TATA TECHNOLOGIES IPO APPROVED BY SEBI : FIRST TATA IPO IN 19 YEARS

One of the most awaited IPOs this year is Tata Technologies, which is a subsidiary of Tata Motors. Every investor is looking forward to it and there has been an update on the Tata Technologies IPO, so let us look at the company's details and what is the latest update. 

The IPO details

Tata Technologies filed for IPO papers with SEBI in March 2023. As the DRHP, the issue will be an Offer For Sale (OFS), where the promoters and existing shareholders will be offloading the shares - 9.57 crore shares which represent 23.6% (approx) of its paid-up share capital.

The parent company of Tata Technologies is Tata Motors. They will offload a 20% stake in the company. Other shareholders who would offload shares are - Alpha TC Holding Pte will offload nearly 2.4%, and Tata Capital Growth Fund will offload 1.2%. 

As per sources, the issue size will be around Rs 4,000 crore, with 35% reserved for retail investors, 50% for QIB, and 15% for non-institutional investors.

Tata Technologies business

The company was acquired by Tata Group in February 2001. Technologies is an engineering services company with a revenue scale of $500 million. They are engaged in manufacturing-led verticals such as automotive (75% mix), aerospace, and transportation & construction Heavy Machinery (TCHM). It 

As per the data available, the company has underperformed in the ER&D industry’s revenue growth over FY16-23 (annualized 9MFY23) with 3.5% CAGR against 9% industry CAGR. However, excluding the revenue from anchor clients, the CAGR stood at 18%.

Key service offerings are as below:

• Product Data Management: including implementation of PLM solutions for clients and also helping them reduce the gap between physical and digital product development.
• Smart Manufacturing: helps manufacturing companies adopt Industry 4.0 technologies across their product development value chain and manufacture competitive products while optimizing cost and improving productivity.
• Enterprise Resource Planning: including implementation and transformation solutions that are designed to help organizations seamlessly implement, migrate and upgrade to future-ready platforms
• Customer Experience Management: including solutions to manage a client’s entire omnichannel customer journey offering the flexibility of virtual product interaction with the convenience of buying products online, enabled through digital applications and mobile apps.
• Application Management: including services of enterprise application management cutting across PLM, ERP, MES, legacy applications, digital applications, and analytics applications.
• Data Intelligence: including implementation of analytics solutions across the manufacturing enterprise. This includes the use of AI/ML to solve business problems.
• Process Automation: including optimization of enterprise processes through automation and simplification. 

The latest development

As per media reports, the market regulator, SEBI, has approved the IPO of Tata Technologies. Once it opens for subscription, it will be the first public issue from the Tata group stable since Tata Consultancy Services in July 2004. 

Views:  This is sentimentally positive and is value unlocking event for Tata Motors. We ascribe a fair value of ~Rs 20,000 crore for Tata Technologies. Resultant value accruing to Tata Motors will be ~Rs 15,000 crore for ~75% stake and an addition of Rs 40/share to our target price calculation. The proceeds from OFS i.e. ~Rs 4,000 crore will also help the company reduce debt on its balance sheet and it gels well under the broader vision of going net automotive debt free by FY25E.

Impact: Positive