Since Tata Technologies Ltd, a subsidiary of Tata Motors Ltd, filed a draft red herring prospectus (DRHP) with market regulator Securities and Exchange Board of India (SEBI) for an Initial Public Offering (IPO), analysts have been studying its implications on Tata Motors.
In March, the Tata Motors arm filed papers with SEBI to raise funds via IPO. The IPO comprises of an offer for sale (OFS) of up to 9.5 crore shares, representing approximately 23.60% of its paid-up share capital.
Alpha TC Holdings Pte Ltd, which intends to sell 97.1 lakh shares (2.4%), and Tata Capital Growth Fund I, which intends to sell 48.58 lakh shares (1.2%) of Tata Technologies, are two additional selling stockholders in the IPO.
As per the DRHP, Tata Motors holds 74.69% of the equity share capital in Tata Technologies, while Alpha TC Holdings Pte Ltd holds 7.26%, and Tata Capital Growth Fund I holds 3.63%.
Let's look at what analysts have to say about Tata Motors and the IPO.
Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities
With the aim towards net-zero automotive debt by fiscal year 2024, Tata Technologies IPO offer is one among the ways to fill the gap with value unlocking.
Tata Technologies IPO (where Tata Motors owns 74.69% stake) offers to raise money via IPO route which would bring in additional cash flow in Tata Motors that is expected to improve and balance sheet mix. As per market estimates, the market cap is expected to be around ₹18,000 to ₹20,000 crore.
“If we look at technical, the stock has performed well and delivered almost 15% return at current market price of ₹470 in last one month period. Charts say upside for short term is capped up to ₹490 in best case scenario for medium term while on long term investor should remain invested for better return on investment (ROI) as we are optimistic for long term,” said Tapse.
Mohit Gulati, CIO & Managing Partner of ITI Growth Opportunities Fund
In my opinion, the ultimate value unlocking for a company is when its smaller parts start becoming businesses of their own mantle and achieve valuations. The story of Tata Motors and Tata Technology is very similar to that of Flipkart and Phone Pe.
Today, Tata Technology is an incredible ancillary research & development vertical for Tata Motors.
“This listing will set the tone for all IPOs ahead that good companies backed by able managements will get valuation premiums above industry average. I won’t be surprised if Tata Technology alone repays all of Tata Motors parent debts via its post-listing market capitalisation,” said Gulati.
Avinash Gorakshakar, Head-Research at Profitmart Securities
Tata motors holds 74.69% stake in Tata Technologies. So once it decides to dilute stake here, that will unlock value for Tata Motors shareholders. It is said that IPO price will range between ₹900 and ₹1,200 here.
Vinit Bolinjkar, Head of Research at Ventura Securities
Tata Motors has a 74.69% stake in Tata Technologies and intends to sell 8,11,33,706 equity shares (23.6%) through the upcoming IPO. Though the size of the IPO wasn’t disclosed, Tata Technologies' recent buyback in April 2022 valued the company at ₹8,040 crore.
Buyback of 1,240,122 equity shares for an aggregate amount of ₹245.8 crore at ₹1,982 per equity share (representing 2.97% of the total paid-up equity share capital). Post buyback, Tata Technologies had 40,566,853 equity shares outstanding (as on 30th Apr 2022). The buyback price of ₹1,982 per share multiplied by 40,566,853 equity shares gives the equity valuation of ₹8,040 crore. At this valuation, we are expecting Tata Motors to get a total of ₹1,898 crore for its OFS of 23.6%.
Tata Technologies reported a trailing twelve month (TTM) revenue of ₹3,934.1 crore and net profit of ₹513.1 crore (as on 31st December 2022). At the price of ₹1,982 per share, Tata Technologies is trading at TTM price-to-earnings (P/E) of 15.7 times.
