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Business News/ Markets / Stock Markets/  Tata Tech IPO: 10 key points from RHP you should know about 2023's third largest IPO
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Tata Tech IPO: 10 key points from RHP you should know about 2023's third largest IPO

Tata Technologies is a manufacturing-focused ER&D company that provides engineering services and digital transformation services. It has a deep domain expertise in the automotive industry and is engaged with top spenders in the sector.

For FY23, the company generated a revenue of ₹4,414.18 crore, an increase of 25% compared to a revenue of ₹3,529.58 crore posted in FY22. (Bloomberg)Premium
For FY23, the company generated a revenue of 4,414.18 crore, an increase of 25% compared to a revenue of 3,529.58 crore posted in FY22. (Bloomberg)

The initial public offering (IPO) of Tata Technologies, the third-biggest IPO (in terms of issue size) in 2023, opened for subscription today and will conclude on November 24. The company aims to raise 3,042.51 crore through the IPO, which is a complete offer for sale (OFS).

The company has set the price band in the range of 475–500 apiece. The quota for retail investors in the Tata Technologies IPO has been fixed at 35% of the net offer. The QIB quota is fixed at 50%, while the quota for NII is reserved at 15%.

Retail investors have the opportunity to submit bids for up to 13 lots, with each lot containing 30 shares. At the upper end of the IPO price band, at 500, retail investors are required to make a minimum investment of 15,000 per lot.

Let us take a look at some of the key points mentioned in the Tata Technologies IPO RHP.

About Tata Technologies

Tata Technologies, part of the Tata Group, is a pure-play manufacturing-focused ER&D company primarily focused on the automotive industry, and it is currently engaged with seven out of the top 10 automotive ER&D spenders and five out of the 10 prominent new energy ER&D spenders in 2022.

It has deep domain expertise in the automotive industry and leverages this expertise to serve its clients in adjacent industries, such as aerospace, transportation, and construction heavy machinery (TCHM).

Lines of business

Its primary business line is services, which includes providing outsourced engineering services and digital transformation services to global manufacturing clients, helping them conceive, design, develop, and deliver better products.

Also Read: Tata Tech expects robust demand from EV and aviation, says CEO

The second is Technology Solutions, which includes the Products business, which comprises the reselling of specific software that manufacturing companies deploy to conceive, develop, build, and service new products, and their education business to equip the next generation of engineers and technicians with relevant skills that are required by the global manufacturing industry.

Competitive strengths 

The company portfolio of services for the automotive industry addresses the product development and enterprise optimization needs of traditional OEMs and new energy vehicle companies, together with their associated supply chains.

Its automotive ER&D services span the entire automotive value chain and include concept design and styling, tear down and benchmarking (TDBM), vehicle architecture, body engineering, chassis engineering, virtual validation, ePowertrain, electrical and electronics, connected, manufacturing engineering, test and validation, and vehicle launch.

In addition, the company also offers turnkey full vehicle development solutions for traditional internal combustion engine (ICE)-powered vehicles, plug-in hybrids (PHEV), and battery electric vehicles (BEV).

The company has a deep and long-lasting relationship with their clients. It actively engages on multiple projects with clients and have a high repeat rate of over 97.72%, 98.38%, 97.24%, and 95.71% across its services business for the six-month period ended September 30, 2023, Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively, according per the company's RHP report. 

Objective of the issue

Achieve the benefits of listing the Equity Shares on the Stock Exchanges.

Also Read: Tata Technologies vs IREDA vs Gandhar Oil Refinery: Which is better?

Tata Elxsi vs. TCS vs. Tata Technologies

Within the Tata Group, Tata Technologies stands out as a distinct player in the outsourcing services domain when compared to its two listed counterparts:

Tata Elxsi: Specializing in design, Tata Elxsi primarily focuses on software and digital engineering services.

Tata Consultancy Services (TCS): As an IT services giant, TCS provides comprehensive IT solutions and services across various verticals.

Tata Technologies is positioned as a pure-play engineering, research and development (ER&D), and digital solutions specialist, offering end-to-end solutions across the value chain with a focus on manufacturing-led verticals.

Peer comparision

The company-listed peers include KPIT Technologies Limited, L&T Technology Services, and Tata Elxsi Limited. Among these, the company said it has the deepest automotive footprint among India-based ER&D players and has a balanced talent presence across offshore and onsite locations.

Financials

For FY23, the company generated a revenue of 4,414.18 crore, an increase of 25% compared to a revenue of 3,529.58 crore posted in FY22. The revenue from the services business came in at 3,531 crore, contributing 80% to the company's revenues, while the Technology Solutions segment contributed the remaining 20% in FY23.

The profit after tax for FY23 came in at 624 crore, an improvement of 48% over FY22's net profit of 437 crore.

Promoter and promoter group

Tata Motors Limited is the promoter of Tata Technologies. According to the company's RHP report, Tata Motors Limited holds an aggregate of 262,844,816 equity shares, comprising 64.79% of the pre-offer issued, subscribed, and paid-up equity share capital of the company.

Key risks 

The company's stated that its revenues are highly dependent on clients concentrated in the automotive segment. An economic slowdown or factors affecting this segment may have an adverse effect on business, financial condition, and results of operations.

The company expects a significant amount of future revenue to come from new energy vehicle companies, many of whom may be startup companies. Uncertainties about their (startups) funding plans, future product roadmaps, ability to manage growth, creditworthiness, and ownership changes may adversely affect their business, financial condition, and results of operations.

"We continue to derive a material portion of our revenues from our top 5 clients by revenue generated. If any or all of our Top 5 clients were to suffer a deterioration of their business, cease doing business with us, or substantially reduce their dealings with us, our revenues could decline, which may have a material adverse effect on our business, results of operations, cash flows, and financial condition," the company said in its RHP report.

Brokerage views

"The IPO is coming at a very attractive valuation of 32.5x, and it's a great opportunity for investors. Thus, one should surely apply for this IPO for listing gain as well as for long-term benefits," said the brokerage firm Swastika Investment.

"As a subsidiary of Tata Motors Ltd (TML), they benefit from long-term relationships with both TML and JLR, which strengthens their ability to tap the large opportunity in automotive ER&D markets and adjacent verticals to tap the wide business network. Considering the healthy business prospects, strong parentage, and superior financials with improvement in margins and ratios provides a valuation comfort. Therefore, we recommend a 'Subscribe' rating for the issue," said brokerage firm Reliance Securities.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 22 Nov 2023, 11:49 AM IST
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