This report is dated Feb 2020 - Bloom did had to reclassify its financial statements for 4 years with downward impact on revenue and margins.
On the other hand, UBS published a report increasing price target to $30. If anyone has access to this report or have more intelligence on Bloom, please share.
Fluence too is loss making currently but as Sahil shared can turnaround
Unfortunately I do not have this information. However, I vaguely remember hearing in one of the concalls that is much longer than Govt cycles because of the long time lines of fulfilling export orders.
New CFO had mentioned in the concall about exploring various avenues to get around this including invoice discounting, invoice financing etc. for Bloom related invoices. However they were not very successful (atleast in the first 2 quarters since new CFO came onboard) because of some technicalities involved
Gmail - MTAR Shareholder - seeking information.PDF (39.4 KB)
I had sent this email to MTAR and followed up but no response.
@ankit_george @sahil_vi - As shareholders, can you help in getting a response or shed insights if you are aware. Many thanks
Thanks to @ankit_george for starting this thread on MTAR
It would have probably taken more than a month to capture all the points mentioned in the entire thread.
Thanks to @akacker @sahil_vi @SAURABH_SWARAJ @JR_R for their inputs.
It feels great to observe that, companies that I am screening are already been looked by @sahil_vi, which implies I am kind of going in the right direction.
Coming to the company, some observations and queries from my side:
Please correct me if I am wrong, just a beginner
Pros:
Cons:
One thing that I am not clear about
Things to observe about the company going forward:
Q3 Review
Hi everyone! I was on vacation abroad with the family (including a toddler), and really I understood the value of his nanny, since she was not with us. I grossly overestimated my ability to do work and check messages lol. Anyway, back to the grind now, and I want to address a few points.
There are things that companies do from time to time that are suspicious or downright fraudulent in nature. I have read the articles that are critical of Bloom as well, and generally, these articles are kind of old at this point. Bloom kept on growing, and when I look at the market potential they’re exploring in South Korea and Europe, the sky is the limit for them. There’s also positive sentiment and high target prices coming from the equity research community, so I am comfortable on that front.
Regarding MTAR’s dependency on Bloom, in past earnings calls, management has made it clear that there is no exclusivity with Bloom Energy, and that they could work with anyone in the fuel cell and electrolyzer space. Bloom Energy is a market leader when it comes to setting up fuel cell systems at scale, and it is very comfortable with outsourcing a lot of its manufacturing, while competitors like Plug Power still have work to do to catch up. So I am optimistic that MTAR will engage with other players in the fuel cell and electrolyzer space over the next few years. If they do not do this, and the revenue contribution from Bloom keeps on rising, I will revisit my thesis.
Additionally, what gives me comfort is the fact that the majority of Bloom Energy’s fuel cell requirements are provided by MTAR, and while Bloom Energy owns the designs, MTAR has innovated on and optimized the manufacturing of these modules. In addition, manufacturing has scaled up to thousands of units annually. Therefore, if Bloom were to leave one fine day, it would have to figure out the nitty-gritty details of the manufacturing processes from scratch. So it is good to know that a two-way dependency exists over here. In addition, while MTAR used to just provide the basic power unit, it will soon supply enclosures as well, courtesy of the new sheet metal facility (might have already begun). It doesn’t stop there, as MTAR is also providing anode supported planar (ASP) assemblies, as well as ceramic assemblies and cable harnesses.
@Marathondreams , I like your point about the company trying to be the supplier of “everything to everyone.” Focus is extremely important in a precision manufacturing company, and if MTAR starts trying to make more and more products for clients in unrelated industries, with an intent to grow at all costs, and letting the overall margin profile diminish, I will reconsider my investment in the company.
@Debojit_Kangsa_Banik , I see what you’re saying about the competitive landscape developing in the electrolyzer manufacturing space. For now, all I can say is that it’s an evolving ecosystem, and at present, Ohmium is leading the pack in India. They already have a production capacity of 2GW (increased quickly from 500MW). I am not certain if Reliance’s collaboration with Stiesdal has even started manufacturing units anywhere close to that. I will have to wait and watch to see how the space evolves. In addition, the company’s new COO, Raja Sheker Bollampally, brings with him some critical know-how to help accelerate MTAR’s fuel cell and electrolyzer ambitions (from his days at Ohmium). See below for a link that I previously posted with some numbers.
