Q4FY23 Review: MTAR Technologies: OPMs soften, yet earnings growth is intact

19 May 2023 , 12:16 PM

Analysts of IIFL Securities cut FY24/25 EPS for MTAR by 16-17% after Mgmt acknowledged sustained pressure on gross margins and profitability due to sharp skew in sales mix towards BE and delay in NPCIL project execution & orders. Increase in inventory to secure critical supplies for BE’s hot boxes was offset by increase in credit period. MTAR managed to tame down NWC cycle to 230 days from elevated levels of nearly 290 days in Sep’22. Successful commissioning and performance of BE’s SOFC electrolysers and expanding customer base to Energy storage products with Fluence is expected to support medium term growth in its clean Energy portfolio (77% of FY23 sales).

Clean energy portfolio outperforms: 

Robust 120% YoY growth in Clean Energy revenues, 77% of sales (largely BE led) offset continued sluggishness in domestic offtake from NPCIL & ISRO, tough impacted OPMs, to deliver robust 80% revenue growth in FY23. Excluding, Keylocko which is undergoing major design changes by BE, MTAR is confident of delivering 45-50% revenue growth in FY24. Addition of new International clients in special fabrication i.e., energy storage application promises to diversify and add another revenue stream, as strong as BE over medium term. 

OPMs resets, yet delivers healthy growth in profit: 

Despite 11pps YoY contraction in OPMs to 53% owing to mix changes, MTAR delivered 63% growth ebitda and 70% increase in PAT driven by operating leverage. Revised guidance of 28% resets GM to ~50% levels, thereby driving ~50% Ebitda Cagr in FY23-25.

RoCE profile improves with ease in NWC cycle: 

Though MTAR manage d broadly deliver on NWC reduction to generate positive OCF, capex of Rs1bn to expand and upgrade its manufacturing capabilities kept FCF negative. RoE/RoCE increased to 18/22% in FY23 and should reach 25/31% levels by FY25, MTAR sustains this performance.

With 47% EPS Cagr in FY23-25 and strong capabilities in serving global green energy customers continue to keep MTAR as an attractive bet on H2 and decarbonisation theme. Analysts of IIFL Securities maintain BUY with revised TP of Rs2,335, implying upside of 23%.