Tata Technologies IPO: A Tata IPO After Almost 2 Decades!

Summary

Tata Technologies, a global engineering services firm, is launching an IPO with strengths in automotive expertise, electric vehicle solutions, and a diverse global presence. Despite concerns about reliance on top customers and automotive market fluctuations, the IPO aligns with the company's positive revenue growth and solid digital capabilities. Investors should weigh these factors, recognizing opportunities in the growing Indian ER&D market.

Brief about the company

Tata Technology stands out as a premier global engineering services provider, specializing in delivering comprehensive product development and digital solutions. With a focus on turnkey offerings, the company caters to global original equipment manufacturers (OEMs) and their tier 1 suppliers. Its exceptional domain expertise in the automotive sector extends to adjacent industries such as aerospace, transportation, and construction heavy machinery (TCHM).

Accolades and recognitions further underscore Tata Technology's commitment to excellence. It has earned top-tier rankings as a service provider in the automotive, electrification, and aerospace sectors. The company's outstanding 'B2B Marketing Campaign' secured a prestigious gold award.

Tata Technology operates across four pivotal domains: Automotive, Aerospace, Industrial Machinery, and Industrials. In essence, the company engages in extensive research and development to identify optimal products for various applications, including cars, airplanes, and industrial machines. Additionally, Tata Technology leverages its expertise to craft sophisticated software solutions, empowering businesses in the efficient management of their products.

With a global workforce of 9,300 employees, Tata Technology has established a presence in key locations worldwide. From its main office in Pune to centers in Gurgaon, Bengaluru, Thane, Chennai, and international hubs in the UK, USA, China, Thailand, Singapore, Tokyo, Hanoi, Europe, Romania, Sweden, and Germany, the company ensures a far-reaching impact, showcasing its dedication to delivering cutting-edge solutions on a global scale.

Tata Technologies Limited IPO Timetable (Tentative)

1. IPO Opening Date: 22 November 2023
2. IPO Closing Date: 24 November 2023
3. IPO Allotment Date: 30 November 2023
4. Refund Initiation: 1 December 2023
5. IPO Listing Date: 5 December 2023

Tata Technologies Limited IPO Details

• IPO Opening & Closing Date: 22 November to 24 November 2023
• Face Value: Rs. 2 per share
• Issue Price: Rs. 475 to Rs. 500 per Share
• Lot Size: 30 Shares
• Price of 1 Lot: Rs. 15,000
• Issue Size: 60,850,278 Shares (aggregating up to Rs. 3,042.51 Cr)
• Offer for Sale: 60,850,278 Shares of Rs. 2 (aggregating up to Rs. 3,042.51 Cr)
• Listing at: BSE, NSE
• Issue Type: Book Built Issue IPO
• Registrar: Link Intime India Pvt. Ltd.

Tata Technologies Limited IPO Lot Details

• Category | Lots | Shares | Amount
• Minimum Lot Investment (Retail) | 1 lot | 30 | Rs. 15,000
• Maximum Lot Investment (Retail) | 13 lots | 390 | Rs. 195,000
• Minimum Lot Investment (HNI) | 14 lots | 420 | Rs. 210,000
• Maximum Lot Investment (HNI) | 66 lots | 1,980 | Rs. 990,000

Tata Technologies Limited IPO Reservation

• QIB Shares Offered: 50%
• Retail Shares Offered: 15%
• HNI Shares Offered: 35%
  

  • Objects of the issue : The net proceeds from the IPO will be utilized for the following purposes:

    1. Listing on Stock Exchanges:

       • Objective: Gain advantages by listing Equity Shares on Stock Exchanges.
       • Explanation: The company aims to leverage the benefits of being listed on stock exchanges, which include enhanced visibility, access to a broader investor base, and increased liquidity for its shares.

    2. Offer for Sale:

       • Objective: Conduct an Offer for Sale, selling up to 95,708,984 Equity Shares by the Selling Shareholders.
       • Explanation: The IPO includes an Offer for Sale, where existing shareholders, known as Selling Shareholders, will sell a portion of their holdings to the public. This allows these shareholders to monetize their investments.

    Investors should be aware that while the listing provides the company with a platform for increased market capitalization and visibility, the Offer for Sale primarily benefits existing shareholders seeking to divest a portion of their equity holdings.

  Tata Technologies IPO: Financial Snapshot and Analysis

  Tata Technologies presents a nuanced financial overview, showcasing positive trends in revenue and profitability while flagging a minor concern with a fluctuating Return on Net Worth (RoNW). Investors are advised to meticulously evaluate the company's financial stability and future trajectory.

  1. Revenue Growth:

     • Demonstrated consistent growth, escalating from ₹23,809.11 million in 2021 to ₹35,295.80 million in 2022.
     • A minor dip to ₹30,117.94 million by December 2022 raises attention.

  2. Profitability:

     • Notable improvement in profitability, with a profit after tax surging from ₹2,893.11 million in 2021 to ₹4,719.92 million in December 2022.

