Why experts expect Tata Technologies to be a blockbuster listing?

Tata Technologies, the first IPO listing in more than 19 years from the Tata Group, is likely to be a blockbuster debut on November 30. According to experts, the listing premium may be around 75-80 percent over the issue price of Rs 500 per share.

This means the opening price for the stock may be Rs 875-900 per share, which experts attributed to the strong parentage, healthy financial performance, solid IPO subscription figures, and growth potential in the engineering services industry going ahead.

The last IPO from the Tata Group was Tata Consultancy Services in 2004.

The Tata Technologies IPO garnered significant attention in the stock market among the 5 IPOs launched last week, and received robust response from across categories of investors who have bought 69.4 times the issue size during November 22-24. Gandhar Oil Refinery, IREDA, Fedbank Financial Services and Flair Writing Industries were other four IPOs of last week.

Qualified institutional buyers took the lead, subscribing 203.41 times the allotted quota, which was the highest since the IPO of Netweb Technologies that witnessed 220.69 times subscription in the QIB category in July this year.

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High networth individuals (non-institutional investors) subscribed 62.11 times their portion in the IPO by Tata Motors subsidiary. Retail investors also looked aggressive, buying 16.5 times the portion set aside for them, while the employees of Tata Technologies and the shareholders of Tata Motors bought 3.7 times and 29.2 times their reserved portion, respectively.

Another important factor seen in the IPO by Tata Group firm was the record number of applications (at 73.58 lakh) received for the offer. Now LIC, which was the last IPO receiving highest ever number of applications at 73.38 lakh in May 2022, comes at the second spot.

"Considering overwhelming investors demand along with investors friendly pricing indicating Tata Group legacy to reward shareholders, a strong listing gain over and above 75 percent can be assumed against the issue price of Rs 500 per share," Prashanth Tapse, research analyst, senior VP research at Mehta Equities said, adding there is a high possibility as per street assumption that Tata Technologies can be a doubler candidate post listing.

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He believes the superb listing premium is justified mainly on the back of TATA parentage tag which enjoys first preference among investors community and its unique well established global business model which is fundamentally strong generating healthy margins in the sector it serves.

Given the growth potential in outsourcing, the business model would be in great demand going forward, he feels.

Also, the grey market is indicating the listing premium can be around 80-82 percent over the issue price.

The Pune-based global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEMs) and their tier-1 suppliers traded at around 82 percent premium over the issue price, in the grey market, the market observers said.

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In fact, the said premium, in the unofficial market, has been increased from 70 percent it traded before the IPO opening for subscription.

"The shares of Tata Technologies are expected to list at around 80 percent premium over the issue price of Rs 500 per share," Dhruv Mudaraddi, research analyst at StoxBox said.

It is available at a P/E of 32.5x based on FY23 earnings, which experts feel is fairly valued. The market capitalisation at the issue price comes to more than Rs 20,000 crore.

Tata Technologies is a pure-play manufacturing focused engineering research & development (ER&D) company, primarily focused on the automotive industry. It 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.

With increasing spending on engineering research & development (ER&D) globally, it is going to be one of the major beneficiaries of such expenses. Zinnov report has estimated the global ER&D spend to grow approximately $2.67 trillion by 2026, against $1.81 trillion as of 2022.

Tata Technologies has a strong track record of growth and profitability, with net profit growing at a CAGR of 60 percent and revenue at a CAGR of 36 percent during FY21-FY23.

The company has raised Rs 3,042.51 crore via public issue which comprised of only an offer-for-sale by promoter Tata Motors, and investors Alpha TC Holdings & Tata Capital Growth Fund I. Hence, it will not receive any money from the offer and all the funds, excluding IPO expenses, will go to selling shareholders.

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