Tata AutoComp Systems is Set to Become a Key Battery Energy Storage Player

Tata Group, India's largest business conglomerate, needs no elaborate introduction. It is a stalwart shaping India's trajectory for over a century.

The group made a resounding comeback on the stock market in 2023.

This time, the spotlight was on Tata Technologies as it stormed onto the trading floor, not merely making a debut but staging a spectacular IPO launch that saw a staggering 168% surge on its listing day.

This remarkable feat marked the most impressive listing since November 2021 for an IPO exceeding Rs 5 billion (bn).

This wasn't just a win for Tata Tech but the proclamation of India's prowess in engineering and its tech-driven future.

Tata Technologies, specialising in engineering and product development digital services, marked the first IPO from the Tata Group in nearly two decades after Tata Consultancy Services in 2004.

Tata Technologies' IPO amounted to Rs 30.4 bn, witnessed substantial institutional buyer participation, and was oversubscribed 69.4 times by the final day of subscription.

And the party is far from over.

With market conditions humming like a well-tuned engine, the Tata Group is in talks of revving up for another potential public offering - their auto component powerhouse, Tata AutoComp Systems.

About Tata AutoComp Systems

Established in 1995, TACO serves as the vehicle for the Tata Group's ventures in the auto components sector. Tata AutoComp Systems is wholly owned by Tata Group entities, with Tata Sons holding approximately 21% and the remaining stake held by Tata Industries.

TACO is a leading player in the auto component sector.

It produces segments including interior plastics and composites, batteries, EV powertrains, EV battery energy storage systems, and engine cooling systems.

However, this listing might not be a regular IPO affair.

At this time, they're ditching the traditional IPO route and opting for a direct listing, a streamlined pitstop bypassing the pre-IPO fanfare.

What is a direct listing?

Think of it as bypassing the roadshow, ditching the underwriters, and letting your shares loose like a pack of race cars on the exchange.

A direct listing is a method for a private company to become publicly traded on a stock exchange without going through the traditional initial public offering (IPO) process. In a direct listing, the company's existing shares are listed on the exchange and can be traded by the public.

This approach allows the company's existing shareholders, including employees and early investors, to sell their shares to the public without the need for underwriters or the issuance of new shares.

According to reports, discussions in the early stage are focused on determining the entities within the Tata Group that will divest their stakes in TACO and the overall quantum of stake to be divested in the IPO.

Why this gear shift?

Well, the company's already a well-established player in the auto parts game, boasting a diverse portfolio and a presence across continents.

A direct listing could be the perfect way to tap into that demand without all the fuss.

The move aligns with Tata Group's strategic initiatives to expand its presence in the competitive auto components market and unlock value through public offerings.

A Look at its Financials

The company's revenues increased consistently from Rs 37.5 bn in FY20 to Rs 70.3 bn in FY22, reflecting a robust growth trend, with a 3 years Compound Annual Growth Rate (CAGR) growth of 53.7%.

Gross profit, representing the profit after deducting the cost of goods sold, shows an improvement from Rs 2.6 billion (bn) in 2020 to Rs 7.1 bn in 2022, with a minor setback in 2021.

The company faced a net loss of Rs 555.7 million (m) in FY21 but made a significant turnaround in FY22, achieving a net profit of Rs 4,183.1 m. This highlights a substantial recovery in profitability.

Tata AutoComp Financial Snapshot (2020-22)

Particulars	31-Mar-20	31-Mar-21	31-Mar-22
Revenues (Rs in bn)	37.5	41.8	70.3
Revenue Growth (%)	-	11.5	68.2
Gross Profit (Rs in bn)	2.6	2.4	7.1
Gross Profit Margin (%)	40.1	37.1	33.8
Net Profit (Rs in m)	166.2	-555.7	4,183.1
Net Profit Margin (%)	0.4	-1.3	5.9

Data Source: Ace Equity

However, the gross profit margin has experienced a slight decline over the period, going from 40.1% in FY20 to 33.8% in FY22. This may suggest increased production costs or pricing pressures.

Net profit margin, although starting from a low base, increased from 0.4% in FY20 to 5.9% in FY22, reflecting a positive turnaround in profitability.

Looking ahead, the company is exploring partnerships with battery manufacturers and charging infrastructure providers.

Strategic Collaborations and Innovations

Recently, on 19 December 2023, Tata AutoComp and TVS Motor Company signed an agreement to supply after-sales batteries to the two-wheeler maker.

The supply will be through Tata Green Batteries, an equal joint venture between Tata AutoComp Systems and GS Yuasa Corporation, based in Japan.

The agreement will allow placing Tata batteries at TVS Motor Company's dealerships.

Further, Tata AutoComp inaugurated its new manufacturing facility for state-of-the-art cabins for tractors and off-highway equipment at Chakan, Pune. The two companies had partnered for this project in June 2019.

These cabins are in collaboration with Fortaco, the globally renowned design engineering and manufacturing solutions provider and the leading European strategic partner for heavy off-highway equipment.

The new facility promises to revolutionise the agricultural industry by offering safe, advanced, ergonomic and innovative cabin solutions for tractors. Fortaco is providing the design and technology for this advanced cabin facility.

Apart from this, the company is developing high-voltage EV components that are going to be suitable for electric passenger vehicles that will be introduced in Europe and America, which are the demand centres for high-performance EVs.

Also, in August 2023, the company signed an initial pact with Skoda Group to produce components for the railways, metro, and bus segments.

Through this partnership, the auto component arm of Tata Group aimed to expand into the growing Indian railway and public mobility market.

This highlights Tata AutoComp's industry foresight and adaptability.

Conclusion

The auto ancillary sector is currently in a growth phase and is anticipated to maintain a double-digit CAGR growth between 2019 to 2026.

Fortunately, the Indian automobile industry stands as the fourth-largest globally, with India as one of the largest producers of cars and commercial vehicles.

According to the Automobile Component Manufacturers Association (ACMA), exports of automobile components from India are projected to reach US$ 80 billion (bn) by 2026.

The Indian auto components industry has set ambitious goals to achieve US$ 200 bn in revenue by 2026. These developments are expected to significantly enhance the company's performance.

Further, the company has plans to produce 100,000 EV traction motors in FY2025.

The government's FAME schemes, which offer subsidies to electric vehicle manufacturers and buyers, contribute to the growing demand for lithium-ion batteries in the country. This is further set to boost the company's performance.

For more information on IPOs, check out the list of upcoming IPOs.

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