MTAR Technologies IPO: All You Need To Know

MTAR Technologies Ltd. will launch its Rs 560-crore initial public offering on Wednesday as the defence equipment maker plans to repay borrowings.

The IPO comprises a fresh issue of 21.48 lakh shares and an offer-for-sale of 82.24 crore shares, according to the company’s red herring prospectus. The price band has been fixed at Rs 574-575 apiece, at the upper-end of which the company will be valued at Rs 1,768 crore.

The maker of nuclear, defence and aerospace equipment, fabrication facilities and fuel cells has recently sold 18.51 crore shares at Rs 540 apiece in a pre-IPO placement to schemes of SBI Mutual Fund and Axis Mutual Fund.

Key Details

• Issue opens on: March 3, 2021

• Issue closes on: March 5, 2021

• Face value: Rs 10 per share

• Fresh issue aggregating: up to Rs 116 crore

• Offer for sale worth: Rs 444.1 crore

• Minimum bid size: 26 equity shares

• Listing: National Stock Exchange and BSE

• Book Running Lead Managers: IIFL Securities and JM Financial

The company, according to the prospectus, will use proceeds from the fresh issue for repayment or pre-payment of its borrowings and funding working capital requirements.

MTAR Technologies raised Rs 178.9 crore through anchor placement at Rs 575 apiece from 44 entities, including from 39 schemes of 11 mutual funds, ahead of its IPO.

Business

Founded in 1970 as a partnership firm, MTAR was originally promoted by Late P Ravinder Reddy, Late K Satyanarayan Reddy and P Jayaprakash Reddy. It’s currently led by Promoter and Managing Direcvtor Parvat Srinivas Reddy.

The company manufactures high precision components, sub-systems, assemblies having components with close tolerances (5-10 micron) to serve projects in the clean energy, nuclear sector, space and defence.

MTAR has seven manufacturing units, including an export oriented unit that supplies power units to Bloom Energy, and high-end components to an Israeli defence technology company.

The company, according to its red herring prospectus, has three key customers in the fuel cell, nuclear, and space and defence segments.

In the fuel cell segment, Bloom Energy is its largest customer that accounted for 49% of the company’s revenue in the nine months ended December 2020.

Its key customer in the nuclear segment, Nuclear Power Corporation of India Ltd., accounts for 27% of the overall revenue.

In the space and defence segment, clients such as the Indian Space Research Organisation and Defence Research and Development Organisation account for 21% of the top line. The company co-develops critical sub-systems like Liquid propulsion Rocket Engines, Cryogenic Engines and other parts for space programs like Chandrayan-II, Mangalyaan and Agni missile programmes.

Order Book

MTAR has an order book of Rs 334 crore across three segments, including Rs 160.60 crore for space and defence segment. It has an Rs 80.2-crore order book for the clean energy segment from Bloom Energy and Rs 93.2 crore from Nuclear Power Corp.

“The order book from Bloom Energy is not indicative since the forecast is released at the beginning of years and order is released every six months, so the number you see there is half of the order,” P Srinivas Reddy had told BloombergQuint in an interview.

Financials

MTAR has seen a compounded average revenue growth of 16% in the last three financial years. Its revenue for the fiscal ended March 2020 stood at Rs 213.8 crore, and at Rs 177.3 crore for the nine month ended December 2020.

• The company’s Ebitda margin hovered between 29% and 30% in the last three financial years. It stood at 30% for the nine months ended December 2020.

• MTAR’s profit for 2019-20 stood at Rs 45.5 crore, and at Rs 39.6 crore for April-December 2020 period.

Competition

MTAR competes with more than 200 vendors in the nuclear, space and defence segments. It has formidable competition from Mahindra Defence, Larsen & Toubro’s defence and heavy engineering segment, and Godrej & Boyce, among others.

Key Risks

• The company depends on Bloom Energy and a limited number of other clients for a significant portion of its revenue. It depends on NPCIL, ISRO and DRDO for more than 50% of its revenue.

• The company does not have long-term supply agreements with its customers.

• The company is in a highly competitive market where pricing pressure can adversely impact its Ebitda margin.

• The company does not have the intellectual property rights for fuel cells technology. The IPR is with Bloom Energy, said Reddy, adding the company works with Bloom Energy to execute the order based on their designs.

Watch the full interview here: