MTAR Technologies Limited (MTARTECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to MTAR Technologies Limited Q1 FY '27 Earnings Conference Call. Please note that this conference is being recorded. I now hand the conference over to Ms. V. Vasa. Thank you, and over to you, ma'am.

Thank you, Atara. Good morning, everyone. On behalf of MTAR Technologies, I extend a very warm welcome to all the participants for Q1 FY '27 earnings discussion call. Today on our call, we have Mr. Srinivas Reddy, Managing Director and Promoter; Mr. Ganeshwal Rao, Chief Financial Officer; and Ms. Sri Lka Jasti, Head, Strategy and IR. I hope everyone had an opportunity to go through our investor deck and press release that we have uploaded on the exchange and on the company's website. I would like to give a short disclaimer before we begin the call. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, opinion and expectations as of today. These statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties. Now I hand over the call to Srinivas, sir. Over to you, sir.

Hello, and good morning, everyone. Thank you for taking the time to join us today. Today on the call, I'm joined by Mr. Boes Sodor, Chief Financial Officer; Ms. Lelkhajesi, Head Strategy and Investor Relations; and Orient Capital, our Investor Relations partners. We have uploaded our updated investor deck, press release and results highlights on the stock exchanges and company website. I hope everybody had an opportunity to go through the same. I'm pleased to share that we have delivered another strong quarter with our quarterly performance remaining in line with our growth guidance provided for the current fiscal year. We continue to see strong momentum across all our business verticals, supported by favorable industry tailwinds and a healthy pipeline of opportunities. During the quarter, we registered revenue of INR 360.7 crores with an EBITDA margin of 23.6%, which is in line with our annual guidance. While the financial performance is very encouraging, what gives me greater confidence is not just the numbers, but the direction in which the company is heading right now. We strongly believe that the company is at an inflection point with each of our key business verticals positioned for next phase of growth. The sectors in which we operate, be it civil nuclear power, aerospace and defense and clean energy, all are witnessing strong growth across both domestic and international markets. With long-term strategic vision and a strong spirit of innovation, we have built differentiated capabilities and niche product portfolio across these strategic sectors, consistently investing in technologies and capabilities well ahead of broader market adoption. Today, as these sectors gain significant momentum, the strength and diversity of our key product portfolio are redefining our growth trajectory and creating multiple avenues for sustained long-term growth. In civil nuclear power, the capabilities we have built over the past 5 decades with a lot of foresight are translating into meaningful opportunities moving forward. We received our highest ever order inflow in this segment during the last quarter for Taiga 5 and 6 reactors and looking forward for more orders from refurbishment of existing reactors during the current quarter as well. I'm also pleased to highlight our notable contribution to the fast reactors, which recently achieved criticality, a strategically significant milestone for India's nuclear energy program. The company has played a pivotal role in this prestigious national program, having supplied a majority of the critical assemblies for the reactors, reflecting the depth of our engineering and manufacturing capabilities built over decades. Looking ahead, the proposed development of 4 nuclear reactors at Mahi Baswada through the NTPC NPCL partnership represents another significant opportunity for the company. With the Government of India targeting 100 gigawatts of nuclear power capacity by 2047, we believe the long-term opportunity for the company in this sector is substantial. From an execution perspective of current orders, we expect to see a very meaningful ramp-up during the current fiscal year with a significant growth happening moving forward as well. We already have a strong order book in this segment and supported by a healthy pipeline of opportunities and regular order inflows expecting going forward as well. We believe civil nuclear vertical has transitioned to a more consistent and sustainable growth trajectory with substantially reduced cyclicality compared to the past. Clean Energy continues to demonstrate a strong momentum. We received record order inflows during the quarter, further strengthening our already robust order book and providing strong visibility for growth going forward. Our capacity augmentation plan for fuel cells being implemented in 3 phases remains on track. with Phase 1 already commissioned and Phase 2 to be commissioned by September, October of this year, while Phase 3, which is a multifold capacity expansion will be completed in March of 2027. being developed for fuel cells is designed to support multiple products under one roof, providing us with greater scale and operational efficiency. An important point to highlight here is that our expansion is not limited to adding physical capacity. We have initiated manpower training and are working on automation initiatives well ahead of capacity coming on stream, ensuring that we are operationally prepared to support the expected ramp-up in volumes moving forward in the coming years. While we continue to cater to multiple areas within clean energy, we