Very detailed overview of the company. If I may add a few more comments on Risks and Opportunities. A lot of these opportunities can result in step function growth in revenue opportunities (but all with risks)
Risks with Bloom Energy
I have a slightly different take on the risks with Bloom Energy. This segment of Clean Energy is now nearly 80% of the revenues for MTAR (I suspect most of which is Bloom). MTAR have done a tremendous job in scaling this up, but the visibility of orders is 12 months (although the potential for future growth may be large). The visibility of orders is important from a valuation perspective for me, as it is contingent on Bloom being a going concern.
Therefore, the risk in this part of the business for me is whether Bloom will continue to be a going concern and on its growth trajectory.
- I think Bloom has never made a profit. There is a very negative news article from Forbes (albeit from 2020 – a lot has changed since then). The Forbes Investigation: How Bloom Energy Blew Through Billions Promising Cheap, Green Tech That Falls Short
- is in an energy area (hydrogen) that is relatively new (but with a significant tailwind in terms of expectations). There is also an ongoing debate whether hydrogen is a green source (since the ‘colour’ of hydrogen is dependent on the source of energy to make the hydrogen).
On the positive side of this, there are several factors supporting likely growth of Bloom
- The US government has identified hydrogen as a key energy source and is looking to support it to reduce cost of production
- Bloom is one of the largest players in hydrogen technology in the US. Their proposition is very specific to Microgrids and potentially as a power back up source.
- Bloom’s current growth has been from the US and international expansion in South Korea. In their technology day, they talked about their new Europe expansion and that could be another growth driver.
Expect MTAR will announce Bloom Energy orders for CY24 in the next 2-3 months – which should provide earnings visibility into early FY25 – which gives them time to reduce customer concentration risk. I am not sure if there are alternate uses for the production facilities for Bloom. If there are alternate uses, then risks are further reduced.
Opportunity / Risk from Space
MTAR has signed an MoU with IN-SPACe to build a SSLV launch vehicle (apparently much larger opportunity). This is a shift in MTAR’s strategy as they are moving from a precision parts supplier to a full system provider (they also have invested in an in-house EMS for this purpose). This will increase their addressable market manifold
- ISRO has been making noises about taking a larger share of the international market
- increased private participation (and hence creation of IN-SPACe)
- accelerated space activities (although apparently there have been a few false starts here)
There is again a potential for a step change in opportunity here – but requires capabilities which is yet to be proven – and of course financials are still unknown. Management claims if the launch vehicle is successful, after 3 years could be Rs 300-500 cr opportunity (see interview around 1:50 Srinivas Reddy Of MTAR Technologies Speaks On The Company’s MoU With In-SPACe | Halftime Report – YouTube)
Opportunities in Nuclear
This was actually the segment that initially attracted me to MTAR. My reading on nuclear is that it is widely recognised as potentially the most appropriate approach to developing base load alternate energy to fossil fuels – but is struggling with high public resistance (due to Fukushima). India has made some announcements on increased nuclear investments (all done through NPCIL). I was attracted to MTAR for this as
- they seem to make a relatively mission critical part of the reactor (and relatively low cost overall to the reactor – therefore should have decent pricing power)
- have got a track record for several years. The revenues come from both the initial supply plus maintenance / replacement of the parts.
- expansion plans for nuclear till 2030
This part of the business looks steadier – but unlikely to see step function changes like Clean Energy and Space (but potentially lower risk)
Overall it does look like a very interesting business. As @ankit_george has highlighted, the management under-promises and over delivers and does not get drawn into making unreasonable predictions (at least till now). My valuation does require ongoing revenues from Clean Energy – but at a slower growth rate from FY25 – but has not taken any upside from Space.
Disc: Could be biased – Am invested and is part of my portfolio as a Medium Conviction – Medium Risk holding
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