What you must know about Tata Technologies IPO?

Tata Technologies IPO will mark an IPO from the Tata group after a gap of 19 years. TCS was the last Tata group IPO in 2004. Tata Technologies is a technology company that works closely with businesses across automotive, aerospace, industrial heavy machinery, and other sectors. The idea is to use their accumulated experience stack to conceptualize, develop and realize safer, more sustainable products and experiences that to improve the lives of people. Tata Technologies not only partners with its key clients in delivering discrete outcomes, but goes all the way to offering end-to-end product development. Tata Technologies is all about the big opportunity lying at the convergence of digital technology and traditional engineering. Tata Technologies is a global outfit which brings together diverse teams with varying skill sets to collaborate and solve complex engineering problems.

In the automotive space, Tata Technologies empowers auto manufactures to design, engineer and validate products for a greener, safer, and more sustainable world. It offers software defined vehicle solutions (SDV), end to end EV engineering solutions, Turnkey full vehicle development, product benchmarking solutions, embedded engineering solutions, testing, model based engineering support and digital transformation systems. Tata Technologies also works closely with the industrial heavy machinery segment and the aerospace segment to offer solutions that make products safer and greener. Under the aerospace vertical, Tata Technologies offers aerospace MRO solutions, aerospace engineering solutions, Factory Magix, AMP.IOT etc.

The entire IPO of Tata Technologies Ltd is an offer for sale (OFS), so there would be no fresh funds coming into the company. The OFS portion is being entirely offered by the promoter shareholders and the investor shareholders. The IPO will be lead managed by JM Financial, Citigroup Global Markets and BOFA Securities. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the Tata Technologies IPO issue

Here are some of the key highlights to the public issue of Tata Technologies IPO.

• Tata Technologies IPO has a face value of ₹2 per share and the price band for the book building IPO has been set in the band of ₹475 to ₹500 per share. The final price will be discovered within this band through the process of book building.
   
• Tata Technologies IPO will be purely an offer for sale (OFS), with no fresh issue component to it. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• The offer for sale (OFS) portion of the Tata Technologies IPO comprises the sale of 6,08,50,278 shares (608.50 lakh shares), which at the upper price band of ₹500 per share will translate into an offer for sale (OFS) size of ₹3,042.51 crore.
   
• The OFS selling will be by the promoter shareholders of the company and the investor shareholders. Out of the 608.50 lakh shares offered in the OFS, the promoter shareholder (Tata Motors) will offer 462.75 lakh shares while the investor shareholders comprising of Alpha TC Holdings (97.17 lakh shares) and Tata Capital Growth Fund I (48.58 lakh shares). There are only 3 sellers in the OFS.
   
• Since there is no fresh issue component, the overall IPO of Tata Technologies Ltd will comprise of the issue and sale of 6,08,50,278 shares (608.50 lakh shares approximately), which at the upper price band of ₹500 per share will translate into total IPO issue size of ₹3,042.51 crore.

Check Tata Technologies IPO GMP

Promoter holdings and investor allocation quota

The company was promoted by the Tata Motors Ltd, a global giant in automobiles manufacturing, which also owns global brands like Jaguar and Land Rover. Tata Motors along with its Tata Motors Finance Ltd, constitutes the promoter group of Tata Technologies. Ltd. Currently the promoters of Tata Technologies Ltd 66.79% stake in the company, which will get diluted post the IPO to 51.79%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The stock of Tata Technologies Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota and the quota for TML shareholders. Employees may get a discount to the IPO price, but that would be communicated separately in the application forms. The anchor portion, will be carved out of the QIB portion above.

Lot sizes for investing in the Tata Technologies IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Tata Technologies Ltd, the minimum lot size is 30 shares with upper band indicative value of ₹15,000. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Tata Technologies Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Tata Technologies IPO and how to apply?

The issue opens for subscription on 22nd November 2023 and closes for subscription on 24th November 2023 (both days inclusive). The basis of allotment will be finalized on 30th November 2023 and the refunds will be initiated on 01st December 2023. In addition, the demat credits are expected to happen on 04th December 2023 and the stock will list on 05th December 2023 on the NSE and the BSE. Tata Technologies Ltd will be special for more than one reason. It will test the appetite for Tata group shares in an IPO after a gap of nearly 19 years. Also, being a large size IOP of Rs3,042.51 crore, the investor appetite for large sized issues would also be tested. Let us now turn to the more practical issue of how to apply for the IPO of Tata Technologies Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Tata Technologies Ltd

The table below captures the key financials of Tata Technologies Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Tata Technologies Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been steady and also growing. That is evident from the expansion of the revenue pool in consonance with the growth in the automotive, aerospace, and industrial machinery business. With a focus on green and futuristic transformation, the company looks poised to expand revenue growth further.
    
2. The PAT margin at above 13% and the ROE at above 20% are very attractive by comparable technology engineering company standards. Even the return on assets is robust at 12% and this allows the company to justify higher P/E ratios even in the future on a sustained basis.
    
3. The company had below average sweating of assets, as measured by the asset turnover ratio, but that is not too relevant to this business. Here the net margins and ROE would matter more, especially at a time when IT margins are under pressure.

Let us turn to the valuations part. On the latest year standalone EPS of ₹15.37, the stock is available in the IPO at a P/E of 32.5 times, which is attractive if the current growth rate can be sustained in profits and improved up on in the future. However, on a weighted average EPS basis, the P/E is slightly higher at 40.8X earnings. That should sober further if you consider forward earnings. The robust net margins and the ROE should help support the valuations at current levels for the stock.

Let us also look at some of the qualitative aspects of the stock, which will have a bearing on the IPO price performance. The company brings to the table deep expertise and insights into the automotive industry; both from a product standpoint, requirements standpoint and the availability of IT solutions stack. Also, its focus on EVs should make it more valuable. Its digital capabilities are also boosted by proprietary accelerators. Tata Technologies has a client base stretching across OEMs and new energy vehicle companies globally. Above all, the brand of the Tata group will be an added advantage for the stock. There is also likely to be a scarcity value to the stock due to a Tata group IPO after 19 years. Investors can seriously look at this IPO to participate in a true blue international tech engineering company with a global footprint. It can be a good bet for the long run.