Tata Technologies' initial public offering (IPO) is open for subscription along with the issuance of four other companies.
Tata Technologies is an engineering research and development (R&D) business that provides digital solutions and product development to other manufacturing companies. The company’s areas of expertise include product engineering and manufacturing engineering in mechanical areas such as body engineering, while the company is also adding services in the software and integrated engineering segments.
Tata's global outsourced ER&D market is estimated to be worth around $105-110 billion by 2022. Additionally, the digitalization market is expected to grow at a compound annual growth rate (CAGR) of 16% from 2022 to 2026.
The Tata Motors subsidiary focuses primarily on the automotive sector, which accounts for 75% of the company’s revenue. However, its turnkey solutions can also be used in manufacturing. Tata has set its sights on the aerospace industry, where the outsourced ER&D market is worth $9 billion a year.
The burgeoning electric vehicle sector is another area of focus for the company. “Tata’s portfolio is well-diversified, from traditional OEMs to next-generation electric vehicles,” said Prashanth Tapse, Senior Vice President of Research at Mehta Equities. “We believe that outsourcing business models will see a significant demand for engineering and digital transformation services from global manufacturing customers in the future, helping them conceive, design, develop and deliver better products.”
While services account for about 80% of revenue, the company also generates 11% of revenue from its products business, reselling third-party software applications. Tata also plays a niche role ineducation , offering “phygital” solutions for manufacturing skills, which contribute 9% of revenue.
Over the past three financial years, from fiscal 2021 to fiscal 2023, the company's revenue and profit after tax grew at a compound annual growth rate (CAGR) of 36% and 62%, respectively.
The company has highlighted risk factors in the RHP Draft Prospectus that the company is heavily dependent on its five largest customers, including founding shareholder Tata Motors and subsidiary Jaguar Land Rover.
Spending | FY23 | FY22 | FY21 |
Operating Revenue | Rs 44.14 billion | Rs 35.29 billion | Rs 23.81 billion |
Net profit | 6.24 billion Rs. | 4.37 billion Rs. | 2.39 billion Rs. |
(Source: RHP)
All these issues have been quite evident in Tata’s offering pricing, Emkay said. The company has set a price range of Rs 475-500 for the issue. At the high end of this range, Tata Tech is being valued at around 32 times FY23 EPS. Meanwhile, LTTS’ P/E is 40x, Tata Elxsi’s is 69x and KPIT’s is 110x.
IDBI Capital and Ventura also said they expect Tata to deliver strong earnings growth going forward.
With the gradual recovery of the global economy , increased manufacturing investment and shift of manufacturing from US/Europe/China to India due to inflation, and China+1 strategy, Tata Technologies business is expected to grow strongly in the coming years.
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