MTAR Technologies Limited (MTARTECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the MTAR Technologies Limited Q2 and H1 FY 2027 earnings conference call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vidhi Vasa from MUFG Intime. Thank you, and over to you, ma'am.

Thank you. Good morning, everyone. On behalf of MTAR Technologies, I extend a very warm welcome to all the participants for Q2 and H1 FY 2027 earnings discussion call. Today on our call, we have Mr. Srinivas Reddy, Managing Director and Promoter, Mr. Gunneswara Rao, Chief Financial Officer, and Ms. Srilekha Jasthi, Head Strategy and IR. I hope everybody 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. Over to you, sir.

Hello, and good morning to everyone. Thank you for taking the time to join us today. Today on the call, I'm joined by Mr. Gunneswara Rao, Chief Financial Officer, Ms. Srilekha Jasthi, Head Strategy and Investor Relations, and Orient Capital Investor Relation Partners. We have uploaded our updated investor deck, press release, and results highlights on the stock exchanges and the company website. I hope everybody had an opportunity to go through the same. I I'm pleased to share that we have delivered another strong quarter, continuing our track record of consistently surpassing the performance of previous quarters. During Q2 FY '27, we reached a revenue of INR 406.8 crores, with an EBITDA margin of 24.4% and a year-on-year EBITDA growth of 483.3%, reflecting our record quarterly performance and sustained growth momentum. We expect this momentum to continue into the second half of the fiscal year, with H2 of FY '27 anticipated to be stronger than H1, supported by our robust order book and continued focus on execution. However, our growth journey is not merely about delivering a robust set of financial numbers. It's equally about strengthening our presence across key business segments, building differentiated capabilities and strategically positioning ourselves in high-growth sectors ahead of broad market adoption. Over the decades, we have established a strong reputation for our niche product portfolio and our ability to quantify ending opportunities, develop specialized capabilities and establish an early presence in sectors with significant long-term growth ratio. Forward-looking approach continues to remain an integral part of our business model and long-term growth strategy. Against this backdrop, I would like to share our outlook on emerging opportunities across our key business segments, including Clean Energy, comprising civil nuclear and fuel cells, aerospace and defense along with the progress we are making in our new business verticals, et cetera. Infrastructure Solutions, oil and gas, which we believe will contour next phase of growth as well. Starting with Civil Nuclear, as you're all aware, we are building specialized capabilities for these sectors since the inception of our company. Over the decades, we have patiently invested in strengthening our manufacturing capabilities and we now see significant opportunities emerging as Government of India targets to achieve 100 gigawatts of nuclear for capacity by 2047. We have closing order book of INR 805 crores, supported by order inflows from Kaiga and Gorakhpur and also from the refurbishment process. As you're aware, we have played a bit in rotate subsidiary active, having supplied the majority of the assemblies for the [indiscernible] expertise. We have also submitted our budgetary quotations for the upcoming [indiscernible] reactor program with tenders expected to be ported over the coming years. In addition, the company is actively submitting quotations to divest players is [indiscernible] proposed 70-megawatt nuclear reactors at Mahi Banswara, further strengthening our type of opportunity in the civil nuclear program. With respect to execution of our exports, we expect a meaningful ramp up building 2 followed by a significant revenue from FY '28 onwards, given our long-standing expense established capabilities and its strong positioning in this sector. We believe Civil Nuclear will be an important growth driver for the company in the coming years. Moving on to Clean Energy. fuel sales continues to witness accelerated growth, supported by strong industrial tailwinds and increasing demand for reliable and sustainable power solutions. Our Phase 2 -- is nearing completion with the facility expected to be operational by end November. Phase 3 will still enhance our manufacturing capacity in multifold will be housed in a new dedicated facility with the overall expansion expected to be completed by 2028. As discussed during our previous earnings call, the facility being developed for [indiscernible] is designed to formate multiple products under one room, enabling us to achieve greater scale, improved operational efficiency and better utilization of resources. In parallel, we have significantly strengthened our course by onboarding skilled personnel to support the anticipated growth. We have substantially completed for trading activities and made comfortable progress in implementing as automation processes in the manufacturing area. And these initiatives are aimed at [indiscernible] productivity and supporting a serious ramp-up in production as capacity will be put in place to be more future. The company also continues to witness a stable growth in hydropower and wind energy segment as well, and we continue to [indiscernible] products in this segment. Moving on to Aerospace and Defense. We continue with in our MNC Aerospace business, while actively participating in several stages programs across domestic defense space as well. Our MNC Aerospace business continues to witness a robust demand for us that have already been qualified, seeing a significant volumes. We expect to complete the qualification process for the [indiscernible] for 1 of our customers during the current financial year with volume deliveries under long-term agreement commencing for