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Finding the next gen. capital goods mammoths

We initiate coverage on a set of three niche stocks (MTAR Tech., DATA Patterns, Praj Industries) which have a large and expanding addressable market, significant moat in terms of cost, manufacturing, and market presence along with a long-term vision. (1) MTAR Technologies has been (a) a stand-out player in the precision engineering segment catering to the sunrise clean energy industry, (b) with a constant thrust on import substitution, (c) significant potential to scale up by adding newer clients given its track record. (2) Data Patterns’ (a) development block model provides significant cost and time to market advantage, (b) possesses a large addressable market in defense electronics and is (c) moving up the value chain from sub-systems to being a complete systems provider. (3) Praj Industries is a (a) market leader in the domestic 1G ethanol equipment and projects industry, (b) with a fast-expanding addressable market led by government focus on increasing bioenergy in the fuel mix and (c) strong international business tailwind led by focus on decarbonization of ethanol plants. We initiate MTAR Technologies, and Praj Industries with BUY and Data Patterns with a NEUTRAL rating.

MTAR - Early mover advantage in the high growth precision engineering industry

MTAR technologies’ revenue and PAT growth has accelerated in the last three years led primarily by increased contribution from its clean energy business for its largest customer Bloom Energy. MTAR’s client addition pace has accelerated over the past 2 years particularly in the aerospace segment. The company has successfully indigenized bellows, valves, electromechanical actuators and is in the process of developing enhanced capabilities in the electronics control systems. An early mover advantage in the high growth and futuristic green hydrogen manufacturing value chain, strong margin profile and import substitution opportunities augurs well for the company’s prospects. The contribution from its single largest customer Bloom Energy is also expected to come down in the next few years reducing concentration risk. Initiate with BUY, TP of Rs2,774 based on 32x FY26E earnings.

Data Patterns – brisk horse riding the privatization wave in defense electronics

Data patterns is one of the few vertically integrated end-to-end operators in the Indian defense electronics industry and has developed a reusable building block manufacturing model where development costs can be spread across systems and platforms providing it with significant cost advantage and time to market efficiency. It is moving up the value chain from subsystems to complete systems manufacturing which would enable direct participation in MoD tenders. With a strong focus on increased private sector participation in the domestic defense sector, increasing use of electronics in defense equipment, long-term vision on building in-house capabilities, the company is on a strong footing. We exercise caution on the valuation and initiate with NEUTRAL rating based on 40x FY26E earnings.

Praj Industries – Key beneficiary of increased bioenergy adoption

Praj Industries is a market leader in the domestic project installations space for ethanol plants. With a mandate to blend 20% bioethanol with petrol by FY26, the company is expected to secure strong business in the next three years. Its international business is expected to outgrow the domestic business as a strong opportunity in US and Europe is driven by low carbon ethanol incentives offered by the government. The company’s newly launched GenX subsidiary is also expected to provide strong fillip to the international business. Initiate with BUY, TP of Rs805 based on 30x FY26E earnings

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