Tata
Technologies is a global engineering services company offering product
development and digital solutions, including turnkey solutions, to global
original equipment manufacturers (OEMs) and their tier 1 suppliers. The company
endeavors to create value for its clients by helping them develop products that
are safer, cleaner and improve the quality of life for their end-customers. The
company has deep domain expertise in the automotive industry and leverages this
expertise to serve its clients in adjacent industries, such as in aerospace and
transportation and construction heavy machinery (TCHM).
Tata
Technologies is a subsidiary of Tata Motors and is part of Tata group. The
company as of September 30, 2023, had 19 global delivery centers spread across
North America, Europe, and Asia Pacific. It had 12,451 employees, comprising
11,608 full-time employees and 843 contracted employees as on September 30,2023.
Tata
Technologies has been positioned in the leadership zone by Zinnov Zones for Engineering
Research & Development (ER&D) services ratings in 2023 for the seventh
consecutive year. The company is also ranked first among all India-based
ER&D service providers and is among the top two globally in
electrification.
Tata
Technologies primary business line is services, which includes providing
outsourced engineering services and digital transformation services to global
manufacturing clients helping them conceive, design, develop and deliver better
products. The company‘s services business contributed Rs 3531.15 crore and Rs 1986.39
crore to its revenue from operations in Fiscal 2023 and the six-months period
ended September 30, 2023, respectively, comprising 80.00% and 78.62% of its
revenue from operations for the respective periods.
The
company also complements its service offerings with products and education
businesses (technology solutions). Through its products business, the company
resells third-party software applications, primarily product lifecycle
management (PLM) software and solutions and provides value-added services such
as consulting, implementation, systems integration, and support.
Its
education business provides phygital education solutions in manufacturing
skills including up-skilling and re-skilling in relation to the latest
engineering and manufacturing technologies to public sector institutions and
private institutions and enterprises through curriculum development and
competency center offerings through its proprietary iGetIT platform. In Fiscal
2023 and the six-months period ended September 30, 2023, the company‘s technology
solutions business contributed Rs 883.02 crore and Rs 540.31 crore to its revenue
from operations, respectively, comprising 20.00% and 21.38% of its revenue from
operations for the respective periods.
The
company is a pure-play manufacturing focused ER&D company, primarily
focused on the automotive industry and is currently engaged with six out of the
top 10 automotive ER&D spenders and four out of the 10 prominent new energy
ER&D spenders in 2022. Its automotive revenue attributable to the services
segment for Fiscal 2023 and the six months period ended September 30, 2023, was
Rs 3131.47 crore and Rs 1745.76 crore, respectively, comprising 88.68% and
87.89% of its revenue attributable to the services segment for the respective
periods. Additionally, its revenue attributable to the services segment from
verticals other than automotive for Fiscal 2023 and the six-months period ended
September 30, 2023, was Rs 399.69 crore and Rs 240.63 crore, respectively,
comprising 11.32% and 12.11% of its revenue attributable to the services
segment for the respective periods.
Incorporated
in 1945, Tata Motors is India‘s largest automobile company. It is the market
leader in the domestic commercial vehicle industry and one of the top three
manufacturers of passenger vehicles in India. In June 2008, Tata Motors
acquired Jaguar Land Rover (JLR) from Ford Motor Company for USD 2.3 billion.
Following the acquisition, Tata Motors‘s business profile underwent a
significant change from being a predominantly India-centric OEM to one with
presence in the premium and luxury segment cars and sport utility vehicles
(SUVs) across multiple markets such as UK, Europe, North America, China, and
other overseas markets.
Object of the
offer
The
offer comprises a net offer of up to 5,27,36,909 equity shares, Tata
Technologies employee reservation portion of 20,28,342 equity shares and the
Tata Motors shareholders reservation portion of up to 60,85,027 equity shares.
The
offer for sale by the selling shareholders comprises up to 4,62,75,000 shares
by Tata Motors, up to 97,16,853 shares by Alpha TC Holdings PTE Ltd, and up to
48,58,425 shares by Tata Capital growth Fund II.
The
company will not receive any proceeds from the offer and all the offer proceeds
will be received by the selling shareholders, in proportion to the offered
shares sold by the respective selling shareholders as part of the offer.
The
offer size was cut from 9.57 crore shares to 6.09 crore shares after Tata
Motors sold a 9.9% stake in Tata Technologies to investors led by private
equity major TPG in October 2023.
