MTAR Technologies - A wager on innovation meeting economies of scale

Guidance is mentioned in Press Release. 45-50% growth as some talks with customers are in final stages.
However, the things to watch out for are

  1. Is the target based on confirmed orders or expected orders?
  2. Chance of further deferment of exports to customer (Bloom Energy)
  3. Reason for promoter selling. Whatever may be the answer, this is going to be a bad remark for Corporate governance of the Co

Disc: Just my thought. No reco to buy or sell

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To summarize a very long first message on this thread, I invested in MTAR for the following reasons:

• Management had a recent track record of exceeding guidance numbers
• Robust revenue growth from FY20 to FY23 (~₹214 – 574 cr), with EBITDA margins in the mid to high 20s
• Precision engineering company – lots of expertise and IP
• Active in critical growth sectors – clean energy, space, defence, nuclear energy
• The most upside (in my opinion) was in clean energy (fuel cells, H2 boxes, and electrolyzers), not to mention the highest potential for economies of scale to kick in (batch manufacturing to mass manufacturing of electrolyzers, etc.)

To say that Q3 results came as a shocker today would be an understatement.

Commenting on the results, Mr. Parvat Srinivas Reddy, Managing Director & Promoter, MTAR Technologies, said, “Revenues in FY24 shall be marginally higher as compared to FY23 due to deferment of export shipments in Clean Energy sector to the next fiscal year. However, the growth outlook for FY25 remains intact with 45% - 50% YoY likely increase in revenues. The company is in final stages of discussion with reputed global MNCs as well as made good progress in Small Satellite Launch Vehicle project.”

Rewinding the clock and going back to Q2 results, while this has been covered in detail in previous messages, I just wish to reiterate a few points from that con call:

• While order deferment from Bloom Energy was cited as the reason, I was not a fan of the drastic cut in revenue guidance for FY24 down to ₹670 – 700 cr from ₹830 – 860 cr. In addition the EBITDA margin guidance was reduced to 26% (+/- 100bps)
• Still expecting to see a closing order book of ₹1400 to 1500 cr
• Delivered approximately 400 and 200 units of Yuma and Santa Cruz Block 1, respectively
• Expecting to deliver 528 units of Santa Cruz Block 2 in Q3
• Expecting to deliver 44 electrolyzers in Q3 and 66 in Q4
• In talks with Fluence Energy around energy storage systems, which could be a ₹120 – 130 cr business in FY25, with plans to deliver 1000 units. Fluence wants MTAR to build the capacity to deliver 3000 plus units
• Over the long term, proactively planning to get EBITDA margins to 28%
• Expecting H2 domestic sales to be 3x what they were in H1, indicating a jump from ₹50 cr to ₹150 cr

So when I look at the Q3 numbers, I have a lot of questions, which I hope will be answered in tomorrow’s con call:

With the total revenue from Q1 to Q3 adding up to around ₹440 cr, what actual number are we targeting for FY24 revenue? If it is significantly lower than the lower end of the Q2 revised guidance of ₹670 cr, I will have trouble taking guidance figures at face value going forward
• Is there a revenue recognition issue that caused this massive drop in Q3 revenue? For example, products that should have been shipped on Dec 29 did not leave the factory till January 3, and therefore revenue will have to be recognized in Q4?
• How many Santa Cruz boxes were shipped in Q3? The target was around 530 from the previous call
• How are the conversations with Fluence Energy progressing? Is the ₹120 – 130 cr revenue projection for FY25 (~1000 units) still accurate?
• How many electrolyzers were actually shipped in Q3? What are we expecting for Q4, and when are we going to make the transition from batch manufacturing to high volume mass manufacturing here? Over the next 3-5 years, can the revenue contribution from electrolyzers increase massively, and even exceed the contribution from fuel cells/hot boxes/hydrogen boxes?
• Are second half domestic sales going to be anywhere close to the projected ₹150 cr?
• What does management project for the FY24 closing order book number?

Just so I don’t misquote something, I will wait for the transcript of tomorrow’s call before drafting my next message.

Disclosure of holding: I started buying MTAR Technologies in August 2022, at a price of ₹1422. My cost basis has moved up to ₹1555. I have a fairly concentrated portfolio, and do not hold more than 10 companies at any given time.

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I feel that Q4 will be flattish YoY & expected growth of FY24 is differed by 1 year to FY25.
Order inflow is quite strong in Q3 and i expect that Q4 will see more orders, as long as the orderbook is building then i don’t see any much risk.
Electrolyzers opportunity is much bigger than these SOFC boxes, fluence energy & product related revenue (import substitutes) can contribute significant revenue in FY25.

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Very good insights from con call.
I am very much convinced with the management guidance this time with good breakup and very low (35%) exposure to bloom energy.
They are expecting other verticals could contribute good amount of revenue in FY25 with decent margins.
Electrolyzers revenue is not included in the revenue projection of 900Cr, but i feel there will be some contribution of this vertical as well.

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Is it available online yet?
Cant find on their site also!

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Need some overall market correction, and stock to consolidate along 1200-1500 before building any new position.

I am not invested as long as promoter is on a selling spree.

Concall notes available on screener

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Really thought provoking questions + write up by @ankit_george above. Going through the earnings call for Q3, I’d like to take a shot at answering all the Qs asked above:

  1. FY24 revenue guidance is INR 610 crore, significantly lower than the earlier estimates. Definitely shakes confidence in the estimation capabilities of the management.
  2. Couldn’t deduce whether it was a revenue recognition issue, but the management highlighted stabilization issues at Bloom Energy which disrupted delivery schedule. They believe the worst is over and things should become smooth from Q4.
  3. 500+ hot boxes delivered to Santa Cruz in Q3. 664 hot boxes estimated to be shipped in Q4.
  4. Expecting orders of 300 units from Fluence Energy in FY25, which could increase to 1K units in FY26 and 3K units in FY27.
  5. 44 electrolyzers shipped in Q3. 60 electrolyzers expected to be shipped in Q4. No comment by management on transition to high volume mass manufacturing. No comment on volumes over the next few years – however, management sees electrolyzers as a BIG OPPORTUNITY.
  6. No exact commentary on this, but given a lower revenue guidance I don’t think they’ll achieve the INR 150 crore domestic sales #
  7. Expecting order book to close at INR 1,400 crore for FY24.

I covered the Q3 earnings call HIGHLIGHTS + LOWLIGHTS in this article if anyone wants a deeper dive.

Again, amazing thought activity @ankit_george !

Disclosure: Not invested. Tracking QoQ performance.

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Thank you @siddybee for typing these answers :slight_smile: . Overall, I have to say that I was quite pleased with the concall.

I am very excited about answer number 5. Electrolyzers, given the way the world is evolving, are going to be a big deal. At this stage, I believe only one company manufactures electrolyzers at scale in this country. There is a lot of talk among other players, but no one else has started mass manufacturing them, to my knowledge (please correct me if I am wrong).

MTAR has proven that they can batch manufacture electrolyzers for Bloom Energy. So, contingent on Bloom Energy getting orders for these devices, I expect that the transition to mass manufacturing on MTAR’s end should be fairly smooth.

I agree with @murali603 that there will be some contribution from this vertical in FY24-25, and I also appreciate that management is being very conservative with guidance this time around. Personally, I hope that we have a hockey stick growth moment late in FY24-25 over here, but that’s just me being bullish.

Disclosure of holding: I started buying MTAR Technologies in August 2022, at a price of ₹1422. My cost basis has moved up to ₹1555. I have a fairly concentrated portfolio, and do not hold more than 10 companies at any given time.

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