@JR_R , I haven’t had much luck with contacting investor relations folks in any company (whether in India or abroad) as a lone retail investor. Perhaps condense and save your questions for the AGM? I feel it’s a better forum to get answers in this case.
Cheers everyone!
The Clean Energy business is MTAR’s biggest revenue contributor and strongest growth driver by virtue of the long-standing relationship with its largest client, Bloom Energy (global leader in solid oxide fuel cell.). Here is one update from Bloom Energy.
This could be positive for MTAR Technologies.
Yes, MTAR is going to supply electrolyzers in this FY, this will also ramp up significantly like SOFC boxes in few years
From the bloom q1 concall
"Let me now switch to hydrogen and our high-efficiency electrolyzers for the first example. We have reported in the past about our 100-kilowatt electrolyzer innovation project at the Department of Energy’s Idaho National Lab, using a simulation of steam and electric inputs from a nuclear power plant. The DoE lab has to-date, completed over 4,500 hours of full load operations with the Bloom electrolyzer and founded to produce hydrogen more efficiently than any other process, over 25% more efficiently than low-temperature electrolyzers.
In addition dynamic load testing at I&L showed that the Bloom electrolyzer handled ramping down power from 100% load to 5% load in less than 10 minutes with no adverse impact. In fact even at 5% load, our electrolyzer operated at an efficiency that was equal to or better than low-temperature PEM and alkaline electrolyzers operating at 100% load. I&L will present these results at the DoE Annual Meeting in Washington, DC on June 7."
Looks like their electrolyzers are more efficient than legacy tech like low temp PEM & alkaline electrolyzer. Will be interesting to see how this segment grows for bloom & consequently for mtar.
Guidance for double digit cost reduction as well which will expand bloom margins. (margins expanded in q1 as well). Prices are expected to remain stable or marginally increase due to high time to power in these markets (specially for applications like data center & factories which need uninterrupted power)
Bloom sustainability report is also a good read. The guidance is clearly laid out in terms of different segments powering the growth
Disclaimer: invested in mtar
The audio quality during the earnings call was not the best. Unless someone else beats me to it, I will wait for the transcript to be published before sharing my thoughts about the call.
On a high level, the company did really well. A lot of folks seem perturbed by the lower than expected Q4FY23 EBITDA margin (closer to 25%, as opposed to the expected 28-29%), though management highlighted that this is because they made a decision to revise salaries upwards for critical employees, which they believe will pay dividends in the future as the company continues to grow.
Net Sales at Rs 196.40 crore in March 2023 up 99.23% from Rs. 98.58 crore in March 2022.
Quarterly Net Profit at Rs. 31.07 crore in March 2023 up 56.89% from Rs. 19.80 crore in March 2022.
EBITDA stands at Rs. 49.1 crore in March 2023 up 77.19% from Rs. 27.71 crore in March 2022.
Guiding for 28% EBITDA margins in FY24, 45-50% revenue growth, a closing order book of ₹1500 cr, and 180-200 working capital days.
For me the highlight of the concall was that the company is having a vision to achieve 3000cr revenue for the year 2028 from from current 600 crore revenue odd for the year with sustained margin of around 28%. That requires to if I am not wrong approx 40-45% cagr growth for next 5 years. I would request the opinions of the forum members on if this looks like a achievable target from current client list pipeline and product offerings?
I was also surprised that no analyst asked about the investments to be done for the growth that the company is targetting and that would require qip or other forms of fund raising since cash flow is a major concern.
Ps- My first post so please forgive any errors.
