Tata Technologies Limited IPO

Tata Technologies Limited has filed its DRHP with market regulator SEBI on March 13, 2023 to raise capital through IPO. The IPO of the Company consists of Offer for Sale only. The size of Offer for Sale is up to 95,708,984 Equity Shares. As part of OFS, the selling shareholders are Tata Motors Limited, Alpha TC Holdings Pte. Ltd. and Tata Capital Growth Fund I.

Business Model of the Company

Tata Technologies Limited is a leading global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (“OEMs”) and their tier 1 suppliers (Source: Zinnov Report). The Company endeavors to create value for its clients by helping them develop products that are safer, cleaner and improve the quality of life for their end-customers.

The Company has deep domain expertise in the automotive industry and leverages this expertise to serve its clients in adjacent industries, such as in aerospace and transportation and construction heavy machinery (“TCHM”). As a global organization, the Company brings together diverse teams from different parts of the world with multiple skill sets to collaborate in real time and solve complex engineering problems for its clients.

The Company primarily categorizes its lines of business as follows:

Services:

The primary business line is services (“Services”), which includes providing outsourced engineering services and digital transformation services to global manufacturing clients helping them conceive, design, develop and deliver better products. The Services business contributed ₹26,513.51 million and ₹25,571.88 million to the revenue from operations in Fiscal 2022 and the nine-months period ended December 31, 2022, respectively, comprising 75.12% and 84.91% of the revenue from operations for the respective periods.

Technology Solutions:

The Company complements its service offerings with its Products and Education businesses. Through the Products business the Company resells third-party software applications, primarily product lifecycle management (“PLM”) software and solutions and provides value added services such as consulting, implementation, systems integration and support. In Fiscal 2022 and the nine-months period ended December 31, 2022, the Technology Solutions business contributed ₹8,782.29 million and ₹4,546.06 million to the revenue from operations, respectively, comprising 24.88% and 15.09% of the revenue from operations for the respective periods

Management of the Company

(i) Ajoyendra Mukherjee is the Chairman and Independent Director of the Company. He holds a bachelor’s degree in engineering (electrical and electronics) from the Birla Institute of Technology and Science. He was previously associated with Tata Consultancy Services Limited for almost four decades, where he held positions such as the head of business operations in Eastern India, Middle East and Africa, Switzerland, global head of CSR function, global head of energy and utilities practice and executive vice president and global head of human resources.

(ii) Warren Kevin Harris is the Chief Executive Officer and Managing Director of the Company. He holds a bachelor’s degree in engineering (technology) from the University of Wales Institute of Science and Technology, the University of Wales. He holds a doctorate in philosophy (honoris causa) from Amity University, Uttar Pradesh. He has completed the advanced management programme from Harvard Business School. He is a chartered mechanical engineer registered with and a member of the Institution of Mechanical Engineers.

Object of the Issue

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Risks in the IPO

The Company’s revenue is dependent on certain clients

The Company continues to derive a material portion of its revenues from its top 5 clients by revenue generated in Fiscal 2022 top 5 clients which include Tata Motors Limited ( Promoter) and certain of its subsidiaries and JLR (JLR and Tata Motors together). If any or all of its Top 5 Clients were to suffer a deterioration of their business, cease doing business with the Company or substantially reduce their dealings, the revenues could decline, which may have a material adverse effect on the business, results of operations, cash flows and financial condition.

The Company may be subject to client and/or third-party claims of intellectual property infringement

The Company may be subject to client and/or third-party claims of intellectual property infringement. The Company may also be unsuccessful in protecting the intellectual property rights. Unauthorized use of the intellectual property may result in the development of technology, products or services which compete with the services. Additionally, the Company may also be subject to client and/or third-party claims of intellectual property infringement.

The Company may be liable to the clients for damages

The Company may be liable to the clients for damages caused by system failures, disclosure of confidential information or data security breaches. The facilities are also vulnerable to damage or interruption from human error or negligence, intentional bad acts, power losses, hardware failures, telecommunication failures and similar events which could also harm the reputation, damage the relationship with clients and cause the Company to lose clients.

The Company’s success depends on skilled engineering professionals and management team

The success of the Company depends in large part upon the strength of its skilled engineering professionals and management team. If it fails to attract, retain, train and optimally utilize these personnel, the business may be unable to grow and the revenue and profitability could decline. Further, increases in wages and other employee benefit expenses for such personnel could prevent them from sustaining the competitive advantage.

The Company may be unsuccessful in operating and expanding into new markets

The Company conducts its business in various jurisdictions globally and may be unsuccessful in operating and expanding into new markets and face numerous legal and regulatory requirements while operating and expanding and violation of these regulations could harm the business.

Financial Performance

As per the financial statements of the Company, here are Financial Highlights for FY22 compared to FY21:

Income Statement:

1. Total income for the fiscal year 2022 (FY22) increased by 47% to Rs. 3578 crore, compared to Rs. 2425 crore in the fiscal year 2021 (FY21). This indicates a significant growth in revenue.

2. Expenses in FY22 increased by 42% to Rs. 2991 crore, compared to Rs. 2105 crore in FY21. This increase in expenses is attributed to various factors such as higher production costs, marketing expenses, or administrative costs.

3. The profit before tax in FY22 showed a substantial growth of 86%, reaching Rs. 586 crore, compared to Rs. 315 crore in FY21. This increase indicates improved operational efficiency and profitability.

4. The profit after tax of the company in FY22 increased by 82% to Rs. 436 crore, compared to Rs. 239 crore in FY21. This growth in net profit highlights the company’s ability to generate higher earnings after accounting for taxes.

Balance Sheet:

1. The total assets of the company in FY22 increased by 18% to Rs. 4217 crore, compared to Rs. 3572 crore in FY21. This rise suggests an expansion in the company’s asset base, which could include investments in property, plant, and equipment or acquisitions of other businesses.

2. The total equity and liabilities of the company also increased by 18% to Rs. 4217 crore in FY22, compared to Rs. 3572 crore in FY21. This indicates an increase in the company’s financial obligations and shareholder equity, which could be due to factors such as additional borrowings or capital raised from investors.

Cash Flow Statement:

1. The net cash used in operating activities in FY22 was Rs. (38) crore, indicating a cash outflow from the company’s core operations. In contrast, in FY21, the company generated cash of Rs. 1112 crore from its operating activities. The change in cash flow from operations can be attributed to various factors, such as changes in working capital or operating efficiency.

2. The net cash generated from investing activities in FY22 was Rs. 74 crore, compared to Rs. (673) crore used in FY21. This indicates that the company generated positive cash flow from its investment activities, which could include proceeds from the sale of assets or investments.

3. The net cash used in financial activities of the company remained the same at Rs. (44) crore in both FY22 and FY21. This suggests that the company did not have significant cash flow changes related to financing activities, such as raising or repaying debt, issuing or buying back shares, or paying dividends.

4. The net cash and cash equivalents at the end of FY22 amounted to Rs. 768 crore, slightly lower than the Rs. 781 crore recorded in FY21. This indicates that the company had a slightly lower cash position at the end of FY22.