Tata Tech: The new entrant of Tata Group

In the Tata Group, a new chapter is about to unfold! Tata Technologies Limited, a wholly-owned subsidiary of Tata Motors Limited, will be the first Tata Group IPO since TCS went public in 2004. The spotlight is on Tata Technologies as it opens its IPO exclusively as an OFS (offer for sale) on November 22, 2023.

Tata Technologies is an engineering services provider offering product development and digital solutions to original equipment manufacturers. It is renowned for its prowess in the automotive industry and leverages this domain expertise in other segments, such as aerospace, transportation, and heavy construction machinery.

The listing of Tata Tech will add to the Tata Group's extensive portfolio of listed technology companies. The biggest among them is TCS, and the one most similar to Tata Tech is Tata Elxsi.

TCS

TCS has a market capitalisation of around Rs 12,00,000 crore and is commonly referred to as Tatas' cash cow. It is a global IT company with over $27 billion in revenue that has been partnering with many of the world's largest businesses in their transformation journeys for over 50 years.

The company operates in several business segments, including:

• IT services: Provides solutions for customers in various industries, including banking, finance, healthcare, insurance, manufacturing, retail, and telecommunications.
  
• Consulting services: Helps customers in areas like digital transformation, customer experience, and enterprise performance.
  
• Business solutions: Creates industry-specific business solutions to customers in areas such as retail, logistics, and utilities.
  
• igital services: Provides services such as analytics, artificial intelligence, automation, and the Internet of Things
  
• Engineering and R&D services: Offers Engineering and R&D services to customers in various industries, including automotive, aerospace, and industrial manufacturing.

Tata Elxsi

Tata Elxsi , founded in 1989, is the company most similar to Tata Tech. It started with a focus on computer-aided design and manufacturing and soon pivoted to the burgeoning field of digital media in the 1990s. Tata Elxsi supports clients in reimagining their products and services by applying design thinking and digital technologies such as IoT (Internet of Things), cloud, mobility, virtual reality, and artificial intelligence.

As we can see, both companies provide engineering and design services. Their size and scale are also similar. The similarities are due to an overlap of services and clientele profiles between the two.

However, they also have a few key differences.

A large chunk of Tata Tech's revenue comes from clients in India (32 per cent), while India accounted for only 16 per cent of Tata Elxsi's revenue.

Tata Technologies is a pure-play ER&D (Engineering Research and Development) company focused on the auto sector, constituting 88 per cent of its revenue. Tata Elxsi has a presence in both the auto sector(42 percent) and the broadcast communication and healthcare sectors.

On comparing their financials, Tata Elxsi seems to be a more efficient player. Tata Tech's relatively subdued performance can be reasoned due to its high attrition levels and significant focus on 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

To conclude

Even though all three of these companies are in the same industry, they are different in terms of their product offerings, clients and margin profile. Moreover, it can be seen that Tata Technologies serves more as an in-house tech support for their automotive giant, Tata Motors.

While TCS and Tata Elxsi have become wealth creators for shareholders, only time will tell whether Tata Technologies will join the ranks once it lists in the next week.

Also read: TCS announces buyback