Tata Technologies IPO Details
The company 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.
Promoter Tata Motors will offload 4.62 crore equity shares worth ₹2,313.75 crore in the OFS, while investors Alpha TC Holdings Pte Ltd will sell 97.17 lakh shares and Tata Capital Growth Fund I will offload 48.58 lakh shares in the Tata Technologies IPO.
Also Read: Tata Tech IPO fully subscribed in less than an hour of opening; retail section gets full subscription
Tata Technologies IPO price band has been set at ₹475 to ₹500 per share.
JM Financial, Citigroup Global Markets India and BofA Securities India are the book running lead managers of the Tata Technologies IPO, while Link Intime India is the IPO registrar, as per the Red Herring Prospectus (RHP).
About Tata Technologies
Tata Technologies, a subsidiary of automobile major Tata Motors, is a pure-play manufacturing focused Engineering Research & Development (ER&D) company, primarily focused on the automotive industry and is currently engaged with 7 out of the Top-10 automotive ER&D spenders and 5 out of the 10 prominent new energy ER&D spenders in 2022.
Tata Technologies operates in two primary segments, Services and Technology solutions. Services is its core focus area constituting 80% of its revenue in FY23.
Over FY23, the company’s revenue clocked a 30% CAGR, leading to a 46% EBITDA CAGR, translating to a 61.5% PAT CAGR. The company’s net profit during H1FY24 was ₹351.90 crore upon a revenue of ₹2,587.42 crore.
Tata Technologies faces a key risk of high competition. The company operates in a global and fragmented market, competing with a variety of companies. Its key competitors in the ER&D service market include pure play Indian ER&D service providers such as L&T Technology Services, KPIT Technologies and Tata Elxsi.
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Here are top 10 key risk factors mentioned in the Tata Technologies IPO RHP.
Tata Technologies IPO: Key Risks
1) The selling shareholders, including Tata Technologies’ promoter, will receive the entire proceeds from the offer for sale in the IPO. The company will not receive or benefit from any proceeds from the issue.
2) Tata Technologies derives a material portion of its revenues from its top 5 clients. The company is exposed to continued growth in top clients and any deterioration in client’s business may lead to slower growth.
The top 5 clients, which include Jaguar Land Rover (JLR), Tata Motors and VinFast, contributed to around 57% of overall revenue and around 71% of services revenue in H1FY24. The company was heavily dependent on anchor clients (Tata Motors and JLR), with a revenue mix of more than 54% in 2020. Nevertheless, it had consciously diversified the client portfolio, resulting in anchor clients’ mix reducing to ~46% in H1FY24.
3) The company’s revenues are highly dependent on clients concentrated in the automotive segment. An economic slowdown or factors affecting this segment may have an adverse effect on its business, financial condition and results of operations, as per the RHP.
Also Read: Tata Technologies IPO open for subscription: GMP, issue details, 10 key things to know before you invest
4) Tata Technologies expects 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 our business, financial condition and results of operations,” it said.
5) The company had negative cash flows in the past and may continue to have negative cash flows in the future, which could adversely affect its liquidity and operations. For FY22 and the six-month period ended September 30, 2023, its net cash flow from operating activities was negative.
6) The company also faces a risk of exchange rate fluctuations in various currencies in which it does business.
7) There is intense competition in the market for engineering services that could affect its pricing and have a material adverse effect on its financial condition. Certain of its group companies operate in a similar line of business, which may lead to competition with these entities and could potentially result in a loss of business opportunity for it.
8) Tata Technologies said there were outstanding legal proceedings involving the company, its directors, subsidiaries and its promoter.
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“Any adverse decisions could impact our cashflows and profit or loss to the extent of demand amount, interest and penalty, divert management time and attention, consume financial resources in their defence or prosecution, affect our reputation, standing and future business and have an adverse effect on our business, prospects, results of operations and financial condition,” the RHP said. More details on this can be found in the company’s RHP.
9) Tata Technologies said it has 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 its business.
10) The company relies on licensing arrangements with Tata Sons Private Limited to use the “Tata” brand. Any improper use of the associated trademarks by the licensor or any other third parties could impact its business, financial condition and results of operations.
Tata Technologies IPO Review
Tata Technologies is a pure-play manufacturing focused ER&D Company, primarily focused on the automotive industry with additional growth drivers including a heightened focus on smart manufacturing, reducing product development time and cost, connecting the digital thread and enhancing customer experience.
“As a subsidiary of Tata Motors Ltd (TML), they benefit from long-term relationships with both TML and JLR which strengthens to tap the large opportunity in automotive ER&D markets, adjacent verticals to tap the wide business network. Considering the healthy business prospects, strong parentage, superior financials with improvement in margins and ratios provides a valuation comfort. Therefore we recommend a Subscribe to the issue,” Reliance Securities said.
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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 decisions.
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Updated: 22 Nov 2023, 11:20 AM IST