Tata Tech IPO makes a killing on D-Street; but have investors weighed the risks too?
As of Tuesday, the IPO was subscribed a whopping 6.5 times, with the global engineering services provider getting bids for 29.5 crore shares, against 4.5 crore shares on offer.
Analysts across the board have given a thumbs up to the IPO asking to subscribe to it or buy it post listing and have several positive reasons backing the same.
However, every business has pros as well as cons, and the stock market rulebook says investors must weigh everything before buying or selling shares.
So, while all know why Tata Technologies stock should be bought, one also needs to keep in mind the potential risks that the company may face in its business and thereby earnings growth.
Concentrated Business
Among the risks cited by the company itself in its draft prospectus and a few by the analyst community, one of them is high concentration of revenue among few clients.
Tata Technologies receives 60% of its revenue from just the top five clients.
Further, it receives around 35% of its revenue just from its anchor clients, which comprise of Tata Motors and JLR, who are related parties.
Infact, Tata Tech receives around 70% of its revenue in foreign currency terms,which is subject to exchange rate fluctuation.
If one looks industry wise, then automotive revenue attributable to the services segment constitutes 88% of the total revenue for the company.
One needs to note here that the automotive industry, in general, is cyclical and can be affected by a potential economic slowdown.
New Energy Dependency
One of the other risks cited by the company in its draft prospects was its dependence on new energy vehicle companies for future revenue.
“Uncertainties about their (Start-ups) funding plans, future product roadmaps, and ability to
