Healthy Financials: The company has an aggregate order book of Rs 336.2 crore as of December 31, 2020, which is at 1.7x its FY20 revenues. Moreover, it has grown at 16.5 per cent CAGR over the last 3 years at the topline, while its Ebitda margins were at 28.5 per cent in FY20. In times when the government has been cutting down on the defence budget, MTAR delivered profits at the bottom line, with net margins at 14 per cent at the end of FY20. For financial years, ended 2018, 2019 and 2020, the return on capital employed was 9.59 per cent, 16.96 per cent and 19.78 per cent, respectively. Further, the debt-equity ratio was at 0.13 and 0.27 for March 31, 2020 and December 31, 2020, respectively, against 0.07 as on December 31, 2019, 0.12 as on March 31, 2019.
Strong Customer Base: The company’s customers include some of India’s leading organisations in the nuclear, and space and defence sectors such as the NPCIL, ISRO, and the DRDO, among others. In addition, the company also supplies its products to international companies such as Bloom Energy and an Israeli defence technology company, among others.
Wide Product Portfolio: As of December 31, MTAR's major product portfolio included three kinds of products in the clean energy sector, 14 kinds of products in the nuclear sector, and six kinds of products in the space and defence sectors.
MTAR could benefit from the government's policy to construct 10 units of nuclear reactors as a single project as it will increase opportunities for domestic suppliers, said Geojit Financial Services.
It added that in the next five years, the private sector is expected to receive the mandate for nearly 70 per cent of all the upcoming space missions of ISRO which is positive for MTAR. "Lastly, an additional manufacturing facility in Hyderabad is expected to become operational in FY22 that'll allow MTAR to undertake sheet metal jobs for Bloom Energy, ISRO and other customers," the brokerage noted.
The company faces stiff competition from L&T Heavy Engineering, Godrej & Boyce Manufacturing Company, HAL and Walchandnagar Industries in the nuclear and space and defence sector.
Besides, it's overdependence on Bloom Energy, which constitutes 65 per cent of its revenue, is another concern, analyst at Geojit Fiancial said.
Grey Market Tracker
The shares of the company were commanding a premium of Rs 420 per share in the unlisted market, as per Manan Doshi, co-founder of Unlistedarena.com. "The company's operating margins are expected to rise further. The government's focus on 'Make In India', exports of defence equipment, and rising budgetary allocations along with entry barriers in the business should support the company in the longer-term," he says.
At the higher price band, the stock is valued at 20x FY20 earnings of Rs 28.3 and commands premium considering its healthy order book, visibility of top line growth, competitive edge, superior profitability as compared to peers, return ratios, wide clientele spread across the globe, sound R&D base and technological progress. We recommend investors to Subscribe to the IPO.
At the upper price band, MTAR is available at a P/E of 47.3x, which is aggressively priced. With no listed peers, positive sentiment in space and defence sectors due to Make in India and Atmanirbhar Bharat and limited competition for the products they manufacture, we assign a Subscribe rating, with a long term view.
At a higher price band, MTAR is demanding a TTM P/E multiple of 56.5x. Considering the presence in the growth sectors like clean energy and space and defence sector
and improving return ratios, we feel the demand valuation to be attractive. Thus we assign a Subscribe rating for the issue.
The company’s financial performance looks strong with a healthy balance sheet position. It has a wide product portfolio along with a marquee customer base and robust order book which gives strong revenue visibility going forward. Hence, we recommend investors to Subscribe the issue for short and long term.
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