MTAR Technologies - Running At Full Throttle, Ready To Take Off; Motilal Oswal Initiates Coverage With A Buy

Motilal Oswal Report

MTAR Technologies Ltd., being the key supplier of precision engineered systems to large global MNCs, government departments, and large Indian public and private sector enterprises, has over the years created a niche for itself in the industry.

As the largest supplier of fuel cell components to BE (global leader), the company will benefit from the emerging demand for fuel cells in the coming years. Further, the company is also increasing its wallet share with BE by offering more products, such as precision sheet metal fabrication and enclosures, with the aim of carrying out a complete fuel cell integration for BE.

Apart from fuel cells, its other business segments (such as nuclear, space, defense and products) offer a huge runway for growth. We believe the company can capitalize on this opportunity with its strong manufacturing capabilities and customer relationship management. Consequently, MTAR Tech is likely to clock a compound annual growth rate of 39% in the order book and 38% in revenue during FY24-26.

We expect MTAR Tech to clock a revenue/Ebitda/ adjusted profit after tax compound annual growth rate of 38%/53%/ 67% over FY24-26, with return on equity/return on capital employed of ~23%/21% by FY26E (versus ~12%/11% in FY24).

During FY24-26, the company is anticipated to generate a cumulative free cash flow of Rs 673 million, with cash flow from operation/Ebitda averaging at 26%.

We initiate coverage on MTAR Tech with a Buy rating and a target price of Rs 2,800, premised on 40 times FY26E. We believe that:

1. a 67% earnings CAGR over FY24- 26E,

2. strong return ratios (RoE of 23%, ROCE of 21%, and RoIC of 22% in FY26E),

3. a robust order book CAGR of 39% over FY24-26E, and

4. a healthy balance sheet will help MTAR Tech trade at premium multiples.

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