Electric Power (AEP) to install 1GW of power over the next couple of years. This opportunity has a revenue potential of INR9-11b for MTARTECH.

* To further diversify its customer mix, MTARTECH has been adding new clients across segments, such as Fluence Energy, which has similar revenue potential as BE in the near future.

* MTARTECH, a key supplier of precision-engineered systems, benefits from growing fuel cell demand, particularly as the largest supplier to BE. We expect MTARTECH to deliver a CAGR of 28%/42%/58% in revenue/EBITDA/Adj. PAT over FY24-27.

Client concentration risk has played out – what’s next?

* BE is the largest customer of MTARTECH, accounting for ~70% of its total revenue in FY24. BE is the global leader in manufacturing standard oxide fuel cells (SOFC).

* MTARTECH supplies critical components such as hotboxes (named Santacruz) to BE, which are used in a fuel cell where the chemical reaction to generate power takes place. Moreover, MTARTECH also supplies electrolyzers, sheet metals and wiring to BE.

* MTARTECH currently caters to ~70-75% of BE’s hotbox requirements, making the former a key vendor. The company is also looking to increase its wallet share with BE by providing more services, with an end target of fully assembling fuel cells for BE in India.

* The client concentration risk has been a key concern for MTARTECH, as seen in FY24 when BE went into product transition to Santacruz (65kw energy generation) from Yuma (50kw). This led to a slowdown in BE’s order flows to MTARTECH, thereby impacting the company’s revenue and profitability. Revenue from clean energy fuel cells declined by 21% YoY in FY24 vs. 2.2x growth in FY23.

* However, the transition was completed two quarters ago and we are seeing normalized order flows from BE. In 2QFY25, the clean energy fuel cell segment posted 9% YoY growth vs. a decline in the last four quarters.

* Going ahead, we expect strong growth in this segment as the closing order book for BE as of 1HFY25 stood at INR4.9b. BE is returning to the original demand scenario as it has indicated an execution of 4,000 units in CY25 vs. 3,000 units indicated earlier. Further to this, BE have been witnessing strong demand tailwinds in the recent period as discussed in detail below.

BE witnessing strong demand tailwinds

* We have further analyzed BE’s demand scenario to gauge the order flow trends for MTARTECH.

* Over the last few years, BE has signed multiple large agreements to scale up its clean energy technology across diverse industries and geographies.

* Some of the large deals includes: SK ecoplant (in Dec’23) to deliver 500MW SOFC through 2027 generating ~USD1.5b in product revenue and USD3b in service revenue over 20 years for BE; Parenco (Jun’24) in UK to install 2.5MW SOFC at Wytch Farm (marks the entry of BE in UK); American Electric Power (AEP) – largest commercial procurement of fuel cells with initial order of 100MW and potential expansion to 1GW focusing on powering AI data centers.

* BE has expanded its existing partnership with Quanta Computers, aiming to deliver more than 150% of the power capacity provided in the client’s existing installations. Other notable collaborations are with CoreWeave and Amazon.

* Additionally, BE orders include deployments for decarbonizing the industrial sectors, powering AI/data centers, and enhancing energy resilience. Collectively, these orders contribute to BE’s projected revenue path of USD1.8b for the next fiscal year.

* BE’s proven track record, with over 1.3GW deployed globally, and its capacity to scale up production for large orders make it a significant player in clean and reliable energy solutions.

* Since MTARTECH is BE’s largest vendor, the company benefits significantly from strong order flows from BE. For instance, under a recent agreement with AEP, BE will supply ~15,000 hotboxes to AEP. For MTARTECH, it can translate into INR10-11b in revenue (refer exhibit 1) over the next couple of years (incremental to current order book).

Expanding clientele in clean energy space

* Apart from the key client (BE) coming back on track with a strong outlook, MTARTECH has been proactive in diversifying its client base to safeguard from the client concentration risk in the future.

* One such addition in clean energy is Fluence Energy (Fluence). Fluence, established in 2018, is a leading global provider of energy storage products and services. It is a joint venture between Siemens AG and AES Corporation.

* Fluence collaborates with MTARTECH to address India’s growing need for renewable energy integration and grid stability.

* As per the indications from MTARTECH’s management, the revenue potential from Fluence can be similar to BE in the near future.

* Currently, the contribution from Fluence is nil as Fluence has not yet won any orders in India, but when it does, the orders from Fluence will start flowing in to MTARTECH.

Valuation and view

* MTARTECH, being the key supplier of precision engineered systems to large global MNCs, government departments, and large Indian public and private sector enterprises, has over the years created a niche for itself in the industry.

* As the largest supplier of fuel cell components to BE (global leader), the company will benefit from the emerging demand for fuel cells in the coming years. Further, the company is also increasing its wallet share with BE by offering more products, such as precision sheet metal fabrication and enclosures, with the aim of carrying out a complete fuel cell integration for BE.

* We believe the BE-related headwind is over now, and going ahead, strong order flows and agreements by BE should boost the business scenario for MTARTECH. Moreover, the diversification across segments by the company is expected to result in healthy revenue growth going ahead.

* We estimate MTARTECH to deliver a CAGR of 28%/42%/58% in revenue/ EBITDA/adj. PAT over FY24-27 on the back of strong order inflows. We retain our BUY rating on the stock with a TP of INR2,100 (34x Dec’26E EPS).

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