Tata Motors stands to make 68 times return on the investment it made in its subsidiary Tata Technologies in the mid-1990s making it one of its most profitable bets.
The Mumbai-based automotive giant is set to raise a little under `2,300 crore at the upper end of the price band in the initial public offering (IPO) of Tata Technologies. The IPO which opened on Wednesday in the price band of Rs 475-500 was subscribed 6.55 times on the first day.
Incorporated as Core Software Systems in 1994 before changing the name to Tata Technologies in 2001, Tata Motors had made the acquisition of shares in the company at Rs 7.4 per share. The maker of luxury Land Rover SUVs and Prima trucks is offloading 4.5 crore shares in Tata Technologies.
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Alpha TC Holdings and Tata Capital Growth Fund 1 bought shares in Tata Technologies (TTL) at Rs 25.1, revealed the disclosure made in the prospectus.
In October, Tata Motors announced the sale of its 9.9% stake in TTL for an aggregate consideration of Rs 1614 crore. It entered into a share purchase agreement for the transaction with TPG Rise Climate being the lead investor.
The transaction which also included the sale of 0.9% stake to Ratan Tata Endowment Foundation for Rs 146.7 crore, gave TTL an equity valuation of Rs 16,300 crore.
The net automotive debt of Tata Motors at the end of the September quarter stood at Rs 38,700 crore. At Jaguar Land Rover the net debt stood at GBP 2.249 billion, which was half of the level it was a year ago. The company has committed to bring this down to under GBP 1 billion by the end of FY24.
TTL operates in the global engineering, research and development (ER&D) services industry, primarily across automotive, aerospace and TCHM verticals. The global ER&D spend for 2021 was approximately $1.64 trillion and is expected to grow to approximately $2.28-2.33 trillion by 2025.
The ER&D spend outsourced to third-party service providers reached $85-$90 billion in 2021 and is anticipated to grow at a 10-12% CAGR between 2021 and 2025, TTL said in its prospectus.
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“The key growth drivers within the ER&D market include an increasing propensity to outsource, increasing regulatory interventions for safer and cleaner products, shrinking product innovation cycles and next-generation product technologies,” it further added.
Tata Motor, Jaguar Land Rover and Vietnam’s VinFast are some of the top five clients of TTL. The revenues of TTL highly depend on the automotive segment followed by industrial, aerospace and defence.
“We believe Tata Technologies is well placed to encash on the growth opportunities in the ER&D space and looking at the relatively cheaper valuations, we recommend investors to subscribe to the issue,” SBI Securities said.
