MC Interview | IREDA, Flair Writing, Tata Tech IPOs priced attractively, says Sneha Poddar of MOFSL

Tata Group is coming with an IPO after a gap of 19 years, thus the IPO is catching investors fancy

"The Tata Technologies IPO is attractively priced at 33xFY23 P/E and 29x 1HFY24 P/E (on an annualised basis) which is at a discount to its peers like Tata Elxsi, KPIT Technologies, L&T Technology Services which trade in 40-65x range," Sneha Poddar is the AVP - Retail Research, Broking and Distribution at Motilal Oswal Financial Services says in an interview to Moneycontrol.

Tata Group is coming up with an IPO after a gap of 19 years, thus the IPO is catching investors fancy, she feels. IREDA, which enjoys lowest cost of funding on account of highest credit rating and stringent corporate governance, is also attractively priced, says Sneha with over 10 years of experience in the equity research.

Why is there so much demand for Tata Technologies IPO?

Tata Group is coming with an IPO after a gap of 19 years, thus the IPO is catching investors fancy. Moreover, apart from the strong parentage, Tata Technologies is present in niche space of ER&D (engineering research and development) industry, and enjoys strong financials. The company derives ~70 percent revenue from automotive segment which is the biggest segment of the ER&D industry and would befit from huge outsourcing opportunity in that space.

Also read: Tata Technologies IPO: A deep dive into its business, risk factors and whether you should invest

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Sneha Poddar

AVP - Retail Research, Broking and Distribution|Motilal Oswal Financial Services

How is Tata Technologies looking on the valuation front and is it really a multibagger story like TCS and Tata Elxsi?

The IPO is attractively priced at 33xFY23 P/E and 29x 1HFY24 P/E (on annualized basis) which is at a discount to its peers like Tata Elxsi, KPIT Technologies, L&T Technology Services which trade in 40-65x range. Tata Technologies is a pure play ER&D and digital solutions provider including turnkey solutions with primary focus on the automotive industry.

It is now diversifying clients’ base to reduce dependence on anchor clients - Tata Motors & JLR whose contribution has fallen to 36 percent by 1HFY24 end. Some of the prominent names added are McLaren, Honda, Ford, VinFast, etc.

It is also scaling adjacent and upcoming verticals of Aerospace and Transportation & Construction Heavy Machinery to leverage Automotive expertise. All the 3 verticals are witnessing increased outsourcing of ER&D spend as focus increases for digitization and innovation.

Is IREDA a great buy at Rs 32 per share and why?

Indian Renewable Energy Development Agency (IREDA) operates in niche segment of renewable energy funding which is poised to grow at rapid pace with government's increased focus. Recently IREDA got elevated to the ‘Schedule A’ category which opens the door for “Navratna” status, and could strengthen the balance sheet further here.

It enjoys lowest cost of funding on account of highest credit rating and stringent corporate governance which provides IREDA a competitive edge. Thus the stock is attractively priced at 1.0x 1HFY24 P/BV (on an annualized & diluted basis).

Do you think Fedbank Financial Services IPO launched at reasonable valuations considering the current NBFC environment?

Avoiding comment on this.

Also read: Fedbank Financial Services IPO: Should you subscribe to Rs 1,092 crore issue?

Do you think Gandhar Oil Refinery is a good company to pick for the portfolio?

Gandhar Oil is leading manufacturer of Indian white oils market with significant overseas sales, focused on the consumer and healthcare end-industries. Its products are used as ingredients for the manufacture of end products for the consumer, healthcare, automotive, industrial, power and tyre and rubber sectors. Infact white oils market is the fastest growing segment in the specialty oils sector and Gandhar with leading position stands to benefit.

Also read: Gandhar Oil Refinery IPO: Should you subscribe to Rs 500-crore issue?

What is your take on the Flair Writing Industries IPO?

Investors may also look at Flair Writing as it is among the top three players in the overall writing instruments industry in India and enjoys strong brand recall and market share of 9 percent. It has delivered robust and consistent financials in the past with gradual improvement in margins and other matrices.

Click Here To Read Moneycontrol's Exclusive Note on Flair Writing IPO

Its vertical expansion into houseware products will further boost its revenues benefitting from its existing large distribution network. The stock is also priced at 27x FY23 P/E which is discount to its peers.

Do you expect the big IPO line up in the rest of current financial year?

More than 40 companies have come out with their IPOs in the current financial year and many are still in the pipeline. Given the overall secondary market buoyancy, the corporates want to take advantage of it in order to raise funds or provide exit to existing investors.

Also read: Flair Writing IPO. Should you subscribe to Rs 593-crore issue?

The retail frenzy is also providing a boost to the IPOs, with companies hoping to sail through with support from the retail investors, though off late they have got a little cautious, having got caught on the wrong side.

Some big names in the pipeline are ITC Hotels, Oyo Rooms, Ola Electric, Swiggy, Mobikwik, Tata Play, Tata Sons, among many others.

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