MTAR Tech Q3 Review - Challenges In Fuel Cell Business Inherent Part Of An Evolving Technology: Yes Securities

Yes Securities Report

MTAR Technologies Ltd.’s Q3 FY24 print came in a significant quantum below expectations as the phasein/out of the earlier YUMA hotbox to Santacruz has led to an interim dent on the financial performance.

With revenue falling 26%, the impact on Ebitda and profit after tax was much higher. While clean energy segment revenue almost halved YoY, Products segment (average selling price assemblies, Roller Screws etc.) jumped more than four times.

The company delivered even fewer hotboxes (500 units) than Q2 FY24 which saw only the delivery of Santacruz hotboxes while YUMA and Keeylocko saw no deliveries.

While the quarter might come as a shock in comparison to the past many quarters of above 30% revenue growth run-rate, the odds of the company returning to similar growth path in FY25 and beyond remain strong. The sudden urgency of a higher efficiency fuel cell could be a move by Bloom to compensate for the perceived increase in green hydrogen project costs in U.S. after the recent guidance of the US Treasury on 45V tax credit.

On the flip side, MTAR has been able to make serious in-roads in its aerospace and products business, both of which are expected to garner over 30% of the revenue mix in FY25 (from 13% in FY23).

In addition, nuclear revenue is expected to pick up pace starting FY26 with a long runway beyond. The revenue share from Bloom is expected to come down to ~42% in FY26 from 74% in FY23 which would help in reducing revenue concentration and improved margin coming in from increased products business.

We have reduced our FY25E/FY26E EPS estimates by 9%/16% respectively factoring a significantly lower than expected EPS in FY24.

Maintain 'Buy' with a reduced target price of Rs 2,350 (32 times FY26 EPS).

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