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Diversification to the rescue

TATATECH’s headline revenues (-3.3% vs. JMFe: -2.4%) missed expectations. Underlying construct was not bad though. Core services revenues (flat QoQ) were in-line. Miss was led by sharper than expected decline in Tech Solutions (-14% QoQ vs JMFe: -10), which should recover starting 2Q. TATATECH’s 4Q, and FY25, performance underscores the effects of its diversification efforts. In 4Q, weakness in Auto (-3% QoQ) was offset by sustained momentum in Aerospace (+8% QoQ). In fact, Aero revenues have almost doubled in FY25. Within Auto, TAMO’s resilience balances challenges facing global OEMs. For FY25, 12% YoY growth ex-Vinfast helped absorb the planned ramp-down in Vinfast. JV with BMW – a USD 500mn TCV opportunity - though not visible on the topline, helps de-risk earnings. These should help TATATECH navigate the uncertain demand environment. It can leverage BMW relationship to make further in-roads in other German OEMs, as they look to offshore more – a prospect looking increasingly probable. 4Q miss, especially Tech Solutions, is flowing into 2- 3% cut to our FY26-27E USD revenue estimates. Faster than expected ramp-up in BMW JV however limits changes to FY26E EPS (+2%). Maintain BUY with INR 850 TP.

* 4QFY25 – revenue miss, PAT beat: TATATECH reported 3.3% cc QoQ decline in revenues, net of 0%/-14% growth in Services/Tech Solutions. Within Services, Auto declined 3% QoQ while non-Auto grew 5%, led by Aerospace (+8%). Within Tech Solutions, product revenues declined 7.7% QoQ while Education revenues dropped 20% QoQ. Seasonal weakness in Product and delay in infrastructure (labs) readiness impacted Education business. EBITDA margin improved 40bps QoQ to 18.2%, ahead of JMFe: 17.5%. Higher offshoring (+100bps), favourable FX and improved pyramid aided margins. Higher other income, aided by some non-recurring income such as R&D expense credit and FX, and 7x jump in profit share from BMW JV (INR 365mn from INR 50mn) helped drive 12% QoQ growth in PAT. PAT came in at INR 1,889mn, 11% ahead of JMFe: INR 1,702mn.

* Outlook - cautious optimism: TATATECH indicated continued caution among Auto clients. This has impacted decision making. Its pipeline however remains healthy, and it expects conversion rates to improve as uncertainty lifts, likely towards Q1-end. Outlook in Aerospace hwoever remains strong, as TATATECH expands footprint beyond Airbus to its supply-chain providers. JV-with BMW is progressing ahead of expectations. Headcount is already approaching 1,000 – originally envisaged towards 2025-end. TATATECH believes this could be a pre-curson to other German OEMs offshoring to India, as they navigate twin challenges of Chinese competition and US Tariffs. Overall, it expects sequential growth to progressively improve through the quarters. In Tech Solutions, the company believes growth to gradually recover (likely Q2) and build momentum through 2H. Margin outlook remains stable.

* EPS changes -3% to +2%; Retain BUY: We have lowered FY26E USD revenue estimate by 2%, driven entirely by lower Tech Solutions. Our Services growth estimates are unchanged at 2.8%, given an in-line quarter. Higher profit share from BMW offsets the impact on EPS. We believe peak-pessimism is priced in. BUY with INR 850 TP.

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