Tata Tech to go public, first for group firm in nearly 20 years

Tata Technologies, which counts Jaguar Land Rover and Tata Motors as its major clients, filed a draft prospectus with the Securities and Exchange Board of India (Sebi), proposing an IPO of up to 95.71 million shares as a pure offer for sale by its current promoters and shareholders, including Tata Motors, Alpha TC Holdings Pte, and Tata Capital Growth Fund I. The fundraising proceeds will go entirely to the selling shareholders, as Tata Technologies is not offering any new shares for sale.

Tata Motors owns a 74.69% stake in the company, while Alpha TC Holdings and Tata Capital Growth Fund I have a 7.26% and 3.63% stake, respectively.

The pricing for the IPO is yet to be disclosed, but listed peers in the engineering research & design (ER&D) sectors such as KPIT Technologies, Tata Elxsi and L&T Technology Services could provide a potential benchmark.

Tata Motors, which announced its plan last December to take Tata Technologies public, will benefit from the cash flow the IPO will generate to achieve its debt reduction goals.

“The IPO proceeds would aid in further deleveraging Tata Motors’ balance sheet. While the company is still likely to miss its net-zero automotive debt targets, it will aid in unlocking value in its subsidiaries,” Jay Kale, an analyst at Elara Capital said.

The percentage dilution will depend on the agreed-upon price between the company and its bankers.

Tata Technologies, which was primarily focused on serving as a captive outsourcing arm for Tata Motors in its initial years, has since been gradually diversifying away from it. Over the last few years, the company has focused on new-age energy electric vehicle (EV) makers globally, besides venturing into segments such as aerospace and other transportation sub-segments.

Tata Technologies is a strategic supplier to plane maker Airbus. It also stands to benefit from the strong relationships Air India has with Airbus and Boeing on the back of its large aircraft orders.

Industry experts said Tata Tech is well-positioned to leverage the technological shifts driving the automotive sector: autonomous, connected, electric, and shared mobility.

“As these technologies increase the software that goes into vehicles and the possibility of delivering this software remotely, it plays to the strength of the talent pool in India, which is also a significant market on its own”, an IT industry expert said, declining to be named.

Tata Technologies’ non-captive account contribution has risen to 64% in the year ended 31 March 2022 from 46% in FY20. The company reported a 16% growth in revenue to ₹3,052 crore for the nine months ended 31 December, with service segment revenue contributing 88% of the total revenue, according to Krishna Raghavan, founder of UnlistedKart, a platform to transact shares of privately held companies.

“As part of its strategy to cater to the product engineering and digital requirements of the global aerospace and defence sector, Tata Technologies recently inaugurated its innovation centre in Toulouse, France. With a workforce of over 11,000 employees spread across 18 global delivery centres, the company has been instrumental in driving innovation and catering to the digital and product engineering requirements of various industries,” Raghavan said.