MTAR Technologies: Attractive and credible bet on Clean Energy

21 Mar 2023 , 10:20 AM

Recommendation: Buy

Target Price: Rs 2,402

Penetration of BE’s SOFC electrolysers, development of new products like ceramic assemblies & other import substitution, and new growth avenues in space & related markets — widen long-term growth prospects. Analysts at IIFL Capital Services have raised their FY23/24/25 EPS estimates by 7/1/15%, respectively. Improvement in NWC cycle is a key variable to drive positive FCF from FY24 and re-rating catalyst for the stock.

Building capabilities and driving indenisation

Recent investments in capability buildup across sheet metal, special fabrication, power electronics, ceramic assemblies and niche import substitute products — not only aid long-term growth visibility and increase customer stickiness, but also help deliver cost savings to customers (versus sourcing from high cost markets). Timely capacity doubling and capability buildup enable MTAR to piggy-back on BE’s growing presence in the US and South Korea markets for H2 solutions. Strategies in energy storage, if executed well, can be a market as large as BE for MTAR.

New leadership to add depth to professional team

Raj Shekhar will be taking charge as COO of MTAR from end-April 2023, bringing almost two decades of experience in Clean Energy technologies (Bloom Energy-SOFC, Ohmium-PEM) and promises to provide solid leadership to the professional team at MTAR.

Financial discipline is important

While MTAR is in a sweet spot, being an early mover with technology leaders in the Clean Energy segment, focus on driving efficiency in working capital and cashflow conversion will help improve ROE and FCF profile. Management targets reduction in NWC by end FY23-FY24, though near-term breeze of softness from the US market (Q1 typical) may cap revenue surprises in Q4FY23.