MTAR Technologies: A Rising Star in Aerospace and Defense, but with a twist!
The EBITDA margins for FY23 fell short of the guidance provided by the company, standing at around 26.8 per cent, rather than the expected range of 29 per cent +/- 50 bps.
The aerospace and defense sector has been a hot topic on Wall Street for the past year, with many stocks in this space delivering extraordinary returns to investors in a remarkably short period. One standout stock that captured the market's attention in 2021 was MTAR Technologies. Its incredible debut rewarded early investors with gains of over 80 per cent on the listing day alone. However, an eye-opening insight regarding the stock's shareholding pattern and recent developments begs for a closer examination.
As of the quarter ended March 2023, the promoters of MTAR Technologies held approximately 46.63 per cent stake in the company. What has piqued interest is the fact that since the quarter ended June 2022, the percentage of pledged shares in relation to promoter holding has been on the rise. Let's take a closer look at the details:
- Mar-22: Promoter Holding: 50.26 per cent, Pledge: 2.91 per cent
- Jun-22: Promoter Holding: 47.47 per cent, Pledge: 2.05 per cent
- Sep-22: Promoter Holding: 47.18 per cent, Pledge: 2.65 per cent
- Dec-22: Promoter Holding: 47.18 per cent, Pledge: 6.89 per cent
- Mar-23: Promoter Holding: 46.63 per cent, Pledge: 8.27 per cent
This trend raises questions about the motivations behind these pledges and the potential risks involved. Pledging shares is often seen as a measure taken by promoters to raise funds or provide collateral for loans. However, it also implies that the promoters have encumbered their ownership, potentially impacting the stock's stability and raising concerns about corporate governance.
Adding to the mix, recent disclosures made under SEBI Prohibition of Insider Trading regulations revealed that Kavitha Reddy Gangapatnam, one of the promoters of MTAR Technologies, disposed of 114,862 equity shares at an average price of Rs. 1950 on June 21, 2023. While this transaction may not necessarily be alarming, it does further emphasise the need for investors to closely monitor the stock's development and the actions of its promoters.
Looking beyond the shareholding pattern, MTAR Technologies has showcased strong performance in the recent quarter ended March 2023. The company reported impressive year-on-year revenue growth of 99 per cent, amounting to Rs. 196.4 crore for Q4FY23. Similarly, its EBITDA witnessed a substantial jump of 77 per cent, reaching Rs. 49.1 crore during the same period. However, it is worth noting that EBITDA margins declined from 28.1 per cent in Q4FY22 to 25 per cent in Q4FY23, while PAT margins slipped to 15.8 per cent compared to 20.1 per cent in the previous year's fourth quarter. Furthermore, the EBITDA margins for FY23 fell short of the guidance provided by the company, standing at around 26.8 per cent, rather than the expected range of 29 per cent +/- 50 bps.
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MTAR Technologies holds promising prospects. The company is poised to benefit from the Indian space policy, which seeks to encourage private sector participation in the space sector. MTAR aims to design and develop its own launch vehicle in the small satellite launch vehicle segment. Additionally, in the clean energy business, the company expects new clients such as Voith, GE and Siemens to contribute approximately Rs 600 crore over the next three to four years.
In light of the aforementioned factors, it is crucial for investors to maintain a vigilant eye on the developments surrounding MTAR Technologies. While the stock has delivered impressive returns thus far, the increasing pledge percentage and insider trading disclosures warrant careful consideration. As with any investment, it is essential to conduct thorough research and analysis, consulting with financial advisors, if necessary, before making informed decisions. The path to multibagger returns can be paved with exciting opportunities but it is equally important to be aware of the potential risks along the way.