the next fiscal year. To support the anticipated increase in volumes across various customers, we established multiple units within our existing indicated aerospace as we are actively working on enters for new products from existing customers and intend to pursue opportunities to customers following the completion of the first at qualifications, which have been done for the existing customers. For the past few years, we established customer-specific manufacturing capabilities at an accelerated phase, including our dedicated aerospace facility and that prospective process facility. We have some long date of generating revenues from a small number 2 years ago to an aspiring to achieve about INR 150 crores less revenue purely from our MNC Aerospace business during the current fiscal year, and which is expected to grow further year-on-year basis. We believe our sustained investments in building specialized capabilities, including our [ native ] approach special process facilities and dedicated aerospace manufacturing infrastructure coupled with an expanding portfolio of policies and long-term customer relationships have made a stock foundation for scaling our MNC Aerospace business in the coming years. Moving on to the domestic defense. We are centering our focus on high-value structural SMP programs fighter air crafts. We are currently a attain structural assembly projects, including the main land and get support structure and fuselage door assembly for the advanced medium-term battery cap program. We are also expecting to receive volume production orders for actuators for the LCI program in the coming period. In addition, we anticipate significant order opportunities for various [indiscernible] and electromechanical actuation that are expected to further strengthen our presence in the domestic defense sector. In the space segment, we continue to witness steady growth, supported by our long standing association with ISRO. We continue to supply critical professional systems and electro-pneumatic models for PSLV and slv launch vehicles. To conclude, we are well positioned for the next phase of growth in aerospace and defense, supported by our increasing participation in domestic and global programs, which provide us with multi-decade growth visibility. To cater to the anticipated increase in demand and support our long-term growth ambitions, we are also evaluating the establishment of new greenfield manufacturing facilities with further developments expected over the coming quarters. Moving on to our diversification to data center infrastructure solutions, which forms part of our [indiscernible]. We are currently working on the execution of the practical orders valued at approximately INR 45 crores. To support this initiative, we are also establishing a manufacturing facility and are in the process of establishing the next infrastructure and capabilities. This facility should be operational in a full fledged manner by end of March 2027. We have significant -- we have a significant potential for scalability following the successful completion and qualification of these first articles with the business having the potential to scale up to INR 350 crores to INR 450 crores over the next 2 years. With the rapid expansion of data center infrastructure globally, we believe this emerging business vertical presence as substantial growth opportunity, enabling us to further densify our product portfolio and strengthen our presence in high-growth sectors. Moving on to oil and gas. Our dedicated manufacturing facility is expected to become operational by end November, while the development in first articles [ orification ] has already been completed with [ Medafor ] and further first articles with other customers are currently in progress. With the necesary infrastructure, it is being established, we anticipate a meaningful ramp-up in production volumes from FY '28 onwards, positioning this vertical as another [indiscernible] driver for the company. I'm also glad to share that we have commenced exports of [indiscernible] as well marking a significant milestone for the company. This achievement demonstrates our capabilities in developing import substitute products, not only to meet domestic requirements, but also to cater to global programs, further strengthening our confidence in expanding our presence in international markets. In addition, our net working capital days continue to remain among the lowest in the industry. reflecting our prudent working capital management and disciplined approach to capital allocation. Our operating cash flows continue to witness significant growth further strengthening our financial position and supporting our ongoing expansion initiatives. Our CFO will provide a detailed overview of our working capital position, cash flow performance and overall financial management. We have witnessed a [ reported ] order inflows of INR 4,103 crores during H1 FY '27, reflecting the at of our business segments. With strong industry tailwinds and a growing pipeline of opportunities across the sectors in which we operate, we expect to sustain this [indiscernible] in the coming quarters and anticipate a strong closing order book by the end of FY '27. With this, I would like to reaffirm that we have a robust road map for the next 5 years, supported by significant growth opportunities across our business segments and continued investments in building specialized capabilities. While our long-term growth outlook remains strong, execution continues to be our key priority in the near term. As we remain focused on translating these opportunities into sustainable growth. I would like to take this opportunity to thank all our shareholders for their continued trust in the company. We remain committed to delivering sustainable growth and creating long-term value for all our stakeholders. With this, I would like to hand over our CFO, who will provide a detailed overview of the company's financial performance.

