Tata Technologies IPO: Everything You Need to Know Before You Apply

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Tata Motors SEBI Approves IPO Plans for Tata Technologies: What You Need to Know

Tata Motors, one of the leading automobile manufacturers in India, has announced its intention to partially divest its stake in its subsidiary Tata Technologies, a global product engineering and digital services company, through an initial public offering (IPO) route. The company has filed a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for the IPO, which is expected to hit the markets in the next five to six months.
Tata Technologies IPO
Tata Technologies IPO

What is Tata Technologies?

Tata Technologies is a unit of Tata Motors that offers product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEMs) in the automotive, aerospace, and industrial machinery sectors. The company has a workforce of over 11,000 employees spread across 18 global delivery centers. It has a strong presence in North America, Europe, and Asia Pacific regions.

What is the IPO structure?

The IPO is completely an offer for sale (OFS) by the promoters and selling shareholders of Tata Technologies. The company will not receive any proceeds from the IPO. The selling shareholders will offload up to 9.57 crore equity shares, representing 23.60% of the paid-up share capital of Tata Technologies.

The selling shareholders include:

  • Tata Motors: The parent company of Tata Technologies will sell 8.11 crore shares or 20% stake in the company. Tata Motors currently holds a 74.69% stake in Tata Technologies.
  • Alpha TC Holdings Pte: The Singapore-based investment firm will sell up to 97.16 lakh shares or 2.40% stake in the company. Alpha TC Holdings Pte currently holds a 7.26% stake in Tata Technologies.
  • Tata Capital Growth Fund I: The private equity fund will sell up to 48.58 lakh shares or 1.20% stake in the company. Tata Capital Growth Fund I currently holds a 3.63% stake in Tata Technologies.

What is the IPO size and valuation?

The size of the IPO has not been disclosed yet. However, according to some estimates, based on the recent buyback of shares by Tata Technologies, the company could be valued at around Rs 16,080 crore, implying that the IPO size could be at least Rs 3,800 – Rs 4,000 crore.

In the unlisted market, the shares of Tata Technologies are trading at around Rs 850 levels and are expected to list at a premium of 20-30%, according to some analysts.

How is the financial performance of Tata Technologies?

Tata Technologies has shown robust growth in its revenue and profitability in recent years. For the nine-month period ended December 2022, the company clocked a 15% year-on-year growth in revenue at Rs 3,052 crore. The services segment revenue contributed 88% of the total revenue. The company’s net profit during the same period stood at Rs 407 crore.

The company has also improved its margins and return ratios over the years. For the nine-month period that ended December 2022, the company reported an EBITDA margin of 19%, a net margin of 13%, a return on equity (ROE) of 25%, and a return on capital employed (ROCE) of 28%.

Why should you invest in Tata Technologies IPO?
Tata Technologies IPO offers an opportunity to invest in a leading global engineering services company that has a strong brand value, diversified client base, innovative solutions, and long-term relationships with OEMs.

Some of the key strengths and competitive advantages of Tata Technologies are:

  • Strong parentage and brand recognition: Being a part of the Tata Group, one of the most respected and trusted business conglomerates in India and globally, gives Tata Technologies an edge over its competitors in terms of reputation, credibility, and access to resources.
  • Diversified and loyal client base: Tata Technologies serves over 200 clients across various geographies and sectors, including some of the world’s leading OEMs such as Ford, Jaguar Land Rover, General Motors, Boeing, and Airbus. The company has maintained long-term relationships with its clients and has high repeat business rates.
  • Innovative and comprehensive solutions: Tata Technologies offers end-to-end product development and digital solutions that cover the entire product lifecycle from concept design to manufacturing support. The company leverages its domain expertise, technology capabilities, and industry best practices to deliver innovative and cost-effective solutions that enhance customer value.
  • Experienced management team and skilled workforce: Tata Technologies has a strong and stable management team with extensive experience and expertise in the engineering services industry. The company also has a large and talented pool of engineers, designers, consultants, and digital experts who have deep domain knowledge and skills in various technologies and platforms.

How to apply for Tata Technologies IPO?

The IPO of Tata Technologies is expected to open for subscription in the next five to six months. The company will announce the details of the IPO, such as the price band, lot size, bidding period, and listing date, closer to the launch date. The IPO will be available for subscription through online platforms as well as offline modes.

To apply for the IPO online, you will need a demat account and a trading account with a SEBI-registered broker. You can use the UPI (Unified Payments Interface) mode or the ASBA (Applications Supported by Blocked Amount) mode to make the payment for the IPO application.

To apply for the IPO offline, you will need to fill up the physical application form and submit it to your broker or bank along with a cheque or demand draft for the amount of the application.

You can apply for the IPO in the retail category if you are an individual investor and your application amount is less than Rs 2 lakh. You can apply for the IPO in the non-institutional category if you are an individual investor or a corporate entity and your application amount is more than Rs 2 lakh. You can also apply for the IPO in the qualified institutional buyers (QIB) category if you are an institutional investor such as a bank, mutual fund, insurance company, or foreign portfolio investor (FPI).

What are the risks involved in Tata Technologies IPO?

Like any other investment, investing in Tata Technologies IPO involves certain risks and uncertainties that may affect the performance and valuation of the company. Some of the key risks associated with Tata Technologies IPO are:

  • Regulatory and legal risks: The company operates in a highly regulated environment and is subject to various laws and regulations in different jurisdictions. Any changes or non-compliance with these laws and regulations may adversely affect the company’s business, operations, reputation, and financial condition.
  • Competitive and technological risks: The company faces intense competition from other players in the engineering services industry, both domestic and global. The company also operates in a dynamic and evolving technological landscape that requires constant innovation and upgradation of its solutions and capabilities. Any failure to keep pace with the changing customer needs, market trends, and technological developments may result in a loss of market share, customer satisfaction, and profitability.
  • Operational and financial risks: The company’s business depends on its ability to execute its projects efficiently and effectively within the agreed timelines, budgets, and quality standards. Any delays, cost overruns, errors, or defects in its project delivery may lead to customer dissatisfaction, disputes, penalties, or loss of contracts. The company also relies on its ability to manage its working capital, cash flows, debt obligations, and capital expenditure requirements prudently. Any disruption or deterioration in its financial performance or position may affect its liquidity, solvency, and growth prospects.

Conclusion

Tata Technologies IPO is one of the most awaited IPOs in the engineering services space. The company has a strong track record of growth, profitability, and innovation in its business. The company also enjoys a strong parentage, brand value, and client base that give it a competitive edge in the market. The IPO is expected to attract significant interest from investors who are looking for exposure to a high-quality engineering services company with a global presence and potential.

However, investors should also be aware of the risks and challenges that may affect the company’s performance and valuation in the future. Investors should do their own research and analysis before applying for the IPO and invest only as per their risk appetite and financial goals.

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