IPO- Initial Public Offering- an opportunity that lets you get your hand on an investment opportunity that may stand the test of time. Recently, this opportunity was given by the Tata Group through shares of Tata Technologies Limited.
The company offered 6,08,50,278 shares with a price range of Rs.475-500 per share and concluded the Tata Tech IPO on 24 November 2023. Eventually, shares of Tata Technologies witnessed a blockbuster Dalal Street debut with overall gains reaching up to 180% over the issue price, thus taking the per share price to an intraday high of Rs.1400 as of 30th November 2023 on both the stock exchanges.
Investors who got their hands on the stock in time bagged a significant profit during the initial days, but now the question is- Should you still hold the shares in your portfolio or sell it and book the profit?
Identifying stocks that will stand the test of time and market volatility in the securities market. For this, we need to focus on the fundamentals of the company in question. So, to answer the question, let’s dive deeper into the world of Tata Technologies Limited.
Company profile:
Tata Technologies Limited, a subsidiary of Tata Group, boasts over 150 years of service in India and excels globally in design engineering and IT services outsourcing. With a strong focus on automotive expertise and services extending to aerospace, transportation, and construction heavy machinery (“TCHM”), the company leverages manufacturing domain knowledge. It supports clients’ digital transformation in product development, manufacturing, and customer experience management. The business segments include
- Digital Enterprise Solutions (DES)
- Engineering and Product Development Services
- Digital Manufacturing Solutions
- Simulation and Testing Services
- Training and Consultation Services that cover areas like product lifecycle management, virtual prototyping, and skill development.
Financial performance of the company:
Over the past five years, Tata Technologies has exhibited positive business performance across sectors, which is evident in the following statistics-
- From FY21 to FY23, the company achieved a compounded annual growth rate (CAGR) of 36% in revenue and 62% in profit after tax. This growth aligns with the expansion of the revenue pool, particularly in the automotive, aerospace, and industrial machinery sectors.
- In FY23, it recorded revenue of Rs.4,414.18 Cr, surpassing FY22’s Rs.3,595.57 Cr.
- The FY22-23 profit and loss statement reveals consistent growth.
- FY23 operations revenue was Rs.4,418 Cr, a notable increase from Rs.3,529 Cr in FY22.
- ROE (return on equity), the net profit generated as a percentage of the shareholder’s money, has increased over the last three years to reach the current average of 23.5 as of March 2023.
For a company with that legacy as Tata Technologies, the contributing factors are the company’s growth and sectoral progress. Since Tata Tech is an engineering research and development (ER&D) company offering a range of digital and automotive solutions, let’s analyze the scope of this and related sectors.
Sectoral Analysis:
Tata Technologies primarily operates in automotive engineering and solutions. The global automotive industry faces disruption from digitization, automation, electrification, and new business models introduced in the digital mobility space. To adapt, existing automotive firms are increasing R&D investments. The potential outcomes of such shifts include driverless cars, a transition to Electric Vehicles (EVs), improved design components, and home automation.
Tata Technologies, a company aligning with this sectoral shift, earned Rs.3131.47 crore from automotive services in 2023. The automotive sector contributed 64.5% in FY22, rising to 75% in the first nine months of FY23.
Additionally, the ER&D spend outsourced to third-party service providers is expected to grow at an 11-13% CAGR globally between 2022 and 2026, making Tata Technologies crucial for companies seeking expertise in ER&D. The ER&D Segment is projected to grow at 14-17% CAGR over the next decade, with software development and verification services in the automotive market seeing faster growth.
Overview:
Though the company has a vast industry coverage and has seen positive growth over the past few years, intense competition in the market for engineering services could affect the pricing and adversely affect the company’s financial condition, business, and results of operations.
But, despite the risk factors like heavy reliance on its top automotive clients, expansion into educational business, and anticipation of future revenue from new energy vehicle companies, primarily startups, the company recorded an average EPS (earnings per share) of Rs.12.23. Moreover, the value of the share in the IPO, which was reasonably priced, reflected the Tata legacy at the PE ratio of 32.50X compared to 59.78X of its peers. It is believed by many experts, considering all the given factors, that investors can rely on this opportunity for their medium and long-term investment goals instead of giving up on the stock early. However, before deciding your next move, it is always advised to consult with a stock market advisory or a financial advisor for a more informed decision.
