Tata Technologies IPO: 5 Key Takeaways from the Addendum

The Indian primary markets had a slow start to the financial year 2023-24. However, the past two months have brought a significant resurgence in initial public offerings (IPOs). More so in the SME segment.

The first half of the financial year saw over Rs 260 bn being raised. Almost 50% of them took place in September alone.

In September, 14 companies launched their initial public offerings (IPOs) to cumulatively raise Rs 118.2 bn in one of the busiest months of the primary markets in 2023.

Meanwhile, 28 companies have garnered approval from the Securities and Exchange Board of India (SEBI) to collectively raise Rs 3.9 bn through IPOs.

Among the prominent companies entering the IPO arena are EbixCash, Tata Technologies, Tata Play, IndiaFirst Life Insurance, and Honasa Consumer, the owner of MamaEarth.

Tata Technologies, in particular, stands out as one of the most highly anticipated IPOs. There is already a lot of buzz among investors about the Tata Technologies IPO.

And the company added fuel to the fire today by filing an addendum to its draft red herring prospectus (DRHP).

Read on...

#1 About the Company

Tata Technologies is a Tata group company that provides services in engineering and design, product lifecycle management, manufacturing, product development, and IT service management, to automotive and aerospace original equipment manufacturers and their suppliers.

It is a subsidiary of Tata Motors. The company is active in North America, Europe, the Middle East, and the Asia Pacific region.

It is a strategic supplier to Airbus and had recently inaugurated its innovation centre in Toulouse, France, as part of its strategy to cater to the product engineering and digital requirements of the global aerospace and defence sector.

#2 What Sets This IPO Apart...

• The Tata name brings with it a rich history of trust and legacy. This IPO marks the first Tata Group company to go public in India since Tata Consultancy Services in 2004.
• Tata Technologies is the 15th largest IT company in the Fortune India Infotech Industry ranking.
• As a mid-cap global engineering company, Tata Technologies specialises in delivering services and technology solutions to prominent OEMs and their tier-I suppliers.
• Tata Technologies boasts an extensive client base, serving 35 traditional OEMs and tier-I suppliers and 12 companies focused on new energy vehicles, diversifying their revenue streams. 
• In financial year 2022, anchor clients played a substantial role, contributing Rs 10.7 bn, which amounted to 40.34% of the company's revenue.

#3 IPO Addendum

On 3 October 2023, Tata Technologies submitted an addendum to its draft red herring prospectus (DRHP) to the Securities and Exchange Board of India (SEBI).

In this addendum, the company disclosed its intention to issue 95.7 million shares in its forthcoming initial public offering (IPO), with each share holding a face value of Rs 2.

Moreover, as outlined in the document, Tata Technologies is allocating a portion of its upcoming IPO to benefit its employees and Tata Motors shareholders.

According to a board resolution adopted on 6 September, this allocation includes reserving up to 0.5% of post-offer equity for employees and up to 10% for Tata Motors shareholders, with shares being distributed proportionally.

Additionally, eligible shareholders participating in the Tata Motors shareholder reservation can place bids up to a maximum bid amount of Rs 200,000.

In the context of the Tata Technologies IPO, Tata Motors plans to divest up to 81.1 million (m) shares through an offer for sale, Alpha TC intends to offer up to 97.1 m shares, and Tata Capital Growth Fund I aims to offer up to 4.9 m shares.

#4 Arguments in Favour of the Business

• Tata Technologies possesses a wealth of experience and knowledge in the automotive sector. This expertise encompasses various aspects of the industry, including design, engineering, manufacturing, and innovation. Their longstanding presence in the automotive domain equips them with insights and capabilities that are highly valuable in a rapidly evolving sector.
• Tata Technologies offers comprehensive solutions for Electric Vehicle (EV) development, manufacturing, and post-production services. In an era where the automotive industry is transitioning toward electric mobility, its end-to-end services position it as a valuable partner for companies looking to navigate this transformative shift effectively.
• The company's robust digital capabilities enables it to stay at the forefront of digital innovation, providing their clients with cutting-edge solutions for design, engineering, and manufacturing processes.
• Diversified global presence across Asia Pacific, Europe and North America and partnered with many of the largest manufacturing enterprises in the world. This widespread reach enables them to tap into diverse markets and collaborate with clients worldwide. Their partnerships with some of the largest manufacturing enterprises globally underline their credibility and ability to deliver high-quality solutions.

#5 Risk Factors

• The company derives a material portion of their revenue from the top 5 clients.
• They derive their revenue primarily from the automotive industry, and its performance can impact the company’s operation, cash flow, and revenue.
• Economic downturns, shifts in consumer preferences, or disruptions in the automotive supply chain can impact Tata Technologies' operations, cash flow, and revenue.
• Uncertainties in the EV sector can impact future operations and cash flow. Factors such as changes in government policies, fluctuations in demand for electric vehicles, and technological advancements can impact the growth and stability of the EV market. These uncertainties can, in turn, affect Tata Technologies' future operations and cash flow. 

Conclusion

Tata Technologies is a leading global engineering services company with a strong track record of financial performance.

Going forward, the company is well positioned to benefit from the growing trend towards electric vehicles and other emerging technologies.

The company is also looking at increasing its non-automotive share from 12% currently to 18% over the next three years by vying for business in other sectors, including aerospace and industrial machinery.

In anticipation of its goals and significant growth, the company has announced plans to hire 5,500 people over the next three years. This plan would expand its headcount by 58% to 15,000 by 2025.

Like any investment opportunity, Tata Technologies has its set of advantages and disadvantages. Therefore, one should conduct thorough research before considering any investment.

To know more about Tata Technologies, tune in to the video below:

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

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...