are also focused on further that can become meaningful growth drivers over the long term. In line with this strategy, we have entered the data center infrastructure Solutions segment, where we see significant growth potential. set of data center infrastructure products are currently in progress. Upon successful completion of the qualification process, we expect a meaningful ramp-up over the next year. We are currently working on the first batch of products against a potential requirement of 8x this requirement for the order what we have received at this time, providing opportunity for a substantial scale-up of this vertical. To support this opportunity, we are also setting up a dedicated facility for data center infrastructure solutions. We are witnessing a good traction in hydropower and wind energy segments as well, and we continue to pursue select products in this segment. Clean Energy will remain a major driver of revenues by end of this fiscal year. In Aerospace and Defense, the growth remains encouraging, and we expect significant order inflows as multiple programs and customer engagements are in progress. In the domestic defense segment, we are anticipating volume orders for actuator assemblies for LCA Mark 1A as well as orders for wing kits and electromechanical actuators for various defense programs. With overall opportunity potential exceeding more than INR 250 crores, the execution from domestic space vertical is expected to witness a steady growth. Our MNC Aerospace business continues to demonstrate phenomenal growth potential with significant demand from existing customers for products that have already been qualified. To support the anticipated volume ramp-ups, we are setting up multiple subunits within our existing dedicated aerospace facility. One of our key differentiators has been the pace at which we have established customer-specific manufacturing capabilities, including our new dedicated aerospace facility and NACA approved special processes facility. Our ability to establish these capabilities within a short time frame has been viewed very positively by our customers and reinforces their confidence in our ability to support their growing requirements. With qualified products moving towards higher volumes, increasing demand from existing customers and multiyear visibility across key programs, we believe aerospace and defense is well positioned to emerge as a significant growth driver for the company. While we continue to pursue multiple new inquiries to capture the next leg of growth, our immediate focus remains on completing the first critical qualification of existing products and ramping up volumes. As these programs progress, we will also look to onboard new customers. We expect to double our revenues in Aerospace and Defense segment during the current fiscal year with a significant ramp-up from this base anticipated over the next 3, 4 years. Importantly, this growth outlook is largely driven by our existing programs and product portfolio with further upside potential as the new inquiries currently under discussion materialize and additional products are added to our portfolio. The Auckland gas facility will be operational by this October. We have already delivered the first articles to our customers, while the first articles for classic components for another customer are currently under progress. As discussed in the last earnings call, we expect a robust closing order book of INR 5,000 crores by end of this fiscal year, providing a strong revenue visibility. Our closing order book by end of this quarter already stands at INR 5,143 crores, and we have received additional INR 800 crores of orders today. With further order inflows expected across all key sectors over the coming quarters, we remain confident in sustaining the growth momentum going forward. While we have a robust 5-year road map to pursue growth across all sectors, execution remains our key focus in the near term. Our ongoing expansions across all verticals remain a key priority as we continue to build the capacity required to support the next phase of growth. At the same time, as we pursue the long-term strategic opportunities ahead of us, prioritization of projects and prudent allocation of capital will remain equally important for us. We continue to focus on maintaining healthy working capital, strengthening operating cash flows and maintaining a healthy balance sheet while ensuring that capital is deployed towards opportunities that can deliver sustainable growth and improve our returns. Secondly, execution as per customer requirement is another important area of focus. We continue to strengthen our management and technical teams, enhance operational efficiencies and build the manufacturing capabilities required to deliver on our growing order book and meet our execution targets. Improving EBITDA margins also remains a key priority as we scale our revenues. With the progress we are seeing across all key verticals and the initiatives underway to strengthen our capacity and execution, I would like to reiterate our confidence in achieving the guidance given earlier at 80% revenue growth for the current fiscal year with an EBITDA margin of 24% plus minus 100 basis points, and we are pretty confident to better -- to do better than the guidance given earlier to everyone. We remain focused on building a world-class institution with a diversified and sustainable business for the long term. I would like to thank all our shareholders for their continued trust and confidence in the company. Now our CFO, Mr. Ganesh Rao, will discuss in detail on the financial performance for Q1 FY '27. Thank you.

