5 Key Takeaways from Tata Technologies First Ever Quarterly Results

It's been a little over one month since Tata group company Tata Technologies made its blockbuster debut, listing at a 140% premium to the issue price of Rs 500.

Post listing, the stock rallied to Rs 1,334, up 168% from its IPO price.

Tata Technologies holds the record of third-best listing-day closing gains among the IPO debuts in Indian share market.

At present, the stock trades at Rs 1,144.

Shareholders in the Tata group firm were waiting with bated breath as the company was expected to declare its Q3 results on 25 January 2024.

This was Tata Tech's first ever quarterly results announcement since listing.

For the six months ended September 2023, the company's total income rose 35% year-on-year (YoY) to Rs 25.9 billion (bn) while net profit was up 36% to Rs 3.5 bn.

Going by the consistent performance, experts were projecting the Tata firm to continue reporting good numbers.

And surely, it did not disappoint.

Key Takeaways from Tata Technologies Q3 Results

Tata Technologies posted a 6% sequential rise in its third quarter net profit while revenue remained more or less the same as compared to September 2023 numbers.

On a YoY basis, Tata Technologies' net profit of Rs 1.7 bn was 15% higher compared to Rs 1.5 bn reported in the previous year period.

The company's CEO Warren Harris said...

• We delivered sequential growth and a healthy operating EBITDA margin at 18.3% in Q3FY24 while making strategic investments in relationships to enable future growth.
  
  Our deal win momentum has stayed robust, with 5 large deals won in the quarter, including one deal with over $50 million in TCV and another one with $25 million in TCV.

After announcing results, the company, in a separate development said Agratas - Tata Group's global battery business - and Tata Technologies have announced their collaboration to scale the former's product development and enterprise systems.

Agratas will accelerate its product development timelines, including integrating battery cells into modules and packs across multiple applications to match customer requirements.

Here are some other order wins for Tata Tech in the quarter gone by.

What Next?

Tata Tech is renowned for its prowess in the automotive industry and leverages this domain expertise in other segments, such as aerospace, transportation, and heavy construction machinery.

The listing of Tata Tech added to the Tata Group's extensive portfolio of listed technology companies. The biggest among them is TCS, and the one most similar to Tata Tech is Tata Elxsi.

Note that Tata Sons Chairman Natarajan Chandrasekaran confirmed sometime in November 2023 that Tata Tech plans to venture into the semiconductor business, which is pegged to reach US$ 1 trillion revenue by 2030 globally.

Under Tata Technologies, the group plans to set up an Outsourced Semiconductor Assembly and Test (OSAT) to start with.

Also referred to as assembly, testing, marking, and packaging (ATMP), this plays a crucial role in semiconductor manufacturing as no chip can be used in a product without going through the packaging and testing process.

In July 2023, Tata Technologies offered to set up three common engineering facility centres (CBFCs) in Karnataka at an investment of Rs 20 bn.

However, one should not ignore the fact that Tata Tech is trading at a high PE ratio of 75x.

At the time of IPO, Tata Tech was asking for a PE multiple of 33x at its upper price band. The valuations shot up to over 85x at one point after the blockbuster listing.

Another factor to look at for Tata Tech is Vietnamese carmaker Vinfast's rise and fall story.

Vinfast shares have been largely volatile, rising sharply during debut and falling up to 90% since listing due to multiple factors involved at play (valuations, declining customers, and falling sales).

Vinfast is an important client for Tata Technologies as over 20% of Tata Tech's revenue comes from Vietnam.

Nevertheless, on the positive side, the asset-light and cash-rich model of the IT industry has enabled Tata Tech to build up cash, allowing it to reward shareholders generously.

Tata Technologies has also been generous to its investors. Its 10-years' long-term average dividend payout stands at 44%, in line with the industry.

Going forward, investors can expect a similar level of payout from the cash-rich company.

Now consider this real-life example... TCS has remained a massive wealth creator since its listing in 2004. It converted every Rs 100 invested in 2004 to over Rs 1,300 in 2023.

While Tata Technologies is yet to prove the robust ness of the business model across the cyclicality of the auto and aeronautics sectors, it could over time catchup with Tata group peers in terms of financial profile and valuations.

How Tata Technologies Share Price has Performed Recently

Since listing on 30 November 2023, Tata Technologies share price has fallen over 12%.

It has a 52-week high of Rs 1,400 touched on 30 November 2023 and a 52-week low of Rs 1,130 touched on 18 January 2024.

Post declaring its results, shares of the company settled flat at Rs 1,144 on the BSE.

At the current price, the company trades at a PE multiple of 74.3 and a price to book value multiple of 15.5.

Here's a table comparing Tata Technologies with its peers.

Comparative Analysis

Company	Tata Technologies	KPIT Tech	Route Mobile	Birlasoft
ROE (%)	23.7	26.6	19.4	13.4
ROCE (%)	30.1	35.1	22.4	18.3
Latest EPS (Rs)	15.4	17.8	62.1	13.7
TTM PE (x)	74.3	84.8	25.2	59.9
TTM Price to book (x)	15.5	22.2	4.6	8.3
Dividend yield (%)	0.2	0.3	0.7	0.4
Industry PE	31.1
Industry PB	8.2

Data Source: Ace Equity

Happy investing!

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