Buy Tata Technologies; target of Rs 1330: ICICI Securities

ICICI Securities's research report on Tata Technologies

Tata Technologies (TATATECH) offers an opportune entry into the fastest-growing auto-Engineering, Research & Development (ER&D) segment (vs. IT services peers). Amplifying TATATECH’s proposition are structural catalysts that will help the company transition its services portfolio and encompass the much desirable digital engineering sub-segment. The Tata Group lineage too helps TATATECH augment synergistic advantages in the aviation sub-segment. While we note that a client-specific ramp-down poses a challenge for growth, we see this as transient; in our view, prevalent and potential growth eclipses the ramp-down. On balance, we forecast 13%/18% revenue and 16%/23% EPS growth in FY25E/26E with 23–25% RoE.

Outlook

We initiate with BUY and a TP of INR 1,330 on a one-year forward PE of 56x (in-line with lifetime median/average PE) on FY26E EPS of INR 23.8. Key risks: Under-penetration in Europe; and other verticals being unable to adequately compensate for VinFast’s ramp-down.