In December, the Tata Motors board approved a partial divestment of its stake in Tata Tech through a public float. The parent had said in an exchange filing that the IPO would come “at an opportune time, subject to market conditions, applicable approvals, regulatory clearances,” but had not provided schedule details.
Tata Motors holds 74.42% in Tata Technologies, according to the company’s 2022 annual report. Alpha TC Holdings Pte Ltd, a Singapore-based investment firm managed by Tata Capital Advisors, owns 8.96%, while Tata Capital Growth Fund owns another 4.48%.
Other small shareholders include Tata Motors Finance Ltd, Tata Enterprises Overseas Ltd, Ratan Tata, S Ramadorai, the company chairman and others.
Founded in 1989, Tata Technologies is an engineering design and technology services company that caters to the automotive, aerospace, industrial heavy machinery and others.
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As a global product engineering and digital services company, it helps companies in convergence of digital technology and traditional engineering to develop better products.
In recent years, it has been working with original equipment manufacturers to conduct pre-study and feasibility of concept electric vehicles (EVs), full product development and even digital sales and marketing.
Tata Technologies has more than 9,300 employees serving clients across Europe, North America and Asia-Pacific.
Objectives in mind
Tata Tech is planning a mix of primary and secondary sale of equity that will offer a liquidity event for financial and small investors. This will also provide access to primary growth equity for funding expansion in India and overseas.
Tata Sons and Tata Technologies did not comment on what group watchers said is the first IPO in the tenure of chairman N Chandrasekaran.
“Active work has begun on preparing the DRHP (draft red herring prospectus),” said a senior group official. “While the primary objective is to give existing shareholders an exit opportunity, the move also helps Tata Motors — which has a 74.43% stake — to plow funds into its growth businesses, especially EVs.
Tata Motors is doing extremely well and EVs will pivot the company into a significant growth phase. A lot of investment will be going into that, even from this divestment.”
Tata Motors is demerging its EV business after a $1-billion investment from TPG and ADQ, and a headline valuation of $9 billion.
“Under Tata Motors, probably, this company has grown to proper size. Earlier, it had shelved the plan of giving private equity investors a stake,” Deven Choksey, managing director, KR Choksey Holdings, told ET Now in an interview last month after the board announcement.
“The reason to take it public could be that… in both aviation as well as in the autonomous vehicle or EV segments, they have seen technology development that could be leveraged across Indian peers.”
An official close to Tata Technologies said, “Parallelly, it is part of an ongoing program by Tata Sons to simplify the holding structure by reducing crossholding in its various companies.
Tata Technologies has been a solid part of the group’s core businesses in multiple verticals. Its business valuation is based on existing balance sheet strength and future growth opportunities that can be leveraged in the EV and aviation space.”
The coffee-to-cars conglomerate is priming Tata Play (formerly Tata Sky) and Tata Technologies for an IPO — the first for the group since TCS’ listing in 2004.
“One cannot rule out some amount of restructuring happening, with the demerger of EV companies into separately listed companies eventually,” said Choksey. “All in all, this may be the beginning of some restructuring which is already happening, and that too starting with a profitable company, I think one could argue for a market cap of Rs 15,000-20,000 crore on listing eventually.”
Robust growth
In fiscal year 2022, Tata Tech revenue grew 47% on-year, while operating profit was up 65%. Operating margin was 18.3%, an expansion of 200 basis points from the previous fiscal year’s 16.3%. Even the cash position improved — from $115 million to $165 million, an increase of 43%. The service order book expanded 29% on-year to $250 million as of March 31, 2022.
In 2018, the Tatas called off the sale of 43% in Tata Technologies to Warburg Pincus for $360 million, at an approximate valuation of $800 million, even after making an official announcement. The group cited non-receipt of regulatory approvals and challenges in internal performance due to market conditions.
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