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Tata Tech – Pivoting from mechanical to electronics, digital services

Tata Technologies Ltd. offers an opportune entry into the fastest-growing auto-engineering, research and development segment (versus IT services peers).

Amplifying Tata Technologies’ proposition are structural catalysts that will help the company transition its services portfolio and encompass the much desirable digital engineering sub-segment.

The Tata Group lineage too helps Tata Tech augment synergistic advantages in the aviation sub-segment. While we note that a client-specific ramp-down poses a challenge for growth, we see this as transient; in our view, prevalent and potential growth eclipses the ramp-down.

On balance, we forecast 13%/18% revenue and 16%/23% EPS growth in FY25E/26E with 23–25% return on equity.

We initiate with Buy and a target price of Rs 1,330 on a one-year forward PE of 56 times (in-line with lifetime median/average PE) on FY26E EPS of Rs 23.8.

Key risks: Under-penetration in Europe; and other verticals being unable to adequately compensate for VinFast’s ramp-down. ICICI Securities

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