Yes. Good morning, everyone. Thank you for joining us today. I am pleased to share that we have delivered highest ever quarterly revenue of INR 406.8 crores in Q2 FY '27. This is a strong growth over the same quarter last year and over the previous quarter, driven by good execution across our product portfolio. Let me take you through the financial performance. When it comes to year-on-year, revenue from operation was INR 406.8 crores against INR 135.6 crore, a growth of 200%. EBITDA was INR 99.2 crores against to INR 17 crore, a growth of 483.3%. Profit before tax was INR 80.3 crores against INR 5.7 crore, a growth of [indiscernible]. Profit after tax was INR 59.8 crores against INR 4.2 crores, a growth of [indiscernible]. When it comes to quarter-on-quarter, revenue from operations grew at 12.8% from INR 360.7 crores to INR 406.8 crores. EBITDA grew at 16.6% from INR 85.1 crores to INR 99.2 crores. Profit before tax grew 19.1% from INR 67.4 crores to INR 80.3 crores. Profit after tax grew 19.1% from INR 50.2 crore to INR 59.8 crores. When it comes to margins, our gross margins improved to 46.8% from 45.5% in the previous quarter, mainly because of a better product revenue mix. And EBITDA margin was 24.4% compared to 12.5% in Q2 FY '26 and 23.6% in Q1 FY '27. This improvement came from higher revenue, a better mix and operating leverage. PAT margin was at 14.7% compared to 3.1% in Q2 FY '26, and 13.9% in Q1 FY '27. Earnings per share was at [indiscernible] for the quarter and 35.7% for the first half of the year. When it comes to the balance sheet and cash flow, our working capital days came down to 50 as of September 2026 from 172 days in March 2026. This was helped by better margins, tighter working capital management. By end of FY '27, we expected to maintain working capital at around 100 days. This is due to higher revenue forecast for the H2 of FY '27 and also FY '28. ROC is expected to improve to around 23% by end of FY '27 from 17.2% in FY '26. And our cash flow from operations was at INR 350 crores, a positive number in H1 FY '27 compared with INR 39.8 crores in H1 FY '26. This was driven by stronger profitability, better working capital management, and it gives us a solid base for our capacity expansion and future growth. Our total debt is around INR 465 crores, of which INR 189 crore is a long-term debt at INR 276 crores is short-term debt. Having said that, our investment stands at INR 358 crores. It literally means we have around INR 107 crores debt in the -- after existing the investments. When it comes to our outlook, so we continue to expand capacity in new high-growth verticals. Our immediate priority is to complete this expansion on time so that we can execute smoothly. We remain confident of achieving our annual guidance. With this, I would like to open the floor for question and answers. Thank you very much.

[Operator Instructions] The first question comes from the line of Abhijit Singh with Systematics Group.

Good to see some great results. First question is on the fuel cell business. Sir, after the Phase 2I, what would be our hot box capacity there. And given that our customer Bloom Energy, has reported strong results, upgraded guidance also, how do we see order inflows looking going forward in the next 2 to 3 years in the medium term, from this particular protractive? That's my first question.

See, the Phase 2 capacity, as I said, it's a smaller expansion, it's about 30% higher than our existing capacity. And the multifold expansion, as I said, should be ready by June of next year. And Look, the order inflows are continuous. I mean, we are receiving substantial orders and the demand is a lot more than what we can expect. And most important thing is to get the expansion plan in place, which we are working on that. And fortunately, we are exactly as per our time lines, what we have mentioned, and we are looking towards that.

