Should you apply for MTAR IPO- MTAR IPO Detailed Analysis

 

Hello, friends welcome back to News Gali. Today’s news is MTAR Technology has applied for the IPO, which would be available for subscription between 3rd march to 5th march.

I investigated more about this company and in this blog I would like to present my analysis on mtar.

I have divided the analysis into various parts, where I would cover the sector, mtar operates in and the future, growth of the sector, analysis of the company, key strength, competitors key risk, and future plan. I've also covered the financials including the valuations and finally, I have provided the IPO details and the gray market premium, along with my call on whether to subscribe for the IPO or not.

Alright let's get started.

india's engineering sector is divided into two segments heavy and light engineering. Heavy engineering includes manufacturing and assembly of industrial machinery and plant equipment for example, it includes sugar machinery, mining machinery, textile machinery, etc. these types of equipment have usage in industries such as fertilizer, textile, chemical, refinery petrochemical oil and gas as well as the thermal and nuclear power sector.

On the other hand light engineering includes everything from basic to sophisticated equipment including rolling, bearing, gearing, manufacturing, steel, forging etc.

light engineering products find application in automobile, industrial machinery, power, oil and gas, fertilizer, steel refineries, petrochemical, cement, railway sector and also serves as input for heavy engineering and capital goods sector.

precision engineering is a sub-category of engineering. and is concerned with manufacturing and assembling line that have exceptionally low tolerance and are required to perform consistently over longer repeat cycles.

Friends, accuracy, and margin of error are extremely important parameters for engineering and production any deviation. in dimensions can lead to loss of performance or even catastrophic failure of the system.

precision engineering products and components are especially important for critical applications such as aviation aerospace, space defense, and nuclear power plants in the nuclear sector a failure of the small fitting component may lead to catastrophic long-term effect. so component tolerance and its fit is very critical from safety and operational point of view.

Otherwise, a small fit error can wipe out years of effort. And if you look at India's domestic precision engineering industry, its turnover is estimated at rs 4098 billion rupees for fy 20, clocking a cdr of 7.1 percent between fy16 and 20. it is estimated to reach 550 billion rupees by fy25 at a c jar of six to seven percent.

The precision engineering industry would continue to expand as India increases its focus on manufacturing. government of India is aiming to raise the contribution of manufacturing from the current level of 17 to 18 percent to 25 of GDP by 2025.

Technological advancement foreign direct investment and strong government initiative is the key growth driver for manufacturing sector.

Precision engineering component is expected to get a boost from end-user sector growth on account of improvement in ease of doing business, investment in infrastructure, and supportive government policies. Growth in the automotive and auto component industry and government focus on strategic sectors such as defense and aerospace.

MTAR is a leading precision engineering solution. the company engaged in the manufacturing of mission critical precision component with close tolerances of 5 to 10 micron and in critical assemblies to serve projects of high national importance.

“Mtar technology limited” cater to segments such as clean energy, nuclear, space, defense, and aerospace industry.

Mtar commenced its operation in 1970, as a partnership firm and later incorporated into a company in 1999. mtar technology is a supplier to companies such as BHEL that is Bharath heavy electrical limited, HL that is Hindustan aeronautics limited, defense research and development organization that is DRDO, Gaussian Boyce, Indian space research organization that is ISRO, and nuclear power corporation of India that is NPCIL.

Mtar is one of the key supplier to bloom energy, which is the largest player in fuel energy space as per 2019 revenues.

Mtar has currently seven manufacturing facilities situated in Hyderabad, which undertake precision machining assembly, testing, and quality control. Specialized: fabrication, brazing and heat treatment, and other specialized processes.

The company is primarily led by Parvat Srinivas Reddy. who has over 29 years of work experience by November 20.

They had 896 permanent employs and had a low attention rate of six percent in the last three years.

If you look at the key strength of the company,

• ·      The first trend is good experience of precision engineering product, Manufacturing of over 50 years.

