Hyd-based MTAR Tech, a niche biz with top clients
One-stop solution for highly critical and precision engineering products catering to nuclear, space, defence, clean energy segments
image for illustrative purpose
CITY-BASED MTAR Technologies Limited, a 50-year-old and well-established company is tapping the capital markets. The company is making a fresh issue of 21.48 lakh shares and an offer for sale of 82.24 lakh shares in a price band of Rs 574-575. The issue opens on Wednesday the 3rd of March and would close on Friday the 5th of March. The issue would garner about Rs 596 crore.
The company is a one-stop solution for highly critical and precision engineering products and caters to the Nuclear, Space and Defence, and Clean Energy segments. It deals with ISRO, Nuclear Power Corporation, DRDO and Bloom Energy amongst others. It had revenues of Rs 214 crore for the year ended March 2020 and a net profit of Rs 45.5 crore.
In the nine months ended December 2020, revenues increased to Rs 176 crore and net profit to Rs 39.6 crore. Because of the nature of the business, the company receives free supply of raw materials from many of its customers and hence the sales quantum looks muted. These raw materials are special alloys and are not manufactured in the country.
It makes sense for the client to contract and import them directly and hand over the same to MTAR. The EPS of the company was Rs 11.11 for the year ended March 2020 and the PE band is between 51.67 to 51.77 times. There are no comparable players which could be termed as competitors for MTAR and this makes them fairly unique in nature. Getting allotment in this issue of just about 1.03 cr shares is going to be a challenge. The huge product development that they have done over the last so many years would hold them in good stead for the next 10-15 years. Their current order book is roughly 18 months sales. One assembly, needs multiple products/components which are manufactured in house by MTAR and then supplied to the user say a defence organisation or ISRO.
The experience, the machine capabilities and the in house facilities to deliver precision components to many thousandth tolerance make the company a preferred choice by their customers. The products supplied to Bloom Energy, make them the largest supplier in the world and they are now backward integrating to be able to process a key raw material as well. The ability to innovate and manufacture products of reliability makes MTAR a one-of-a-kind manufacturer for mission critical supplies. In aerospace, defence and space launches of ISRO including Mangalyaan, there are no failures permitted and every part has to be tested and retested before being approved. This causes a stress on the receivables and it is compensated partly by the free supply of critical alloys, which effectively reduces working capital. The second element is that the amount of time which goes into development of products, ensures that once approved, the order comes by default. Make in India helps in these home-grown companies getting a better share of orders as they produce sensitive and defence related products.
The retail category would consist of 35 per cent of the issue and would see an oversubscription of anywhere between 20 and 22 times the number of lots going by the past experience. The same would be around 26-28 times the number of shares and allotment would be difficult based on the lottery of one out of five or two out of eleven.
The above unique positioning of MTAR Technologies Limited makes the company a must own stock.
(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)
