Tata Technologies IPO becomes the new buzzword of Street, investors

Her reasoning is simple, “It’s a Tata company. No shareholder will let go of this opportunity,” she told Business Standard.

When asked if the other reason for lining up for the IPO is the technology sector and the fact that the combination of Tata and tech is happening after almost two decades, she replied: “The name of the company and the group matter. Tata means stability and credibility,” she added.

Anant Shekhar (name changed), 80, who lives in Mumbai and has been a regular investor in Indian IPOs, made sure he applied for the IPO on the very first day.

“I am investing only because it’s a Tata company. It is an important draw for me.”

Investors across categories made a beeline for Tata Technologies’ Rs 3,043-crore IPO.

The offering got bids worth Rs 1.56 trillion, with Rs 40,000 crore of it coming from foreign portfolio investors.

It also witnessed a record number of applications at 7.3 million, surpassing the record of Life Insurance Corporation of India (LIC), which had received 6.13 million applications (after excluding rejections).

Why the frenzy?

As mentioned above, for many investors the fact that a company of Tata Group is getting listed is an opportunity not to be lost.

The second reason is the price at which Tata Technologies’ shares are available compared to some of the other players in the same segment.

Analysts say the stock is priced attractively vis-à-vis its peers.

Tata Tech’s valuation appears attractive when compared to 109x for KPIT Technologies, 68.5x for Tata Elxsi, and 40.1x for L&T Technology Services, said analysts.

This is important if one looks at the long term.

The investor frenzy for the IPO was also on account of a strong grey market premium for the stock.

Tata Tech’s IPO price band was set at Rs 475-500 per share but the grey market expects the stock to list at more than Rs 900 — an estimated gain of 80 per cent.

As only one application is allowed per investor, several made applications using their family members’ and friends’ demat accounts.

Investors (other than Tata Motors’ shareholders and Tata Tech employees) had the choice of applying in either the retail category (application size between Rs 15,000 and Rs 1,95,000) and small high net worth individual category (application size between Rs 2,10,000 and Rs 9,90,000).

The odds of getting an allotment in the retail category is one out of eight applicants, while that in the S-HNI category is one out of 38 applicants.

So only a handful of the lucky ones will get an allotment.

Tata Tech’s fundamental prospects

Tata Tech is a product development and digital solutions provider for original equipment manufacturers (OEMs) in the auto sector.

This comes under the engineering research & development (ER&D) segment, in which, Nasscom predicts, India will contribute 22 per cent to the global ER&D sourcing market by FY30.

The software, automotive, and semiconductor sectors are expected to contribute more than 60 per cent of India’s share of ER&D sourcing by FY30.

Tata Motors and JLR are among the top five clients for Tata Technologies.

It also counts VinFast, a Southeast Asian electric-vehicle OEM, among its top five clients.

Analysts expect with Tata Motors committing to spend $1.8 billion in the electric-vehicle segment during 2022-27, this will benefit Tata Tech.

Analysts expect the company to benefit from the transition to electric and autonomous vehicles.

“Tata Tech, deriving 70 per cent revenue from (the) autos vertical, should benefit from this up-cycle.

"Its auto vertical has grown strongly at 44 per cent, 27 per cent and 15 per cent in FY22, FY23 and H1FY24, respectively. Tata Tech has traditionally been strong in body engineering, but it is adding capabilities in high-growth areas like EVs development, connected and autonomous cars, embedded electronics,” said a note by Phillip Capital.