Thank you, sir, and good morning, everyone, and thank you for joining us on the earnings call. We have recorded highest ever revenue of INR 360 crores in Q1 FY '27, registering a strong growth compared to the corresponding period last year and also last quarter. Overall, the company witnessed a healthy growth on both Y-o-Y and Q-o-Q basis, driven by the strong execution of various products. I would now like to provide an update on our consolidated financial performance for this quarter compared to the previous year first quarter. So revenue from the operation is at INR 60.7 crores in Q1 FY '27 as against INR 15.6 crores in Q1 FY '26, which resulted a 30.4% increase in revenue. EBITDA reported at INR 85.1 crores in Q1 FY '27 as compared to INR 28.4 crores in Q1 FY '26, and this has translated to 199.7% increase compared to the last year first quarter. Profit before tax stands at INR 67.4 crores in Q1 FY '27 as against INR 14.8 crores in Q1 FY '26, which is 355% increase. Profit after tax was at INR 50.2 crores in Q1 FY '27 as against INR 10.8 crores in Q1 FY '26, which is 364.5% increase compared to the last year first quarter. So while we expect strong growth across all sectors in which the company operates, the company also focusing on the customer diversification strategy, increasing wallet share from the existing customers as informed by our RD. Along with this growth, the company will continue to focus, maintain healthy cash flows from operations, making careful capital investment decisions, managing working capital efficiently to support sustainable long-term growth. When it comes to the working capital days, we were -- we have achieved 59 days compared to the 172 days during the FY '26 for entire year, supported by various initiatives undertaken by the company, including better commercial terms with the customers and also monitoring the -- each element of the working capital on daily, weekly basis. So we were able to reach to 59 days whereas our guidance given in this year is 172 days, we have given a guidance, whereas we achieved 60 days. By end of the year, we were expecting to maintain 100 days as compared to the previous year -- previous guidance of 170 or 150 days in that range. The gross margins we achieved 45.61% in this quarter. And as compared to the last year, 47.65%, this is due to revenue mix, which has happened in this year. And we are continuously monitoring the improvement of the gross margins wherever possible. The EBITDA margin is at INR 85.1 crores in this quarter. INR 8.1 crores in this quarter, which is actually 23.54% we achieved as against the yearly guidance of 24% we have given. And last quarter, EBITDA margins was at 20.11%. And this is due to operating leverage we achieved through the higher revenues and also monitoring of the cost. ROCE is at 17.2% versus 11.4%, and we expect it to reach 23% next year. Our PAT is at INR 50.22 crores for this quarter, which is 13.92% as against 6.9% in Q1 FY -- and last quarter also, we achieved a good set of the PAT numbers because our revenues are growing multifold from now onwards because of the strong order book what we have and also whatever sectors we were doing first articles last 2, 3 years, it is now in the production ramp-up stage and the customers were increasing the orders in this sector, first articles, whatever we completed, we are getting at least 10 to 15x of the volumes in the aerospace sector. And the cash flow from operations is at INR 247.69 crores in this quarter as against INR 191.66 crores in the last year. This is mainly due to the various initiatives undertaken by the company, including working capital and other areas, better commercial terms with customers. And other important fact -- important metric we are seeing our debt is at INR 423.6 crores as of 30th June 2026. Also, we have an investment of INR 379 crores as of this month end, like June, July end, we have INR 379 crores of the investments are there. So literally, there is no debt in the company, except some INR 20 crores, INR 30 crores after adjusting the cash balances, whatever we have. And as explained by our MD, we are in a phase of the expansion of the various verticals in the company. And this requires almost INR 500 crores of CapEx for this year and also next year, put together the CapEx required for the existing expansion plans, whatever we have undertaken. So thank you, everyone, for joining this call, and we appreciate your time and for your trust and confidence reposed on the company. Thank you very much.

