Ending the long wait among investors and analysts today, Tata Technologies IPO has set the primary market buzzing, in what market observers feel has become the most talked about IPO of this decade. 

The global engineering and information technology (IT) services company has attracted the highest grey market premium (GMP) among the five mainboard IPOs to be launched this week. Tata Technologies IPO also garnered ₹791 crore from 67 investors through the anchor book on November 21.

Also Read: Tata Technologies IPO: GMP, price, other details as issue opens. Should you apply?

Tata Technologies – a subsidiary of Tata Motors – is a pure-play manufacturing focused Engineering Research & Development (ER&D) company, primarily focused on the automotive industry. Tata Investment Corporation is a promoter group entity in Tata Motors, owning 0.33 per cent stake as on September 30.

Brokerages and market experts have been upbeat on the public issue with mostly positive outlook on the subscription and listing estimates, but some have also highlighted a few business risks. Let’s take a look at what analysts say on the IPO and why it has become the word on the Street:

Tata Technologies IPO: Why are analysts positive on subscription?

Tata Technologies plans to raise ₹3,042.51 crore from the IPO which is entirely an offer for sale (OFS) of 6.09 crore equity shares by the promoter and investors. Tata Technologies’ OFS comprises up to 60,850,278 shares including sale of up to 46,275,000 shares by promoter Tata Motors Ltd, up to 9,716,853 shares by investor Alpha TC Holdings and up to 4,858,425 Equity Shares by Tata Capital Growth Fund I.

‘’Coming as a pure OFS, the purpose of the Tata Technologies IPO is not to raise capital for investing in the company’s future growth. With over two-thirds of revenues sourced from the automotive sector, and more than a half of sales coming from the top five clients, the company faces business concentration risk,” Sunil Shah, Director at Kambatta Securities told LiveMint.

‘’However, a significant amount of business is sourced from Tata Motors and Jaguar Land Rover which are practically captive clients for Tata Technologies. Further, on the positive side, the company possesses a strong domain expertise in automotive which it also leverages to serve related verticals such as aviation,” added Shah.

Tata Technologies offers product development and digital solutions including turnkey solutions, to global original equipment manufacturers (OEMs) and their tier-1 suppliers. The company has fixed the price band for the IPO has been fixed in the range of ₹475 to ₹500 per equity share of face value of ₹2. The three-day bidding process for the IPO will end on November 24.

Analysts also said that the company’s business model and strong financials will likely support the issue with a significant interest from investors. Brokerages highlighted that the issue is reasonably priced, when compared to industry peers.

‘’We like the company’s strong established brand and diverse product portfolio across different product categories from traditional OEM’s to new age energy vehicles…We think outsourcing business model would be in great demand going forward in engineering services and digital transformation services to global manufacturing clients helping clients to deliver better products,” said Prashanth Tapse, Research Analyst, Sr VP Research, Mehta Equities Ltd.

By looking at the financials historically, Tata Tech has delivered a strong revenue and margin growth in the last three years and expect the growth would remain similar going forward…The issue is asking for a market cap of ₹20,283 crore with P/E of 29x on consolidated basis, which seems the issue is reasonably priced when compared industry peers which are trading 60x,” added Tapse.

Also Read: Tata Technologies IPO: GMP jumps as issue opens soon; Date, price, review, lot size, other details

Coming to investors, several brokerages and market experts highlighted that Tata Technologies IPO is ‘investor-friendly’. Despite a 100 per cent OFS, most of the retail investors also claimed that Tata brand name itself was enough for them to place their trust in the much-awaited issue. Let’s take a look at why investors are ‘playing favorite’ on Tata Technologies IPO:

Why are investors playing ‘favourite’ on Tata Technologies IPO?

Domestic brokerage firm Master Capital Services said in its IPO note that Tata is known as investor friendly group and enjoys special preference amongst investors. ‘’Tata Technologies has differentiated capabilities in new age automation trends. Investors can invest in the Tata group IPO with a long-term perspective,” said the brokerage.

Shivani Nyati, Head of Wealth, Swastika Investmart Limited agreed. ‘’Tata Tech, a long-awaited IPO from the Tata Group, is here, and its name itself signifies trust among investors. The company has deep expertise in the automotive industry and differentiated capabilities to deal with emerging trends. It is a well-recognized brand with experienced promoters,” said Nyati.

The proceeds from the issue, excluding IPO expenses, will go to the selling shareholders. Most of the retail investors seem excited on the trustworthy brand that has come out with its public issue after two decades. Some even found the IPO price to be reasonable for subscription. 

‘’The name of Tatas is enough to create trust among investors. Tata Tech is backed by strong promoters while its financial performance has also been improving. This can be a good company from ER&D sector to add in the portfolio for a long term. For investors looking to make quick bucks, the Tata Tech IPO GMP is also the highest among other IPOs open in the market,” a Delhi-based retail investor told LiveMint.

Swastika Investmarts’ Nyati highlighted that there might be some concerns with the IPO, like dependence on a few top clients and third-party vendors, risk related to foreign exposure, and a competitive industry. 

‘’Yet, the IPO is coming at a very attractive valuation of 32.5x, and it’s a great opportunity for investors. Thus, one should surely apply for this IPO for listing gain as well as for long-term benefits,” she added.

Another retail investor told LiveMint, ‘’Tata Tech IPO is very convincing for the retail investors since neither the pricing is too unreasonable and on the top of it there’s the trust that is often linked to Tata. The GMP is indicating good progress and I expect it to debut at an appreciated rate.”

Tata Technologies IPO has reserved not more than 50 per cent of the shares in the public issue for qualified institutional buyers (QIB), not less than 15 per cent for non institutional investors (NII), and not less than 35 per cent of the offer is reserved for retail investors. 

Applicants will be to apply in lots and one lot of the public issue would comprise 30 company shares. So, a retail investor would require at least ₹15,000 ( ₹500 x 30) to apply for the issue. The employee reservation portion has been allocated upto 2,028,342 equity shares, and Tata Motors Ltd shareholders has been reserved upto 6,085,027 equity shares.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Updated: 22 Nov 2023, 09:05 AM IST