  3. Return on Net Worth (RoNW):

     • Witnessed fluctuations, reaching 19.16% in 2022 but subsequently dropping to 14.80% by December 2022.

  4. Earnings Per Share (EPS):

     • Diluted EPS grew from ₹5.89 in 2021 to ₹10.77 in 2022 but experienced a decrease to ₹10.04 by December 2022.

  5. Net Asset Value (NAV) per Equity Share:

     • Displayed consistent growth, ascending from ₹512.40 in 2021 to ₹545.40 in 2022 and further to ₹677.08 by December 2022.

  6. Asset and Liability Management:

     • Total assets exhibited a steady increase, reaching ₹46,406.83 million.
     • Total liabilities remained relatively stable at ₹18,878.58 million by December 2022.

  Tata Technologies IPO - Financial Information

  Particular	As at 31 March 2021	As at 31 March 2022	As at 31 December 2022
  Revenue (₹ in Million)	₹23,809.11	₹35,295.80	₹30,117.94
  Equity (₹ in Million)	₹21,421.54	₹22,801.61	₹27,528.25
  Expenses (₹ in Million)	₹21,050.58	₹29,915.26	₹25,164.91
  Profit and Loss After Tax (₹ in Million)	₹2,893.11	₹4,340.36	₹4,719.92
  RoNW (%)	11.17%	19.16%	14.80%
  Diluted EPS only (₹)	₹5.89	₹10.77	₹10.04
  NAV per Equity Share (₹)	₹512.40	₹545.40	₹677.08
  Total Assets (in million)	₹35,727.35	₹42,179.99	₹46,406.83
  Total Liabilities (in million)	₹14,305.81	₹19,378.38	₹18,878.58

  Tata Technologies Revenue Analysis: Segment-wise and Geography-wise Breakdown

  Segment-wise Revenue Breakdown (% of Total Revenue)

  Services Segment:

  • FY 23: 80%

  • FY 22: 75.12%

  • FY 21: 80.40%

    (a) Automotive:

    • FY 23: 70.94%
    • FY 22: 64.51%
    • FY 21: 66.08%

    (b) Others:

    • FY 23: 9.05%
    • FY 22: 10.61%
    • FY 21: 14.32%

  Technology Solutions:

  • FY 23: 20%
  • FY 22: 24.88%
  • FY 21: 19.60%

  Geography-wise Revenue Breakdown (% of Total Revenue)

  • Revenue from operations:
    • FY 23: India - 29.76%, Europe - 22.83%, North America - 21.44%, Rest of World - 25.97%
    • FY 22: India - 32.40%, Europe - 24.34%, North America - 22.44%, Rest of World - 20.82%
    • FY 21: India - 28.98%, Europe - 30.96%, North America - 31.86%, Rest of World - 8.20%

  Tata Technologies, with its primary focus on Automotive, Aerospace, Industrial Machinery, and Industrials, exhibits a dynamic revenue distribution. The Services Segment, particularly Automotive, plays a pivotal role, contributing significantly to the company's revenue. The geographical spread showcases a diverse client base, with India, Europe, and North America being substantial contributors. Investors should factor in this revenue diversification while evaluating Tata Technologies' market positioning and potential growth.

  Tata Tech Strengths:

  1. Automotive Industry Expertise:

     • Key Advantage: Extensive expertise in the automotive industry.
     • Explanation: Tata Technologies boasts a strong understanding of the automotive sector, positioning itself as a reliable player with in-depth industry knowledge.

  2. Electric Vehicle Solutions:

     • Key Advantage: Comprehensive solutions for electric vehicle (EV) development, manufacturing, and post-sales support.
     • Explanation: The company demonstrates a commitment to innovation and sustainability through its comprehensive offerings in the electric vehicle segment.

  3. Digital Capabilities:

     • Key Advantage: Robust digital capabilities strengthened by their unique tools.
     • Explanation: Tata Technologies is equipped with advanced digital tools, enhancing its ability to provide cutting-edge solutions in the digital era.

  4. Global Presence and Collaborations:

     • Key Advantage: A diverse global presence spanning Asia Pacific, Europe, and North America, and collaborations with some of the world's largest manufacturing enterprises.
     • Explanation: The company's expansive reach and collaborations with major global manufacturers signify its ability to operate on a worldwide scale and engage with industry leaders.

  Tata Tech - Weaknesses:

  1. Concentration of Revenue:

     • Primary Concern: Most of their money comes from their top 5 customers.
     • Explanation: Dependency on a small number of clients for a significant portion of revenue poses a risk, as a loss of any major customer could impact financial performance.

  2. Over-Reliance on the Automotive Industry:

     • Primary Concern: They rely a lot on the car industry for their money, and if it's not doing well, it can affect how they do business, make money, and manage their cash.
     • Explanation: Heavy reliance on the automotive sector exposes the company to the cyclical nature of the industry, making it vulnerable to economic downturns or fluctuations in the automobile market.