So you can take up the question and answers now. The first question comes from the line of Mohit Kumar from ICICI Securities.

Congratulations on a very good quarter. My first question is, sir, can you help us with the tentative execution time lines for the order which you announced today, which is INR 31 billion. Is it everything of this will get executed in FY '28 and FY '29 and nothing would be executed in F '27? Is that a fair expectation?

Yes. I mean the orders what we received today, the execution time line is for next year. I mean the demand is a lot more, and it all depends on how soon we can implement our expansion plan and then take it forward. So the sooner we do and the requirement is obviously for next financial year, but we have to see how soon we can implement our expansion plan and ramp-up plan for next year, which we are targeting that. And let's see how it goes.

Understood, sir. My second question is, sir, do you expect separate package for nuclear power plant of Mahi Bhswara for fuel machining system where we can participate directly? Or are you expecting to participate through the EPC vendors?

No, that is through EPC vendors. So we are qualified for a number of projects as you have seen in Tiga 5 and 6. So we expect a good opportunity from this -- Tiga 5 and 6 is 2 reactors and these are 4 reactors. And MTR's participation in this project will be much higher than what we can expect from Tiga and 6 as well.

Understood, sir. My last question, sir, can you help with the execution time lines for the existing nuclear order for Taiga 5 and 6? And how big is the refurbishment order which you are expecting in this quarter?

Refurbishment orders overall would be about around INR 200-plus crores that we need to do for various reactors. We are expecting another INR 130 crores, INR 140 crores of orders coming in this quarter. And then obviously, we have a lot on our plate in terms of the maximum orders, which will be around close to INR 800 crores in nuclear division itself, which never happened in the history of this company in the past. And plus the kind of order pipeline that we can see moving forward as well with the new projects coming in and the government's plan to move into much higher gigawatt range. We expect this momentum to continue over the years. And there will not be any cyclical issues as compared in the past earlier, I'm talking about 5, 10 years back, but we would see the momentum going forward as well.

And the execution time lines for the existing orders...

So for the refurbishment reactors, it is within 2 years. And for Tiga 5 and 6, the execution time lines range from 1 year to 3 years, 3.5 years.

We take the next question from the line of Balasubramanian from Arihant Capital.

Congratulations for a good set of numbers. Sir, on the working capital side, we have seen a significant improvement in terms of inventory days also reduced from 28 to 145. Receivables also reduced to 140 to 282 on like just want to understand this dramatic reduction in days is very much impressive. So how do you understand in this financial year as well as next year? And given it's a diverse project portfolio, some of them are long cycle, some of them are short cycle. So what are the specific initiatives drive this improvement? And how do you understand in the coming years?

Yes, I'll take this call. So we have negotiated better terms with some of our customers as far as commercial terms is consideration. And also our receivable days are good compared to the last quarter. We were able to negotiate some better terms. One is commercial terms. Also the credit period we negotiate some of the credit terms are after reaching the customer premises. So we were able to deliver at a faster pace so that we can able to receive the money. And having said that, our target is for this year is around 100 days, we are targeting to reach that, including keeping consideration of all long-cycle projects into consideration. Apart from this, we also is monitoring every element of the working capital like current assets. We were able to generate GST refund of almost INR 70 crores per year we are targeting so that our cash flows will be better, cash flow from operations better and all. We wanted to sustain these levels constantly negotiating better terms with both existing customers and also from the new customers. So that's how we are able to do. Everything is done it organically, and there is a possibility of doing inorganically also, but we don't want to do at the cost of margins. So inorganically also we can reduce, but it will be the costlier. We don't want to affect the margins in the company. As long as it is margins are better and everything is good, then only we can take any of the actions. But whatever we have done is organically, we are able to reduce now. I hope I clarified your question.

Yes, sir. Sir, my last question, I think we have an order book of nearly INR 5,000-plus crores and today ming around INR 3,100 crores. So I think if you are having -- if you want to execute more order book, obviously, we need to have kind of facilities and equipment. Earlier you guided that CapEx. Is there any reiteration in that CapEx, especially for clean energy side? And if you could give the update of oil and gas and Clean Energy Phase 2 for the CapEx perspective? And how much CapEx we have incurred in Q1, sir?

