MTAR Technologies: Motilal Oswal advises buying, says company well-positioned to capitalise on emerging opportunities

Domestic brokerage firm Motilal Oswal in its latest report has initiated coverage on MTAR Technologies with a 'buy' rating and a price target of ₹2,800 per share, highlighting the company's robust growth prospects. This target price reflects an upside of 32.7% from the stock's latest closing price of 2,110 apiece. 

The brokerage noted that MTAR Tech has become a key supplier of precision-engineered systems to major global multinationals, government departments, and large Indian public and private sector enterprises over the years.

It says that the company's primary revenue stream comes from the clean energy fuel cells business, which is heavily reliant on Bloom Energy (BE). Additionally, the company's other business segments, including nuclear, space, defence, and products, present significant growth opportunities. 

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The brokerage emphasised that the company is well-positioned to capitalise on emerging opportunities due to its strong manufacturing capabilities and established customer relationships.

It projects that MTAR Tech's business segments will experience robust order inflows, with a CAGR of 39% during FY24E–26E, driven by rising global demand for fuel cells and increased government initiatives in the nuclear, space, and defence sectors.

Among these segments, the brokerage anticipates that the fuel cells segment will continue to dominate the order book and revenue, with its contribution expected to range between 50% and 57% by FY26, compared to 55%–60% in FY24.

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Clean energy: A growth catalyst 

The company specialises in manufacturing power units, particularly hot boxes like Yuma and Santa Cruz, which are essential components of solid oxide fuel cells (SOFC) and electrolyzers used by Bloom Energy USA (BE), a global leader in SOFC production.

According to the brokerage, this segment has witnessed remarkable growth, with a CAGR of 41% from FY18 to FY23. It constitutes a significant portion of MTAR Tech's revenue, accounting for approximately 77% and 62% in FY23 and 9MFY24, respectively. 

Notably, the United States and South Korea collectively represent 95% of the installed capacity of large-scale fuel cells for stationary applications, while other regions like Europe and Japan are exploring fuel cell adoption.

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BE secured orders worth $4.5 billion from the SK Group in South Korea for 500 MW of methane-based fuel cells. MTAR Tech has been entrusted with delivering 10,000 hot boxes to South Korea within the next three years to fulfill this order, the brokerage said. 

With the South Korean government targeting the installation of 15 GW of fuel cells by CY40, which translates to a demand of 0.3 million hot boxes, the brokerage noted that the company is poised to benefit significantly.

This demand, coupled with the increasing global adoption of fuel cells, presents a lucrative opportunity for the company, given its status as the primary supplier of hot boxes to BE, as highlighted by the brokerage.

Furthermore, the company plans to expand its product offerings by introducing new items such as sheet metal fabrication and enclosures for fuel cells, thereby enhancing its market presence and potential revenue streams.

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Traction improves in the space and nuclear sectors

The company has been a crucial supplier of mission-critical components and assemblies for the space and nuclear sectors since its inception.

The Department of Space's budget is projected to reach ₹130 billion by FY25, up from ₹125 billion in FY22, with plans to launch 30-35 satellite missions between FY23 and FY25. Additionally, the Indian satellite manufacturing and launch systems market is expected to grow to ₹46–48 billion by FY25, at a CAGR of 7-8%.

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In the nuclear sector, the company has significant opportunities in the refurbishment market, with 2.6 GWe currently undergoing refurbishment and another 3.5–4.0 GWe expected by CY25. 

The brokerage anticipates that the company will secure approximately ₹5 billion in orders for the Kaiga 5 and 6 reactors in FY25, significantly boosting its nuclear revenue growth.

It forecasts the space and nuclear businesses to achieve a revenue CAGR of 94% and 22%, respectively, over FY24–26, driven by an order book CAGR of 19% and 75%, respectively.

Green hydrogen: Brewing opportunity 

As per industry reports, the green hydrogen market is expected to clock massive growth over CY22-CY27, with market value reaching $7.3 billion by CY27 from $676 million in CY22.

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Recently, the Union Cabinet of India approved a National Green Hydrogen Mission with total incentives of ₹197.4 billion (over $2 billion), with a projected production capacity of 5 MMT by CY30. 

With strong traction visible in this space, the company has already put into motion its plans to capitalise on this opportunity.  The brokerage expects this sector and MTARTECH to grow significantly in the coming years with a wider adoption of green hydrogen globally.

Financial outlook

The brokerage firm is optimistic about MTAR Tech's ability to capitalise on growth opportunities, thanks to its robust manufacturing capabilities and strong customer relationship management. 

It expects the company to achieve a revenue/EBITDA/adj. PAT CAGR of 38%/53%/67% over FY24-26, with Return on Equity (RoE) and Return on Capital Employed (RoCE) reaching approximately 23% and 21%, respectively, by FY26E (compared to around 12% and 11% in FY24). 

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Moreover, the brokerage foresees the company generating a total free cash flow (FCF) of ₹673 million between FY24 and FY26, with cash flow from operations (CFO) to EBITDA averaging 26%.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.