MTAR Technologies: Can they scale up?

Hi guys, I am new to the forum and this is my first post.

MTAR commenced operations in 1970 and converted to private limited company in 1999. It operates in seven manufacturing units in Hyderabad and develops and manufactures vital precision engineering components and further supported by an extensive and stringent quality control process at each stage of production process. It falls into heavy engineering and provide products in nuclear, space, defence, and clean energy segments. Some of its customers are ISRO, DRDO, NCIL and Bloom Energy (US Company) and the industry the company operates requires higher accuracy and precision, and tons of experience helped create barriers for other players.

Company is investing in import substitutes. One such example is roller screws. If they complete, the company will be the first in India to do so.

Nuclear Power: The installed Indian nuclear power capacity should reach 22,480 MW by 2031 (3x the current capacity). There is an immense opportunity for MTAR from the customers in Nuclear segment in Fleet Reactors and the company’s order book is expected to witness a stellar growth as company is sole supplier to some the products to Nuclear customers.

Defence: India plans to invest USD 130 bn in military modernisation in just five years. As per DPP 2020, it is mandatory that 50% of the order value be manufactured in India. MTAR is focusing on projects such as establishing sheet metal vertical and enhancement of specialized fabrication capabilities in the near term and want to take up opportunities such as gear manufacturing Aerostructures, complete integration of missile systems in the next 3 years. The company has started quoting aggressively for Defence orders and is strategically focusing on critical sections of missiles, bombs, launchers etc. to turn its long term plans of taking up complete integration of missiles, launchers into reality.

Space: ISRO intends to commercialise the Indian Space sector, offering products and services to other countries. ISRO also announced the building of an SSLV to lift satellites up to 500 kg in the Lower Earth Orbit, making its launches competitive for lower payloads. The products supplied to ISRO such as Liquid Propulsion Engines, satellite valves.

Clean Energy: Globally, the clean energy market is expected to reach USD 1500 bn by 2025. MTAR is a major supplier to Bloom (substantial market share of USD 213 bn in US and USD 608 bn in top 10 power generating countries). The company has started working on manufacturing electrolysers to produce Methane free hydrogen for existing customers and the prototype will be dispatched in the month of Nov 2020, which might give a huge upside. The Business Plan envisages a growth in topliner to 486 Cr in FY2023 from 218 Cr in FY 2020

Order Book Value at end of FY2020 is at 333 Cr which is 1.5 times their turnover: Nuclear (32%), Defence and Space (55%), Clean energy (13%). Domestic (82%) and Exports (18%).
Revenue breakdown Clean Energy (64%), Nuclear Sector (14%), Space and Defence (18%). 83% of revenue is concentrated from top 3 clients i.e., Bloom Energy, NCIL & ISRO.

Are the below points negative for the
In order to enter into business agreements/ business with the Defence companies as Indian Offset Partner (IOP), the Company has incorporated a wholly owned subsidiary company “Magnatar Aero Systems Private Limited”.

On January 27, 2020, approved the Buy Back of 2,658,621 equity shares at a price of Rs. 123.206 per share for a total value of Rs. 3,275.58 lakhs being 9.42% of the paid-up Equity Share Capital and free reserves of the Company.

I really liked the industries they are working in. I believe there is growth in the sectors, especially considering our Indian economy growth.

Could forum or seniors investors guide me. What are the things I should watch out for ? The company kind of monopoly in this segment and in Niche segment.

I hope even I create some value to the forum. Thank you. :slight_smile:

10 Likes

Thankyou for the details.

Company revenue is dependent on very few clients, hope they expand and diversify their base soon.

1 Like

Very good information.
The thing is i would invest in this company in a heartbeat, if only valuations were low. At a P/E of 90+ the valuations are too much stingy for my taste.
Future belongs to the space and Clean energy so growth will be very high, no doubt about that.

@dinngap Client concentration is fine I believe considering the niche products and company created moat around them. It’s kind of sticky business and all their clients are there for more than 5-7 years. Correct me if I am wrong.

@Lucifer Yes . As an investor, valuations are pretty high.

In Jan 2020, company approved buyback at Rs. 123 and purchased 2,658,621 shares. But, now it’s almost 1000. That’s 8x return in 1 year.

Disclaimer: Not invested, tracking.

In Jan 2020 the company was not even listed so from whom did they buyback? All such unlisted activity needs to be taken with a pinch of salt.

4 Likes