See, like total INR 80 crores CapEx is capitalized, but it is not spent in this quarter. It is actually in the form of capital work in progress and it becomes capitalized now. For quarter 1, we might have spent around INR 30 crores, INR 35 crores only CapEx. But overall, INR 80 crores, which is capitalized, but earlier it was in capital WIP line item. It's a part of fixed assets only. When it comes to INR 5,000 crores order book, what you mentioned, today, we have given an incremental. We received that INR 3,200 crores. It is not a full order already communicated earlier, the incremental order is INR 800 crores. So it is INR 5,100 crores plus INR 800-plus crores is the total order book as of today. When it comes to the CapEx plans, so we -- as we said earlier in our call, in my call, it's actually around INR 500 crores we have to incur to take the company into the next level. Next year guidance, we are not giving officially as of today. But we are seeing at least 4, 5x of asset turnover, whatever we do minimum 4% to 5% -- 4 to 5x of asset turnover we are targeting. And if you look at our debt is today around INR 20 crores, INR 25 crores only after adjusting the investments what we have in the company. So we are very strong in the -- as far as the balance sheet is concerned and working capital also into consideration. Total across all sectors, we are going to spend around INR 500 crores, but everything will not spend in this year. It will be spill over to next 1, 2 quarters of the next financial year. As communicated by our MD, there are Phase I, Phase II target -- Phase I, Phase II targets are there for which we need to spend money to increase the asset turnover ratio at least 6x whatever we spend in the form of CapEx. .

The next question comes from the line of Gaurav Nagori from Avendus Spark.

On the last participant's question, given that you are seeing a very strong demand for -- in the fuel cell segment, are you planning the capacity expansion beyond the 20,000 hot boxes capacity that's already guided? That's question number one. And secondly, if you can elaborate a little bit more on this new product revenue, which has gone to almost INR 100 crores, almost 50% of the Clean Energy segment revenue run rate?

Yes. So basically, Gaurav, as I mentioned earlier, we are going -- Phase 2 is an expansion should be ready by September, October for fuel cells. And Phase 3 is going to be a multifold expansion plan. I can't specify the numbers because of the NDA being signed, but it's going to be a multifold expansion plant, which will be ready by March of 2027 in all probability. So there will be a ramp-up, which is being organized. The training program is being done right away to gear up to these -- one is the capacity and one is the ramp-up plan. So both are being addressed, right? So it's going to be a massive multifloor expansion plan, which is in place because of a very strong demand, as you have seen that today orders on a consistent basis. And moving forward as well, we see a very strong road map in all these sectors moving forward. And what was your second question, Gaurav?

Yes Sir, on this first question only, so when you say March '27 time line, is it the commissioning by March '27 or you would be starting from March '27, if you can just clarify on that one.

It will be commissioned by March '27, the multifold expansion plan, and then we move on to the ramp-up plan afterwards from April onwards.

Understood. The second...

Phase 2 will be operational by October of this year.

Okay. Okay. And then from October to March.

We already completed our Phase 1 expansion plan in all aspects. So it's done already.

All right. All right. So the CapEx for this year would be upgraded because of this new phase expansion from October to March '27.

Yes, that's right.

All right. The second question was on the new product, which has seen a sharp growth in this quarter. In fact, the run rate now is almost 50% of your -- the fuel cell segment. So is it just one-off deliveries or this would be the run rate continuing from here on as well?

No, it's going to continue. It's going to grow. Actually, we are going into -- we've got a major demand in this product division, and it's going to continue to grow more than what it has grown in Q1. Second half would be even stronger than the first half in all the segments that we are talking about, including the product division.

And this new product segment, I'm assuming are the product which goes into this fuel cell assembly only? -- other than the hot boxes?

No, not necessarily. We have the other products. We are doing pretty well in ball shoes. -- a lot of export orders as well. And we are seeing a major contract with one of the MNCs for a huge supply of ball shoes for them for the aerospace. So a lot of work has been done over the past couple of years to get qualified for all this, and now you are seeing those results moving forward. It's a combination of everything.

