Impact of Increase in Tata Motors Share Price on Tata Technologies IPO

In the last few days, the stock price of Tata Motors has spiked sharply. One view is that the Tata Technologies IPO, proposed as an OFS, is likely to happen soon. Tata Motors is one of the selling shareholders in the proposed Tata Technologies IPO.

Price movement in Tata Motors

Captured in the table below is the price moves of Tata Motors over the last 33 trading sessions when the news of the Tata Technologies first came out. During these 33 sessions, the stock of Tata Motors has almost moved from its 52-week low to its 52-week high.

Just to give a picture, there has been a sharp spike in the price of Tata Motors since the news of the Tata Technologies OFS first came out. The stock price of Tata Motors has spiked from Rs412.50 to Rs515.75 in a span of just 33 trading sessions, yield a return of 25% on the stock. That is a lot of value creation on a stock that is one of the heavyweights of the Tata group and also of the Indian markets. The big question is; will Tata Motors gain big time from the Tata Technologies IPO and how it will impact the valuations. The second question is, how this price move in Tata Motors is reflective of the pricing and valuation that Tata Technologies will get at the IPO.

All about the Tata Technologies IPO

Tata Technologies had already filed draft prospectus with SEBI and the same has already been approved. The entire IPO of Tata Technologies will be by way of an offer for sale (OFS). There will be no fresh fund raising through the IPO but will only give an exit to the early investors which includes Tata Motors. Tata Technologies is broadly into product engineering and digital services and is currently owned by Tata Motors Ltd. The parent company of Tata Technologies was formerly called TELCO and is one of the largest auto companies in India, which includes JLR under its fold. Tata Technologies is a leading global engineering service company offering product development and digital solutions. This includes turnkey solutions, to global OEMs (Original Equipment Manufacturers) in the field of Automobile, Industrial Heavy Machinery and Aerospace. JLR happens to be one of the major clients of Tata Technologies.

Details of the ownership of Tata Technologies and OFS

Currently, Tata Technologies has 18 global delivery centres (GDC) and employs over 11,000 employees across its units. In terms of ownership, Tata Motors has  74.69% stake in Tata Technologies; while Tata Capital Growth Fund I own 3.63% and Alpha TC Holdings Pte Ltd has 7.26% stake in Tata Technologies. The IPO of Tata Technologies is a pure offer for sale (OFS) and entails sale of 9.57 crore shares, representing 23.56% of the total capital of the company. Since it is an OFS, there will be no change in ownership nor any EPS dilution.

Out of the total OFS of 9.57 crore shares, Tata Motors will sell up to 8.11 crore shares representing 20% of its holdings. In addition, Alpha TC Holdings will sell up to 97.2 lakh shares and Tata Capital Growth Fund I will sell up to 48.6 lakh shares in Tata Technologies Ltd. Tata Motors current owns the stake at an average cost of Rs7.40 and based on GMP indicators the company will make, not less than a 50 bagger on its purchase price. It is this enthusiasm that is rubbing off on the stock of Tata Motors and is likely to have a salutary impact on the valuation of Tata Technologies too.

Brief on the business of Tata Technologies

Tata Technologies broadly operates across 2 key segments. The services business is the primary vertical and entails providing outsourced engineering services and digital transformation services to global manufacturing clients. It accounts for three-fourth of the total revenues of Tata Technologies. This complemented with their second vertical of Technology Solutions. They primarily sell product lifecycle management (PLM) software, and solutions, and provide value-added services such as consulting, implementation, systems integration, and support on behalf of other originators. Surely, it means exciting times for Tata Technologies and for Tata Motors too.