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MTAR Technologies IPO Review and Analysis in Detail

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Basis Structure of MTAR Technologies IPO

After IRFC, Home First Finance Company, Indigo Paints and several more, MTAR Technologies will be the ninth IPO to hit the Indian stock markets in 2021.

The company is looking to raise about Rs. 596 crores through this public offering. A part of this amount has been earmarked to repay the existing debt. The rest will be utilised to augment the working capital requirements of MTAR Technologies.

This IPO is of a book-building nature. This means MTAR Technologies will offer the shares in a price band, and not at a unique price.

The MTAR Technologies IPO will consist of both a fresh issue segment and an offer for sale segment.

The fresh issue segment includes those shares which are being freshly diluted by MTAR Technologies. The amount received from the sale is retained directly by the company. In this case, MTAR Technologies will raise Rs. 123 crores from the fresh issue segment.

As for the offer for sale segment, that includes those shares which are being sold by the existing shareholders. In this case, the transaction is not with MTAR directly. The amount received is credited directly to the existing shareholders. In the case of the MTAR Technologies IPO, the offer for sale segment is sized at Rs. 472 crores.

The table below sums up all the details about the MTAR Technologies IPO. Details like MTAR Technologies IPO share price, MTAR Technologies IPO subscription window, MTAR Technologies IPO opening date, MTAR Technologies IPO listing date, MTAR Technologies IPO gmp and more have been summarised.

IPO Details

After the MTAR Technologies IPO, the shares will be listed on the NSE and BSE.

About the company

Established in 1999, MTAR Technologies is primarily an engineering company. It works in the precision engineering segment and manufactures components used in the nuclear, clean energy, space and defence fields.

The company is headquartered in Hyderabad. It currently operates seven different manufacturing factories, based in Telangana.

Owing to the nature of its product portfolio, MTAR Technologies works on a B2B revenue model.

Products and Services

MTAR Technologies caters to customers in the nuclear field as well as the clean energy and defence sectors. On the basis of the customers, we can divide the product portfolio into three different categories.

Product

The image below shows the split-up of the different types of products manufactured by MTAR Technologies.

Products

Customers

As mentioned above, MTAR Technologies works primarily on a B2B business model.

The company has long-term relationships with many of its clients, both domestic and international.

Customers

For instance, MTAR Technologies has been serving the Nuclear Power Corporation of India Limited (NPCIL) for the last 16 years. The company has a long-standing partnership with Bloom Energy Inc., USA, for the past 9 years.

Apart from that, examples of other clients include the Indian Space Research Organisation (ISRO), Defence Research and Development Organisation (DRDO), Indira Gandhi Centre for Atomic Research and more.

Promoter Shareholding Pattern

The table below shows the shareholding pattern of MTAR Technologies prior to the IPO.

Promoter Shareholding

Financial Overview

The table below shows the main financial figures for MTAR Technologies over the past four years. All the figures mentioned below are in Rs. Crores.

Financial Overview

As we can see from the figures above, MTAR Technologies has been growing steadily over the past few years.

Between 2017 and 2020, the total revenue grew at a CAGR of 27.98%. During that same period, the total assets grew at a CAGR of 2.53%. As for the net cashflow from operating activities, that has grown at a CAGR of 71%.

Total Revenue

Cashflow

Another positive point to note here is that MTAR Technologies does not have any long-term debt burden.

Industry Overview

Precision engineering, as the name suggests, is a sub-category of engineering. As this branch of engineering finds use in defence and nuclear projects, there is an extremely low margin of error.

Industry

In India, the precision engineering industry is sized at Rs. 4,09,800 crores. This industry makes up about 4% of the total manufacturing output. This industry is expected to grow at a CAGR of 6-7% and reach Rs. 6,65,000 crores by 2025.

Market share

The majority of the demand for precision engineering products comes from the automobile sector. Defence and aerospace come next, and makeup about 18-20% of the market demand.

Backed by growing demand and rising investment in these sectors, the demand for precision engineering products is expected to rise steadily in the upcoming years.

It is also important to note here that export demand makes up about 20% of the total precision engineering production. The largest demand comes from the United States. UAE and Germany take up the second and third places.

The growth in this industry comes as a beneficial effect of the Make in India campaign. The government’s efforts to augment India’s manufacturing sector will also have an impact on the growth of the precision engineering industry.

Local manufacturing centres are expected to receive a boost, especially in sectors such as defence and energy. Capital expenditure is expected to increase by 15-20% on a yearly basis. Over the next five years, public funding will reach $ 130 billion.

All these factors bode well for the future prospects of MTAR Technologies. The demand for raw materials is, after all, the first step in any manufacturing process.

The market for precision engineering products is fragmented, but the larger players dominate the space. There are smaller participants, but their market share is very low. Plus, the nature of the business requires technical expertise and existing distribution relationships.

This means new players cannot enter into this market directly, thus restricting the competition.

Peer Review

As mentioned above, the market for precision engineering products is fragmented. There are a large number of players, but the majority of the market share is serviced by larger companies.

The table below summarises the key comparison parameters of MTAR Technologies with its peers.

Peer review

As we can see from the table above, in comparison with its peers, MTAR Technology’s parameters are above average. Other than a few giants like Mahindra Defence, Schaeffler and Timken, who have higher values for the interest coverage ratio, the rest are lagging behind MTAR.

Even in terms of the return on capital employed, and the operating margin, MTAR Technologies has outperformed its peers.

It is interesting to note here that MTAR Technologies intends to use a part of the IPO proceeds to pay off its existing financial debt. Once that happens, it is expected that the interest coverage ratio for the company will improve significantly.

If MTAR Technologies is able to follow its expansionary plans and execute the strategies successfully, then the company has the potential to emerge as a leader in its field.

Strengths of MTAR Technologies IPO

Among strengths, there is the fact that MTAR Technologies has long-term relationships with most of its clients. It has worked with NPCIL for 16 years and with Bloom USA for 9 years. In the precision engineering industry, having long-term clients increases competitive advantage.

Apart from that, there is the fact that MTAR Technologies has a diversified product portfolio that caters to clients across multiple sectors. This reduces the specific risk associated with any one product.

The same fact also applies to the line of raw material suppliers that MTAR Technologies uses. The company does not depend on any one supplier for its products, it sources materials from a large network.

Weaknesses of MTAR Technologies IPO

A strength on the flip-side can also be counted as a weakness. MTAR Technology’s client portfolio is small, to say the least. The company has a total of 35 customers. The top 5 customers contributed over 87% of the operating revenue in 2020.

MTAR Technologies faces stiff competition from its peers. The market in which it operates is highly fragmented, and the top players keep locking horns for a larger market share. Any drop in its performance might cause the company to lose out on market share.

Valuation of MTAR Technologies IPO

The table below shows the main valuation parameters of MTAR Technologies and its listed peers.

Valuation

A common method to check the valuation of the company is to compare the price to earnings ratio with the industry average.

If the company’s P/E ratio is higher than the industry average, then this means the company is overvalued. On the contrary, if the P/E ratio is lower than the industry average, it means the company is undervalued.

In this case, the industry average P/E ratio is 44.06.

Based on the price band, MTAR Technologies is aiming for a price to earnings ratio of 80.08.

This means the MTAR Technologies IPO is overvalued according to industry standards.

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