Tata Technologies Ltd IPO

Published by Sharekhan Education | November 22, 2023

By Amit Pathak | Sharekhan Education

About the Issue:

Tata Technologies Ltd IPO has an issue size of Rs. 3043 and price band of Rs.475-500. The issue opens on Wednesday, 22nd Nov 2023 and closes on Friday, 24th Nov 2023

Company Overview:

Tata Technologies Ltd. is a prominent global engineering services company, affiliated with Tata Motors and predominantly focused on the automotive industry. Currently, the company collaborates with 7 of the Top-10 global automotive Engineering Research & Development (ER&D) spenders, aiding them in conceiving, designing, developing, and delivering superior products. Tata Technologies has established robust partnerships with companies like Dassault, Logility, Siemens, Codincity, and Fantasy. With a workforce exceeding 12,451 employees, they serve clients from 19 global delivery centers across Asia Pacific, Europe, and North America.

Objectives of the Issue:

The entire IPO is an offer for sale, and the company will not receive any proceeds from it. The company anticipates listing equity shares will enhance visibility and brand image. The listing will also provide liquidity to shareholders and a public market for equity shares in India. The minimum application is for 30 shares and in multiples thereafter. Post-allotment, shares will be listed on both BSE and NSE.

Industry Overview: 

The ER&D services market encompasses product engineering services and process engineering services. Product engineering services address the product development lifecycle, while process engineering services involve aiding in the production of facilities and processes. The sector is marked by rapid technological changes, evolving industry standards, changing client preferences, and introductions of new products and services. Digital engineering spending is expected to grow at a CAGR of ~16% over CY22-26, driven by investments in new-age technologies like IoT, blockchain, 5G, cloud engineering, and digital thread initiatives.

Competitive Strengths:

Tata Technologies’ long-standing engagement with Tata Motors has facilitated the incubation of skills and capabilities, allowing them to pursue opportunities beyond the Tata Group. They offer a comprehensive platform for automotive OEMs to address new engineering needs throughout the value chain. Their globally distributed execution model ensures a balance between onshore client proximity and offshore efficiency. Expertise in integration across Product Lifecycle Management (PLM), Manufacturing Execution Systems (MES), and Enterprise Resource Planning (ERP) through proprietary integration accelerators is a notable strength. Their automotive domain expertise in Autonomous, Connected, Electrification, and Shared (ACES) technologies bodes well for the future.

Business Strategy:

The company aims to focus on high-potential accounts with large annual ER&D spends. Recent empanelment by Airbus is expected to be a significant avenue of growth. Territory-specific strategies, such as the EV proposition for China, the aerospace proposition for France, and embedded solutions for Germany, are being cultivated to ensure a sustainable growth trajectory. The focus on building a talent supply chain is geared towards meeting client requirements promptly and cost-effectively.

Key Concerns:

The company heavily relies on anchor clients Tata Motors and JLR for revenues. Future revenue is expected to come significantly from new energy vehicle companies, many of which may be startups. Uncertainties regarding funding plans, future product roadmaps, ability to manage growth, creditworthiness, and ownership changes may adversely affect the company’s business prospects. High dependency on third parties for quality, delivery, and commercial details in the education business is also a concern.

Financials:

The company has achieved a Revenue growth of 36.1% CAGR over FY21-23. EBITDA has increased by 45.8% CAGR over the same period, while PAT has increased by 61.5% CAGR. The EBITDA margin has expanded from 16.2% to 18.6%, and RoE has increased from 11.1% to 20.8%. The top 5 clients contributed to ~57% of overall revenue in H1FY24. At the upper end of the price band (₹475-500), the issue seems reasonably valued at 32.6x FY23 earnings.

Source: IPO Red Herring Prospectus

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