After erasing 50 percent of its investor wealth this year, MTAR Technologies is expected to rise 55 percent in the next 12 months, according to global brokerage house Macquarie.
The brokerage has initiated coverage on MTAR Technologies with an 'outperform call and has a target price of ₹1,920, implying a potential upside of 55 percent from the current market price of ₹1,234 (as on July 6).
“A leading manufacturer of mission-critical precision components in precision engineering, MTAR is witnessing accelerated growth across end-markets,” Macquarie Research said in a note.
The addition of new customers and capabilities makes for a robust outlook for MTAR, it stated, adding that working capital improvement remains key. Differentiated engineering capabilities and lower raw material risk compared with traditional capital goods companies should help protect profitability in an inflationary environment, it further said.
The stock cracked 50 percent in 2022 so far and has lost 7 percent in the last one year.
Clean Energy
The brokerage house noted that the company earned 64 percent of its revenue from clean energy. MTAR Technologies manufactures power units (hot boxes) and develops hydrogen boxes and electrolysers, it added.
"Clean energy orders are short cycle orders which are dispatched on a monthly basis with Bloom Energy (MTAR's client) confirming the order for each subsequent calendar year in September," the report said.
Nuclear Segment
Further, Macquarie said that MTAR generates 14 percent revenue from the nuclear segment where it primarily caters to NPCIL (Nuclear Power Corporation of India) with whom the company has been working for the past four decades.
“Contribution of nuclear power to India’s overall mix is minuscule with India currently having 22 reactors operational amounting to a total installed base of 6,780 MW. This is significantly below that of advanced nations like France, US, and China where the share of nuclear energy is 70.6 percent, 19.4 percent and 4.6 percent respectively,” Macquarie Research said.
Macquarie added that India’s nuclear power capacity could jump 1.5x over the next five years driven by eight under-construction nuclear reactors (6GW) by NPCIL and a 2031 target of 22.6 GW.
Defence and space segment
The brokerage also pointed out that MTAR also caters to the space and defence space, generating 18 percent revenue. In the space segment, ISRO is the main client, while the defence business caters to companies like DRDO and HAL as well as international companies primarily from Israel like Rafael, Elbit, IAI, and Bental, it said, adding that keeping ISRO’s strong launch pipeline in mind, order outlook for MTAR is expected to improve.
Valuation
As per Macquarie, there are no exact like-for-like peers for MTAR technologies due to the unique business model spread across diverse verticals..
"MTAR enjoys substantially better revenue growth expectation and margins as compared to both its peers. However, its working capital cycle is elongated and has a smaller tracker record as compared to its peers. Hence, we have MTAR using PE method at 35 times, which is a 20 percent discount to Thermax's 10 yr average P/E," it said.
MTAR is a precision engineering solutions company that develops, manufactures, and sells mission-critical precision assemblies and components in India and internationally. It operates through four segments: Civil Nuclear Power, Space & Defence, Clean Energy, and Others. It has seven manufacturing facilities, including an export-oriented unit located in Hyderabad.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
