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Driving Innovation in the Automotive Realm

Tata Technologies Ltd. (TTL), established in 1994, a subsidiary of the Tata Motors, is a prominent global engineering services company. Specializing in product development and digital solutions, including turnkey solutions, TTL serves global original equipment manufacturers (OEMs) and their Tier 1 suppliers. The key business segments include Services (contributes ~80% of FY23 revenue) and Technology solutions (contributes to ~20% of FY23 revenue). As of September 30, 2023, they operate 19 global delivery centres distributed across North America, Europe, and the Asia Pacific region. The client portfolio includes anchor clients Tata Motors and JLR, along with prominent traditional OEMs like Airbus, McLaren, Honda, Ford, and Cooper Standard.

• The global automotive ER&D spend is currently $180bn, projected to grow at a 7% CAGR to reach $238 bn by 2025, with digital engineering spend expected to increase from $46bn in 2022 to $85 bn by 2026 at a 16% CAGR.

• The growth is driven by increasing demand for autonomous and connected technologies, electrification, and widespread adoption of digitalization and technology-enabled skills in the automotive industry.

• Partnering with Airbus and Air India, TTL focuses on aircraft conversions (passenger to freight) and using digital capabilities to shorten development time.

• Revenue from operations grew at a CAGR of ~36% to Rs. 4,414cr over FY21-23 primarily led by services segment, notably driven by increased revenue from automotive sector.

• EBITDA and PAT exhibited a CAGR of 46% and ~62% respectively over FY21-23 led by better operating leverage, including sustained high utilisation levels, improving cost structures, pyramid corrections and a favourable mix of onshore and offshore delivery.

• On margins front, there has been a growth of 240 basis points (bps) in EBITDA margin and 410 bps in PAT margin since FY21, reaching 18.6% and 14%, respectively, in FY23, supported by robust growth and profitability.

• TTL maintains a healthy balance sheet position with 3-year average RoE and RoCE at 17% and 20% respectively over FY21-23.

• At the upper price band of Rs.500, TTL is available at P/E of 28.8x (FY24E annualised EPS), which appears to be reasonably priced compared to peers. Its strong brand legacy, extensive automotive expertise, diversified global presence and strategic partnership with industry leaders provide a distinct advantage that aligns well with its growth ambitions. Hence, we assign a “Subscribe” rating on a medium to long-term basis.

Purpose of IPO

The IPO consists of only OFS (Offer for Sale) of Rs.3,043cr. The issue consists of only offer for sale (OFS) wherein the selling shareholders will divest up to 60,850,278 equity shares. Although the company will not receive any proceeds from this offer, the prime purpose of the issue is to achieve the benefits of listing shares on stock exchanges.

Key Risks

• Revenues are highly dependent on clients concentrated in the automotive segment (~69% of sales in 6MFY24).

• ~ 46% of revenue is derived from Anchor clients (i.e., Tata Motors and JLR) in 6MFY24.

• ~65% of revenues are in foreign currencies, indicating a forex risk.

• Increasing competition from other players.

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SEBI Registration Number: INH200000345