Tata Tech IPO: ₹791 cr raised from anchor investors; GMP signals strong demand

Tata Technologies has raised ₹791.05 crore from anchor investors, a day ahead of the opening of the initial public offering (IPO). The IPO of Tata Tech, the first by Tata Group in nearly two decades (18 years), will open for subscription today and will close on November 24. The shares of Pune-based engineering and product development services company are slated to be listed on the stock exchanges on December 5.

The board of Tata Technologies has finalised the allocation of 1.58 crore shares to 67 anchor investors at ₹500 a share, at the upper end of the price band of ₹475-500 per share. Out of the total allocation, 44.88% were allocated to 17 domestic mutual funds, who applied through a total 39 schemes.

The anchor book saw participation from marquee foreign and domestic investors, including Fidelity Funds, Government Pension Fund Global and Goldman Sachs. Some top mutual funds like Aditya Birla MF, Nippon MF, Sundaram MF, Mirae MF, Edelweiss MF and Canara Robeco MF also made investments on the anchor day.

Driven by strong dominance in manufacturing-led engineering services and an attractive valuation, Tata Technologies shares were trading at a 70% premium in the grey market, an unofficial market where shares can be bought and sold before they are listed on a stock exchange. Today, the grey market premium (GMP) was ₹355, which was unchanged from yesterday's GMP of ₹355.

According to market analysts, the IPO is coming at a very attractive valuation of 32.5x, and it's a great opportunity for investors to encash listing gains as well as for long term benefits.

Tata Tech to raise ₹3,042.51 crore via IPO

Tata Technologies Ltd aims to raise ₹3,042.51 crore from this public offer, which is completely offer for sale (OFS) by existing shareholders. So, the net proceeds from the IPO will go to selling shareholders and the company will not receive any funds from it.

Under the OFS, parent Tata Motors will offload 4.62 crore shares, Alpha TC Holdings to sell 97.1 lakh shares and Tata Capital Growth Fund to pare 48 lakh shares.

As per the offer document filed the SEBI, the company has reserved 50% of the issue for qualified institutional buyers (QIBs), 15% for high net worth individuals (HNIs), and the remaining 35% for retail investors. Besides, the firm has set aside 20.28 lakh equity shares for its employees and 60.85 lakh for Tata Motors shareholders.

The minimum lot size for investment is 30 shares, which means minimum application amount for retail investors will be ₹15,000 and ₹195,000 for 13 lots (390 shares).   

Analysts optimist on Tata Tech IPO

Most of the analysts have recommended “Subscribe” to the issue, citing its deep expertise in the automotive industry, well-recognised brand with experienced promoters, as well as healthy financial performance.

Meanwhile, there are some areas of concerns, like any other business, such as dependence on a few top clients and third-party vendors, exposure to exchange rate fluctuations, and competitive industry. The company’s revenues are highly dependent on clients concentrated in the automotive segment. Also, it derives a major portion of its revenues from its top 5 clients, including Tata Motors and its British subsidiary Jaguar Land Rover (JLR).

“The long-awaited IPO from the Tata Group, and its name itself signifies trust among investors. The company has deep expertise in the automotive industry and differentiated capabilities to deal with emerging trends. It is a well-recognised brand with experienced promoters. Also, it has showcased strong financial growth in its past performance,” Swastika Investmart says in its report.

Reliance Securities has recommend ‘Subscribe’ to the issue, taking comfort from its healthy business prospects, strong parentage, superior financials with improvement in margins and ratios provides a valuation comfort. As a subsidiary of Tata Motors, they benefit from long-term relationships with both TML and JLR which strengthens to tap the large opportunity in automotive ER&D markets, adjacent verticals to tap the wide business network, it says in a report.

SBI Securities in its report says that Tata Technologies is well placed to encash on the growth opportunities in ER&D space and looking at the relatively cheaper valuations. “At the upper price band of ₹500, Tata Technologies is trading at 32.5x FY23 P/E multiple. Its peers are trading at a relatively expensive valuation with FY23 P/E multiple of 108.9x for KPIT, 68.5x for Tata Elxsi and 40.1x for LTTS,” it says.

Analysts at Sharekhan say that the Tata Group is coming out with an IPO after a gap of almost two decades and the issue seems reasonably priced versus peers and offers a favourable risk reward for the investors. “Tata Technologies future outlook is promising given its proven track-record, established capabilities in ER&D services and focus on adjacencies of Aerospace & TCHM (transport and construction heavy machinery),” it says.

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