The Tata Technologies IPO is exclusively an offer-for-sale (OFS) of 6.08 crore shares, led by the promoter Tata Motors, along with investors Alpha TC Holdings and Tata Capital Growth Fund 1. Notably, there is no provision for a fresh issue component in this offering.
As anticipated, the Tata Technologies IPO proved to be a resounding success for the Tata Group. The Rs 3,042.51-crore offering witnessed an overwhelming response, being oversubscribed 16.22 times on the final day of bidding, with bids totaling 73 crore equity shares against the 4.5 crore issue size on November 24.
Marking the first public issue from the Tata Group since the Tata Consultancy Services IPO in 2004, the offering gained full subscription within the initial hours of its launch. The debut day concluded with 6.54 times oversubscription, and by Day 2, the subscription had surged to 14.85 times.
On the concluding day of bidding, qualified institutional buyers and high net-worth individuals (non-institutional investors), holding 50 percent and 15 percent reservation in the net issue, exhibited robust interest by subscribing 8.62 times and 35 times their allocated portions, respectively.
Retail investors, Tata Technologies employees, and Tata Motors shareholders displayed notable enthusiasm in the offering, subscribing at impressive rates. Retail investors subscribed at a rate of 12.2 times, while Tata Technologies employees and Tata Motors shareholders subscribed at rates of 2.58 times and 21.63 times, respectively. These subscriptions correspond to the portions set aside for them, constituting 35 percent of the net issue for retail investors and specific share allotments of 20.28 lakh shares for Tata Technologies employees and 60.85 lakh shares for Tata Motors shareholders in the overall issue.
The public offer, excluding the quotas allocated for employees and shareholders, constitutes the net issue. Launched on November 22 with a price band set at Rs 475-500 per share, this offering is solely an offer-for-sale (OFS) involving 6.08 crore shares. The selling entities include the promoter, Tata Motors, and investors Alpha TC Holdings and Tata Capital Growth Fund 1. Notably, there is no provision for a fresh issue component in this IPO. Consequently, the entirety of the issue proceeds, excluding IPO-related expenses, will accrue to the selling shareholders.
Despite being exclusively an OFS, the IPO garnered substantial attention for various reasons, including appealing valuations, a robust parent company, sound financial performance, and anticipation of significant demand within the engineering services sector.
Several prominent investors, including Goldman Sachs, BNP Paribas Funds, HSBC Global, Government Pension Fund Global, Florida Retirement System, Oaktree Emerging Markets Equity Fund, Copthall Mauritius Investment, Franklin Templeton Mutual Fund, SBI Mutual Fund, ICICI Prudential Mutual Fund, SBI Life Insurance Company, Kotak Mutual Fund, Mirae Asset Mutual Fund, and Sundaram Mutual Fund, participated in the anchor book of the global engineering services company. Through the anchor book, the company successfully raised Rs 791 crore.
Expressing positive sentiments, Prashanth Tapse, Senior VP (Research) at Mehta Equities, highlighted the company’s robust established brand and diverse product portfolio spanning various product categories, from traditional OEMs to new-age energy vehicles. He emphasized the growing demand for the outsourcing business model in engineering services and digital transformation services for global manufacturing clients. According to Tapse, this trend assists clients in delivering superior products. Furthermore, he noted that the company’s valuations are reasonably priced, adding to its appeal.
At the IPO price of Rs 500 per share, Tata Technologies holds a trailing twelve months (TTM) price-to-earnings (P/E) ratio of 28.3x.
Ventura Securities expressed optimism, citing expectations of robust financial performance in the upcoming years. They anticipate this strength to be fueled by the gradual recovery in the global economy, a surge in manufacturing capital expenditures, and a shift in manufacturing from the US, Europe, and China to India—driven by factors such as cost inflation and the adoption of the China+1 strategy.
Established in 1994 and headquartered in Pune, Tata Technologies specializes in providing product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (OEM) and their tier 1 suppliers. Notably, the company has demonstrated impressive financial metrics, recording a compound annual growth rate (CAGR) of 61 percent in profit and 36 percent in revenue during the fiscal years FY21-FY23, showcasing robust EBITDA and net margins.
As a manufacturing-centric Engineering, Research, and Development (ER&D) company backed by Tata Motors, Tata Technologies exclusively focuses on the automotive industry. Currently, the company is actively involved with seven of the top 10 automotive ER&D spenders and five of the top 10 leading new energy ER&D spenders in 2022.
In the grey market, which serves as an unofficial platform for trading IPO shares until the listing occurs, analysts, speaking on condition of anonymity, have noted a significant increase in the premium of Tata Technologies IPO shares. The premium has surged to 80 percent over the upper price band, up from a 70 percent premium just a couple of days ago. Investors often use the grey market premium as an indicator to speculate on the anticipated listing price of an IPO.