MTAR IPO: Should you invest?

The year 2020 will not only be remembered as the year of the Covid -19 pandemic but also as a year of IPOs. The chain is so long that even after the year has ended, the IPOs haven't stopped. The 'MTAR IPO', which will be the 9th one in the train of IPOs happening this financial year, is soon to hit the streets of the stock market.

Hence, it is a crucial time to decide as to whether you are up for it or not. In order to decide that, you will have to know certain key facts. So with no further ado, let's get into it:

MTAR IPO – Details

MTAR, a company that has been a major component of the country's precision engineering segment, will issue its share for public subscription on March 3, 2021. The Issue will be a mix of both fresh issues and offer for sale. About 21,48,149 equity shares will be set out as fresh Issue, and about 82,24,270 of the equity shares held by the promoters will see an offer for sale.

Some of its promoters who will part with their shares through the offer for sale include P.Leelavalty, K Shalini, Parvat Srinivas, etc. Apart from them, notable investors like Fabmohur Advisors LLP and P Simhadri Reddy will also be offering a part of their shareholding through the offer for sale. The proceeds of the Issue are expected to be used for the purpose of debt repayment and to finance other working capital requirements. It will also be utilized in meeting general corporate and company issues.

However, if you wish to claim your share in the company, then you will have to make a subscription by March 5, which is the last date for the subscription. The Hyderabad based company allows you to subscribe for a minimum of 26 equity shares and multiples of 26 thereafter. The maximum number of equity shares to which an investor like you can subscribe for has been restricted to 13 such lots of 26 shares.

The book-building Issue, which will go on both the floors of the stock exchange, i.e., the NSE and BSE, will have a face value of Rs. 10 per equity share. The shares will be listed on the stock exchanges after the completion of various primary processes such as allotment, etc., on March 16.

The IPO price is fixed at Rs. 574 – Rs. 575 per equity share. This will make the total Issue of 10,372,419 to be at an approximate Rs. 596.41 crores. After the Issue, the promoter holding will fall to 50.25% from the earlier holding percentage of 62.24%. JM financials and IIFL securities are appointed to help in the process of the Issue as the book running lead managers. 

Should you buy MTAR IPO? 

Now let's look at addressing the most important question. Incorporated in 1999, MTAR has placed its focus upon the creation of precision components, specialized fabrication, testing and quality control. Now the company has facilities to meet its manufacturing needs, with plants established in Hyderabad and Telangana.

A big part of its customer share comprises those belonging to the industries such as defence, space, clean energy and the nuclear industry. Some of its notable clients include ISRO, Rafael, DRDO and NPCIL.

Some of its core strengths on which MTAR is placed elegantly include a supplier base that is diversified with no dependence on a particular one and usage of highly efficient modern technology in its manufacturing units. With all this on one side, the expertise and knowledge of its key personnel and management also aid as its greatest strength. It also has a well-diversified and strong customer base.

The financials of the last 3 years also show a promising trend, with the compounded annual growth in revenue standing at 16.57%. Its highly diversified portfolio has enabled it to achieve this. 

MTAR does not simply depend on a particular product but produces 3 kinds of products in the clean energy sector, 14 products in the nuclear sector, and 6 products in space and defence sectors, each aimed at fulfilling the different needs and requirements of its various customers. The absence of listed peers blocks us from running a comparison.

Having said everything, one cannot overlook the weakness, which has to be given an equal amount of weightage in arriving at a decision. There are a lot of strict regulations which have to be met while manufacturing the various precision components. This might give rise to increased costs in order to fulfil the requirements. Further, any small blockade placed in the line of the supply chain might cause serious problems in the running of the company.  

Also, a lot of MTAR's companies or clients belong to the Government sector. This makes it vulnerable to any drastic policy changes which might dent its bottom line. The pandemic did pull the company down, but as you can see from the financials, it managed to book its profits. 

To sum up 

So the ultimate decision comes down to you. As you can see, it is an industry with enormous potential and a lot of scopes to grow. 

Despite its shortfalls and other visible shortcomings, the company has a good prospect to reach great heights and, not to forget, the listing gains. 

Having said all that, if you are tolerant of the various risks the company brings along, it can be a good buy. So, what is it going to be? A buy or a pass?