About the company:
MTAR Technologies Limited is a 600 crore IPO, consisting of 123 crore of fresh issue and the balance through Offer for sale. The objectives of the offer are to repay debt, working capital requirements and general corporate purpose. The issue opens to public on Wednesday 3rd March and closes on Friday 5th March. It has a price band set at Rs 574 to 575 per share with a lot size of 26 shares. MTAR Technologies Limited was incorporated on November 11, 1999. The company is a leading precision engineering solutions company engaged in the manufacture of mission critical precision components and in critical assemblies. Mtar’s revenue and profits have grown at 15 percent and 140 percent respectively over FY18 to FY20. The company has low debt with debt to equity ratio of 0.13 only. Overall the company has good financial track record. At the upper IPO price band of Rs 575 and on the basis of FY20 earnings the offer is valued at a price/earnings of around 51.75 times which in our opinion is overpriced. But, the IPO is commanding a good grey market premium due the nature of the markets and its presence in the niche segments. Keeping the risks, we recommend market participants to ‘subscribe’ to this IPO for listing gains only.
About Company
MTAR Technologies Limited (MTAR Technologies) was incorporated on November 11, 1999. The company is a leading precision engineering solutions company engaged in the manufacture of mission critical precision components with close tolerances (5-10 microns), and in critical assemblies, to serve projects of high national importance, through their precision machining, assembly, testing, quality control, and specialized fabrication competencies, some of which have been indigenously developed and manufactured.
The company primarily serve customers in the nuclear, space and defence, and clean energy sectors. Since inception, they have strived to grow continually, contributing to the Indian civilian nuclear power programme, Indian space programme, Indian defence and aerospace sector, global defence and aerospace sector, as well as to the global clean energy sector.
MTAR Technologies lays special emphasis on research and development (“R&D”) of their manufacturing processes as it allows them to evolve their own process technologies thereby enabling them to achieve design specifications with accuracy irrespective of the size of the products.
In addition, they also focus on clean energy as one of their key customer sectors and are accordingly, involved in the manufacture of power units, specifically hot boxes, and in the development and manufacture of hydrogen boxes and electrolyzers, to serve Bloom Energy Inc., United States (“Bloom Energy”) with which, they have been associated with, for over 9 years.
Order Book
The aggregate Order Book as on December 31, 2020 was 336.19 crore, comprising Order Book in the clean energy sector of 80.19 crore, the nuclear sector of 93.19 crore and the space and defence sectors of 160.61 crore respectively.
Financial Performance:
Mtar’s revenue and profits have grown at 15 percent and 140 percent respectively over FY18 to FY20. Over the same period, the company has reported an average EPS of Rs. 11.11and an average Roce of 19.78 percent. The company has low debt with debt to equity ratio of 0.13 only. Overall the company has good financial track record.
Key Opportunities:
Industry growth: In India, the precision engineering industry sized at over 4 lakh crores is expected to grow at a CAGR of 6-7 percent and reach Rs. 6,65,000 crores by 2025.. Backed by growing demand and rising investment in defense and space sectors, the demand for precision engineering products is expected to rise steadily in the upcoming years.
Government initiatives: The growth in this industry comes as a beneficial effect of the Make in India campaign. The government’s efforts to augment India’s manufacturing sector will also have an impact on the growth of the precision engineering industry.
Barriers to entry: The market for precision engineering products is fragmented, but the larger players dominate the space. Plus, the nature of the business requires technical expertise and existing distribution relationships. This means new players cannot enter into this market directly, thus restricting the competition.
Key Risks:
Concentration risk: The company has a total of 35 customers. The top 3 customers contribute over 80 percent of the operating revenue. The company is highly dependent on Bloom Energy with almost half of its revenue coming from this 1 client. This possesses a serious risk as loss of 1 customer can adversely affect the company.
Absence of long term supply contracts: The company does not have long-term supply agreements with our customers and instead rely on short term purchase orders to govern the volume which is another key risk
Strict quality standards: Mtar is subject to strict quality standards. Any failure to comply with such quality standards may lead to cancellation of existing and future orders which may affect the reputation and business operations
Conclusion:
At the upper IPO price band of Rs 575 and on the basis of FY20 earnings the offer is valued at a price/earnings of around 51.75 times which in our opinion is overpriced. But, the IPO is commanding a good grey market premium due the nature of the markets and its presence in the niche segments. Keeping the risks, we recommend market participants to ‘subscribe’ to this IPO for listing gains only.
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