Strengths
The
company has deep expertise in the automotive industry. Its comprehensive
portfolio of services for the automotive industry addresses the product
development and enterprise optimization needs of traditional OEM‘s and new
energy vehicle companies, together with their associated supply chains. The
company helps its clients leverage digital technologies to optimize the manner to
conceive, develop, manufacture, sell and service new products. Additionally, the
company‘s long-standing partnership with its anchor clients, including the
relationship with JLR since 2010, provides it with opportunities to cultivate
skills and refine its value proposition for the automotive sector.
The
company has differentiated capabilities in new age automotive trends including
electric vehicles, connected and autonomous.
Its end-to-end solutions for electric vehicle (EV) development,
manufacturing and after-sales services are designed to help OEMs develop
competitive EVs while maintaining a balance between cost, quality, and
timelines.
The
company‘s suite of digital services and accelerators are designed to help OEMs
and tier 1 suppliers manage the entire digital product life cycle and engage
the customer throughout the product journey. The solutions leverage its deep
manufacturing domain knowledge and intimate understanding of clients. The
company‘s solutions and accelerators across new product introduction
(NPI)increases the efficiency of automotive, transportation and construction
heavy machinery and aerospace clients in introducing new products to the
market.
The
company has a diversified global presence across Asia Pacific, Europe and North
America and partners with many of the largest manufacturing enterprises in the
world. As of September 30, 2023, the company’s clients included more than 35
traditional automotive OEMs and tier 1 suppliers and more than 12 new energy
vehicle companies. Its client portfolio includes its anchor clients, Tata
Motors and JLR, leading traditional OEMs like Airbus, McLaren, Honda, Ford, and
Cooper Standard and tier 1suppliers as well as new energy vehicle companies
such as VinFast, among others, such as Cabin Interiors and
Engineering Solutions, ST Engineering Aerospace. Its key accounts comprised seven
out of the top 10 and 12 of the top 20 global automotive ER&D spenders and 5 out
of the 10 prominent new energy ER&D spenders globally.
The
company‘s global delivery model enables intimate client engagement and
scalability. Its globally distributed execution model ensures balance
between onshore client proximity and offshore efficiency which is achieved
through leveraging its low-cost offshore delivery model to move a greater
portion of the work offshore to India and Romania.
The
company‘s digital and technology capabilities and long-standing manufacturing
expertise coupled with its many years of experience of providing skills
training, initially through teacher led classroom training and subsequently
through its proprietary iGetIT platform has positioned it to address the
growing engineering up-skilling needs.
Weaknesses
Around
40% of the company‘s total operating income comes from its top two captive
customers, Tata Motors and JLR, which poses significant revenue concentration
risk for the company.
Intense
competition in the market for engineering services could affect the company‘s
pricing and have a material adverse effect on its business and financial
condition.
The
company‘s revenues are highly dependent on clients concentrated in the
automotive segment. An economic slowdown or factors affecting the automotive
segment may have an adverse effect on the business of the company.
The
company expects a significant amount of its future revenue to come from new
energy vehicle companies, many of whom may be startup companies. Uncertainties
about their funding plans, future product roadmaps, ability to manage growth,
creditworthiness and ownership changes may adversely affect the company’s
business.
More
than 60% of the company‘s revenues are derived from exports. As such the
company is exposed to currency fluctuation risk.
The
company‘s success depends in large part upon the strength of its skilled
engineering professionals and management team. If the company fails to attract,
retain, train, and optimally utilize these personnel, its business may be
unable to grow and may have an impact on revenues and profitability. Further,
increases in wages and other employee benefit expenses for such personnel could
prevent the company from sustaining its competitive advantage.
There
are pending litigation‘s against the company amounting to Rs 141.3 crore.
The
company may be subject to client and/or third-party claims of intellectual property
infringement. The company may also be unsuccessful in protecting its
intellectual property rights. Unauthorized use of its intellectual property may
result in the development of technology, products or services which compete
with its services.
The
company recently expanded its offerings in the education business and if it is
unable to achieve the anticipated returns in such new growth areas, it could
have a material adverse effect on the company‘s business.
The
company relies on vendors and partners for software, many of whom are
single-source or limited source suppliers. Such reliance or adverse change in
its relationships could harm its business by adversely affecting availability,
delivery, reliability, and cost.
