Hyderabad-based MTAR Technologies Rs 596-crore initial public offering (IPO) has been subscribed 12.77 times so far on the last of the bidding process. The IPO has received bids for 9.83 crore equity shares against an offer size of 72.6 lakh equity stocks, translating into a subscription of 10.27 times, data available on the exchanges showed. In the grey market, MTAR Technologies shares were commanding a strong grey market premium of 85 per cent over the issue price of Rs 575 apiece on Friday. The shares of precision engineering solutions company were trading at Rs 1,060 per share in the grey market, implying an upside of Rs 485 apiece. ” As it has been commanding a good grey market premium, the offer is likely to sail through,” said Nirali Shah, Head of Equity Research, Samco Securities.
Analysts at Anand Rathi Research have recommended to ‘subscribe’ to MTAR Technologies issue, considering the company’s expertise in providing a wide range of precision engineering products with complex manufacturing capability, high entry barrier, strong balance sheet and management. At the upper end of the IPO price band, it is offered at 45.32x its TTM earnings, with a market cap of Rs 1,769 crore.
Nirali Shah echoed a similar view, recommending to ‘subscribe’ to the issue for listing gains only. Shah believes that the government’s efforts to boost the manufacturing sector and ‘Make in India’ campaign will drive growth. On the risks front, the company derives over 80 per cent of its revenue from its top three customers and 49 per cent of revenue from Bloom Energy leading to concentration risk. “Besides, it does not have any long term contracts with its clients. Overall, MTAR is overpriced at a FY20 P/E of 57.5 times,” she said.
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MTAR Technologies also raised pre-IPO money worth Rs 100 crore at Rs 540 per share from SBI MF and Axis MF. The funds raised will be utilised to repay debt and fund working capital. Sneha Poddar, Research Analyst, Motilal Oswal Financial Services, has given a ‘subscribe’ rating to the issue for the long-term. Further. Poddar said that given the current buoyant market and high interest for defence stocks, the issue could see listing gains as well.
At the upper price band of Rs 575, the issue is priced at a 41 P/E ratio and 6.26x P.BV which is very expensive, says Aditya Kondawar, Founder and COO, JST Investments. The expensive valuations and the market froth has made Kondawar wary of this IPO. MTAR has said that the next two years they are looking to grow at 40 per cent per year as against 16 per cent CAGR over the last 4 years. “We would like to monitor the key deliverables and hence for the long term, we have no view on the IPO. For the short term, it seems that the company will list at a good premium given its strong grey market premium,” Kondawar added.
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