MTAR Technologies’ share price has erased nearly 50% of its value so far this year amid a bearish market sentiment. However, analysts at global brokerage and research firm Macquarie have now initiated coverage on the stock with an ‘Outperform’ rating and have projected massive upside potential. “A leading manufacturer of mission-critical precision components in precision engineering, MTAR is witnessing accelerated growth across end-markets,” Macquarie Research said in a note. The brokerage firm has initiated the coverage of MTAR Technologies with a 12-month target price of Rs 1,920 per share, which translated to an upside of 55% from today’s opening price.
Structural growth story
The company generated 64% of its revenue from clean energy. MTAR Technologies manufactures power units (hot boxes) and develops hydrogen boxes and electrolysers. “Clean energy orders are short cycle orders which are dispatched on a monthly basis with Bloom Energy (MTAR’s client) confirming the order for each subsequent calendar year in September,” the report said. Analysts at Macquarie see clean energy as a structural growth story.
Potential in nuclear segment
Further, MTAR generates 14% revenue from the nuclear segment where it primarily caters to NPCIL (Nuclear Power Corporation of India) with whom the company has been working for the past four decades. “Contribution of nuclear power to India’s overall mix is miniscule (1.7% of installed capacity) with India currently having 22 reactors operational amounting to a total installed base of 6,780 MW (additional 700MW is connected to grid). This is significantly below that of advanced nations like France, US, and China where the share of nuclear energy is 70.6%.19.4% and 4.6% respectively,” Macquarie Research said.
Analysts added that India’s nuclear power capacity could jump 1.5x over the next five years driven by eight under-construction nuclear reactors (6GW) by NPCIL and a 2031 target of 22.6 GW.
Strong partners in Defence and space segment
MTAR also caters to the space and defence space, generating 18% revenue. In the space segment, ISRO is the main client, while the defence business caters to companies like DRDO and HAL as well as international companies primarily from Israel like Rafael, Elbit, IAI, and Bental. Keeping ISRO’s strong launch pipeline in mind, order outlook for MTAR is expected to improve.
Valuation and target price
The stock is valued at 35x FY24E EPS with a target price of Rs 1,920 per share. “While there is no exact like for like peers for MTAR technologies due to the unique business model spread across diverse verticals,” analysts said. “MTAR enjoys substantially better revenue growth expectation and margins as compared to both its peers. However, its working capital cycle is elongated and has a smaller tracker record as compared to its peers. Hence, we have MTAR using PE method at 35x which is a 20% discount to Thermax’s 10 yr average P/E,” they added.