Disclaimer - I hole 2% of my portfolio. My strategy would be to hold for 1 Qtr to see their new guidance. Promoter group selling is bothering me as well . Below is my notes generated with the help of manual + AI. MTAR Technologies Ltd Q2 and H1FY24 Financial Results Discussion Call
• The call was hosted by Mr. Srinivas Reddy, Managing Director and Promoter, Mr. Gunneswara Rao, Chief Financial Officer, and Ms. Srilekha Jasthi, Senior Manager Strategy and IR.
• MTAR Technologies Ltd reported a top-line growth of INR166.8 crores, a 32.2% year-on-year increase.
• The company recorded an EBITDA of INR26.1 crores during the quarter.
• The company revised its annual guidance for FY24 to a revenue of around INR670 to INR700 crores, compared to previous guidance of INR830 to INR860 crores.
• The company anticipates a healthy long-term growth due to significant inflow of orders in the second half of the year from new and existing customers.
• The company’s net working capital stands at 287 days, with a reduction in receivable and inventory days. However, a sharp reduction in payable days has led to an increase in working capital days due to liabilities paid for inventory purchases during the last quarters.
• The company is working on reducing net working capital days by the end of the financial year.
• The company is working to generate revenue of around INR670 crores-INR700 crores by the end of this financial year, with EBITDA of 26% plus or minus 1%.
MTAR Technologies Limited’s Phase-Out from Yuma to Santa Cruz
• The transition from Yuma to Santa Cruz is a temporary correction, generating almost 30% of higher power output with marginal cost increase.
• MTAR is preparing to ramp up the Santa Cruz model to generate more units every quarter.
• The company is revising Yuma orders back to Santa Cruz and plans to continue releasing orders.
• MTAR is working on a strong back-to-back order book position to place more orders quarter-on-quarter.
Sharp Reduction in Payable Days
• The sharp reduction in payable days from 108 to 49 is due to a deferred shipment plan and the company’s commitment to sourcing all raw materials and bought-outs ahead of the plan.
• Most of the inventories currently held are more or less paid, and there is no need to buy further inventories.
• The inventory reduction is expected to be on the maximum side over the next two quarters.
• The company is following value stream mapping for each major process, with a focus on reducing quality clearance days and timely payments to suppliers.
MTAR Technologies Limited Q1 Q1 Discussion
• Deepak Krishnan asked about the margin reduction, stating that the guidance has been cut to 26%.
• Srinivas Reddy confirmed that the reduction is due to a ramp up in domestic sales over the next second half of the year.
• The company is looking to be a bit conservative on estimates due to the reduction in the guidance plan and see where cost reductions can be achieved.
• Deepesh Agarwal from UTI Asset Management Company asked about the number of Yuma, Santa Cruz, and electrolyzers delivered this quarter and expectations for the second half and next year.
• Srinivas Reddy explained that there was a phase in and phase out of Yuma this quarter to Santa Cruz Block 1, with approximately 400 units delivered this quarter.
• He also mentioned that there is an indication of ramping up to Santa Cruz Block 2, which is the final version for Bloom due to higher power output.
• He also mentioned that there is a ramp-up in terms of Santa Cruz Block 2.
• He also mentioned that there is a change of model, which is important for Bloom and supply to Bloom.
MTAR Technologies Limited Updates
• Final negotiations with Fluence are underway, with a target of 1,000 units for next year, ranging from INR120 to INR130 crores.
• The company plans to build facilities capable of producing up to 3,000 units per year for export and domestic requirements.
• The company is also investing for the future, with a goal of moving to a higher margin level in the long run.
• The company is working on improving its margin profile over the next year and moving forward.
• MTAR is on a growth track, with a temporary correction due to a change in model and inventory correction.
• The company is also adding a lot of new customers, indicating a positive growth trajectory.
Birla Mutual Fund’s Q&A with Jonas Bhutta
• Jonas Bhutta from Birla Mutual Fund asked about the shift in hotboxes from FY’24 to FY’25 delivery.
• Srinivas Reddy clarified that the change in model from Yuma to Santa Cruz will occur over the next quarter.
