Tata Technologies IPO is Around the Corner. Here's a Wrap of What We Know So Far

After almost 2 decades, the Tata group is set to come out with an IPO.

And when it's the Tatas, investors are always waiting on their toes.

The group companies are famous for rewarding shareholders with dividends, buybacks, and the added benefit of stock appreciation that comes with resilient performance.

Tata Technologies, a leading global engineering and digital transformation services company, is planning to go public in India soon.

The IPO is expected to be one of the largest in India's history and is likely to attract significant interest from both domestic and global investors.

The company is reportedly in talks with Morgan Stanley, Blackrock and a few US hedge funds to invest in its forthcoming IPO at a valuation of US$ 2.5 billion (bn).

According to reports, the company is also in touch with US asset managers Ghisallo Capital, Oaktree Capital, and Key Square Capital to invest in the IPO.

Founded in 1988, Tata Technologies is a global engineering and product development services company headquartered in Pune, India.

Tata Technologies specialises in a wide range of services to its clients, including product design and development, manufacturing engineering, and digital transformation.

With over 12,000 employees across 23 countries, Tata Technologies provides comprehensive engineering services to customers in the automotive, aerospace, industrial, and heavy machinery industries.

The company has been at the forefront of engineering innovation for over 40 years.

It has a long track record of success in developing cutting-edge products and technologies, including electric vehicles, autonomous driving systems, and digital manufacturing solutions.

In recent years, Tata Technologies has played a pivotal role in the growth of the Indian engineering sector.

It has set up state-of-the-art engineering centres in India and has invested heavily in training and developing local talent.

For the financial year 2022-2023, the company's revenue stood at Rs 45 bn, up 25.8% from the previous year.

Profit after tax (PAT) was Rs 6.2 bn, up from 4.4 bn from the previous year.

The growth was primarily driven by strong demand from its customers in the automotive, aerospace, industrial, and heavy machinery industries.

According to market experts, Tata Technologies IPO price band could be around Rs 400 to Rs 542 per equity share.

The IPO grey market premium (GMP) is currently hovering around Rs 255 per share, which means that investors are willing to pay a premium of Rs 255 to get their hands on the stock before it lists on the stock exchange.

That's how strong the demand is, I mean talk about hype!

This IPO will be entirely through an Offer for Sale (OFS) route.

Selling shareholders are looking to release up to 95.7 million (m) equity shares, which is equivalent to 23.6% of the company's total paid-up share capital.

The IPO allocation is designated as follows:

• 50% for Qualified Institutional Buyers (QIBs)
• 35% for retail investors
• 15% for non-institutional investors

Tata Technologies' Strengths

• Deep expertise in automotive: It has a deep understanding of the automotive industry and its unique challenges. This expertise is reflected in its comprehensive portfolio of services, which addresses the product development and enterprise optimization needs of both traditional OEMs and new energy vehicle companies.
• Differentiated capabilities in EVs: Tata Technologies is at the forefront of the electric vehicle revolution, with differentiated capabilities in EV manufacturing, development, and after-sales services. This positions the company well to capitalize on the growing demand for EVs.
• Strong digital capabilities: The company has strong digital capabilities, bolstered by proprietary accelerators that help OEMs and tier 1 suppliers manage their entire digital product life cycle and engage customers throughout the product journey. This gives the company a competitive advantage in the increasingly digitalized automotive industry.
• Diversified global presence: The Tata group company has a diversified global presence, with clients in over 25 countries. This reduces the company's dependence on any single market or customer.
• Global delivery model: It has a global delivery model that enables intimate client engagement and scalability. This allows the company to provide high-quality services to its clients efficiently and cost-effectively.
• Proprietary e-learning platform: Tata Technologies has a proprietary e-learning platform that helps it leverage its manufacturing domain knowledge and tap into large upskilling and reskilling markets. This gives the company a new revenue stream and helps it attract and retain top talent.
• Well-recognised brand with experienced management: The company is a well-recognised brand with an experienced promoter, board of directors, and management team. This gives the company a strong foundation for growth and success.

Risks Associated with the IPO

• Concentrated customer base: Tata Technologies derives a significant portion of its revenues from its top 5 clients. If any or all of these clients face any deterioration in their business, it could have a negative impact on the company's financial performance.
• Reliance on the automotive sector: Tata Technologies' revenue is heavily dependent on the automotive sector. Any economic slowdown in this sector could adversely impact the company's financial condition and operations.
• Uncertainties about new energy vehicle companies: The company expects a significant inflow of future revenue from new energy vehicle companies, many of which may be start-ups. These companies may face uncertainties about their funding plans, future roadmaps, growth capabilities, creditworthiness, and ownership changes.
• Inaccurate pricing and scope of offerings: The pricing structure and scope of Tata Technologies' offerings may not accurately reflect the cost and complexity of the work involved. Some of the company’s contracts are at a risk of becoming unprofitable, if the company is unable to successfully manage these costs.
• Intellectual property risks: Tata Technologies may be subject to third-party or client claims of intellectual property infringement. It may also be unsuccessful in protecting its own intellectual property rights.
• Reliance on single-source and limited-source suppliers: For its products business, Tata Technologies relies on vendors and partners for software. Many of these are single-source or limited-source suppliers. This dependence or an adverse change in the relationship between them could impact availability, delivery, reliability, and costs.

Conclusion

Many investors have already started to believe that Tata Technologies IPO could turn out to be a good investment as the company is already a global leader in engineering and digital transformation services.

The company also has a strong track record of growth and profitability and is well-positioned to benefit from the growing demand for these services.

Meanwhile, the brand name Tata is of course an added benefit.

Investors should note that the IPO is likely to be priced at a premium, given the strong demand for the stock.

Last month, Tata Motors had sold around 10% stake in Tata Technologies to TPG Rise Climate for Rs 16.1 bn. This values Tata Technologies at around 163 bn.

Please ensure you know all the strengths and risks associated before you make an investment decision.

Do your research. Understand the company's business model, competitive landscape, and financial performance.

Since you're interested in the upcoming IPO of Tata Technologies, here are some revenant articles to read:

• Tata Technologies vs Tata Elxsi
• Tata Technologies IPO: 5 Key Takeaways from the Addendum
• Tata Technologies: The Next TCS?

Happy Investing.

Equitymaster wishes you and your family a Happy Diwali and a Prosperous New Year!

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...