Understood. Understood. Just last question, again, on the working capital, where we have seen receivables kind of coming down from 140 to 80. Our understanding is that most of the high receivable days is because of the transit time that you have and then the recovery from the client is having about 40, 45 days of working capital days. So if I understood it correctly, this entire decline is because of better credit terms once the product is delivered at the client side or any other reason?

No, it's all about better payment terms, credit terms and various other aspects, right? So that's what it is. I think...

So not only the customer we also actually got negotiated better terms with other customers also and the weekly monitoring is in place. And so various actions, not only that. And everything culminated into this reduction.

The end of the day, the idea is to bring down the working capital days would be like we'll be sustaining it. We are at 59, 60 days right now, but we'll be below 100 days for the year. So that's what the CFO has mentioned earlier.

Okay. And I mean the other way to look at is the receivables inventory days, which used to be about 340 days, which is now down to about 220. So you're saying that both the receivable and inventory days would sustain around 200, 220 days and the working capital at 100 days. Yes, that's what let us see.

The next question comes from the line of Sumant Kumar from Motilal Oswal Financial Services.

My question is our key client has increased their earning revenue guidance by 10% to 15%. So assuming that, can we say whatever the guidance we have given 20% plus, minus 5%, there is a higher possibility to upgrade this in the coming quarters?

Sumant, it's like this. I've already said that in my speech that definitely, we have given a certain guidance, which we are very confident of, and we'll definitely do better than that. So probably that's what I would say right now. Probably we'll see by end of next quarter how it goes, and then we'll come back to you on that.

Okay. And for this civil nuclear power segment, our -- the order book execution is still is not picking. So when can we expect this -- the execution is going to happen, which year?

In this year, Sumant, second half of this year, the execution will commence and it will continue to grow from there on. That's why I clearly said that we are doing certain long-cycle projects right now and the execution will start from second half of this year. and it will continue to grow from there on.

Okay. So this order book is for how many years of the current order book of nuclear power?

Overall, it's for 3, 3.5 years. Some of the orders are within 2 years. Overall, we have to execute everything. We have roughly around INR 800 crores plus, I think, including the one which we are supposed to get where we have declared L1. We are supposed to execute all this within the next 3 years.

So as of today, we have INR 684 crores of orders and what we are expecting is INR 130 crores. So with that, it is around INR 815 crores. That was mentioned by RD around INR 800 crores in the last question also. So that is we are going to -- I think we are very confident we'll get in this quarter.

We have the next question from the line of Vip Srivastav from PhillipCapital.

Just quickly on the CapEx side. So you have guided for INR 500 crores of CapEx for next couple of years. Out of this, sir, how much will be for non-Penergy segment out of the INR 500 crores?

So it will be...

I think...

Will be around 70.

70-30 ratio, but it will be in the 70%, 30%.

So 30% is for non-energy segment, right?

Yes, yes.

Okay. So around 10...

Even within the clean energy also, some parts can be fungible in the other sectors also, so which we will use for other sectors also.

Right, sir. And sir, out of this INR 500 crores, how much you have already incurred in quarter 1?

We incurred around INR 35 crores of CapEx in the quarter 1.

INR 35 crores, right?

Yes.

And sir -- okay, that's great. And secondly, on the data center side, where we are obviously working on first approvals and then we'll be ramping up. So exactly what we'll be doing and firstly? And secondly, sir, what's the current size of the order we are working on as far as data centers are concerned?

See, data centers, the order is about INR 45 crores, which we have -- which we have to do it before March of this year. Right now, the way we are doing the first article right now, that's the initial first article with a couple of 2, 3 assemblies. And then we go into the major first set of order, which is about INR 45 crores, which we have to execute by March of this year or February, March of this year, the last quarter of this financial year. And the way we are setting up the whole plan is that we have 8 such major infrastructure requirements, 8 sets year-on-year basis. So that's where we stand. So the focus is basically to ensure that we have a dedicated facility for that moving forward to execute that 8 sets requirement each year onwards.

And sir, it's for export, right? It's not for domestic consumption?

No, all this is for export.