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MTAR technologies IPO review: MTAR IPO kicks off: Should you subscribe?

NEW DELHI: The Rs 596 crore initial public offer (IPO) by precision engineering company MTAR Technologies hit the market on Wednesday.

The Hyderabad-based company manufactures critical and differentiated engineered products for the nuclear, space and defence, and clean energy segments, and owns seven manufacturing facilities in Hyderabad, including an export-oriented unit.

Its IPO consists of a fresh issue of shares worth Rs 124 crore and an offer for sale (OFS) worth Rs 473 crore of shares. Shares are being sold in the price band of Rs 574-575 under the public offer. At this price band, the issue is demanding a P/E multiple of 47.3 times its FY21 EPS of Rs 12.20 on an annualised basis.

On Tuesday, the company raised Rs 178.92 crore from 15 anchor investors at Rs 575 per share, including Nomura Funds Ireland, Jupiter South Asia Investment, White Oak Capital and Goldman Sachs India.

The scrip last quoted at a premium of Rs 430-450 or 70-75 per cent over the IPO price band of Rs 574-575 in the grey market. Analysts say the company is into niche segments, and can be a play on clean energy and the government’s Atmanirbhar Bharat drive.

MTAR’s order book stood at Rs 336 crore as of December 2020, which was 1.6 times of its FY20 revenue. The space and defence segment accounted for 48 per cent of market share in its order book, followed by the nuclear sector at 28 per cent, and clean energy at 24 per cent. The company’s order book clocked a 31 per cent CAGR over FY18-20.

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In the clean energy space, the company makes hot boxes for Bloom Energy. It is in the process of developing and manufacturing hydrogen boxes and electrolysers for Bloom, which has been a client for nine years.

While hot boxes use methane to generate power, hydrogen boxes use methane to generate hydrogen, which is used to generate power. In addition, electrolysers produce methane-free hydrogen, which is used to produce power. The opportunities in clean energy remain healthy with the government’s strong focus, higher budgetary allocation and incentives, analysts said.

“Going ahead, the fuel cell market is expected to grow at a CAGR of 14-15 per cent. This coupled with Bloom’s tie up with Gail to deploy fuel cell technology is expected to augur well for the company. Further, the company is also in the process of establishing a new manufacturing facility at Adibatla in Hyderabad that will enable it to take sheet metal jobs for Bloom Energy, Isro and certain other customers,” said ICICI Direct, which has a ‘subscribe’ rating on the issue.

Arihant Capital finds the IPO aggressively priced, but cited the last two financial years of earnings, the prevailing orders and the company’s plan for more critical and high margin products with its niche play for the space, security and defence segment, as its reason to assign a ‘subscribe’ rating for the long term. The brokerage also sees prospects of decent listing gains.

On a trailing 12-month basis, the IPO is offered at 45.32 times, and is seeking a market cap of Rs 1,769 crore.

“Considering the company’s expertise in providing a wide range of precision engineering products with complex manufacturing capability, high entry barrier, strong balance sheet & management; we give this IPO a “Subscribe” rating,” said Anand Rathi Financial Services.

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Other than Bloom Energy, MTAR’s client list includes ISRO, DRDO, Rafael and NPCIL

The company’s major product portfolio includes three kinds of products in the clean energy sector, 14 kinds of products in the nuclear sector and six kinds of products in the space and defence sectors.

“The company’s financial performance looks strong with a healthy balance sheet. MTAR has a wide product portfolio along with a marquee customer base and robust order book which gives strong revenue visibility going forward,” said Astha Jain of Hem Securities.

In the nuclear segment, India plans to double its nuclear capacity from 6.26GW to 11.5GW in the near-term. The government has sanctioned 10 fleet reactors with combined generation capacity of 7,000MW. MTAR has been servicing the nuclear sector for over 35 years.

Meanwhile, in the space segment, ISRO plans 321 satellite missions in the next two years. The missions include Chandrayaan 3, Gangayan and Aditya-1 (proposed mission to study the Sun). Over the next five years, the private sector is expected to receive 70 per cent of all upcoming space mission orders.

Geojit Financial Services said the IPO is aggressively priced. But “With no listed peers and a positive sentiment in the space & defence sector due to Make in India and Atmanirbhar Bharat, with limited competition for the products that MTAR manufactures, we assign a Subscribe rating, with a long term perspective,” Geojit said.

For FY18-20, revenue for the company grew at a compounded annual growth rate of 17 per cent, while PAT grew at 140 per cent during the same period. As on December 31, 54 per cent of the company’s revenue, amounting to Rs 94 crore was generated from customers located outside India.

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LKP Securities said that the government’s policy to construct 10 units of nuclear reactors as a single project will increase opportunities for domestic suppliers like MTAR.

“Large refurbishment and maintenance market is expected to increase by 1.6 times. Meanwhile, over the next five years, the private sector will receive the mandate for 70 per cent of all the upcoming space missions of ISRO, which is positive for MTAR,” it said.


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