Tata Tech debut exceeds expectations; lists with 140% premium at Rs 1,200
The automotive engineering service provider Tata Technologies made its stock market debut with a bang on Thursday, far exceeding expectations on Dalal Street.
The stock listed at Rs 1,200, more than doubling investors' money. This was a premium of 140 per cent over the issue price of Rs 500. Just prior to its debut, the share was commanding a premium of 86 per cent or Rs 430 in the grey market. The share extended the rally and touched an intra-day high of Rs 1,400, up 180 per cent over the issue price.
The handsome gains were expected due to the robust demand for the IPO, which was subscribed 69 times against the shares on offer.
This is the first initial public offering (IPO) listing from the Tata Group after over 19 years. Tata Consultancy Services was the group's last IPO in 2004.
Headquartered in Pune, Tata Technologies offers engineering, research & development (R&D), digital transformation, and educational services throughout the product lifecycle of shared services, components, subsystems, and software-defined vehicles. The company has 19 global delivery centres across 27 countries with a workforce of over 12,000 people.
Prashanth Tapse, research analyst and senior vice president of Research at Mehta Equities said the listing premium is justified mainly on the back of the Tata parentage tag that enjoys first preference among the investor community and its unique, well-established global business model, which has been generating healthy margins in the sector it serves.
Experts also said that the company's strong brand legacy, extensive automotive expertise, diversified global presence and strategic partnership with industry leaders provide a distinct advantage that aligns well with its growth ambitions.
Analysts at Phillip Capital believe Tata Tech can be a beneficiary of strong momentum in Auto & Aero ER&D spends in near to medium term. The risks include slowdown in any of the top-10 clients, heightened competitive intensity and margins pressure due to higher SG&A spends, the brokerage firm said.
Going ahead the automotive outsourced ER&D market is pegged at $18-20 billion and is expected to grow at a CAGR of 11 % and reaching USD 27- 29 billion by 2026E.The company being a pure-play manufacturing focused ER&D company, primarily focused on the automotive industry, will be benefit from the growth in the industry, analyst at Nirmal Bang Securities said in IPO note.
The company plans to strengthen relationships with existing clients, target new high potential accounts with large annual ER&D spends and new energy vehicle companies, to drive the growth. ROE and ROCE also improved and stood at 20.9 per cent and 24.3 per cent respectively for FY23, the brokerage firm said.
Analysts at InCred Equities had recommended subscribing to the IPO given the long term opportunities in the ER&D segments of automotive, aerospace, size and scale to participate in the same and scope to improve margins & cash flow going ahead.
The client specific challenges in a high client concentration portfolio, significant growth in technology solutions which could limit potential margin expansion are downside risks, the brokerage firm said.