Tata Motors arm Tata Technologies eyes IPO; will it be the first from Tata Group since TCS in 2004?

N Chandrasekaran (File image: PTI)

Auto major Tata Motors is in value unlocking mode as its subsidiary Tata Technologies, a global product engineering and digital services company, has initiated preliminary steps to evaluate an initial public offer ( IPO) on the back of accelerated demand in the electric vehicles and the aviation segment, multiple industry sources with knowledge of the matter told Moneycontrol.

If plans fructify , it would arguably be the first IPO from the diversified conglomerate since tech behemoth TCS in 2004 and also the first under the tenure of Tata Group chairman N Chandrasekaran who took over in January 2017. To be sure, Tata Autocomp Systems shelved a $260 mn IPO in 2011 and Tata Sky ( now Tata Play) is also weighing a listing, according to reports.

“ The IPO process for Tata Technologies kicked off recently and investment bank Citi is on board. These are early days for the deal and there is no clarity yet on the proposed issue size or structure, “ said one of the persons above.

Four other persons confirmed the above adding that work had begun on the IPO and that more domestic and foreign banks were likely to be added at a later stage.

All the five persons above spoke to Moneycontrol on the condition of anonymity.

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In response to an email query from Moneycontrol,  Tata Technologies said, “We do not comment on market speculations.” Citi declined to comment.

Tata Motors holds little more than 74 per cent stake in Tata Technologies, according to the former’s 2022 annual report. Interestingly, in early 2018, Tata Motors had called off the sale of a significant minority stake ( 43 per cent) in Tata Technologies to private equity major Warburg Pincus for $360 mn after an official announcement on the deal citing non-receipt of regulatory approvals and challenges in internal performance due to market conditions.

Based on the contours of the aborted deal, a 100% stake in Tata Technologies was valued at $837 mn in February 2018.

TATA TECHNOLOGIES: RUNWAY TO GROWTH

In the last year,  Tata Technologies which is led by CEO Warren Harris has seen a sharp uptick in revenues due to relaxation in regulatory and health guidelines that enabled improved business activities coupled with new business opportunities in South East Asia.

The chairman of the board of directors, ex TCS veteran S Ramadorai alluded to the better performance in the firm’s latest annual report.

“Despite the headwinds that we have faced, your company has delivered stellar results. For the year ended 31st March 2022, Tata Technologies delivered revenue of USD 473.5 M (INR 3529.6 Cr), together with underlying operating profit of USD 86.5 M (INR 645.6 Cr) and profit after tax of USD 58.0 M (INR 437.0 Cr). These best ever results equate to year-on-year revenue growth of 47%, operating profit growth of 65%, and profit after-tax growth of 74%, in USD terms,” Ramadorai said.

Parent Tata Motors which is targeting a ‘near zero net automotive debt’ status by FY24 also took note in its 2022 annual report. “Revenue from other operations (before inter-segment eliminations) increased by 45.8% to `3,809 crores in FY 2021-22 compared to `2,612 crores in FY 2020-21. This is mainly on account of increase in revenue of Tata Technologies post recovery from the COVID-19 pandemic,” the report said.

Tata Motors net auto debt, including leases, rose to `48,679 crore in FY22, from `40,876 crore in FY21.

TATA TECHNOLOGIES : A CLOSER LOOK

Tata Technologies focuses on 4 key verticals namely automotive, aerospace, industrial machinery and industrials. It’s offerings are delivered through the following lines of business: a) Engineering, Research, and Development (ER&D) services, b) Digital Enterprise Solutions (DES), which includes offerings in Connected Enterprise IT (CEIT) and Product Lifecycle Management (PLM) services, c) Education offerings, and d) Products, which includes our product value-added reselling and iProducts offerings

The firm has a workforce of 9300 employees, worldwide, serving clients from facilities in North America, Europe and APAC. It has 18 global delivery centres at Pune (Head Quarter), Gurgaon, Bengaluru, Thane, Chennai (India), SEA – Shanghai (China), Bangkok (Thailand), Singapore, Tokyo (Japan), Hanoi (Vietnam), Europe – Brasov, Craiova & Iasi (Romania), Gothenburg (Sweden), Gaimersheim (Germany), Warwick (UK), North America – Detroit (USA).