MTAR Technologies dropped over 8 percent in morning trading today, spooking investors and raising questions about why. The Hyderabad-based precision engineering company that has been doing work in clean energy, nuclear and space has been under heavy selling pressure to keep investors on the sidelines as the world economy moves back to a more cautious direction.
The immediate cause of the decline is bad quarterly earnings. MTAR Tech had a smaller than predicted revenue growth and margin pressure from rising input costs and project delays, analysts noted. But order inflows were still weak for the quarter, disappointing investors who had been expecting growth to be higher.
Another factor weighing on the stock is profit booking after a strong rally earlier this year. MTAR Tech had soared on hopes of India’s renewable energy push and defense manufacturing opportunities. But with valuations too high the stock’s investors were too reluctant to give up and they started to trim back on their gains.
Broader market conditions also played a role. The Nifty IT and manufacturing indices were also under selling pressure as global concerns of weakening demand and cautious corporate commentary from the market in general and the market environment were compounded by negative news of slower demand and cautious corporate comments. Rising interest rates and currency fluctuations have also helped to reduce investors’ confidence in capital-intensive sectors, which was also putting pressure on the market.
Brokerage firms have varying opinions on the stock. Some see a correction as a good thing to do but others say to be patient until margin recovery and execution times can be found to be in place.
MTAR Tech does not want to fall further because investors are still optimistic about the company’s place in India’s clean energy and defense sector, they say; they want to see the company grow; MTAR Tech’s 8% decline is the result of poor earnings and profit booking and a broader market environment.
For a company that has a great base business in niche engineering in India, near-term market conditions have worried investors. Others say investors should keep track of upcoming quarters and management guidance on what they see coming and should be closely watching what is going to happen in the quarters and management guidance before making new commitments.
