TPG, Ratan Tata foundation pick stakes in Tata Tech at 20% discount to IPO price
Tata Technologies IPO is the one of the biggest buzzes at Dalal Street. As the Tata Group is gearing up for an initial stake sale after almost two decades, its first issue after software exporter Tata Consultancy Services Ltd (TCS), a few bigshot investors picked up stake in the IPO-bound entity.
On October 25, 2023, TPG Rise Climate SF picked up 3,65,09,794 equity shares, or 9 per cent stake in Tata Technologies at a price of Rs 401.81 per share amounting to Rs 1,467 crore. Similarly, Ratan Tata Endowment Foundation, the charitable arm established by Ratan Tata, also picked up 36.51,390 equity shares, or 0.90 per cent stake, worth Rs 1,467.16 crore at the same issue price.
In both above-mentioned transactions, promoter Tata Motors offloaded its shares. TPG Rise Climate SF and Ratan Tata Endowment Foundation have picked up shares at about 20 per cent discount compared to the upper range of the IPO price for the issue, Rs 475-500 apiece, less than a month before IPO opened for bidding.
TMF Business Services also transferred 81,19,920 shares to Tata Motors Finance Ltd pursuant to the scheme of arrangement. The promoter entity, Tata Motors, is also selling 4,62,75,000 equity shares in the IPO, which is entirely an offer for sale of up to 6,08,50,278 equity shares with a face value of Rs 2 each.
Tata Technologies is likely to raise about Rs 3,042.5 crore via its initial stake sale as the company is offering its shares in the given price band. At the upper price band (Rs 500), Tata Technologies is likely to have a market capitalization of about Rs 20,300 crore. Alpha TC Holdings (97,16,853 shares) and Tata Capital Growth Fund-I (48,58,425 shares) are also participating in the OFS.
Among the selling shareholders, Tata Motors’ weighted average cost of acquisition was Rs 7.4 per shares and the promoter will make a profit of about 68 times in the IPO at the upper end of price band. Alpha TC Holdings and Tata Capital Growth Fund-I acquired shares at an average cost of Rs 25.10 apiece and will make a profit of 20 times by selling their stake.
Focusing on verticals like auto and aero, Tata Tech is a mid-size ER&D services company with $547 million revenue. It has long-term collaborations with anchor clients and offers turnkey vehicle-development solutions for combustion & electric powertrains. It offers manufacturing cost reduction and after-sales solutions with 19 delivery centres, said Anand Rathi Research in a note.
With greater adoption of digital, demand for technology-enabled skills in the automotive sector is high. This is expected to drive outsourcing opportunities to bridge the skill gap. As companies focus on autonomous, connected, electrification and shared initiatives, they seek to outsource body engineering segments completely to third-party service providers, Anand Rathi said.
“Further, body engineering presents the largest opportunity for ESPs, accounting for more than 40% of addressed spending. Hybrid and electric mobility are expected to be the fastest growing subsegment in the addressed market, with enterprises looking to work with ESPs with full-body EV capabilities,” it added.
Tata Technologies reported a net profit of Rs 351.90 crore with a total revenue of Rs 2,587.42 crore for the six months ended on September 30, 2023. The company clocked a net profit of Rs 624.04 crore with a revenue of Rs 4,501.93 crore for the financial year ended March 31, 2023.
Tata Tech has reserved 20,28,342 shares for eligible employees of the company, while 60,85,027 shares or 10 per cent of the offer has been reserved for the shareholders of Tata Motors. Half of the net offer has been reserved for qualified institutional bidders, while retail investors and non-institutional investors will get 35 per cent and 15 per cent, respectively.
Tata Technologies is a pure-play manufacturing focused engineering research & development (ER&D) company, primarily focused on the automotive industry and they are currently engaged with 7 out of the Top-10 automotive ER&D spenders and 5 out of the 10 prominent new energy ER&D spenders in 2022, said Axis Capital.
“Tata Tech’s primary business line is services, which includes providing outsourced engineering services and digital transformation services to global manufacturing clients helping them conceive, design, develop and deliver better products,” Axis added. “It has a diversified global client base and they have 19 global delivery centres spread across North America, Europe and Asia Pacific.”
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