Tata Technologies shares in the unlisted markets have jumped over 30 percent over the past three weeks after the company said it would issue free shares and Tata Motors said it was considering partial disinvestment through an initial public offering. The shares climbed to Rs 7,300 apiece from Rs 5,500 in unlisted markets, a dealer said.
Tata Technologies recently announced a bonus issue of one new share for every share held and set January 16 as the record date. The company also announced a stock split of 5:1. Tata Motors said in a note to the exchanges on December 12 that it is exploring a partial divestment in the company. The proposed corporate action of split and bonus can be viewed as a preparatory step towards the IPO.
Tata Technologies is one of the blue chip stocks in the unlisted space, which investors seem to prefer over the new-age and loss-making businesses. The shares had surged six-fold to Rs 6,300 in October 2022 from Rs 1,050 in September 2020. The stock fell to Rs 5100 in November before rising again. Other unlisted stocks such as API Holdings, the owner of Pharmeasy, declined over 70 percent over one year. Le Travenues, the owner of ixigo, lost over 60 percent, Oyo owners Oravel Stays fell over 42 percent and One Mobikwik Systems dropped 70 percent, a dealer said.
Analysts attributed the six-fold surge in the Tata Tech stock price over the past two years to better-than-expected earnings. Founded in 1989, Tata Technologies offers a range of services in industries such as electric vehicles, aerospace, heavy engineering, and software products.
The company reported revenue of Rs 3,529.57 crore in FY22, up 48 percent from a year ago, while net profit jumped 83 percent to Rs 436.97 crore. Operating margin was 18.3 percent compared with 16.3 percent in FY21. Revenue from sale of services increased 38.4 percent to Rs 2,654.8 crore from Rs 1,917.7 crore in FY21, while technology solutions revenue increased 88.6 percent to Rs 873.61 crore.
The company depends mostly on the Tata Group for business, especially Tata Motors and Jaguar Land Rover. However, Tata Tech has increased the share of business generated outside. Its non-captive account contribution increased to 64 percent in FY22 from 46 percent in FY20.
“The most gratifying aspect of this growth is that it has been driven by accounts outside of TML and JLR (captive accounts), with non-captive account revenue contribution increasing in FY22, allowing us to de-risk our excessive reliance on captive accounts,” the company said in its annual report. Its cash position improved to $165 million, up 43 percent. Its services order book expanded to $250 million as of March 2022, an increase of 29 percent from levels in March 2021.
Tata Technologies posted solid growth in FY22, and investors are optimistic about continued growth due to the company’s presence in the EV market, Tata Motors holds a 74.4 percent stake in Tata Tech. In June 2017, Tata Motors proposed selling a 43 percent stake in Tata Tech to private equity firm Warbug Pincus for $360 million. However, the plan was called off in February 2018 after it failed to get regulatory approvals and performance challenges due to market conditions.
Separately, direct-to-home platform Tata Play was reported to have filed its draft red herring prospectus confidentially with the Securities and Exchange Board of India on November 29.
IPOs by Tata Tech and Tata Play would be the first for the Tata Group since 2004 when Tata Consultancy Services listed. They would also be the first under N Chandrasekaran, who took over as Tata Group chairman in 2017.