MTAR Technologies IPO Financial Analysis (Subscribe for Long Term)

MTAR IPO Review

MTAR Technologies existence dates back to the 1970s though incorporated in 1999 in Hyderabad. The company develops and manufactures high-precision components and equipment in the clean energy, nuclear and space, and defence sectors in India and abroad. The order book as of Dec 31, 2020, stood at Rs 80.19 crore in the clean energy sector, the nuclear sector was Rs 93.19 crore and defence sector was Rs 160.61 crore. As of December 31, 2020, MTAR employed 891 permanent employees and 248 contractual workmen.

MTAR Technologies is also a key supplier of mission-critical assemblies and components to customers within space and defence sectors for their programs of national importance to ISRO and DRDO.

Financial Review of MTAR Technologies

MTAR posted PAT of Rs 28.07 crore against revenue of Rs 178 crore for nine months ended 31^st Dec 2020. The total revenue for FY20 has increased by 17.34 % to Rs 218.14 crore as against Rs 185.91 crore in FY19. The company’s PAT reduced by 20% to Rs 31.32 crore in FY20 because of an increase in deferred tax due to utilization of MAT credit in Fiscal 2020. PAT increased significantly to Rs 39.19 crore in FY19 from Rs 5.42 crore in FY18. Operating and net margins have been strong in the last three fiscals as seen in the table (financials and ratios) below.

Cost of materials consumed constitutes a significant portion of expenses. It accounted for 46.01%, 44.99%, 50.55%, and 54.05% of the total expenses for Fiscal 2018, 2019, 2020, and for the nine months ended December 31, 2020, respectively.

Debt to equity is low at 0.13 for FY20. Return on net worth is reasonable being 16.68% and 13.92% for FY20 and FY19 respectively.

Table 1 - MTAR TechnologiesFinancials and Ratios (Amount in Rs Crore)
Title	31-Dec-20	FY2020	FY2019	FY2018
Total Revenue	177.99	218.14	185.91	160.55
Revenue from operations	177.27	213.77	183.67	159.59
PAT	28.07	31.32	39.19	5.42
EBITDA	53.75	62.33	55.95	32.83
Total Assets	381.91	346.27	305.16	281.03
Cash and Bank	21.54	23.23	10.76	9.08
Cash generated from operations	2.44	63.43	51.54	16.96
EBITDA Margin	30.32%	29.16%	30.46%	20.57%
Net Margin	15.77%	14.36%	21.08%	3.38%

Peer Comparison and Valuation

MTAR has no listed peers as per the RHP. However, the competitors in the nuclear sector are Larsen & Toubro Heavy Engineering, Godrej & Boyce Manufacturing Company Limited, Hindustan Aeronautics Limited, and Walchandnagar Industries. Though the company cannot be compared on an apple to apple basis as the business offerings are different however reference valuations can be derived as these companies operate in similar sectors.

At annualized EPS (9 months EPS annualized) of 13.99 per share; P/BV is 6.26 at an upper price band of Rs 575 per share. At NAV of Rs 91.79, considering the upper price band P/E is 41.11x. The sector average P/E is 24.86x. Hence the IPO appears overvalued.

Outlook and Conclusion

MTAR features precision engineering expertise with complex product manufacturing capability. The company has a wide product portfolio catering to customers in diverse segments. It has established trusted and long-standing relationships with its customers.

The government targets to reach Rs 350 billion in defence exports in the next 5 years. India has been successful in up-scaling the defence exports agenda with major participation of the private sector. However, its share of global arms exports is minuscule ~0.2%. Hence, there exists a sizeable opportunity for arms exports from India, especially in low-tech weapons. The target market would be selective and largely comprising of states in Africa and the Middle East.

However, it is also worthy to note that the budgeted defence expenditure is expected to witness constraints in FY21 largely due to COVID- 19 pandemic.

MTAR has reasonable financial performance with strong margins for the last two fiscals and 9 months ending 31^st Dec. 2020. The company however has client concentration risk as most of the projects come from Bloom Energy, NPCIL, ISRO, and DRDO. Hence, considering all the above factors, investors may subscribe to a long-term perspective in the IPO.

Reviewer recommends Subscribe for Long Term to the issue.

Review By CA Priyanka Choudhary on 24th Feb 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.