And sir, for this expansion of Phase 3, how much CapEx we are doing in all, including Phase 2 and Phase 3? And how do we plan to fund that?

Yes. Actually, our total CapEx plan, it is in the company around INR 500 crores, of which INR 350 crores for the fuel cells business and remaining INR 150 crores for other sectors, like oil and gas and aerospace and other verticals. And it is actually 75% planned through the debt and 25% through internal accruals. Our debt position is as of today, as we said earlier, INR 189 crores only, we have a long-term debt. So we have comfortable debt-to-equity ratios are there. So there is no issue as far as the raising funds into consideration.

Right? And sir, lastly, on the Aerospace and Defense business. So I think sir mentioned that we are expecting some actuator semi orders from the Tejas program. So apart from that, what are the other programs that we are developing products for, or we expect some kind of a production order maybe in the next year or next 1 to 2 years in the defense space?

No, as I clearly mentioned, we are working on some of the prototype products for the AMCA project, and all these are going to -- the volume productions are going to come much later. So looking out on various areas where we have potential business in the future, which I mentioned earlier as well, and that's what we're trying to do right now.

So right now in terms of volume, there's only Tejas, right? [indiscernible] the programs.

We are working on the AMCA programs also in the case of landing a support structure assembly and [indiscernible] like or assemblies and things like that. It's a continuous effort in adding on to the product portfolio and the various programs that we're working on right now, which will eventually get into volumes.

The next question comes from the line of Vipraw Srivastava with PhillipCapital.

Just quickly for demand, we are expecting a higher ramp up in H2 compared to H1. What's the view on EBITDA margins? Can we see a further expansion of EBITDA margins from here on? Or do you expect it to remain around 24% only?

No, we'll definitely have improvement. As I said, we're going to stick to -- we don't want to change our guidance in the middle of the year quarter-on-quarter basis. We have given certain guidance. initially at 80% revenue growth and 24% EBITDA margin. But I've always said that we'll perform better than that, both probably in the revenue wise and as well as EBITDA margin. Let's see how it goes. But definitely, we are confident that will be on the higher side in terms of the guidance, what will be.

Fair enough, sir. And for this rapid improvement on the working capital side, which we have been seeing for the last 2 quarters. Just wanted to understand that is it going to be sustainable? Or I mean, is it primarily because of the CapEx spending happening on the AI side and hence, we are seeing this from the end of [indiscernible]. So what's the view on this working capital day or you expect it to remain sustainable over the next couple of years?

We have achieved through various initiatives in the company, like advances from all the customers from all the sectors. And also payment cycles, we have negotiated better terms. And also, we have -- we are getting a refund of GST also around INR 70 crores to INR 80 crores. So per year, we are expecting to get. So we are working on all the elements of the working capital. But see, when you look at the -- though we have not given any official guidance. So you may be knowing various articles. So next year, the moment our targets are higher, definitely working capital cycle will be higher. But as of -- by end of this financial year, we are targeting 100. In the long term, our goal is to maintain at around 150 days for which whatever required organically, we will continue to do and monitor on a weekly basis, the working capital.

The next question comes from the line of Balasubramaniam with Arihant Capital.

Sir, if you look at more than 25 percentage of revenue comes from products that have been developed over the past 4 to 5 years. So I just want to understand the new vertical side, especially in the data center and SLB Class A component are in first article stage. So what kind of cumulative investments are required? And how do we look at the verticals in terms of revenue over the next 4 to 5 years?

I've already mentioned this as far as we have said, our oil and gas facility is going to be ready by end of November. And -- but we are simultaneously working on the first articles in our existing units, where the volumes will kick in from FY '28, which will be substantial. And obviously, data center, the first article is INR 45 crores. I've said that the volume growth here can be between INR [indiscernible] crores to INR 40 crores of revenues generated from this. And the facility for this in all aspects would be ready by end of December for data center infrastructure facilities. So we're working towards all this and all these are on track as far as we are cons.

