Mumbai: IPO-bound Tata Technologies expects a bump in demand from Tata Group anchor clients Jaguar Land Rover (JLR) and Tata Motors in the near term, Warren Harris, chief executive of Tata Technologies Ltd said in an interview. The company though will continue to diversify revenue sources to other companies and segments over time.
Both Tata Motors and JLR expect to increase their capex which eventually will benefit Tata Tech, he said.
“Both companies have been through some headwinds. And JLR has recently been grappling with the semiconductor challenge. Tata Motors really didn’t turn around that passenger vehicle business until three, four years ago. But because of the success of transitioning through those headwinds, both companies are much more bullish about their short, medium and future prospects and as a result, have confirmed increases in their capex,” Harris said.
He said that Jaguar is being introduced next year as an all-electric brand. Tata Motors has about an 80% market share in electric vehicles and is investing very heavily to protect that share.
“That will provide demand, and although we have reduced the contribution from Tata Motors and JLR, over the last 10 years, we think that in the next couple of years, things may bump up a little bit before the trajectory of reduction continues,” Harris added. Currently, Tata Tech earns about 33% of its revenues from its two anchor clients, which is much less than 2014, when over 70% of its revenues were from the duo.
The company saw its revenues grow 25% to ₹4,414 crore for the period ended 31 March, 2023. Its profit after tax grew 42.8% to ₹624 crore for FY23. For the first half ended 30 September, the company recorded a revenue of ₹2,526.7 crore and its profit stood at ₹351.9 crore.
Tata Tech is working at diversifying its revenue base outside of the automotive segment, which earns the company over 90% of its revenue currently. It also expects future revenue to come from allied sectors such as aviation, transport and construction.
Aerospace is likely to be a huge segment for the group, in the context of overall doubling of commercial aircraft to 46,000 over the next 20 years, he said.
“The demand will come from Asia. It will come from countries like India, and groups like the Tatas that are investing in aerospace will be ideally positioned. We think that that will provide tailwinds for us. And we think that the type of accreditation that we’ve received from Airbus will position us very effectively,” Harris said.
Other sectors where Tata Tech expects to diversify include transport, construction and heavy machinery – which will include areas like mining equipment, farming equipment and construction equipment.
Within automotive segment, electric vehicle is the future of auto firms focussing on alternative propulsion engines. This has also opened up the startup ecosystem as a potential market for Tata Technologies, though the company will be thoughtful about the risks that presents, Harris said.
“Not all of those companies are well capitalized, not all of those companies have really thought out what it’s going to take to mass produce a product. And so, we do our due diligence, when it comes to the opportunities that present themselves (in the startup EV ecosystem),” he said.
Harris cited the example of the Chinese market where in 2017, there were 400 companies that were claiming to develop electric vehicles. “Now there’s less than 14, and then in all probability in in five years time, they’ll be less than 10 that will be viable. We’ve seen that play out on the west coast as well,” he said, adding that the company had developed a “mature understanding” of how to do due diligence in the sector, to ensure that it is “working with those companies that have the best chance to be successful,” he said.
The initial public offering of Tata Tech will open on 22 November and the shares are expected to list on the exchanges by the end of November. The IPO will be a full offer for sale of ₹3,042 crore with Tata Motors and Tata Capital being the selling shareholders.