• Revenues from 574 are moving up to close to 700, but growth track remains intact.
• Sales mix is expected to be in favor of non-Clean energy business, implying a 26% margin number by year-end.
• Domestic business sales are expected to increase in the second half of the year, with the first half bringing in around INR50-plus crores.
• The company needs close to INR800 crores of new orders in the next five, six months.
• Two reactors, Kaiga 5 and 6, have been opened for tenders.
• Three competitors have bid for the project, with MTAR’s actual number being around INR600 to INR700 crores.
MTAR Technologies Limited’s Future Outlook
• Projects Kaiga 5 and 6 are expected to be finalized by the end of December.
• The PMO office is focusing on implementation within four to five years.
• The rest of the orders will be placed directly with MTAR.
• Expected to see more orders from space and the defence sector.
• Clean energy is receiving sufficient orders.
• Bloom will release orders quarterly.
• The closing order book is expected to close by the end of the year.
Bloom’s Growth Challenges
• Growth has been driven by deals pursued through the tripartite agreement.
• The viability of these projects is challenging due to interest rate doubled gas prices and interest rates.
• Some 60 gigawatts of projects are running slow.
• Bloom is focusing on releasing orders based on back-to-back orders.
• The company is confident that the order book position will increase based on back-to-back orders.
• More acceptance is being received for their electrolyzers with multiple platforms.
Srinivas Reddy’s Electrolyzers and Non-Defence Related Business Developments
• Electrolyzers have been proven and two consignments are expected to be dispatched this quarter and three next.
• The company anticipates back-to-back orders from Bloom to MTAR by March.
• Volume numbers for the next two years are '24, '25, and '26, focusing on electrolyzers only.
• The company is optimistic about booking enough orders, but cannot quantify the numbers.
• New clients like GE, Andritz, Voith have been added for the past five to six quarters.
• The company has qualified for the first batch of works, but there has been little traction from these clients or the defence side.
• The company is on track with the growth of revenues in the new fabrication shed due to these clients.
• The company is also working on internal work for the future, which does not reflect in the company’s numbers.
• The SSLV technology transfer is still in a pre-qualification stage.
MTAR Technologies Limited’s Progress and Future Plans
• MTAR Technologies Limited has made significant progress in its SSLV program, with the company focusing on internal know-how and technology.
• The company is not dependent on technology transfer or working in-house, with agreements with ISRO for testing facilities and other areas.
• The company is not the sole supplier for Santa Cruz boxes, but holds a majority of the requirement, close to 70%.
• The quality of Santa Cruz boxes is defect-free and good, with work with Bloom, a company in Taiwan, contributing to their success.
• The company will transition from Yuma to Santa Cruz and will not produce any further hot boxes.
• MTAR is in discussions with Bloom for supply of electrolyzers, a new product that has been proven in the US.
• The company has received the defence license after 18 months to two years, which is a significant milestone for MTAR.
• MTAR is working on various products and is working towards obtaining the clearance with the clean sheet.
• There is a collaboration between EV bus manufacturers and players to produce buses that can run on hydrogen and fuel cells.
• MTAR is evaluating various opportunities from all sectors and is working towards them.
• Bala Krishna may visit MTAR in March or April.
MTAR Technologies Limited’s Q1 2023 Meeting Summary
• Srinivas Reddy, CEO of MTAR Technologies, encourages investors to visit the plant to understand the company’s engineering and future growth prospects.
• Production schedules are usually given in December due to sufficient inventories.
• The company is working on increasing its volume share in supply elements such as ASPs and diluents.
• The company is currently supplying products like hot boxes, enclosures, and sheet metal assemblies.
• The revenue guidance with the hot box deferment plan has affected other areas, leading to revised guidance numbers.
• The company is qualified for future growth and is working on additional products for customers.
• The increase in raw material cost in the second quarter is attributed to the domestic market, which is expected to triple the revenue generated in the first two quarters.
• The company is also expecting a nuclear order from Kaiga 5 and 6/GHAVP by the end of this year.