Yes, sir. Sir, especially on the data center side, I think after this INR 45 crores first article I think the customers have maintained 8x of requirement. So it's the right way to understand another INR 350 crores to INR 400 crores kind of order inflows, especially in the data center space? We may expect.

That's exactly right. And that's how we are ensuring that the Phase I -- we are sitting this into 2 phases. The Phase 1 of the plan, the plan what we have established the facility, should be ready by end of November or beginning of second half of December. And then the Phase 2 will be ready by June of next year. So we are on track with that requirement of the customers what you have said 8x first article.

Okay, sir. Sir, actually, you're guiding 80% revenue growth. But if you look at inventory is nearly INR 680 crores, almost 5 months of your FY '27 revenue guidance? So [indiscernible] , I assume that's a very minimal base case at 80%, maybe 100% to 120% kind of range growth rate maybe in Q3 and Q4?

No, I will not be able to comment on that. I've said that we don't want to change the guidance at the middle of the year. What we have said initially the pets but we'll definitely do better than what we have said, both in terms of revenue and margins.

Okay, sir. Sir, my last question, if you look at defense and Aerospace, we did INR 100 crores in FY '26, if you'll cut in H1 FY '27 80 crores, or maybe it might reach to INR 150 crores to INR 200 crores by FY '27. But we have the nearly INR 600 crores, INR 700 crores by FY '30. The same way, if you look at the product side, INR 134 crores we did in FY '26, but the guidance is more than INR 1,000 crores by FY '30. So I just want to understand these are the large claims. So I just want to understand what kind of capacity or CapEx we need to achieve those aspirations. And especially also, you can mention customer a backed side.

See, look, the product division, we have been working on this for quite some time now, and we are also implementing the capacity required for this, which is part of our CapEx plan, which [indiscernible] explained earlier. And our growth trajectory for this, as I said earlier, will grow rapidly year-on-year basis. So it's backed up by clear customer forecast and orders and the capacities are being put in place. So I don't think we should have any issues with achieving the ultimate goal of the number what we mentioned.

The next question comes from the line of [indiscernible] with Systematics AMC.

Yes, congratulations on a very strong set of numbers. My first question is just a clarification on the working capital deals. So so said that this year, we're going to end that around at the 100 capital days for long-term sustainable guidance is 150 days. Am I correct?

You are correct.

100 days, as you mentioned, is because of the GST funds and other measures.

No, after getting all those actions, we are thinking of getting 100. The reason being is H2 will be stronger compared to H1 as our MD said. So when we do more in the quarter 4 and all those will be in the receivables and all. And also for next year execution, we need to invert at least 1, 2 months before the year-end. So I will have the more inventories for the next year [indiscernible] execution targets whatever we have, we have to invert those materials. So that will actually give the revenue into next year only. The main reason is that is the only reason. Otherwise, if everything goes as per the same manner, we'll be at 50, 60 on this range only. But we are in a growth trajectory. So that will increase. The incremental revenue will require incremental working capital, as you know. So that's why our long-term target is 150 over the next 2, 3 years. And by the end of the year is 100.

Understood. And also on the receivables side, have we like kind of [indiscernible] client agreed to do some advances for the order.

Yes. See, whatever the 50 days we achieved, we got advances from all the sectors of our existing customers. So we received advances also. We negotiated better commercial tunnels with our customers, be it civil nuclear power and high [indiscernible] sector and the fuel cells and every customer, we are expecting -- we are actually negotiating advances.

Understood. Second thing is on CapEx. We continue to stick to our earlier CapEx guidance around INR 300 crores this year for next year kind of guidance at over INR 500 crores of CapEx spend in the next 2 years?

Yes. See, INR 500 crores or by end of this financial year compared to whatever we incurred and what is in work in progress, what is going to be incurred is around INR 500 crores. It all depends on the the timely execution of the project vendor, we are working to complete our expansion plan as we committed.

[indiscernible] seen INR 500 crores CapEx outflow this FY '27?

Yes. Partially we incurred in the last year also. And this year by end of FY '27, whatever we incurred partially around INR 100 crores we incurred in FY '26, plus 400 because all these are continuous projects in oil and gas, as you know, it started in the month of January. So we incurred from that time to end up this financial year. So INR 500 crores will be 100 is FY '26, INR 400 [indiscernible]

Going ahead because this will be a major CapEx spend will be [indiscernible].

