Tata Technologies, a subsidiary of Tata Motors, has received nod from market regulator Sebi for its proposed initial public offer (IPO). When listed, it would be the first listing from the Tata group stable since Tata Consultancy Services (TCS) in August 2004.
The IPO is an offer for sale of up to 8.11,33,706 equity shares, or 20 per cent capital, by Tata Motors. Alpha TC Holdings (up to 97,16,853 shares) and Tata Capital Growth Fund-I (up to 48,58,425 shares) would also off offer shares in the issue.
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Upon listing, Tata Technologies will join other 28 listed Tata group companies that command a combined market capitalisation of Rs 22.23 lakh crore as on Monday’s closing. KPIT Technologies, Tata Elxsi, L&T Technology Services and Cyient are some of the peers of Tata Technologies. Betrandt, EPAM, Alten, Capgemini (Altran), Belcan, Softserve and EDAG would count as its global peers.
A pure-play engineering services company with a revenue scale of $500 million, Tata Technologies is engaged in manufacturing-led verticals such as automotive (75 per cent revenue mix), aerospace, and transportation & construction Heavy Machinery (TCHM). It was acquired by Tata group in February 2001. Tata Motors held 74.69 per cent stake in the IPO-bound company.
Tata Tech has underperformed the ER&D industry’s revenue growth over FY16-23 (annualized 9MFY23) with 3.5 per cent CAGR against 9 per cent industry CAGR. However, excluding the revenue from anchor clients (Tata Motors and Jaguar Land Rover), the CAGR stood at 18 per cent.
In a recent note, Avendus Spark noted that the company was heavily dependent on anchor clients, with revenue mix of more than 70 per cent in 2015. But it had consciously diversified the client portfolio, resulting in anchor clients’ mix reducing to 40 per cent in 9MFY23.
“While the capabilities were predominantly developed through its association with Tata Motors and JLR over time, the company has successfully expanded its presence to other OEMs/Tier 1 players, which include new
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energy companies like VinFast. The company now serves 35 traditional OEMs/Tier 1 suppliers and 12 new energy vehicle companies as its customers,” it said.
Meanwhile, Tata Tech provides ‘phygital’ education solutions related to the latest engineering and manufacturing
technologies to public sector institutions and private institutions/enterprises. As of December 2022, it had entered into agreements with four state governments, five private universities and over 150 private enterprises that use their proprietary iGetIT platform.
“We believe this business could provide an option value given the need to upskill a vast majority of engineers. Further, there is a possibility for it to scale up to a level, where it would be demerged as standalone business, similar to Corporate Learning segment that was demerged from NIIT Limited,” Avendus Spark said.
On a 9MFY23 basis, the company has reported the overall relatively low revenue growth (majorly attributable to the de-growth in Education business), low margin expansion and higher attrition, B&K Securities said in a March note.
B&K Securities said revenue growth for Tata Technologies has been decent in the last three years, as the company grew at a CAGR of 8.6 per cent (FY20-22). KPIT Tech, LTTS and Tata Elxsi grew at a compounded annual growth rate of 4 per cent, 5.8 per cent and 21.2 per cent, respectively, in the same period.
Tata Technologies, B&K Securities, said reported EBIT margin of 15.9 per cent in FY22 and 16.9 per cent in M9FY23, which has expanded by 3 percentage points from 13 per cent in FY20. This B&K Securities said, has been achieved on the back of robust growth and decrease in employee benefit costs among others.
In comparison to its peers, Tata Technologies has the maximum exposure to the Top 5 clients (65.8 per cent in FY22, which increased to 72.8 per cent in 9MFY23), whereas for other peers such as Tata Elxsi and LTTS the range stood at 17-38 per cent.
