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IPO After Two Decades, Jump Starting Tata Motors

Investors in Tata Motors will benefit from the listing of its subsidiary Tata Technologies, although the long-term outlook will depend on how the company performs in a competitive environment.

It’s a good day for Indian investors. The Tata group is coming up with an IPO after almost two decades, the last being Tata Consultancy Services in 2004. 

Which company is offering its shares for sale, how will the market respond, and will this impact other Tata companies? We will answer these and many other questions, so read along. 

About the Company

Tata Technologies, led by Warren Harris, has filed its draft red herring prospectus (DRHP) with market regulator SEBI for an Initial Public Offering (IPO) on Thursday, 9 March. 

The engineering unit of Tata Motors, a global engineering and digital services company Tata Technologies, ranks 15th in the Fortune India Infotech Industry ranking. The company uses its domain expertise in the automotive industry to serve aerospace, automotive, and construction clients. 

The Pune-headquartered Giant has a diversified global presence across Asia Pacific, Europe, North America, and 22 other countries. As of 31 December 2022, Tata Technologies’ clients comprised more than 35 traditional automotive OEMs, tier 1 suppliers, and more than 12 new energy vehicle companies. The company serves clients such as JLR, Honda Motors and VinFast. 

Tata Technologies reported revenue from operations of Rs 3011.7 crore and profit after tax of Rs 407.4 crore for the nine-month ended 31 December 2022. This is compared to the same period in 2021, where the company reported revenue from operations of Rs 2607.3 crore and profit after tax of Rs 331.3 crore. The company has also seen an increase in employees, from 8,620 in March 2020 to 11,081 in December 2022, comprising 10,161 full-time and 920 contracted employees.

Tata Motors is the largest shareholder in Tata Technologies, with approximately 74.5% stake. Alpha TC Holdings Pte Ltd, an investment firm based in Singapore managed by Tata Capital Advisors, and Tata Capital Growth Fund hold roughly 8% and 4% stakes, respectively. 

IPO Details

Tata Consultancy Services was the last Tata firm listed in July 2004. Now, Tata Technologies plans to raise funds through a purely offer-for-sale IPO of up to 95.7 million shares, representing 23.6% of the company’s paid-up share capital. Tata Motors, the promoter, will sell 81.1 million shares (20% stake), while Alpha TC Holdings and Tata Capital Growth Fund will sell 2.4% and 1.2% stakes, respectively. The IPO is 35% reserved for retail investors. Tata Technologies has recently valued itself at Rs 16,080 crores, suggesting that the IPO offer size would be around Rs 4,000 crore.

Tata Motors’ Perspective

This IPO could be a financial relief for Tata Motors, as the auto major has struggled in recent years due to losses at its Jaguar Land Rover unit and poor performance in its domestic business. The company intends to sell close to 81 million shares acquired at Rs 7.40 apiece. 

The IPO price has yet to be determined, but it will likely be four to five times higher than the rate at which Tata Motors acquired its stake. This move is expected to increase the company’s cash flow and reduce its debt burden, generating substantial profits. The company has committed to spending $1.8 billion on electric vehicles in the next five years, and the proceeds from the IPO will help fund this growth. This has caused the market to become bullish on the company’s shares.

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