Discussion on Nuclear Revenue Conversion and Santa Cruz Box Capacity
• Srinivas Reddy: The company has orders for nuclear from NPCL, which will start dispatching next year. However, lead time for raw materials is expected by March.
• Lokesh Maru: The company’s capacity and volume for Santa Cruz boxes are the same, with a 30% higher capacity. The company is expecting around 500 units to be shipped out this quarter.
• Bloom will provide an indication on the higher number for the next quarter by December.
• Internal expectation is to reach 4,500 boxes first and then outgrow that number by next fiscal.
• Srinivas Reddy: The company is on track with the growth pattern for the next year, with more products added.
• Lokesh Maru: The company is also considering when it will shift its focus from nuclear to other products.
MTAR Technologies Limited Q&A Summary
• The company is transitioning from 50 kilowatt to 65 kilowatt, with the possibility of a phase of pain in terms of growth or delivery.
• The journey beyond Santa Cruz Block 2 is expected to remain unchanged for the next four to five years.
• The company is taking steps to reduce costs wherever possible.
• The gross margin has been affected by the delivery of some nuclear projects, which has impacted the overhead portion.
• The company is working on establishing all the requirements for INR800 crores turnover, which has impacted around 2% to the
EBITDA margin.
• The company is also taking steps to reduce raw material cost, with domestic turnover being lower in the first two quarters compared to the next two quarters.
• The company is working on importing critical parts for CNC machines, such as ball screws, water lubricated screws, and roller screws.
• The company is working on releasing the first three electromechanical actuators in quantities of 10 or 15 numbers each to the defense sector next quarter.
• The company is waiting for final certification from different organizations to approve the use of its roller screws.
• The company’s revenues from these import substitution opportunities are expected to be around 300 to 400 screws over the next three to four years.
• The company does not need additional investment towards the machinery or existing assets for these additional revenues.
• The company has already assets in place, so no additional capex is needed for this.
MTAR Technologies Limited’s Technology Efficiency Changes
• The company is implementing a sudden change in plants to supply more efficient Santa Cruz.
• The change is primarily due to substantial additional power output.
• The assets are fungible, requiring minimal changes.
• The company needs to ramp up to this level, which is not every three to four years.
• Certain design changes will not affect the ramp-up plan, such as improvements or cost reductions.
• The company is confident that the efficiency improvement will continue for some time going forward.
• The execution period for the space and defense segment is faster than for the pending order book and Clean Energy.
• The order turnaround time is usually within the calendar year.
• The space and defense segment takes longer, so the cycle is expected to be within a year or 1.5 years.
• The guidance revision has been downgraded to almost INR160 crores.
Growth and Execution Shift in FY '25
• Srinivas Reddy confirmed that most of the execution will be shifted to FY '25, especially moving from Yuma to Santa Cruz.
• The execution part will be for the next year, depending on the kind of orders Bloom is looking at with the new model.
• The change in model and inventory correction will not affect future growth plans.
• Amish Kanani from JM Financial Service asked about the total order pipeline from Bloom and the energy segment, specifically the Clean Energy segment.
• Bloom has not indicated a quarterly schedule from Bloom, but they are stabilizing on the Santa Cruz version 2 or Block 2 model.
• MTAR Technologies Limited is looking at quarter-on-quarter orders being released, but they may release orders for the entire year once the model is stabilized.
• The overall growth track is intact, with more companies added in Clean Energy.
MTAR Technologies Limited Growth Discussion
• Srinivas Reddy, CEO of MTAR Technologies Limited, confirmed the company’s overall growth percentage.
• Amish Kanani raised concerns about the execution schedule for different verticals, potentially affecting the growth for FY '25.
• Reddy stated that the company is on track for a reasonable growth rate of 30% to 40% next year.
• He also mentioned the product ramping-up, which is in line with expectations, but still needs to get certain certifications done.
• Reddy thanked the attendees for attending the call and reiterated that the company is on track with its growth plan.
• He invited investors to visit the company and see the developments in the company’s future, including the SSLV project.
• The call concluded with Orient Capital being contacted for any queries.
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