Tata Technologies Limited (Subscribe)

Highlights

Tata Technologies Limited (TTL) incorporated in 2001, is a part of the Tata Group, which has been recognized as the most valuable brand in India. TTL a leading global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEMs) and their tier 1 suppliers.

TTL 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 is ranked first among all India-based engineering, research, and development (ER&D) service providers and are among the top two globally, in electrification. For automotive ER&D services, it is ranked first among India service providers and third globally among rated service providers by Zinnov.

The company complements its service offerings with its Products and Education businesses (collectively, Technology Solutions). Through its Products business, they resell third-party software applications, primarily product lifecycle management (PLM) software and solutions and provide value-added services such as consulting, implementation, systems integration and support.

Its education business provides “phygital” education solutions in manufacturing skills including upskilling and reskilling 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.

TTL is a pure-play manufacturing focused ER&D company, primarily focused on the automotive industry and they are currently engaged with seven out of the top 10 automotive ER&D spenders and five out of the 10 prominent new energy ER&D spenders in 2022.

Out of the total proceeds of Rs. 30,425 mn, 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 management has indicated that it is trying to explore listing benefits and provide exit to some its stakeholders i.e Tata Motors, Alpha TC Holdings, and Tata Capital Growth Fund, and is not in need of funds.

Key Highlights

• The company operates in the global engineering, research, and development (ER&D)services industry, primarily across automotive, aerospace and transportation, and construction heavy machinery (TCHM) verticals. The global ER&D spend for 2022 was approximately USD 1.81 trillion and is estimated to grow to approx USD 2.67 trillion by 2026. The ER&D spend outsourced to third party service providers reached USD 105-USD 110 bn in 2022 and is expected to grow at a 11-13 pct CAGR between 2022 and The company is well-positioned to gain from the anticipated expansion in the market.
• The company has robust collaborations and partnerships, including those with Siemens Industry Software Inc., Codincity, Fantasy, Logility, Dassault, and others, as well as by utilizing Microsoft AZURE products and services, which support their efforts and let them reach a wider range of clients in different industries and regions.
• TTL serves clients in related industries, including aerospace and TCHM, by using its deep domain understanding in the automotive sector. Being a worldwide corporation, they bring together multiskilled teams from around the globe to work together in real time and solve challenging engineering problems for their clients.
• With 19 global delivery centers scattered around North America, Europe, and Asia Pacific as of September 30, 2023, each staffed primarily by locals, they are able to offer their clients uninterrupted support and access specialized skill sets across multiple regions. As per the management, the number of aircrafts will double in next 20 years which presents an attractive opportunity for its aerospace division. TTL has recently been empanelled by Airbus which is expected to be a significant growth driver for the company going forward.
• Strategies for future growth: (i) Deepening engagement with existing clients, (ii) Targeting top R&D spenders in select high priority verticals & key geographies (iii) Expanding capabilities in digital and embedded systems (iv) Strengthening its service delivery through capacity and capability building (v) Expanding capabilities and enterprise client base in the education sector, are the strategies that will drive future growth for the company.
• TTL has a diverse global clientele; during H1FY23, clients in India, Europe, North America, and the rest of the globe accounted for 35.14 pct, 26.90 pct, 19.26 pct, and 18.71 pct of the company’s revenue from operations.
• The Sales of the company has grown by 36.1 pct CAGR during the period FY21-23 while adjusted EBITDA and Profit grew 45.8 pct CAGR and 61.5 pct over the same period. During FY23, company reported sales of Rs. 44,142 mn which increased by 25 pct YoY while adjusted EBITDA rise by 27 pct YoY to Rs. 8,209 mn as adjusted EBITDA margin improved from 18.3 pct in FY22 to 18.6 pct in FY23. Profit in the FY23 stood at Rs. 6,240 mn, which increased by 42 pct YoY. During H1FY24 company sales, EBITDA, Profit increased YoY by 9.03 pct, 26.4 pct and 25 pct respectively with Rs. 10,000 mn strong cash balance.

Key Risk

• On H1FY24 basis, the Company received 70 pct of revenue from top 5 clients. If these clients suffer a deterioration of their business, they can cease doing business with TTL or substantially reduce their dealings with the company.
• TTL expect a significant amount of 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 its business.

Valuation

Tata Technologies, a Tata group arm in ER&D segment with major OEM customers is coming out with an IPO offering after a gap of 19 years. The Tata Group historically has donned the tag of being ‘investor friendly’, so this primary market offering will definitely be on everyone’s radar. With deep domain expertise in the automotive industry, the Company has been able to leverage this expertise to serve clients in adjacent industries, such as in aerospace and transportation and construction heavy machinery. As a subsidiary of Tata Motors, it benefits from long-term relationships with both Tata Motors and Jaguar Land Rover.

At the upper end of the price band of Rs 500, the issue is quoting at PE of 28.8x its annualised FY24E earnings. Given its strong financials and attractive future prospects, the IPO price appears to be reasonable. One can Subscribe from a long-term perspective.

Also Read: How To Start Investing? A Beginner’s Guide

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.