TATA Technologies Limited IPO Summary | CA Rachana Ranade

Summary

In this comprehensive IPO summary of Tata Technologies Limited, CA Rachana Ranade explains the company's background, business model, and growth prospects. Tata Technologies, a subsidiary of Tata Motors, offers outsourced engineering and digital transformation services to global manufacturers, focusing on industries like aerospace, automotive, and consumer goods. The video covers key aspects, such as industry growth drivers, financial performance, strengths, risks, and a detailed comparison with competitors like KPIT Technologies and Tata Elxsi. Rachana also delves into the IPO details, offering a thorough breakdown for potential investors to understand the company’s potential and valuation.

Takeaways

• 😀 Tata Technologies Limited is a subsidiary of Tata Motors Limited, a part of the diversified Tata Group, and it is coming up with its IPO after almost 20 years since the last Tata Group company was listed.
• 😀 The company was founded in 1989 and is headquartered in Pune, India.
• 😀 Tata Technologies is an Engineering R&D company, not an IT company. It offers outsourced engineering services and digital transformation solutions to global manufacturing clients, specializing in industries like aerospace, automotive, industrial machinery, and consumer goods.
• 😀 The company provides end-to-end engineering services, from concept design to product delivery, for major global manufacturers.
• 😀 Tata Technologies has worked with prominent companies like Jaguar Land Rover and Tata Motors, delivering engineering solutions, product development, and digital transformation, including converting internal combustion engine vehicles to EVs.
• 😀 The engineering R&D outsourcing market is growing at a CAGR of 14-16%, and Tata Technologies is well-positioned to capitalize on the growth drivers of autonomous technology, connectivity, and electrification in the automotive sector.
• 😀 The company's revenue is primarily driven by the automotive sector (almost 80%), with other sectors like aerospace and industrial machinery contributing a smaller portion.
• 😀 Geographically, Tata Technologies has a diverse revenue base, with India contributing 35.14%, Europe 26%, and North America 19%.
• 😀 The company's financial performance shows consistent growth, with a 36.23% CAGR in sales, a 45.2% CAGR in EBITDA, and a 61.53% CAGR in net profit from 2021 to 2023.
• 😀 While the company has strong digital capabilities and impressive clients, there are risks related to dependency on a few large clients (e.g., Tata Motors) and sector-specific risks, particularly if the automotive industry faces a slowdown.
• 😀 The IPO is a 100% Offer for Sale (OFS), with Tata Motors and other shareholders selling their stakes, and there is no discount for Tata Motors' shareholders despite a 10% reservation for them in the offer.

Q & A

What is the main focus of Tata Technologies Limited?

Tata Technologies Limited is an engineering R&D company that provides outsourced engineering services and digital transformation solutions to global manufacturing clients. Their services include end-to-end solutions, from designing and developing products to delivering them efficiently, primarily for industries such as aerospace, automotive, industrial machinery, and consumer goods.

How is Tata Technologies Limited different from a typical IT company?

Unlike typical IT companies, Tata Technologies Limited is focused on engineering research and development (R&D) rather than information technology. It provides services that range from product design to engineering and development, especially for the automotive and aerospace sectors, rather than providing software or IT services.

What are the key industries Tata Technologies Limited serves?

Tata Technologies serves industries like aerospace, automotive, industrial machinery, and consumer goods. They offer engineering R&D services to clients in these sectors, helping them conceive, design, and develop better products.

What is the significance of Tata Technologies' connection with the Tata Group?

Tata Technologies is a subsidiary of Tata Motors Limited, which is part of the larger Tata Group, a highly diversified conglomerate. The connection with Tata Motors ensures that Tata Technologies is well-integrated within the group, and the company often serves Tata Motors and other Tata Group companies, providing engineering R&D services.

What examples are mentioned in the script that highlight Tata Technologies' work?

The script provides examples such as working with a Swedish global premium car manufacturer, Jaguar Land Rover (JLR), and Tata Motors. For instance, Tata Technologies helped Tata Motors convert an internal combustion engine (ICE) vehicle to an electric vehicle (EV), leading to the launch of Tata Tigor EV and Tata Tiago EV.

What is the projected growth of the engineering R&D services industry?

The engineering R&D services industry is estimated to grow at a compound annual growth rate (CAGR) of 14-16% over the coming years, with projections for 2022-2026 indicating a slightly higher growth rate of 14-17% CAGR.

What are the key growth drivers for the industry mentioned in the script?

The key growth drivers for the industry are A.C.E., which stands for Autonomous, Connected, and Electrification. These factors are particularly relevant in the automotive sector, as they include advancements in autonomous driving features, connected vehicles with infotainment and safety systems, and the rapid growth of electric vehicles (EVs).

What financial performance metrics are highlighted for Tata Technologies?

Tata Technologies has shown strong financial growth, with a 36.23% CAGR in sales from 2021 to 2023, a 45.2% CAGR in EBITDA, and a 61.53% CAGR in net profit. This indicates strong operational efficiency, as net profit growth has outpaced revenue growth. Additionally, profit margins have improved from 10.05% in 2021 to 14.14% in 2023.

What are the main strengths and risks associated with Tata Technologies?

Strengths include the company’s significant revenue from the automotive sector, strong digital capabilities, and a diverse client base including high-profile companies like Tata Motors and Jaguar Land Rover. Risks involve heavy dependence on a few major clients, sector dependence on the automotive industry, and foreign exchange fluctuations due to substantial revenue from international markets.

What is the valuation of Tata Technologies compared to its peers?

At the IPO price band of 500 rupees, Tata Technologies has a price-to-earnings (PE) ratio of 32.53. Compared to peers, KPIT Technologies has a lower PE ratio of 8.31, while Tata Elxsi has a much higher PE ratio of 61.55. The average price-to-book (PB) ratio for Tata Technologies is 6.79, which is also higher than KPIT but lower than Tata Elxsi.