• ·      Then it has a wide range of product portfolio, including 14 products in nuclear sector, 6 products in space and defense and 4 in clean energy sector.

• ·      They also have modern technology and state of art manufacturing facility.

 

If you look at the Competitors of Mtar

• In the nuclear sector, it includes ln heavy engineering and gaussian boys.

• In space and defense sector it includes ln gothic and boys.

• Hindustan aeronautics limited and wildcat nugget industries.

• Some of the other competitors include Mahindra defense system.

That manufactures

• Armored solution for military and paramilitary forces and aircraft.

• Mobile surveillance and modern defense equipment for army navy and air force.

• It also includes alpha design technology that manufactures defense electronics.

• Avionics and space satellite system. So clearly there is a strong competition.

If you look at the key risk

• Company has high dependence on a few big clients. a loss of one client can impact their revenue and profitability.
• Company has high dependence on Indian psu including isro, drdo and npcil.
• A decline in funding from Indian government can also, impact mtar financials.
• There are strict guidelines of quality standard in precision engineering business any missing quality can impact companies performance.

 

If you look at the future plan

• Mtar is planning to expand its existing product portfolio and diversifying products with attractive growth and profitability.
• The demand for sector mtar operates in would continue to increase, for example:

There would be high demand for clean energy, mtar has started manufacturing electrolyzers. that break water into hydrogen and oxygen, to produce methane free hydrogen. which can be used for multiple sectors to generate power. Mtar emits oxygen while making electrolyzers.

• Government is already focusing a lot on defense and aerospace, by continuously increasing the budget allocation.

• Government is also focusing on nuclear supply chain with atmosphere initiative. this would again create more demand and there is already a high entry barrier in precision engineering.

• Mtar should benefit from its vast experience and good relationship with its client.

• Mtar has a good order book for fy 22 and is also in the process of establishing a sheet metal facility in Hyderabad.

 

If you look at the financials

• Company revenue have increased from 160 crore in march 18 to 218 crore by march 20.

• However there was a fall due to covid.

• Profits have increased from 5.4 crore in march 18 to 39 crore by march, 19. and then dipped in march 20 to 31 crore and further dipped to 28 crore by december 20 due to covid.

 

If you look at the operating margin

In fy20 mtar operating margin stood at 28.5 percent and roc stood at 19.2 percent, which is good.

It has debt to equity of 0.17 and interest coverage ratio of 13.1.

Mtar ipo would open between 3rd march to 5th march 2021 and shared are issued at a face value of rupees 10. ipo price band is 574 to 575 rupee, and one market lot would have 26 years, so minimum investment would be rupees 14, 950 for one lot.

Company has planned to raise 596 crore, this is raised by two ways issue of fresh equity, worth rupees 123 crore and offer of sale for 472 crore where promoters would dilute their shareholding.

The objective of the ipo is to raise money. that would be used for repayment of borrowing. so as of number 30 Company has a total debt of rupees 145 crore out of this, company plan to repay rupees 55 crore raised via ipo. further, the money would be used for funding working capital requirement. 

Company plans to use 62 crore from working capital in fy22 and 33 crore in fy 23.

The remaining money would be used for general corporate purposes including funding growth opportunities, meeting expenses, brand building etc. at mass 20 earning of 31 crore the company is offering the price band of rupees 575 at a pe ratio of 52, which looks alright not too high not too low.

Finally the gray market premium currently mtar is trading at a gray market premium of 43 percent. so clearly there is a good response to mtar ipo and there are good chances of listing gain.

I expect a good response to this IPO and it should have a good subscription.

Overall I think that mtar looks like a decent share to apply for ipo for both short-term and long-term gains. 

what is your opinion on mtar? let me know in the comment box and friends this article is only for education purpose. consult your financial advisor before investing. as I might be wrong in my analysis. 

I hope you like the analysis. I will see you with another news article till then take care.

 

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