Tata Technologies: How this IPO-bound Tata Motors arm fared against KPIT Tech, Tata Elxsi & LTTS – Business Today

Tata Technologies, a Tata Motors subsidiary, recently filed draft papers with Sebi. The proposed offer includes a sale of up to 8.11,33,706 equity shares, or 20 per cent capital, by Tata Motors. Among other selling shareholders, Alpha TC Holdings will offer up to 97,16,853 equity shares, Tata Capital Growth Fund-I will offer up to 48,58,425 equity shares, amounting to 2.40 per cent and 1.20 per cent, respectively.
B&K Securities has come out with a flash note on the Tata group firm, analysing its competitive positioning over its peers such as KPIT Technologies (KPIT Tech), Tata Elxsi and L&T Technology Services (LTTS) on various parameters such as revenue growth, vertical exposure, regional exposure, margin, client exposure, top client concentration, offshore/onshore revenue mix, headcount growth and attrition among others.
On a 9MFY23 basis, the company has reported the overall relatively low revenue growth (majorly attributable to the de-growth in Education business), low margin expansion and higher attrition, B&K Securities said.
Revenue growth
B&K Securities said revenue growth for Tata Technologies has been decent in the last three years, as the company grew at a CAGR of 8.6 per cent (FY20-22). KPIT Tech, LTTS and Tata Elxsi grew at a compounded annual growth rate of 4 per cent, 5.8 per cent and 21.2 per cent, respectively, in the same period.
Covid-19 impacted the revenue growth of automotive segment in FY21 across the industry, but the growth bounced back in FY22 (44.7 per cent) and in 9MFY23, the company reported the growth of 35.6 per cent for the year on YoY basis, B&K noted.
Slow margin expansion
Tata Technologies, B&K Securities, said reported EBIT margin of 15.9 per cent in FY22 and 16.9 per cent in M9FY23, which has expanded by 3 percentage points from 13 per cent in FY20. This B&K Securities said, has been achieved on the back of robust growth and decrease in employee benefit costs among others.
In comparison to its peers such as KPIT Tech, Tata Elxsi and LTTS, the company has reported relatively low margin (except in comparison to KPIT), low offshore revenue and higher attrition in FY22.
Client concentration
In comparison to its peers, Tata Technologies has the maximum exposure to the Top 5 clients (65.8 per cent in FY22, which increased to 72.8 per cent in 9MFY23), whereas for other peers such as Tata Elxsi and LTTS the range stood at 17-38 per cent.
For Top 10 clients, Tata Technologies tops the list with 77.7 per cent in FY22, which has now increased to 80.7 per cent in M9FY23. For the Top 20 clients too, Tata Technologies had highest exposure among peers at 87 per cent in FY22 . That exposure has increased to 88.4 per cent in 9MFY23.
Focus on automotive vertical
B&K Securities said like KPIT Tech, Tata Technologies is also focused towards the automotive vertical, as the vertical accounts for 75 per cent of the overall revenue.
The company’s strategy, it noted, is to focus on the Top 5 clients and the anchor clients (Tata Motors and JLR), which account for 73 per cent and 40 per cent of overall revenue, respectively.  On the brighter side, the company has reported the highest revenue growth in automotive vertical at 35.6 per cent against 31.4/35.1/34.9 per cent for KPIT, Tata Elxsi and LTTS, respectively.
Client mining
Tata Technologies has over the period of time lagged to mine clients in comparison to its peers which is clearly visible in the addition of $20 million, $10 million, 5 million and $1 million-plus clients in its bucket as fast as LTTS has added.
“Though, the company’s strategy remains focused on its anchor clients and Top 5 clients in the near-term, but the company will slowly start to focus towards expanding the clients base by hunting and mining which will help the company to grow in the medium and long-term,” B&K said.
Highest attrition, lowest headcount addition
B&K said Tata Technologies has been reporting the highest attrition in industry for the past three years. To address this, the company has significantly increased its focus on its employees and have launched various new initiatives aimed at attracting, engaging, retaining and developing key talent. Meanwhile, despite the ramp-up in demand and rising attrition, Tata technologies headcount growth has been slowest in the industry (grew by 17.4 per cent on a YoY basis in FY22 while KPIT, Tata Elxsi and LTTS grew by 29.5 per cent 27.4 per cent and 26.8 per cent on a YoY basis in FY22.
Also read: Aarti Drugs shares zoom 8% intraday; recover 30% from 52-week low 
Also read: Infosys vs TCS vs HCL Tech vs Wipro: IT stock that analysts prefer amid slowdown fears 
Copyright©2023 Living Media India Limited. For reprint rights: Syndications Today
Add Business Today to Home Screen







Leave a Reply

Your email address will not be published. Required fields are marked *