Disclaimer- Invested since ipo
Some additional comments from the call to what you and @ankit_george have covered
The good
The management has provided a mid-term (ambitious) guidance of Rs 3,000 cr revenues by FY28 for the first time (to my knowledge) / 40-45% growth for the foreseeable future (in TV interviews) - which adds up to a similar number
There have been some bottom up numbers to support the target by FY28 which gives some visibility:
- Incremental revenues from new customers (Thales, GKN Aerospace, GE Renewables): Rs 600 cr
- Incremental revenues from Products (in FY24 itself): Rs 120 cr
- Incremental revenues from Fluence (energy storage): Rs 400 cr (in final discussions as customer)
- Incremental (?) Nuclear - Rs 150 cr (Rs 600 cr orders in next year and a bit to be executed in 4 years)
- Incremental Space - Rs 150 cr (they have previously talked of 30%-35% CAGR in this area)
- Additional from Bloom electrolysers which will go into volume in FY25 (or perhaps CY25)
The revenue seems to be supported at a gross margin of 52-53% going forward
Employee cost will be single digit % of revenues in 2 years (this sounds like a huge bump in EBITDA margins depending on if you interpret 2 years as FY27 )
Management continues to be transparent on causes for lower profitability in 4Q (gross margin affected by mix and one of air freight costs, EBITDA affected by employee costs)
De-risking the very high single customer dependence
The not so good
After @vnktshb highlighted the high WC concern, it has worried me. If I look at the company valuation using a DCF, even with a significant decline in NWC days from 230 to 120 by FY27, there is still a drain on the conversion of OCF to FCF (assuming a close to depreciation % incremental capex) which results in the DCF showing a rather low valuation compared to today (although a PE valuation would show significant “under-valuation”). The reduction of NWC from 230 to 120 should be achievable over this period as 50% of NWC is related to short term sales inventory (whereas 25% is related to stocks in transit which will likely ease with supply chains returning to normal and 25% is related to nuclear which the management feels is a one-off). I could argue that a high growth business will have high NWC (if it is inventory driven) as the forward growth is significantly higher (40-45% is crazy high in my view) - but as growth moderates to more reasonable levels the NWC days could also moderate to more reasonable levels. Additionally, a business reinvesting its profits for growth is one that is typically attractive (of course assuming at some point it starts throwing back cash). However this is a key area to focus on and depending on whether the market is valuing it on a DCF basis or PE basis, would have implications for the share price over the next few years. Strangely this business feels like if it had a more reasonable growth profile with a lower NWC requirement, it might command a higher valuation (for me - not to generalise).
The lower profitability of 4Q was primarily down to a one-off salary hike / bonus (not clear) - apparently without a market trigger. Also the management claims it was targeted more to shop floor workers and engineers rather than management. This was positioned as being an investment to ensure key workers are in place for future growth. While this could be interpreted at face value as being very proactive and a strong foundation for growth - one of the participants had a good question to ask why was this not planned / budgeted for in the beginning of the year (no good answer)
Conclusions (for me)
The business still looks like a high growth business with sustainable moats (can discuss this separately if not covered already in the several posts before) with a reasonably straight forward management team - will continue to remain invested, but will expand position size in a very gradual manner (have already a near full position based on my risk assessment)
Will continue to track key cash flow and NWC metrics to understand better
Would appreciate any comments from others who have a better understanding of inventory led NWC in manufacturing related businesses and how to think about this.
Disc: Invested and likely to be biased
Again today promoter has sold 1.13% stake at 1880. Societe generale has purchased this stake and some more through open market to make 1.35% investment. They have reduced almost 5% stake since listing.
Why are they so much keen on selling stake when the prospects of the company are so positive? I am not sure how much more can the price absorb this non stop selling.
This is an inactive promoter. I recall this being discussed in one of the calls.
That’s correct. I expect this selling to continue from third generation non-operating promoter family members. Doesn’t change my view on the company at all.
Bloom had investor day recently. Very interesting data points
Overall was quite interesting since it also laid out their vision for SoXC boxes which can be very future proof. Their ability to make hydrogen most efficiently can also be a differentiator & with large US corporate adopting their tech so aggresively, can be a good growth visibility driver for mtar. To me personally key question remains around the sustainability of margins (is 29% sustainable? We will find out soon).
Disclaimer: invested, biased
When you 29% , u mean blended margins for MTAR right? What i see going ahead is a better blend of Clean + Nuclear + Space , where nuclear and orders from ISRO gets executed at higher rates, i feel that way margins could be maintained. But a fair point made as Bloom is looking to lower opex
Strange to see a Rs6000crs market cap company which has made only Rs100crs cash flows from operations in the last 6 year. The P/CFO multiple is 360x
This valuation metric is not right. Open the whole Cash Flow Statement and then analyse why the CFO is so low. You can see that CFI is very negative which is actually a positive, because it means they are Investing adequately for growing future demand. Check the CF from Debt and Interest Payments. CF analysis like this won’t give you the true picture of a company.
Also for a company like MTAR, you must also take into account the order book and its growth, Inventory Days, How is the Revenue mix, etc.
