The timing of the Tata Technologies Ltd.’s initial public offering, the first from Bombay House since Tata Consultancy Services Ltd. went public in 2004, couldn’t have been more apt.
Global spending on ER&D—the segment Tata Technologies operates in—is set to grow at a compounded annual growth rate of 10% over the next five years to $2.7 trillion, according to a Zinnov report. The automotive sector, which is the largest manufacturing ER&D vertical, is primed for a once-in-century disruption — courtesy the advent of Connected, Autonomous, Shared and Electrified (CASE) mobility. Global automakers, according to Zinnov, are likely to spend $1.2 trillion through 2030.
Tata Technologies, which derives nearly three-quarters of its revenue from the automotive sector, believes it is well-positioned to make the most of these shifting sands.
It is the only Indian firm, and among a handful globally, that services automotive clients in every stage of a product’s lifecycle—from the drawing board to the showroom floor. The Pune-based ER&D firm is expanding into aerospace, though anchor clients Tata Motors Ltd. and Jaguar Land Rover make up a third of the top line.
Promoter Tata Motors Ltd. stands to gain the most from the Rs 3,000-crore IPO—a pure offer-for-sale of 6.08 crore shares from Nov. 22-24 by the promoter and investors Alpha TC Holdings Pte Ltd. and Tata Capital Growth Fund I. At the upper end of the price band of Rs 475-500 apiece, Tata Motors stands to make a profit of at least 68 times on full subscription.
The shares are priced higher than the valuation at which a stake in the company was sold to an investor about a month ago.
Tata Motors offloaded 9.99% in Tata Technologies to TPG Rise Climate SF Pte, also an investor in Tata Motors’ electric mobility unit, and the Ratan Tata Endowment Foundation at Rs 401.8 apiece. While the management said that was “a deal between a willing buyer and a willing seller”, an investor will end up paying 25% more for each share in the IPO.
Still, Tata Technologies is the cheapest stock in the space, with a price-to-earnings ratio of 32.8-30.8X for the fiscal ended March 31. That’s at a discount o peers KPIT Technologies Ltd. (80.31X), Tata Elxsi Ltd. (61.55X) and L&T Technology Services Ltd. (37.47X).