So what our money we are spending not for this year, it is for the next financial year also. And in the every year, we need to incur some sustenance CapEx and also growth CapEx we have to incur that will be around INR 50 crores to INR 100 crores in the year for next 1, 2 years. What our CapEx we are putting as of today, it will generate at least 3x of revenue, whatever we are doing presently.

Understood. And last thing is on the nuclear power, like we have recent the major [indiscernible] orders in 3Q FY '26. And it's already been 1 year, like it's [indiscernible] period of 3 years. So can we expect the major revenue booking happening for the second half of this year for nuclear power?

No, we can expect certain revenues coming in, in this year, but the majority of the revenues will kick in from FY '28 onwards, going up to FY '29 and FY '30.

Okay. The even kind of finance it order as well.

Yes, because there's a lead time for raw materials and everything and especially bought-outs. So we have that much time to in any case. So I have said that we are completely full on the plate. And then we have further orders also kicking in. We got even [indiscernible] orders as well. So this is spread over 3, 3.5 years. So we're right on track with that. And the major revenues will come in from FY '28 onwards.

So this INR 134 crores of order inflow in nuclear this quarter is [indiscernible].

Yes, that's right.

And what the [indiscernible] for this?

That is 2 years.

[Operator Instructions] The next question comes from the line of Gaurav Nagori with [indiscernible] Spark.

My question is on the new product segment. We have seen a sharp decline in exhibition this quarter. So is it -- was there a one-off execution in last quarter where you have reported INR 100 crores of top line in this? And secondly, what is the execution period for this new product order book? That's my first question.

You are talking about the product, [indiscernible], right?

Yes.

Yes, there was a small error in that. There was a -- which was a classification than in other segments, which saw supposed to go [indiscernible] are correcting it, right. So technically, we're on track with what we have said earlier.

Okay. So you're saying that last quarter, INR 100 crore number, the INR 60 crore was misclassified in the segment.

Yes. So no, this quarter, around INR 60 crores was [indiscernible], which they're going to correct it now and upload it. So basically, it is around INR 126 crores for this quarter.

Okay. And which segment it is classified into in this quarter instead of this product?

Yes. So the revenue for products and others, it is given as INR 65 crores, actually, it is INR 125 crores. So basically, we are supplying box well for multiple customers, which got categorized under Clean Energy vertical. So we will upload the presentation again. Similarly, in the order book related to products and others, the inflow like -- we need to add an inflow of around INR 60 crores, which will get deducted in Clean Energy. These 2 changes will be made, and the presentation will be uploaded again.

Understood. So what is the time line for the execution of this new product order book? Is it 1 year or more than that?

No, this is all 1 year. I mean there are continuous orders that we are receiving, and you will see a growth happening quarter-on-quarter basis in the product division. So we were all short cycle within 1 year or so.

Okay, which means this segment would become a INR 500 crore plus annual run rate segment for you compared to less than INR 100 crores in the last few years.

Yes, exactly. So we have been working on that from a number of years, Gaurav, and we were aware of it, and it's going pretty rapidly. So in that direction. And they'll make those corrections and upload it again actually like I said.

Sure. The second question is on the -- so Bloom Energy continues to talk a lot on this 800 work DC architecture and introduction of the products in that segment in the coming time. So have you started also designing or working with them for these new products? What do you think -- when do you think tentatively the ordering for those would start for you?

It's too premature to say right now, Gaurav. We are working with them on various projects on a continuous basis. Our team is working on. We have a separate team for that, which is working on it. So we'll update you as and when we have more traction.

All right. And just last question, just a bookkeeping one. Of the receivables, how much would be the discounted as of now?

We have not discounted. Whatever we have done is organically only around $1 million is discounted that's all.

The next question comes from the line of Balakrishna with Oman Investment Advisors.

Congratulations on good set of numbers. Sir, my question is on the nuclear sector. On Mahi Banswara, if orders get coming. So what could be our potential from that orders. Like you said in this FBR, we have around INR 1,500 crores potential per reactor.