Ending the long wait among investors and analysts today, Tata Technologies IPO set the mainstream market buzz in what market watchers feel has become the most talked about IPO of this decade.
The global engineering and information technology (IT) services company attracted the highest gray market premium (GMP) among the five main table IPOs launched this week. Tata Technologies IPO also reaped ₹791 crore from 67 investors through the anchor book on November 21.
Read also: Tata Technologies IPO: GMP, price, other details when issue opens. Do you have to apply?
Tata Technologies – a subsidiary of Tata Motors – is a pure-play production focused Engineering Research & Development (ER&D) company, primarily focused on the automotive industry. Tata Investment Corporation is a promoting group entity in Tata Motors, owning 0.33 percent stake as of September 30.
Brokers and market experts were optimistic about the public issue with a mostly positive outlook on the subscription and listing ratings, but some also highlighted some business risks. Let’s take a look at what analysts are saying about the IPO and why it has become the word on the Street:
Tata Technologies IPO: Why analysts are positive on subscription?
Tata Technologies plans to raise ₹3,042.51 crore from the IPO which is an outright offer for sale (OFS) of 6.09 crore equity shares from the promoter and investors. OFS of Tata Technologies consists of up to 60,850,278 shares including sale of up to 46,275,000 shares by promoter Tata Motors Ltd, up to 9,716,853 shares by investor Alpha TC Holdings and up to 4,858,425 Equity Shares by Tata Capital Grow.
”Coming as a pure OFS, the purpose of Tata Technologies’ IPO is not to raise capital to invest in the company’s future growth. With more than two-thirds of revenues sourced from the automotive sector, and more than half of sales from the top five customers, the company faces business concentration risk,” said Sunil Shah, Director at Kambatta Securities. LiveMint.
”However, a significant amount of business is sourced from Tata Motors and Jaguar Land Rover which are almost captive customers for Tata Technologies. Further, on the positive side, the company possesses strong domain expertise in automotive which it also leverages to serve related verticals such as aviation,” added Shah.
Tata Technologies offers product development and digital solutions including turnkey solutions, to global original equipment manufacturers (OEMs) and their tier-1 suppliers. The company fixed the price band for the IPO was set in the range of ₹475 to ₹500 per equity share of face value of ₹2. The three-day bidding process for the IPO will end on November 24.
Analysts also said the company’s business model and strong financials are likely to support the issue with significant investor interest. Brokerages emphasized that the issue is reasonably priced, compared to industry peers.
”We like the company’s strong established brand and diverse product portfolio across different product categories from traditional OEM to new-age energy vehicles… We think outsourcing business model would be in high demand in engineering services and digital transformation services to global manufacturing. clients helping clients deliver better products,” said Prashanth Tapse, Research Analyst, Sr VP Research, Mehta Equities Ltd.
Looking at the financials historically, Tata Tech has delivered strong revenue and margin growth in the last three years and expects the growth to remain similar going forward… The issue is asking for a market cap of ₹20,283 crore at a P/E of 29x on a consolidated basis, which appears to be a reasonable price for the issue compared to industry peers that are trading at 60x,” Tapse added.
Read also: Tata Technologies IPO: GMP jumps as issue opens soon; Date, price, review, lot size, other details
Coming to investors, several brokerages and market experts emphasized that Tata Technologies IPO is “investor friendly”. Despite 100 per cent OFS, most of the retail investors also claimed that Tata brand name itself was enough for them to put their faith in the highly anticipated issue. Let’s take a look at why investors are ‘playing favourites’ on Tata Technologies IPO:
Why are investors playing ‘favorite’ on Tata Technologies IPO?
Domestic brokerage firm Master Capital Services said in its IPO note that Tata is known as an investor-friendly group and enjoys special preference among investors. ”Tata Technologies has differentiated capabilities in new age automation trends. Investors can invest in the Tata group’s IPO with a long-term perspective,” the brokerage said.
Shivani Nyati, Head of Wealth, Swastika Investmart Limited agreed. ”Tata Tech, the long-awaited IPO of the Tata Group, is here, and its very name means confidence among investors. The company has deep expertise in the automotive industry and differentiated capabilities to address emerging trends. It is a well recognized brand with experienced promoters,” said Nyati.
The proceeds of the issue, excluding IPO expenses, will go to the selling shareholders. Most of the retail investors seem excited about the trusted brand coming out with its public issue after two decades. Some even found the IPO price to be reasonable for subscription.
”The name of Tatas is enough to create confidence among investors. Tata Tech is backed by strong promoters while its financial performance has also improved. This can be a good company from ER&D sector to add in the portfolio for long term. For investors who want to make quick bucks, the Tata Tech IPO GMP is also the highest among other IPOs open in the market,” said a Delhi-based retail investor. LiveMint.
Swastika Investmarts’ Nyati emphasized that there may be some concerns about the IPO, such as dependence on a few key customers and third-party vendors, risk related to foreign exposure and a competitive industry.
”However, the IPO comes at a very attractive valuation of 32.5x, and it is a great opportunity for investors. Thus, one should definitely apply for this IPO for listing gain as well as for long-term benefits,” she added.
Another retail investor said LiveMint, ”Tata Tech IPO is very convincing for the retail investors because neither the prices are too unreasonable and above is the trust that is often attached to Tata. The GMP indicates good progress and I expect it to debut at an appreciable pace.”
Tata Technologies IPO reserved not more than 50 percent of the shares in the public issue for qualified institutional buyers (QIB), not less than 15 percent for non-institutional investors (NII), and not less than 35 percent of the offer. is reserved for retail investors.
Applicants will have to apply in lots and one lot of the public issue would consist of 30 company shares. So, a retail investor would require at least ₹15,000 ( ₹500 x 30) to request the issue. The employee reserve portion was allotted up to 2,028,342 equity shares, and Tata Motors Ltd shareholders were reserved up to 6,085,027 equity shares.
Disclaimer: The views and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Updated: 22 Nov 2023, 09:05 IST