Defence stock: PhillipCapital in its latest note initiated coverage on MTAR Technologies Ltd (MTAR Tech), saying its a play on US data centres.

The European defence business of MTAR Tech is seen scaling up significantly by FY27, while the growth in Bloom Energy's data-centre portfolio is expected to benefit MTAR Technologies, said PhillipCapital, as it suggested a 'Buy' rating on the stock, with a target price of Rs 2,190. This target suggests a 70 per cent potential upside on the counter ahead.

The brokerage anticipated MTAR to register 30 per cent growth in top line over FY25-27. It expected the margins for MTAR Tech to expand 500 basis points, as soon as operating leverage start kicking in.

"Its cash flow from operations is already positive; this, coupled with improvement in net working capital (NWC) days in FY26 and FY27, will ensure that it becomes FCF positive too. Moreover, segments such as space and defence
should contribute to its topline ahead. We expect MTAR's PAT CAGR at 50 per cent over FY24-27 and value the stock at 35 times FY27 EPS of Rs 63 to arrive at a target of Rs 2,190," PhillipCapital said.

The brokerage said data centres are power-hungry and only reliable solutions are fuel cells and nuclear power, which can both store energy on-site. In FY24, nuclear energy and Bloom Energy -- the world's only commercial-scale fuel-cell manufacturer, comprised 70 per cent of MTAR Technologies' revenue, and will be its biggest tailwinds ahead, the brokerage said.

PhillipCapital said MTAR caters to important clients such as Rafale, Thales, GKN Aerospace and IAI, all of which have exposure to European defence spending; and said Finland, Poland, and Sweden have increased their defence budget significantly.

With the US President Trump urging European countries to take on more of the defence burden and meet NATO's 2 per cent rule, PhillipCapital said the development will significantly boost the European defence industry, with
early signs already visible in the rapidly growing order books of companies such as Thales and Rafale.

"Manufacturing defence components has a gestation period of 5-6 years, starting with prototype testing, batch manufacturing, and finally bulk manufacturing. With a majority of its clients, MTAR is set to reach the bulk manufacturing phase by FY27, resulting in a significant scaling up of its business," PhillipCapital said.