MTAR Technologies IPO subscribed 200.79 times. The public issue subscribed 28.40 times in the retail category, 164.99 times in QIB, and 650.79 times in the NII category by Mar 5, 2021 5pm. Looking at the strong subscription data, many analysts are expecting strong listing in this counter. The management commentary has been extremely bullish about the company's business strategy going forward. Also, the HNI community believes the guidance and strategy laid down by the management.   

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MTAR Technologies is the maker of nuclear, defence and aerospace equipment, fabrication facilities and fuel cells is planning to raise up to Rs 5950 mn through an IPO, which opened on 3rd Mar and closed on 5th Mar 2021. The price band is Rs. 574 - 575 per share. On 16th Feb. 2021, MTAR has undertaken a pre-IPO placement of 1.85 mn equity shares at Rs 540 each, aggregating to Rs 1000mn.

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The issue is a combination of fresh and OFS issues. The company will not receive any fund from the OFS portion. Of the net proceeds from the fresh issue and from the pre-IPO placement, Rs 630 mn will be utilized for repayment/prepayment of the borrowings availed by it. Additionally, Rs 950 mn will be used to fund the working capital requirement of the company. Residual amount will be used for general corporate purposes.

MTAR Technologies Key competitive strengths:

Precision engineering expertise with complex product manufacturing capability
Wide product portfolio leading to long-standing relationships with the customers
Modern technology at the state-of-the-art manufacturing facilities
Strong and diversified supplier base for sourcing of raw materials
Track record of growth in financial performance
Experienced and qualified management team

MTAR Technologies Risk and concerns:

Subdued macroeconomic environment
Revenue concentration risk
Unfavourable raw material prices
Working capital intensive business
Unfavourable forex movements
Intense competition

Peer comparison and valuation:

There are no listed peers, having similar operating models. At a higher price band of Rs. 575, MTAR is demanding a TTM P/E multiple of 56.5x (to its restated TTM EPS of Rs. 10.2)
Below are few key observations of the MTAR Technologies issue:

The domestic precision engineering industry’s turnover is estimated at Rs 4098 bn in FY20, clocking a 7.1% CAGR between FY16-20. On the back of supportive government policies for manufacturing & engineering sectors, growth in the industrials and rise in penetration of high technology machinery for manufacturing, precision engineering is expected to log a growth of 6-7% CAGR over FY20-25 to reach a turnover of Rs 5550 – 6550 bn by FY25. The engineering manufacturing industry is very fragmented, but established players with developed technological expertise create entry barriers for new players, especially in precision engineering sectors such as defence, aerospace, nuclear, space and aviation.

At a higher price band of Rs. 575, MTAR is demanding a TTM P/E multiple of 56.5x (to its restated TTM EPS of Rs. 10.2). Considering the presence in the growth sectors like clean energy and space & defence sector and improving return ratios, we feel the demand valuation to be attractive. Thus Choice Broking assigned a “SUBSCRIBE” rating for the issue.