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Review By Dilip Davda on November 16, 2023

•    TTL is a Tata group arm in in ER&D segment with major OEM customers. 
•    It has posted constant growth in its top and bottom lines for the reported periods. 
•    Based on annualized FY24 earnings, the issue appears reasonably priced.
•    Tata group enjoys "investor friendly" tag by investors across the board. 
•    Investors should not miss this opportunity of grabbing Tata group shares at offered price. 

PREFACE:
After a gap of 19 yrs. and 5 months of TCS IPO in 2004, one more Tata group company is coming out with its maiden IPO by way of an Offer for Sale (OFS). This issue has become the talk of the town ever since it filed its DRHP. And without any pricing indications, it also made some marks in a non-regulated and unofficial Grey Markets. Considering the entire proceeds going to sellers of the equity shares, TTL indicates that it is trying to explore listing benefits and provide exit to some its stakeholders i.e. Tata Motors, Alpha TC Holdings, and Tata Capital Growth Fund, and is not in need of funds. 

ABOUT COMPANY:
Tata Technologies Ltd. (TTL) is a part of the Tata Group, which has been recognized as the most valuable brand in India by Brand Finance, a leading international brand valuation agency (Source: Brand Finance India 100 2022 report). As a subsidiary of Tata Motors Limited ("TML"), it benefits from long-term relationships with both TML and JLR. 

TTL is a leading global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers ("OEMs") and their tier 1 suppliers (Source: Zinnov Report). The company endeavors to create value for clients by helping them develop products that are safer, cleaner and improve the quality of life for their end-customers. It has deep domain expertise in the automotive industry and leverage this expertise to serve clients in adjacent industries, such as in aerospace and transportation and construction heavy machinery ("TCHM"). As a global organization, it brings together diverse teams from different parts of the world with multiple skill sets to collaborate in real time and solve complex engineering problems for clients.

In a world that is becoming increasingly complex, with shortening product innovation timelines and rapid technological change, TTL believes that its globally distributed onshore-offshore service delivery capability helps it to suitably address clients' requirements. The company leverages deep manufacturing domain knowledge to deliver value-added services to clients in support of their digital transformation initiatives including product development, manufacturing and customer experience management.

TTL is a pure-play manufacturing focused ER&D company, primarily focused on the automotive industry and is currently engaged with seven out of the top 10 automotive ER&D spenders and five out of the 10 prominent new energy ER&D spenders in 2022 (Source: Zinnov Report). Its automotive revenue attributable to the Services segment for Fiscal 2023 and the six-months period ended September 30, 2023 was Rs. 3131.47 cr. and Rs. 1745.76 cr., respectively, comprising 88.68% and 87.89% of its revenue attributable to the Services segment for the respective periods. Additionally, TTL's revenue attributable to the Services segment from verticals other than automotive for Fiscal 2023 and the six-months period ended September 30, 2023 was Rs. 399.69 cr. and Rs. 240.63 cr., respectively, comprising 11.32% and 12.11% of its revenue attributable to the Services segment for the respective periods.

TTL's domain expertise has also been recognized by industry bodies and external analysts. It is positioned in the "leadership zone" by Zinnov Zones for ER&D services ratings in 2023 for the seventh consecutive year. The company is also ranked first among all India-based ER&D service providers and are among the top two globally, in electrification. For automotive ER&D services, it is ranked first among India service providers and third globally among rated service providers by Zinnov. As of September 30, 2023, it had 12,451 employees, of which 11,608 were FTEs and the rest were contracted employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden secondary issue of 60850278 equity shares of Rs. 2 each. It has announced a price band of Rs. 475 - Rs. 500 and mulls mobilizing Rs. 3042.51 cr. at the upper cap. The issue opens for subscription on November 22, 2023, and will close on November 24, 2023. The minimum application to be made is for 30 shares. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 15 % of the post-IPO paid-up capital of the company. Since this is an OFS, no funds are going to company. 

The company has reserved 2028342 shares for its eligible employees, 6085027 shares for Tata Motor's retail shareholders. From the rest, the company has allocated not more than xx% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The joint Book Running Lead Managers to this issue are JM Financial Ltd., Citigroup Global Markets India Pvt. Ltd., and BofA Securities India Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 5 - Rs. 129 (on the basis of Rs. 2 FV) between December 2000 - January 2023. It has also issued bonus shares in the ratio of 1 for 1 in January 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 7.40, and Rs. 25.10 per share. 

This being an entire secondary issue, post-IPO TTL's paid-up equity capital will remain same at Rs. 81.13 cr. Based on the upper band of the IPO pricing, the company is looking for a market cap of Rs. 20283.43 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, TTL has (on a consolidated basis) posted a total income/net profit of Rs. 2425.74 cr. / Rs. 239.17 cr. (FY21), Rs. 3578.38 cr. / Rs. 437.00 cr. (FY22), and Rs. 4501.93 cr. / Rs. 624.04 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 351.90 cr. on a total income of Rs. 2587.42 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 12.26 and an average RoNW of 18.68 %. The issue is priced at a P/BV of 7.12 based on its NAV of Rs. 70.27 as of September 30, 2023, as well as on post-IPO NAV. 

If we attribute annualized FY24 earnings to post-IPO paid-up equity capital, then the asking price is at a P/E of 28.82. Thus the IPO appears reasonably priced, as per "Tata" legacy. 

The company has posted PAT margins of 10.05% (FY21), 12.38% (FY22),14.14% (FY23), and 13.93% (H1-FY24). 

DIVIDEND POLICY:
The company paid a dividend of 615% for FY23. It has adopted a dividend policy in February 2023. based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown KPIT Techno, L & T Techno, and Tata Elxsi as their listed peers. They are trading at a P/E of 134.34, 39.45, and 67.06 (as of November 16, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 49 public issues in the past three years, out of which 12 issues closed below the offer price on listing date. 

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