MTAR Techno IPO review (May apply)

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Review By Dilip Davda on February 25, 2021

•    MTL is a leading precision engineering solution company having a niche play.
•    The company manufactures and does critical assemblies that give high margins.
•    The company has seven plants including an EOU.
•    In FY19 and FY20 it has posted robust growth amidst all odds.
•    The issue worth considering for the long term despite aggressive pricing.

ABOUT COMPANY:
MTAR Technologies Ltd. (MTL) is a leading precision engineering solutions company engaged in the manufacture of mission-critical precision components with close tolerances (5-10 microns), and in critical assemblies, to serve projects of high national importance, through its precision machining, assembly, testing, quality control, and specialized fabrication competencies, some of which have been indigenously developed and manufactured (Source: Company Commissioned CRISIL Report).

The company primarily serves customers in the clean energy, nuclear and space and defence sectors. Since its inception, it has strived to grow continually, contributing to the Indian civilian nuclear power programme, Indian space programme, Indian defence and aerospace sector, as well as to the global clean energy sector and the global defence and aerospace sector. Over the years, the company has also developed import substitutes such as ball screws and water-lubricated bearings that are specialized and used in the sectors it caters to (Source: Company Commissioned CRISIL Report).

The engineering capability of the Company, evolved over decades, has enabled it to consistently offer quality complex precision manufactured components and assemblies, within stipulated timelines and at a reasonable cost in most cases, allowing it to forge a robust relationship with customers. MTL enjoys a long-term relationship with clients like ISRO, DRDO, NPCIL, etc.  The company has seven plants including an EOU to cater to global demands. It has a wide product portfolio to cater to diverse sectors.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans of repayment/prepayment in full or part, of borrowings availed by the company (Rs. 63 cr.), working capital (Rs. 95 cr.) and general corpus fund needs, MTL is coming out with its maiden combo IPO of fresh equity issue (2148149 shares) worth Rs. 123.52 cr. (at the upper price band) and an offer for sale of 8224270 shares. It has fixed a price band of Rs. 574 -Rs. 575 per share for shares having a face value of Rs. 10 per share and mulls mobilizing Rs. 595.38 cr. to Rs. 596.41 cr. (based on lower and upper price bands). The Minimum application is to be made for 26 shares and in multiples thereon, thereafter.  MTL is issuing overall 10372419 shares.

The issue opens for subscription on March 03, 2021, and will close on March 05, 2021. The issue constitutes 33.72% of the post issue paid-up capital of the company. Allocation of IPO quota is 50% for QIBs, 15% for HNIs and 35% for Retail investors. MTL has issued 1851851 shares at Rs. 540 per share as pre-IPO private placements and has thus reduced fresh equity issue by said quantity. (As per DRHP the company proposed a fresh equity issue of 4000000 equity shares).  

Having issued initial equity at par, MTL issued further equity in the price range of Rs. 275.62 to Rs. 540 per share (FV of Rs. 10 per share) between November 2007 and February 2021. It has bought back some shares in March 2009 (@ Rs. 14 per share) and in March 2020 (@ Rs. 123.21 per share). It has also issued bonus shares in the ratio of 3 for 2 in February 2005, and 5 for 6 in March 2006. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 0.40, Rs. 0.53, Rs. 0.75 and Rs. 8.04 while it stands at Rs. 38.44 and Rs. 119.64 per share for the selling stakeholders.

MTL's current paid-up equity capital of Rs. 28.61 cr. will stand enhanced to Rs. 30.76 cr. Based on the upper price band of the issue, the company is looking for a market cap of Rs. 1768.68 cr.

Book Running Lead Managers for this issue are J M Financial Ltd. and IIFL Securities Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue. Post allotment, shares will be listed on BSE and NSE.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MTL has (on a standalone basis) posted total turnover/net profits of Rs. 160.55 cr. / Rs. 5.42 cr. (FY18), Rs. 185.91 cr. / Rs. 39.20 cr. (FY19) and Rs. 218.14 cr. / Rs. 31.32 cr. (FY20). For the first nine months of FY21 ended on December 31, 2020, it has earned a net profit of Rs. 28.07 cr. on a turnover of Rs. 177.99 cr. According to management, due to more Capex and IAS provisioning methods, it has posted a lower net profit for FY18. MTL has an order book worth Rs. 336.2 cr. as of December 31, 2020. The company has more than 50% export earnings with higher margins.

On a consolidated basis, its turnover and net profits for FY20 and 3Qs of FY 21 remain the same.

For the last three fiscals, MTL has posted an average EPS of Rs. 10.51 and an average RoNW of 12.96%. The issue is priced at a P/BV of 6.26 based on its NAV of Rs. 91.78 per share as of December 31, 2020, and at a P/BV of 3.77 based on post issue NAV of Rs. 152.51 (at the upper price band).

If we annualize the latest earnings and attribute it on post-issue fully diluted equity capital, then the asking price is at a P/E of around 47.24 making it an aggressively priced IPO.

COMPARISION WITH LISTED PEERS:
As per offer documents, MTL has no listed peers to compare with.

DIVIDEND POLICY:
The company has paid a dividend for the last three fiscals including the ongoing one. For FY19 it paid 30% for FY20 50% and for FY21 30% till filing of RHP. Thus the company is confident of maintaining a prudent dividend policy going forward.

BRLM'S TRACK RECORDS:
The two Book Running Lead Managers associated with the offer have handled 21 public offers in the past three years, out of which 6 issues closed below the offer price on the listing date.

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