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TATATECH Plant Visit: Showcasing silverware

In our recent visit to TATATECH’s Pune campus (Lab/Digital Studio), we got a first-hand glimpse of the breadth and depth of TATATECH’s offerings. These span its full vehicle capabilities, product benchmarking, battery design, digital engineering and Software Defined Vehicle (SDV). Apart from its engineering capabilities, TATATECH is deeply entrenched in automotive value chain across sourcing (1,200+ global sourcing partners), costing (value engineering, benchmarking), testing (global physical testing partners e.g MIRA, ARAI) to name a few. We believe such holistic proposition will resonate even more with global OEMs in today’s budget/cost constrained environment. Recent deal wins are cases in point. Besides, the company has progressed well on key strategic priorities. BMW JV is on track for 2HFY25 kick-off. Partnership with Agratas, Tata Group’s global battery business, has already yielded joint deals from two global OEMs. Its work with Airbus on digital manufacturing has won appreciation from the client, paving the way for incremental opportunities in the product engineering space. Its marketing outreach – presence in Germany’s ELIV, LA’s CES and Barcelona’s MWC – should help amplify its competencies. After c.10% correction YTD, TATATECH is now the cheapest stock among the three auto-focussed ER&D players – KPIT (KPIT IN; BUY; TP: INR 2,140) and Tata Elxsi (ELXSI IN; NOT RATED) being the other two. With Vinfast decline behind and new deal ramps ahead (BMW-JV, Agratas etc.), we believe current levels offer a good entry point to play the broadening TAM-led growth narrative. We reiterate BUY with INR 1,250 TP (unchanged).

* Plant visit showcases: We visited TATATECH’s Axia labs for a tour of its mechanical ER&D offerings. TATATECH’s full vehicle proposition encompasses every stage of a vehicle development barring actual production. Some of the pioneer work it has done includes an industry-first carbon+metal body structure for a Swedish OEM, automatic batteryswapping for a Chinese OEM, ICE to EV conversion for TAMO. It augments its engineering capabilities with partner ecosystem across automotive value chain – 1,200+ sourcing partners, physical test partners etc. These help OEMs to shrink time-to-market, lower cost and increase localisation. Its work with Agratas involves battery-pack design, BMS and validation. With couple of deals in the bag, revenues have already started trickling in. Digital studio visit showcased entire gamut of Digital Engineering Services (DES), smart manufacturing, embedded offerings (SDV), and multiple AI/Gen-AI applications. For Airbus, it has created the entire digital journey (twin) of the aircraft development. Its SDV offerings are middleware integrations, OTA integrations etc.

* Time correction likely done; BUY: TATATECH’s FY24 services growth, ex of top-3 clients, was 37% YoY (Source: 2024 AR), reflecting revenue diversification. Its recent partnerships – Agratas (battery), Intel, Arm, BMW – promise to expand addressable market further. Vinfast’s 42% YoY decline in FY24 masked the headline growth. With Vinfast decline largely behind and growth triggers ahead – BMW-JV, Agratas ramp, recoup of revenues from project which slipped in Q1 – we see sequential growth to acclerate. c.10% correction YTD has wiped-off any premium over peers. That’s a good opportunity to BUY

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