MTAR Technologies: On the right track, favourable risk-reward

4 Sep 2023 , 01:03 PM

Recommendation: buy; Target price: Rs 3337

Analysts of IIFL Capital Services recently hosted MTAR’s MD (PS. Reddy) and COO (Raj Shekhar) for investor meetings in Mumbai. Management was enthused about increasing wallet share with Bloom and the addition of new MNC customers (BES systems) in Clean Energy. Further, opportunities in Nuclear and Space have started unfolding after a lull in FY22-23. New projects in SSLV segment, customer additions in Aerospace exports and the recent receipt of Defence Licence for domestic manufacturing improve long-term growth prospects for MTAR. While the near-term inventory destocking at BE will consolidate Clean Energy revenues in FY24, the segment will rebound from FY25 with 35-40% Cagr revenues. Analysts of IIFL Capital Services reiterate BUY on MTAR (as a preferred mid-cap pick) with revised TP of Rs3,337 (23% upside). 

Clean Energy consolidates, but will rebound with a stronger outlook: 

Inventory destocking by Bloom Energy (USA) and migration from Yuma to Santacruz hot boxes will lead to flattish volumes for BE HB in FY24. But, a robust outlook for SOFC electrolysers, where MTAR has been the developmental partner, keep the outlook strong alongside a strong localisation program to retain gross margins. Addition of new customers in Battery Energy Storage solution (domestic + exports) expands longer term growth perspective and reduces relative dependence on BE. 

High-margin domestic opportunities looking up: 

While Clean Energy portfolio carries lower GMs of 40% & strong operating leverage, MTAR’s high-margin domestic businesses from Nuclear power plants and ISRO is looking up again. MTAR is confident of Rs5bn+ win for Kaiga 5&6 by FY24- end. Further investments in SSLV is expected to drive significant upgrade in MTAR’s capabilities over the next 3-4 years. 

Addressing NWC concerns; favourable risk-reward: 

MTAR is working with domestic vendors to replace imports, thereby reducing its inventory days by half. Thus, NWC days stay in the 200-220 days range. Relative risk-reward looks attractive to us vs peers and visible traction in Clean Energy portfolio. Reiterate BUY and prefer MTAR as analysts of IIFL Capital Services top-pick in the sector.