ICICI Securities has maintained its BUY rating on Tata Technologies (TATATECH) with an unchanged target price of INR 1,290, representing a 23% upside. The brokerage's bullish stance is driven by TATATECH's demonstrated capabilities in ICE-to-EV conversion, software-defined vehicles (SDV), and plant engineering, positioning the company to capitalize on the automotive industry's transformation.
Key Highlights from the Report:
- Strong ICE-to-EV Conversion Expertise: TATATECH's successful conversion of Tigor and Tiago models from ICE to EV has equipped it with valuable skills in this domain, including managing weight, cooling systems, and powertrain installation.
- Expanding SDV Capabilities: TATATECH is actively transitioning towards a software-focused portfolio, with strong capabilities in SDV. This includes developing application software, functional safety systems, and middleware for the increasingly complex electronic architecture of modern EVs.
- Plant Engineering as a Growth Driver: Beyond EV-related services, plant engineering is emerging as a significant growth area for TATATECH. The company has secured a key US-based OEM client and is leveraging its expertise in robotics and process optimization to streamline manufacturing processes.
- Strategic Partnerships: TATATECH is actively forging partnerships with OEMs, semiconductor manufacturers, hyperscalers, and battery makers to establish a strong foothold in the EV ecosystem. Notably, the company has an exclusive partnership with Agratas for battery solutions.
- New Client Wins: TATATECH has added marquee names to its client roster, mitigating potential downside from the VinFast ramp-down. The company is also deepening its relationships with existing clients like JLR and BMW.
Analyst's Rationale and Key Insights:
ICICI Securities believes that TATATECH's robust skillset in EV engineering, particularly its ability to convert ICE vehicles to EVs without significant changes to design or cost, gives it a competitive edge in India and South Asian markets. The company's foray into SDV and its growing plant engineering business further broaden its revenue streams and position it for long-term growth. Moreover, strategic partnerships with key players in the EV ecosystem enhance TATATECH's offering and solidify its position.
The report highlights that TATATECH is leveraging AI/gAI in various areas, including product design, digital twins, sales pitches, and car insurance sales, to enhance productivity and innovation. The company is also actively working on developing battery solutions for 2-3 wheelers, which could become a key differentiator in the cost-sensitive EV market.
Potential Risks and Challenges:
The report acknowledges the risk of under-penetration in Europe and the potential for other verticals to not fully compensate for the VinFast ramp-down. However, the addition of new marquee clients and the company's diversified portfolio are expected to mitigate these risks.
Forward-Looking Outlook:
ICICI Securities anticipates that TATATECH's revenue will continue to grow at a healthy pace, driven by strong demand for EV engineering services, expanding SDV capabilities, and the growing plant engineering business. The company's focus on strategic partnerships and its expertise in AI-driven solutions are expected to further enhance its growth trajectory.
Valuation:
ICICI Securities uses a forward price-to-earnings (P/E) multiple of 56x, which is in line with TATATECH's lifetime median/average P/E, to arrive at its target price of INR 1,290.
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