After almost 19 years form the IPO of TCS in June, 2004, TATA Group has come up with the IPO of Tata Technologies, a subsidiary of Indian carmaker Tata Motors.
The company has filed for an Initial Public Offering (IPO) on March 10, 2023 and submitted draft red herring prospectus to the market regulator, Securities and Exchange Board of India (SEBI). The IPO will be purely an offer-for-sale (OFS) by the promoter Tata Motors and two other existing shareholders (Alpha TC Holdings Pte and Tata Capital Growth Fund I). The public offering does not involve any fresh issue of shares.
What does the company do?
Tata Technologies is a Pune-based IT company that provides engineering and design services to various industries, including automotive, aerospace, and industrial machinery. The company operate in the global engineering, research and development ("ER&D") services industry and has a global presence, with operations in North America, Europe, and Asia-Pacific. Tata Technologies has a strong customer base, including some of the world's leading automotive and aerospace companies.
The company is one of the leading players in automotive ER&D services globally. Their clientele comprises 35 traditional OEM and tier-I suppliers and 12 new energy vehicle companies. They offer end-to-end solutions for EV development, manufacturing, and after-sales services.
The IPO is expected to provide an exit opportunity for Tata Motors and other existing shareholders. As per the prospectus, the average cost of acquisition per equity share acquired by the selling shareholders, including the promoter selling shareholder, is as follows:
- Tata Motors Limited: 303,006,000 equity shares held at an average cost of Rs 7.40 per share.
- Alpha TC Holdings Pte. Ltd.: 29,445,010 equity shares held at an average cost of Rs 25.10 per share.
- Tata Capital Growth Fund I: 14,722,500 equity shares held at an average cost of Rs 25.10 per share.
The company is yet to disclose the size of the IPO or the valuation it is seeking.
What does the financials say?
As per the DRHP, the company reported revenue from operations of Rs 3011.7 crore for the nine-month period ended December 31, 2022, and Rs 2607.3 crore for the same period in 2021. Additionally, the company reported a profit after tax of Rs 407.4 crore for the nine-month period ended December 31, 2022, compared to Rs 331.3 crore in the same period last fiscal year.
The company reported record numbers for the year ended 31st March 2022, with revenue of Rs 3529.6 crore, together with an underlying operating profit of Rs 645.6 crore and profit after tax of Rs 437.0 crore. Further, the company has no outstanding debt and is completely debt-free.
Evaluating the investment opportunity
Well, the key things to know before planning to invest in the company is to keep an eye on the progress of the IPO and consider the risks and potential rewards before making any investment decision.
Strengths
- One of the key strengths of the Tata Technologies IPO is that it is a subsidiary of Tata Motors, which is a well-established and respected company and a part of the most reputable conglomerate in India.
- The company being completely debt-free can be a significant advantage, as it can improve its creditworthiness, reduce financial risk, and provide more flexibility to invest in growth opportunities.
- The strong growth potential of the engineering and design services industry coupling with the company's strong customer base and global presence.
Weaknesses
- One of the key risk for the company is its client concentration, a material portion of their revenue comes from their top 5 clients, which means if any of these clients were to reduce or stop their business with Tata Technologies, it could have a significant impact on the company's revenue.
- Uncertainties in the EV sector can impact future operations and cash flow.
- The company faces intense competition from several tech giants in the engineering and design services sector. Some of its competitors include Geometric Ltd., Cyient, KPIT, Cognizant, Persistent and Wipro.
However, Tata Technologies has a strong reputation and expertise in the industry, which could help it to maintain its competitive edge. Further, the IPO is expected to generate significant interest from investors, given the strong growth potential of the engineering and design services industry. The Indian government's focus on promoting the manufacturing sector and the increasing demand for engineering and design services from various industries are expected to drive the growth of Tata Technologies. However, it is yet to see how the company prices its IPO.
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