Tata Technologies: A short-term to medium-term pick

Secondary Offer

• The issue opens today (Nov 22)
• And closes on Friday (Nov 24)
• It’s a a leading player in EV segment
• EPS for 6 months ended Sept was Rs8.67

Tata Technologies Ltd is tapping the capital markets with its secondary offer of 6.08 crore shares in a price band of Rs475-500. The issue would open on Wednesday (November 22) and close on Friday (November 24). This is one of four main board IPOs, which are opening and closing on the same days, Wednesday (November 22) to Friday (November 24). The issue is entirely an offer for sale and would therefore have no objects to the issue.

The company is a leading global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEMs) and their Tier-1 suppliers. Tata Technologies endeavours to create value for its clients by helping them develop products that are safer, cleaner and improve the quality of life for their end-customers. They have deep domain expertise in the automotive industry and leverage this expertise to serve the clients in adjacent industries such as aerospace and transportation and construction of heavy machinery. As a global organization, Tata Technologies brings together diverse teams from different parts of the world with multiple skill sets to collaborate in real time and solve complex engineering problems for their clients.

The company categorizes its business into two broad verticals with the dominant one being services with roughly 80 per cent contribution and Technology solutions being the balance of 20 per cent. Within services, the dominant portion at about 90 per cent of revenues comes from the automobiles segment.

Tata Technologies after going through multiple rounds of approvals and global regulatory compliances has been approved to work with Airbus Industries. Revenues have yet to flow from this vertical but, suffice to say that they would begin in the current year FY24. Going forward revenues from this would rise as the company starts delivering on the various skill sets that they have been shortlisted for. Expect FY 25 to the year when Airbus makes an impact on the balance sheet of Tata Technologies.

The company is a leading player in the EV segment and has helped many companies globally to launch EV, re-engineer ICE to EV and also assist in the role of EV as the way forward. The company reported revenues of Rs4,414 crore for the year ended March 23 and Rs2,526 crore for the six months ended September 23. On the geographical front, revenues are well distributed with India accounting for 30 per cent of revenues, Europe 23 per cent, North America 21 per cent and Rest of the World 26 per cent. It has a PAT margin of 14.14 per cent. The EPS for March 23 was Rs15.37. The EPS for six months ended September 23 was Rs8.67.

The PE multiple at the price band of Rs475-500 is 30.90-32.53. This is an issue from the house of Tata’s which is coming to the capital markets after almost two decades. The issue is from a listed entity Tata Motors which has seen many ups and down in the market over its life. For those who do not remember the company Tata Motors, it was earlier known as Telco, which stood for Tata Engineering and Locomotive Company Limited. It was formed in 1945 and made locomotive engines as well at one point of time.

The issue is attractively priced, offers scope for appreciation in the short to medium term. The size of the issue is relatively small at just about Rs3,000 crore. The hype about the issue will leave many investors unhappy as getting allotment would be by way of lottery and only a certain number of people can be accommodated.

Investors should apply for the issue as there is plenty of money on the table as grey market premiums indicate. What to do if allotment is received and whether to buy from the secondary markets or not would be discussed in subsequent articles. At this point of time this appears to be an extended Diwali offer for investors.