MTAR IPO set to conclude today. Should you subscribe?

NEW DELHI: Recent market debutants have logged solid gains, be it Friday’s 44 per cent surge for Heranba Industries, a 16 per cent rise for RailTel (both in weak market conditions), or Nureca’s 59 per cent rally.

Going by grey market trends, even MTAR Technologies is commanding a strong premium, making investors wonder if they should subscribe to the issue.

The IPO, which consists of a fresh issue of shares worth Rs 124 crore and an offer for sale (OFS) of Rs 473 crore worth of shares, is being sold in the Rs 574-575 price band.

By 10:30 am today, the issue was subscribed 11.24 times, receiving bids for 8,16,05,160 shares compared with the issue size of 72,60,694 shares. Analysts said the company is into niche segments and can be a play on clean energy and ‘Atmanirbhar Bharat’.

KRChoksey Shares & Securities finds the price band attractive. “Looking at the growth potential in the company, we anticipate listing gains and give a ‘subscribe’ rating to MTAR Technologies IPO,” the brokerage said.

Motilal Oswal Securities said it likes MTAR given its complex and wide product portfolio, presence in niche segments, strong client relationship and high entry barriers. “The issue is valued at 47.3 times FY21E P/E and 3.7 times P/BV on an annualised and post-issue basis. MTL could benefit from the government impetus on indigenisation. Hence, we recommend ‘Subscribe for Long Term’. Given the current buoyant market and high interest for defence stocks, the issue could see listing gains as well,” it said.

The Hyderabad-based precision engineering company manufactures critical and differentiated engineered products for nuclear, space and defence and clean energy and owns seven manufacturing facilities in Hyderabad, including an export-oriented unit.

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Reliance Securities said that MTAR has developed strong expertise in the clean energy segment over the years, the imminent opportunities from this segment are likely to benefit the company immensely. “Hence, an earnings growth of 25-30 per cent cannot be ruled out in the coming years, which may support premium valuations despite a dismal asset-turnover ratio and higher working capital cycle. Hence, we recommend subscribing to this issue only from a long-term perspective,” it said.

MTAR’s order book as of December 2020 stood at Rs 336 crore, which was 1.6 times of FY20 revenue. The space and defence segment accounted for 48 per cent of market share in the order book, followed by the nuclear sector at 28 per cent and clean energy at 24 per cent. The company’s order book grew 31 per cent CAGR over FY18-20.

In the clean energy space, the company makes hot boxes for Bloom Energy and is in the process of developing and manufacturing hydrogen boxes and electrolysers to serve Bloom, which has been a client for nine years.

While hot boxes use methane to generate power, hydrogen boxes use methane to generate hydrogen, which is used to generate power. In addition, electrolysers produce methane-free hydrogen, which is used to produce power. The opportunities in clean energy remain healthy with the government’s strong focus, higher budgetary allocation and incentives, analysts said.

“Going ahead, the fuel cell market is expected to grow at a CAGR of 14-15 per cent. This coupled with Bloom’s tie-up with Gail to deploy fuel cell technology is expected to augur well for the company. Further, the company is also in the process of establishing a new manufacturing facility at Adibatla in Hyderabad that will enable it to take sheet metal jobs for Bloom Energy, Isro and certain other customers,” ICICIdirect said and recommended a ‘subscribe’ rating on the issue.

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