Motilal Oswal initiates coverage on MTAR Tech with buy rating; keeps target price at Rs 2,800 a share

MTAR Tech, a key supplier to global MNCs and government departments, has carved a niche in precision engineering

Motilal Oswal Securities has initiated coverage on MTAR Technologies Ltd with a buy rating and kept a target price of Rs 2,800 a share, 32.65 percent higher than the previous closing price.

MTAR Tech, a key supplier to global MNCs and government departments, has carved a niche in precision engineering. Motilal Oswal notes that as the largest supplier of fuel cell components to Bloom Energy (BE), MTAR will benefit from rising fuel cell demand. The company is expanding its product range with BE, aiming for complete fuel cell integration.

Additionally, MTAR's nuclear, space, and defense segments offer significant growth potential. With strong manufacturing and customer relations, MTAR is expected to achieve a 39 percent CAGR in the order book and 38 percent in revenue from FY24-26, the Motilal report said.

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"We expect MTARTECH to clock a revenue/EBITDA/ adj PAT CAGR of 38%/53%/ 67% over FY24-26, with RoE/RoCE of ~23%/21% by FY26E (vs. 12%/11% in FY24). During FY24-26, the company is anticipated to generate a cumulative FCF of Rs 67.3 crore, with CFO/EBITDA averaging at 26%," Motilal said in its latest note.

The brokerage said MTAR Tech has been a key supplier for the space and nuclear sectors. In FY23, space contributed 9 percent of revenue and 11 percent of the order book, growing at a 22 percent CAGR from FY18-23. The nuclear segment saw flat growth, contributing 8 percent to revenue and 17 percent to the order book.

The Department of Space's budget is expected to reach Rs 13,000 crore by FY25, with plans for 30-35 satellite missions. The Indian satellite market is projected to hit Rs 4,600-4,800 crore by FY25, growing at 7-8 percent CAGR. In the nuclear sector, the Indian government plans 10-12 new reactors, increasing capacity to 22.4 GWe by 2031. NPCIL's tenders for fleet reactors could bring orders for MTAR Tech. The total reactor investment is Rs 1,76,000-1,80,000 crore, with Rs 35,000-43,500 crore for equipment, where MTAR Tech holds a 20-25 percent share, Motilal Oswal said.

MTAR Tech also has a refurbishment opportunity of Rs 7,000-8,000 crore, with significant orders expected for Kaiga 5 and 6 reactors in FY25, boosting nuclear revenue growth, it added.

MTAR Tech also produces power units, specifically hot boxes (Yuma and Santa Cruz), for Bloom Energy (BE), a leader in solid oxide fuel cells (SOFC). These hot boxes, where the power-generating chemical reactions occur, are the fastest-growing segment for MTAR Tech, with a 41 percent CAGR from FY18-23, contributing 77 percent of revenue in FY23.

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The US and South Korea dominate the large-scale fuel cell market, with Europe and Japan exploring options. BE has secured $4.5 billion in orders from South Korea's SK Group for 500MW of methane-based fuel cells, and MTAR Tech will supply 10,000 hot boxes over the next three years, Motilal report said.

South Korea aims to install 15GWe of fuel cells by 2040, creating a demand for 0.3 million hot boxes. This, along with interest from other regions, presents a huge opportunity for MTARTECH as BE's largest hot box supplier. MTAR Tech plans to expand its offerings with new products like sheet metal fabrication and enclosures for fuel cells, it added.

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