All there only bright spots in Tata Tech IPO?
MUMBAI : After nearly two decades, a company from the Tata group stable is gearing up for its stock market debut. This itself is enough to stir excitement. Enter Tata Technologies Ltd, the initial public offering (IPO) of which opens for subscription today.
It is entirely an offer for sale issue. The price band is ₹475-500 per share translating into an issue size of ₹3,042 crore at the upper end. True, the Indian information technology (IT) services sector is going through a rough patch now, but reports indicate that the grey market premium for Tata Technologies shares is high, suggesting strong demand for this issue.
But what about the growth profile? Tata Technologies, a global engineering research & development company, derives revenues from services segment (79% contribution to revenues in H1FY24) and technology solutions. It caters to manufacturing-led verticals such as automotive, aerospace, and transportation and construction heavy machinery. Among these, automotive is a key revenue generator with a contribution of 88% to services segment revenue in H1FY24.
The company boasts of a marquee global client base, but its revenues are highly dependent on clients concentrated in the automotive segment. Thus, a slowdown in the auto sector can hurt earnings outlook. Plus, it derives a large share of revenue from top five clients in the services segment (73% and 71% of revenue in FY23 and H1FY24, respectively), which also includes anchor clients Tata Motors and JLR.
Thus, it would be a problem if any of its top five clients decides not to renew their contracts. To diversify its revenue streams, one of the steps it has taken here is to collaborate with Airbus. Plus, Tata Technologies expects a major chunk of revenue to flow
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