MTAR Technologies IPO to open on March 3; should you subscribe?

MTAR Technologies, the maker of nuclear, defence and aerospace equipment, is hitting the market with Rs 600 crore initial public offer (IPO) on March 3. The price band for the three-day IPO, which closes on March 5, has been fixed at Rs 574-575 per share. The lot size is 26 and in multiples thereof, which means investors can bid for a minimum of 26 equity shares and in multiples of 26 shares thereafter.

Brokerage firm LKP Research have recommend investors to 'SUBSCRIBE' to the IPO of MTAR Technologies, citing the company's healthy order book, competitive edge, superior profitability as compared to peers.

"At the higher price band of Rs 575, the stock is valued at 20x FY20 earnings of Rs 28.3 and commands premium considering its healthy order book, visibility of topline growth, competitive edge, superior profitability as compared to peers, return ratios, wide clientele spread across the globe, sound R&D base and technological progress," says LKP Research.

The Hyderabad-based precision engineering solutions company is planning to raise an issue size of upto 10,372,419 shares, which includes fresh issue of upto 2,148,149 equity shares and offer for sale of upto 8,224,270 equity shares by promoters and investors.

The issue size will be Rs 595-596 crore with face value of Rs 10. Post issue implied market cap will range between Rs 1,766-1,769 crore.

JM Financial and IIFL Securities have been appointed as the book running lead managers to the issue.

MTAR Techn, backed by Mathew Cyriac, the former India private equity co-head of Blackstone, intends to use net proceeds from its fresh issue and pre-IPO placement to repay debt, fund long-term working capital requirements besides attending to general corporate purpose.

According to LKP Research, the company has grown at 16.5 per cent CAGR over the last 3 years at the topline, while its EBITDA margins were reported at 28.5 per cent in FY20. "MTAR not being a typical defense or capital goods company, still has a healthy order book at 1.7x FY20 revenues and superior profitability ratios as compared to its peers," it said.

"In times when the GOI has been cutting down on defence budget, the company has consistently delivered profits at the bottomline, with net margins at 14 per cent in the last fiscal. It has a significant interest coverage ratio and the lowest gearing ratio in the industry" it added.

MTAR has precision engineering capabilities to build nuclear and pressurized water reactors, aerospace engines, missile systems, aircraft components and many such other critical components and assemblies. It operates out of 7 manufacturing facilities, including an export-oriented unit located in Hyderabad, Telangana, and has been servicing the defence, aerospace and energy sectors for more than four decades.

The company works with clients like Indian Space Research Organization, Defence Research and Development Organisation, Nuclear Power Corporation of India and US-based Bloom Energy Corp, besides catering to other well-known establishments like Bharat Dynamics and Hindustan Aeronautics.

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