IPO Review - MTAR Technologies Ltd - ICICI Direct

MTAR Technologies, a precision engineering solutions company, was founded in 1970. The company manufactures hi-precision indigenous components, subsystems and assemblies having components with close tolerances (5-10 micros). Currently, the company has seven manufacturing units in Hyderabad with more than 400 machines, 891 permanent employees and 248 contractual workmen. At the helm of affairs is Promoter and Managing Director, Parvat Srinivas Reddy. MTAR Technologies operates in three segments viz. nuclear, space & defence and clean energy and manufactures 14 products in the nuclear sector, six in space & defence and three in the clean energy sector.

Investment Rationale

Higher share from Bloom, new product launches to aid growth

MTAR's total order book was at Rs. 336 crore as on December 2020. Part of this is Rs. 80 crore, which comes from Clean Energy segment (Bloom Energy). Currently, the company makes hot boxes for Bloom Energy. MTAR is in the process of development and manufacture of hydrogen boxes and electrolysers to serve Bloom. Going ahead, the fuel cell market is expected to grow at a CAGR of 14-15%. 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.

Huge opportunity in nuclear, space & defence segments

India has 22 operational nuclear reactors with a capacity of 6.3 GW. The country plans to double its nuclear capacity to 11.5 GW. Hence, seven new reactors are expected to come into operation in the next five years. This will create a huge opportunity for MTAR in the large refurbishment and maintenance market that is also expected to increase 1.6x. The recent ban on 101 defence based items, thrust towards indigenisation and policy initiatives towards making India an export hub for defence products will further widen the scope and addressable opportunity for MTAR.

Priced at P/E of 56.5x (post issue) FY20 on upper band

Taking cognisance of the huge growth opportunities for MTAR and a high margin business that would aid flow of profitability to the bottomline, we recommend SUBSCRIBE rating on the issue. The company is available at a P/E of 56.5x (post issue basis) on FY20 PAT.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_MTARTech_IPOReview.pdf

Source : Equity Bulls

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