- 17 Nov 2023
- ICICIdirect
Tata Technologies Limited IPO: All you need to know
The most awaited IPO for this year is finally going live - Tata Technologies Limited (TTL). It is the first IPO from the House of Tatas in nearly 20 years. In the IPO busy week, TTL opens for subscription on the 22nd and closes on the 24th of November. In this article, we will look at the various aspects related to the company. It will help you decide whether to subscribe or invest in the IPO for the long term.
Tata Technologies IPO: Key Details
Below are the key details related to the TTL IPO:
- Issue Size: Rs 3,042.51 crore
- Price Band: Rs 475 - Rs 500
- Issue Details: Only Offer For Sale (OFS) (Tata Motors, Alpha TC Holdings, and Tata Capital Growth Fund exiting)
- Market Cap: At the upper price band, Rs 20,283 crore
- Minimum Investment: Rs 15,000
Tata Technologies Limited IPO: About the business
Tata Technologies is 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. The company endeavors to create value for its clients by helping them develop safer products, and cleaner and improve the quality of life for their end-customers.
TTL is a subsidiary of Tata Motors Limited (TML), and they benefit from long-term relationships with both TML and JLR. The long-standing engagements with TML and JLR have enabled the incubation of skills and capabilities that have assisted them in pursuing opportunities outside of the Tata Group.
They have deep domain expertise in the automotive industry and leverage this expertise to serve their clients in adjacent industries such as aerospace and transportation and construction heavy machinery (TCHM).
Tata Technologies has a diversified global client base. They have 19 global delivery centers spread across North America, Europe, and Asia Pacific.
Tata Technologies Limited IPO: Line of Business
The company has two lines of business:
Service: Their 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 services business contributed 80.00% and 78.62% of their revenue from operations for FY23 and H1FY24.
Technology Solutions: TTL complements its service offerings with its Products and Education businesses. Through its Products business, it 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.
Their Education business provides “phygital” education solutions in manufacturing skills, including upskilling and reskilling about 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 FY23 and the six months ended September 30, 2023, the Technology Solutions business contributed 20.00% and 21.38% of its revenue from operations for the respective periods.
Tata Technologies IPO: Industry Overview
In 2022, ER&D spending continued its upward trend, marking another significant year of steady growth. Enterprises, committed to sustaining innovation while funding it through cost optimization and productivity improvements, have maintained their focus on future-proofing and transformation, with an intensified emphasis on digital engineering. Out of the $1,811 billion ER&D market in 2022, $810 billion was attributed to digital engineering spending.
Global automotive ER&D spend is largely distributed across three regions: Europe, Asia Pacific, and North America. As of 2022, Europe accounted for 49% of the global automotive spend; APAC was the second largest and accounted for 38% of the global spend, and North America accounted for 13% of the spend.
The automotive outsourced ER&D market is pegged at $18-20 billion in 2022 and is expected to grow at a faster rate than overall automotive ER&D spending during 2022-2026. The global share of digital technologies in automotive ER&D spend is expected to grow at a CAGR of approximately 16% from 2022 to 2026, increasing from 26% of total spend to 36% in the same period.
Tata Technologies Limited IPO: Listed Peers
TTL has only three listed peers. They are KPIT Technologies Ltd, L&T Technology Services, and Tata Elxsi Ltd. Let us look at the financials of TTL and listed peers to get an idea of where the company stands against its peers. We will compare the crucial parameters of FY23 to give you an understanding of the financials of Tata Technologies Limited. Here is the comparison:
- In terms of revenue, the highest revenue (for FY23) was reported by L&T Technology Services, and then TTL is on the list.
- The average EPS of the listed peers is 85, while that of Tata Technologies is 15.38, but it is higher than KPIT (14.10) but much lower than the other two.
- Return of Net Worth (RoNW) is highest for Tata Elxsi. TTL comes at the top of the table for this parameter.
Tata Technologies Limited IPO: Financials
Let us now look at the most crucial part that one needs to consider while evaluating a new company. Below are the financial numbers of TTL over the last three financial years:
- The company has reported a revenue of Rs 2,380.91 crore, Rs 3,529.58 crore, and Rs 4,414.18 crore for FY21, FY22, and FY23, respectively. Revenue has grown at a solid 31.90% CAGR in this period. The revenue for H1FY24 was Rs 2,526.70 crore.
- Their top 20 clients by revenue attributable to the Services segment account for 88.40% of their revenue attributable to the Services segment for FY23.
- They are actively engaged on multiple projects with clients and have a high repeat rate of over 97.72%, 98.38%, 97.24%, and 95.71% across its Services business for the six months ended September 30, 2023, FY23, FY22, and FY21, respectively.
- TTL has reported an adjusted EBITDA of Rs 385.71 crore, Rs 645.66 crore, and Rs 820.93 crore for FY21, FY22, and FY23, respectively. EBITDA margins for the same period were 16.20%, 18.29%, and 18.60%, respectively. The margins have improved YoY in this period.
- They have reported a net profit of Rs 239.17 crore, Rs 436.99, and Rs 624.04 crore for FY21, FY22, and FY23. The bottomline has more than doubled in this period. Profit for H1FY24 is Rs 351.90 crore.
- For the last three financial years, TTL has reported an average EPS of Rs. 12.26 and an average RoNW of 18.68 %.
- If we attribute annualized FY24 earnings to post-IPO paid-up equity capital, then the asking price is at a P/E of 28.82.
- Return on Capital Employed (ROCE) for FY22 and FY23 was 34% and 31%, respectively. ROE for the same period was 26.41% and 27.06, respectively.
- The debt-to-equity ratio is low. It has fallen from 0.12 in FY22 to 0.08 in FY23.
![](https://www.icicidirect.com/images/Tata%20Tech3-202311171211257606216.png)
What are the competitive strengths of Tata Technologies Limited?
As per the company, their competitive strength is as below:
- They have a deep expertise in the automotive industry with a deep understanding of client requirements.
- TTL provides end-to-end solutions for EV development, manufacturing, and after-sales services designed to help OEMs develop competitive EVs while maintaining a balance between cost, quality, and timelines.
- The company has strong digital capabilities bolstered by proprietary accelerators.
- TTL has a diversified global presence across Asia Pacific, Europe, and North America and partners with many of the largest manufacturing enterprises in the world.
Risks associated with Tata Technologies Limited
Below are the risks associated with the TTL:
- They continue to derive a material portion of their revenues from the top 5 clients. If any or all of its top 5 clients were to suffer a deterioration of their business, cease doing business with them, or substantially reduce their dealings with the company, TTL's revenues could decline.
![](https://www.icicidirect.com/images/Tata%20Tech4-202311171211543052800.png)
- Their revenues are highly dependent on clients concentrated in the automotive segment. An economic slowdown or factors affecting this segment may hurt their business.
- They 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 impact their business.
![](https://www.icicidirect.com/images/Tata%20Tech5-202311171212159560722.png)
- The company invests in unsecured debt instruments, from time to time, which may carry interest rates lower than the market rate and thus affect its profitability.