Bumper IPO: Tata Tech Will Rival Another Tata Firm After Listing; Who? Find Out!

Tata Technologies IPO has made a bumper opening with the public offer oversubscribing as buying was logged across the investors' category. This IPO was much-awaited since it would be the first Tata Group-backed company to go public in 19 years. Tata Tech is expected to list in the first week of December on both BSE and NSE. After listing, the company is going rival against a host of midcap shares among which is also included another Tata firm.

Tata Technologies Vs Peers

It would be Tata Elxsi, the leading design and technology services provider for Automotive, Broadcast, Communications, Healthcare, and Transportation -- who would be a competitor of Tata Technologies in the midcap basket. Other peers are KPIT Technologies, Cyient and L&T Technology Services.

According to SBI Securities data, Tata Tech's market cap based on the upper price band comes around to Rs 20,283 crore. At the latest, Tata Elxsi's m-cap is at Rs 52,244.02 crore, KPIT's at Rs 39,624.75 crore, LTTS with m-cap of Rs 48,270.79 crore, and Cyient has an m-cap of Rs 20,095.91 crore as of November 22, 2023.

Meanwhile, the return-on-equity (ROE) of Tata Tech is at 23.7% by the end of FY23, versus Tata Elxsi's 37.45%, KPIT's 20.22%, LTTS' 26.36% and Cyient's 16.67% as of November 22, as per BSE's data.

Also, FY20-FY23 CAGR in revenue terms come around 15.7% for Tata Tech as against Tata Exlsi's 25%, KPIT's 16%, LTTS' 12.6% and Cyient's 10.8%.

The CAGR of PAT stood at 35.4% in Tata Tech compared to 43.4% of Tata Exlsi, 37.5% of KPIT, 14.5% of Cyient and 12.6% of LTTS.

Furthermore, the price-to-equity ratio of Tata Tech is seen to be the lowest compared to peers, at a staggering 28.8x, as per Ashika Research. As of November 22, data from BSE showed that Tata Exlsi's P/E is at 66.55x, KPIT's at 131.35, LTTS at 40.65x, and 42.94x P/E of Cyient.

After listing, Tata Tech may outrun Cyient, however, reaching the heights of its other Tata sibling will take some time. Tata Exlsi is currently the highest midcap tech company in terms of market share among its peers.

Tata Technologies Listing Scenarios:

In its IPO note, Emkay Research said, "The company's growth trajectory remains slower than peers over FY16-23, but it has improved in the last 3 years on account of traction in select accounts. Weakness observed in a large client in H1FY24 due to near completion of the large full vehicle development projects may weigh on near-term performance and, in our view, IPO valuation has captured it adequately. At the upper end of the price band, Tata Tech is being valued at ~32x its FY23 EPS vs. its peers such as LTTS (~40x its FY23 EPS), Tata Elxsi (~69x its FY23 EPS), KPIT (~110x its FY23 EPS), and CYL (~37x its FY23 EPS)."

Based on business valuations (Implied market capitalization, post listing), at the upper end of the price band of Rs500/share (market cap of ~Rs203bn), Emkay look at three scenarios:

- Scenario 1: Attractive valuation: Assumptions of a revenue CAGR of 18% from FY23-FY26 (business mix shift towards services) with EBITDA of 20%.

- Scenario 2: Fair valuation: Assumptions of a revenue CAGR of 14% from FY23-FY26 (business mix stable) with EBITDA remaining stable at 18.6%.

- Scenario 3: Expensive valuation: Assumptions of a revenue CAGR of 10% from FY23- FY26 (business mix shift towards technology solutions) with EBITDA of 17.5%.

Tata Technologies IPO Latest Subscriptions:

Tata Tech is a leading global engineering services company that offers product development and digital solutions (including turnkey solutions) to global OEMs and their tier-1 suppliers. The company's offerings focus on manufacturing-led verticals - Automotive (75% of the revenue), Aerospace, and transportation and construction heavy machinery (TCHM). Its areas of expertise include product engineering and manufacturing engineering in the mechanical domain (such as body engineering), while it is adding capabilities in the software and embedded engineering segments.

On the first day of the IPO (November 22), Tata Tech oversubscribed by 6.54 times against its offered size. Non-institutional investors (NII) aka HNIs portion oversubscribed by a huge 11.69 times, while Retail Individual Investors (RIIs) portion subscribed by 5.42x. Also, a reserved portion for employees and Tata Motors shareholders logged subscriptions of 1.10x and 9.30x respectively. Lastly, the qualified institutional buyers (QIBs) portion also subscribed by 4.08x.

The company IPO size is worth Rs 3,042.51 crore, and it purely offer for sale. The price band for the IPO is fixed at Rs 475 to Rs 500 per share having a face value of Rs 2 each. The bid lot size is 30 Equity Shares and in multiples thereof. The IPO will close on November 24.

Tata Tech IPO is expected to list on December 5, 2023.

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