Kotak Insights | Date 17/11/2023
Remember Tata Nano?
Touted as the “People’s Car”, it was conceived with the vision of providing an affordable and safe mode of transportation to the Indian masses.
Tata Technologies, a subsidiary of the Tata Group, played a pivotal role in developing it.
Leveraging its engineering and automotive technology expertise, Tata Technologies collaborated with its parent company Tata Motors to design and engineer various aspects of the car.
But why all of a sudden are we talking about Nano when we have the Cricket World Cup 2023 finals nearing?
Well, it’s because Tata Technologies is again set to take center stage with its upcoming IPO.
The initial public offering (IPO) is remarkable as it marks the first IPO for the Tata Group since Tata Consultancy Services (TCS) listed successfully in 2004.
Let us have a close look at some of its key details…
Tata Technologies IPO opens for subscription on 22nd November, and closes on 24th November, 2023.
The IPO price band is set in the range of Rs 475 to Rs 500 per share.
The company in its red herring prospectus (RHP) said that the IPO is an offer for sale (OFS) of up to 60,850,278 equity shares for cash. This represents 15% of the paid-up equity share capital of Tata Technologies Limited.
The above comprises an offer for 46,275,000 equity shares by the company; up to 9,716,853 equity shares by Alpha TC Holdings; and up to 4,858,425 equity shares by Tata Capital Growth Fund I.
The offering also includes a reservation of up to 10% of the Offer for subscription by eligible shareholders of Tata Motors Ltd. (TML) as of the date of the RHP filing.
Here’s what we know so far about the company’s business and financials.
Tata Technologies operates in the engineering and product development space, which has been growing at a fast pace.
A look at its offerings shows that the company covers every aspect of the value chain - starting from product conceptualization to aftermarket maintenance repair, and operations.
It provides engineering and development services, digital enterprise services, product lifecycle management, education offerings, and IT service management to businesses across automotive, aerospace, industrial machinery, and other industries.
The company is also doing a commendable job in end to end development of electric vehicles (EVs).
In the past, automakers chose vertical integration to control the supply chain closely. But now, this business model is going through a major shift. Tech companies like Tata Technologies are evolving with time and have made themselves a mandatory part of the supply chain ecosystem.
Moreover, Tata Motors – the parent company of Tata Technologies – reported a consolidated net profit of Rs 3,783 crore for the September quarter. This is the fourth consecutive quarter of good performance by the company, which is driven by the performance of its British arm, Jaguar Land Rover (JLR).
Ahead of hitting the primary markets, the company is in talks with Morgan Stanley Investment Management, Blackrock and some US based hedge funds to invest in its IPO.
It’s hard to see a world where Tata Technologies is not doing at least Rs 2,500 crore in annual revenue on the low and Rs 4,000 crore on the high end. That has been the case for the past couple of years.
FY23 was a stellar year for the company in terms of profitability, where its bottom line stood at Rs 624 crore.
For the six months ending September 2023, the company reported a revenue of Rs 25,874.24 million, up 35.4% on a year-on-year (YoY) basis, while the profit stood at Rs 3,608.7 million, up 78.9% on a YoY basis.
In the next few years, the company’s revenue is also expected to grow in line with the increased demand for EVs.
Overall, the market timing for Tata Technologies IPO couldn’t have been better. Electric vehicles are touted to be the next big thing and Tata Technologies is the company that works with original equipment manufacturers (OEMs), manufacturers and automakers to get their vehicles on the road.
The company will be the first major IPO this year and capital flows into the publicly listed stock are anticipated to be significant. This is because Tata Technologies has ticked off the mark when it comes to disruption, innovation and artificial intelligence.
Also, the IPO gives the shareholders of Tata Motors an opportunity to participate in the reserved category, which typically allows these shareholders a higher likelihood of getting allocated the IPO shares.
However, as we have highlighted in the past, the inherent risk in any IPO lies in its valuations and one should look out for it before making a decision to subscribe to any offering.
This is because the IPO serves as just an initial entry point for investment. And investors and traders should subscribe to them after evaluating the risks and rewards and the individual investing profile.
For more on the Tata Technologies IPO, it’s business, and product profile, tune into this video: Tata Technologies Limited IPO
It’ll be exciting to see how this IPO performs on the listing day on the bourses.
Until next time…
Sources: Kotak Securities, Company RHP, Tata Motors, Economic Times
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
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