Q2FY24 Review: MTAR Technologies: Change in portfolio hurts gross margins

13 Nov 2023 , 02:12 PM

Analysts of IIFL Capital Services downgrade MTAR technologies to ADD from BUY post a sharp 35/27/24% cut in FY24/25/26 EPS estimates. While the company has been working on many new customers in energy storage, defence & Aerospace components after securing defence licence and is expecting long awaited order wins from civil nuclear projects in Q4FY24, the sharp inventory destocking, & reduction in channel inventory by BE has hit supplies from MTAR in FY24.

Cut in BE shipments drives down guidance: 

Inventory de-stocking by BE and 100% transition from Yuma to Santacruz hotboxes (65kwH) resulted in deferment of supply of 1,200 hotboxes to Bloom (26% of 4,600 box deliveries targeted for FY24) to FY25, prompting the management to cut revenue guidance by ~17% to Rs6.7-7bn and OPM guidance by 2pps to 25-27%. While ramp up in Santacruz expected to drive inflows in H2FY24, analysts of IIFL Capital Services suspect gross margin may take an interim hit for the new variant (similar to Q2FY24), as BE revenues remain flat vs H1FY24. As delivery timelines to US normalises to 6 weeks (>12 weeks earlier) and ordering pattern has changed from 6M to 3M basis, improvement in NWC cycle from BE needs to be watched out. 

Inflows remain robust: 

While orders slipped out of the current quarter, management remains confident of a sharp acceleration in inflows in H2FY24 led by new orders from BE for Santacruz Block II, finalization of Fluence Energy orders and ramp up in Nuclear ordering led by Kaiga 5 & 6 tender awarding. Management retained guidance for Rs14-15bn order book by FY24, implying Rs9-10bn of inflows – flat YoY. 

Earnings downgrade:

Double-digit decline in revenue estimates, ~150-200bps decline in OPM estimates and rising finance cost on the back of sustained WC intensity drives cut in Analysts of IIFL Capital Services FY24/25/26 EPS estimates by 35/27/24% respectively. Analysts of IIFL Capital Services downgrade the stock to ADD with a TP of Rs2,600 (38x Dec’25 EPS), implying 15% upside.