Tata Tech opens for subscription, GMP up 71%; should you subscribe to the issue-

Tata Tech opens for subscription, GMP up 71%; should you subscribe to the issue?

Tata Technologies IPO: The much-awaited Tata Tech IPO opens for subscription today and will close on Friday, November 24, 2023. The public issue will be the first IPO of a Tata Sons entity for almost 20 years after TCS in 2004. The bidding for anchor investors concluded on Tuesday, wherein the company collected Rs 791.05 crore. The price band for its public issue at Rs 475-500 per equity share of face value Rs 2 each. The engineering services firm, valued at over Rs 20,000 crore, plans to raise Rs 3,042.51 crore through the Offer for Sale (OFS), with Tata Motors, Alpha TC Holdings, and Tata Capital Growth Fund I participating as selling shareholders. Ahead of the public issue, Tata Tech shares’ GMP soared 71% over the upper end of the share price on offer.

The IPO comprises an Offer-For-Sale (OFS) with promoters offloading 60,850,278 shares aggregating up to Rs 3,042.51 crore. For potential investors, the bidding starts at a minimum of 70 equity shares, with subsequent bids in multiple lots of 30 equity shares each, with a maximum of 13 lots.

Incorporated in 1994, Tata Technologies (TTECH) is a global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEM) and their tier 1 suppliers. Over FY21-23, Tata Technologies’ revenue/ EBITDA/ net profit grew at a CAGR of 36.2%/ 45.9%/ 61.5% to Rs 4,414 cr/ Rs 807 cr/ Rs 624 cr, respectively, while EBITDA and net margins improved by 240bps (to 18.6%) and 409bps (to 14.1%), respectively.

Should you apply for the Tata Tech IPO?Geojit: Subscribe

“Tata Technology 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, Tata Technology 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.”

SBI Securities: Subscribe

“At the upper price band of Rs 500, Tata Technologies is trading at 32.5x FY23 P/E multiple. Its peers are trading at a relatively expensive valuation with FY23 P/E multiple of 108.9x for KPIT, 68.5x for Tata Elxsi and 40.1x for LTTS. We believe Tata Technologies is well placed to encash on the growth opportunities in ER&D space and looking at the relatively cheaper valuations, we recommend investors to ‘Subscribe’ to the issue.”

Motilal Oswal Financial Services: Subscribe

“We like Tata Technologies and recommend Subscribe given its niche presence, strong parentage and strategic partnership with marquee clients. This along with TTL’s focus on diversifying its offerings and clients, puts it in a sweet spot to tap huge outsourcing opportunity in ER&D space. The IPO is attractively priced at 29x 1HFY24 P/E (on annualized basis) which is at a discount to its peers. Tata Group is coming with an IPO after a gap of 19 years, catching investors fancy and hence could see listing gains as well.”

Swastika: Subscribe

“Tata Tech, a long-awaited IPO from the Tata Group, is here, and its name itself signifies trust among investors. The company has deep expertise in the automotive industry and differentiated capabilities to deal with emerging trends. It is a well-recognized brand with experienced promoters. Also, it has showcased strong financial growth in its past performance. There might be some concerns, like any other business, like dependence on a few top clients and third-party vendors, risk related to foreign exposure, and a competitive industry. Well, the IPO is coming at a very attractive valuation of 32.5x, and it’s a great opportunity for investors. Thus, one should surely apply for this IPO for listing gain as well as for long-term benefits.”

IDBI Capital: Subscribe

“Tata Technologies Limited range of services includes IT Consultancy, SAP implementation, CAD/CAM engineering & design consultancy. It generates 80% from services, 11% from products and 9% from Education as of FY23. Vertical wise the company generates majority of revenues from automotive (which is seeing healthy traction led by disruption). Apart from automotive, it will be key beneficiary of tailwinds in aerospace led by capacity expansion plans of aircraft manufacturers and MRO activities. Its revenue and PAT has grown at a CAGR of 36% & 62% over FY21-FY23. H1FY24 has seen 34% & 36% YoY revenue & PAT

growth and we expect robust earnings growth going forward. It is valued at 33x FY23 EPS vs peer average of 63x FY23 EPS. Hence, we recommend ‘Subscribe’.”

Mehta Equities: Subscribe

“We believe the Tata Tech IPO offer gives investors an opportunity to invest in a leading global engineering services company with deep expertise in the automation industry focused in Engineering Research & Development (ER&D). On Valuation per se at upper price band of Rs 500/- and based on annualized earnings and fully diluted post-IPO paid-up capital, the issue is asking for a Market Cap of Rs 20,283 crore with P/E of 29x on consolidated basis, which seems the issue is reasonably priced when compared industry peers which are trading 60x. Despite 100% OFS offer investors are keen to own the share based on group legacy. Considering all the parameters, we strongly advocate a good long term prospects for the company. Hence, we recommend investors to ‘Subscribe’ to the Tata Tech IPO offer with long-term perspective as well as strong listing gain due to investor friendly pricing given good room for upside.”

Master Capital Services: Subscribe

“Tata Technologies is a leading global engineering services company with deep expertise in the automation industry. The company posted consistent growth in revenue and margins in the last few years. Tata is known as investor friendly group and enjoys special preference amongst investors. Company has differentiated capabilities in new age automation trend EV’s. Investors can invest in the Tata group IPO with a long-term perspective.”

Stoxbox: Subscribe

“According to Zinnov, the company is currently the only player uniquely positioned to address the needs of educational upgradation in India with its global partner ecosystem and system integration capabilities. The company has a track record of sustained Revenue/EBITDA/PAT growth which grew at a CAGR of 85.4%/112.8%/160.9% during the FY21-23 period, respectively. On the upper price band, the issue is valued at a P/E of 32.51x based on FY23 earnings which we feel is fairly valued. We, therefore, recommend a ‘Subscribe’ rating for the issue.”

(The recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)