  3. Uncertainty in Electric Vehicle Adoption:

     • Primary Concern: If people aren't sure about electric cars in the future, it might make it harder for them to plan their work and handle their money.
     • Explanation: The uncertainty surrounding the future adoption of electric cars introduces planning challenges for the company, especially if market preferences shift away from electric vehicles.
   Comparison with Competitors 
  

  Tata Technologies Limited (TTL) stands out in several key metrics in comparison to its peers, as outlined below:

  1. Revenue Leadership:

     • FY23 Ranking: In terms of revenue for FY23, L&T Technology Services reported the highest revenue, with Tata Technologies Limited following on the list.
     • Implication: While not the top earner, TTL's positioning in the revenue hierarchy showcases its substantial financial operations.

  2. Price-to-Earnings (P/E) Ratio:

     • Tata Tech's P/E Ratio: Tata Technologies Limited boasts a P/E ratio of 32x, considered favorable and the lowest among the mentioned companies.
     • Implication: A lower P/E ratio often signifies a more attractive investment, and Tata Tech's ratio suggests a comparatively favorable valuation.

  3. Profit Ranking:

     • FY23 Ranking: In terms of profit, L&T Technology Services leads the pack, with Tata Technologies Limited securing the third position.
     • Implication: While not the top profit earner, TTL's third-place position underscores its profitability within the industry.

  4. EBITDA Standing:

     • FY23 Ranking: In the EBITDA metric, L&T Technology Services takes the lead, with Tata Technologies Limited securing the third position.
     • Implication: Tata Tech's position in the top three for EBITDA indicates its operational strength and earnings generation.

  5. Earnings Per Share (EPS):

     • Tata Tech's EPS: Tata Technologies Limited exhibits an EPS of 15.38, surpassing KPIT Tech's 14.10.
     • Comparison: While not the top performer, Tata Tech's EPS showcases its ability to generate profit per share, positioning it favorably against KPIT Tech.

  Financial Metrics Comparison (Amount in Crores):

  Company Name	P/E for FY23	Profit	Revenue (FY23)
  Tata Technologies Limited	32.53	624.04	4414.18
  KPIT Technologies Limited	80.31	386.86	3365.03
  L&T Technology Services Limited	37.47	1169.80	8013.6
  Tata Elxsi Limited	61.55	755.20	3144.72

  In summary, while Tata Technologies Limited might not lead in every metric, its financial performance is robust, showcasing competitiveness and efficiency within the industry.
  
  

  Industry & Market Potential

  The Tata Technologies IPO comes against the backdrop of a robust and expanding Engineering Research and Development (ER&D) services industry. ER&D services encompass activities related to the design and development of devices, equipment, assemblies, platforms, or applications, with the end goal of producing a marketable product through software development or manufacturing processes. This sector is further segmented into software, embedded, and mechanical engineering services.

  Indian ER&D Service Providers (ESPs): Indian ESPs, denoted as Indian heritage players excluding global players with Indian centers, constitute around 25% of the global outsourced ER&D expenditure. Impressively, 75% of the top 50 R&D spenders globally have a Global Capability Center (GCC) presence in India.

  Market Dynamics:

  • Talent Pool: India boasts a substantial ER&D talent pool, exceeding 1.3 million individuals. The country's software engineering maturity and abundant Digital Engineering talent make it an attractive destination for enterprises seeking to outsource comprehensive product/platform development.

  Market Projections:

  • Growth Projections: The Indian ESP market is anticipated to exhibit a Compound Annual Growth Rate (CAGR) of 13-16%, positioning it as the second-highest globally after Eastern Europe, which boasts a CAGR of 16-18%.
  • Market Size: By 2021, the Indian ESP market is expected to contribute approximately $20 billion (₹1,655 billion), constituting nearly one-fourth of the total outsourced ER&D expenditure globally, estimated to range between $85-90 billion (₹7,032-7,446 billion).

  The growth trajectory of the Indian ER&D services sector underscores its significance in the global landscape, and Tata Technologies, with its focus on automotive, aerospace, industrial machinery, and industrials, is strategically positioned to leverage these opportunities. As the ER&D market continues to expand, the IPO presents an opportunity for investors to partake in a sector with promising growth potential

   

  Conclusion

   

  Tata Technologies' IPO offers investors an opportunity to engage with a company deeply entrenched in global engineering services, especially in the evolving ER&D sector. The positive financial indicators, coupled with a diversified portfolio, make it an attractive prospect. However, potential risks, such as dependence on the automotive industry, should be considered.

  Investors should assess their risk appetite and weigh the company's strengths against its weaknesses. The ER&D market's anticipated growth, particularly in India, provides a favorable backdrop for Tata Technologies. As always, a comprehensive understanding of the market, the company's positioning, and a thorough examination of financials are crucial for making informed investment decisions.