Valuation
For
the six months ended Sep 2023, consolidated sales were up by 33.8% to Rs 2526.7
crore. The OPM declined 134 bps to 18.39%, which led to a 24.8% increase in
operating profit to Rs 464.75 crore.Other income increased 170.1% to Rs 60.72
crore. Interest cost increased 17.1% to Rs 9.48 crore and depreciation increased
9.1% to Rs 49.74 crore. PBT increased by 36.6% to Rs 466.25 crore. Tax expenses
increased by 39.1% to Rs 114.35 crore. Net profit stood at Rs 351.9crore as
against net profit of Rs 259.06 crore in the corresponding period of the previous
year.
For
FY 2023, consolidated sales were up by 25.1% to Rs 4414.18 crore. OPM rose 31 bps to 18.6% which led to a 27.1%
increase in operating profit to Rs 820.93 crore. Other income increased 79.8%
to Rs 87.75 crore, while interest cost declined 17.9% to Rs 17.98 crore and
depreciation increased 10.3% to Rs 94.55 crore. PBT increased by 35.7% to Rs 796.15
crore. Tax expenses increased by 14.8% to Rs 172.11 crore. Net profit stood at Rs
624.03 crore as against net profit of Rs 436.99 crore in FY2022.
In
October 2023, Tata Motors (Holding Company) sold 9.9% (36,509,794 equity
shares) equity capital in the company to TPG Rise Climate SF Pte. Ltd (9%) and
Ratan Tata Endowment Foundation (0.9%) at a price of Rs 401.81 per equity share,which
valued the company at Rs 16,300 crore.
At
the higher price band of Rs 500, the offer is made at a P/E of 28.3 times TTM
(till September2023) EPS (of Rs 17.67).
Listed
industry peers of the company are KPIT Technologies, L&T Technology
Services and Tata Elxsi.In comparison,KPIT Technologies trades at 82.13 times
its P/ TTM EPS, L&T Technology Services trades at 37.05 times its P/TTM EPS,and
Tata Elxsitrades at 69.7 times its P/TTM EPS.
Tata Technologies: Issue Highlights
|
Fresh
issue (in Rs crore)
|
-
|
Offer
for sale (in Rs crore)
|
2890.0-3042.5
|
Offer
for sale (in number of shares)
|
|
-
in Upper price band
|
60850278
|
-
in Lower price band
|
60850278
|
|
|
Price
Band (Rs)
|
475-500
|
Pre
issued capital (Rs crore)
|
81.13
|
Post
issue capital (Rs crore)
|
|
-
in Upper price band
|
81.13
|
-
in Lower price band
|
81.13
|
Pre
issue promoter and Promoter Group shareholding (%)
|
-
|
Post
issue Promoter and Promoter Group shareholding
|
|
-On
higher price band (%)
|
-
|
-On
lower price band (%)
|
-
|
Bid
Size (in No. of shares)
|
30
|
Issue
open date
|
22/11/2023
|
Issue
closed date
|
24/11/2023
|
Listing
|
NSE,BSE
|
Rating
|
60/100
|
Tata
Technologies : Consolidated Financial
|
|
2103 (12)
|
2203 (12)
|
2303 (12)
|
2209 (6)
|
2309 (6)
|
Sales
|
2380.91
|
3529.58
|
4414.18
|
1887.91
|
2526.70
|
OPM (%)
|
16.20
|
18.29
|
18.60
|
19.73
|
18.39
|
OP
|
385.71
|
645.66
|
820.93
|
372.52
|
464.75
|
Other inc.
|
44.83
|
48.80
|
87.75
|
22.48
|
60.72
|
PBIDT
|
430.54
|
694.46
|
908.69
|
395.00
|
525.47
|
Interest
|
17.66
|
21.90
|
17.98
|
8.10
|
9.48
|
PBDT
|
412.88
|
672.57
|
890.71
|
386.91
|
516.00
|
Dep.
|
92.20
|
85.71
|
94.55
|
45.61
|
49.74
|
PBT Before EO
|
320.68
|
586.86
|
796.15
|
341.30
|
466.25
|
Exceptional items
|
5.42
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT After EO
|
315.27
|
586.86
|
796.15
|
341.30
|
466.25
|
Total Tax
|
76.09
|
149.87
|
172.11
|
82.23
|
114.35
|
Net Profit
|
239.17
|
436.99
|
624.04
|
259.06
|
351.90
|
EPS (Rs)*
|
5.90
|
10.77
|
15.38
|
12.77
|
17.35
|
Figures in Rs crore
|
Source: Tata Technologies Issue Prospectus
|
|