How TATA's Smart Moves are Transforming the Future of Technology - A Tale of Tata Technologies"?
Tata Technologies: The Game-Changer in the Indian EV Industry
Get ready to buckle up, folks, because Tada Technologies is about to take the IPO world by storm in 2023! This is an absolutely massive deal, considering it's been 18 years since a startup company has gone public in India, following in the trailblazing footsteps of the iconic Tata Consultancy Services. Remember how TCS became a rockstar in the Indian stock market, with a staggering 2,600% appreciation? Well, now it's time for Tata Technologies to take the reins and become a pioneer in the Evie revolution of India.
But hold your horses, because while most news outlets are just yapping about Tata Tech's financial numbers, we're here to do a deep dive into the real deal - the fundamental business strategy of the Tatas. What makes this IPO such a big deal for investors? What are the most important business verticals within Tata Technologies? What's the secret sauce behind the market conditions that are favoring the Tatas in the 21st century? And of course, what are the biggest threats out there that are challenging Tata Technologies' position in the market? Join us in this exciting episode as we uncover the answers to all these curious questions!
Additionally, the company has zero debt, meaning it has no debt obligations whatsoever. Furthermore, the company's current ratio is very robust, which measures its ability to pay short-term obligations. Specifically, Tata Tech has a current ratio of 1.87, which implies that for every rupee of short-term liability it owes, it has 1.87 degrees of assets to pay it off. While this is better than Reliance's current ratio of 1.11 and Adani ports' current ratio of 1.29, it is lower than key competitors such as Key IDs' current ratio of 2.51, Tata Alexei's current ratio of 4.13, LNT Technology Services' current ratio of 3.27, and Tata diag's current ratio of 1.87. In general, a current ratio of 1.5 to three is considered very good.
This strategy has given Tata Technologies an edge in the Indian EV industry, which is expected to grow at a CAGR of 44% from 2021 to 2026. The Indian government has also announced a slew of measures to promote EV adoption, including tax incentives, subsidies, and building EV charging infrastructure. These market conditions favor Tata Technologies, and the company has already secured contracts with major automakers like Jaguar Land Rover, Mahindra & Mahindra, and Ashok Leyland.
Hence, the Tata brand, its revenues, profits, and strong financial ratios are the main reasons why Indian investors are eagerly awaiting the Tata technologies IPO.
Tata technologies works in a domain called Engineering Research and Development Services. And if you don't know how an E r&d company works, here's a very, very simple explanation of the same.
Now, this special company is nothing but an engineering research and development company. So what this company will do is they will use computer simulations to actually identify the areas where the materials of the car can be changed.
For example, aluminum alloys are commonly used to make cars because they are both light and they have a high tensile strength. So it helps keep the overall weight of the car low and improves the fuel efficiency.
However, the problem with aluminum alloys is that they are very, very expensive as compared to other materials like steel. And this increases the cost of manufacturing of the product. But at the same time, if you use steel, steel is a very heavy material, so it increases the weight of the car, and then it decreases the fuel efficiency.
So this is where the E r&d company would use computer simulations to actually identify the most efficient shapes and thickness of the aluminum components. Similarly, the scientists will be able to identify which parts could be made using alternate materials like polymers or steel. And the engineers will also analyze the manufacturing process to identify the ways to reduce waste.
And this gives the clients three major advantages.
Number one, the client doesn't have to spend time, money and resources into hiring scientists, researchers and engineers. They don't have to buy expensive equipment, set up office infrastructure or even give funding so they can easily reduce a lot of their cost.
Secondly, even at lesser cost, the client still has access to world-class talent with advanced engineering capabilities, research centers, and even skilled scientists.
And lastly, this partnership can be crucial in an automaker's development of innovative Evie technologies. And this could include battery management systems, power trains, and even autonomous driving features. So these clients could innovate faster, better at lesser cost. Eventually, they could bring new products into the market faster.
Now the question over here is if this company was set up in 1989, why is it going IPO now? And what are the market conditions that are actually favoring this company right now? Well, firstly, India has emerged as a favorable distribution for outsourced e r&d spend. Why? Because foreign clients get the major advantage of reduction in cost, they get cheap labor in India. And this is not only because we charge less, but they also get the advantage of exchange rates. And this makes it extremely beneficial for them. Secondly, there is a steep curve in the Evie revolution globally.
And this is something that is quite obvious from this Bloomberg graph. This graph basically says that once a country touches the 5% market share of Evie in the market, the market share of Evie is more likely to explode to touch 25 to 30% in the next five years, and by 2029 48% of the passenger cars in the world are expected to be EVs which means Tata technologies addressable market is about to explode in the next four to five years. And thirdly, to push the Evie revolution further, the Indian government has announced policies in the budget that suggests that the Indian government is extremely bullish on the Evie revolution in the country even promote
so now the question we hear is if the government policies are favoring the TARDIS if the market is wearing the Tartars if the financials are favoring the Tatas, does this mean that Tata technologies is about to become the next TCS of India? Well, before you jump to any kind of conclusion like this, you also need to understand the risks that Tata is facing in the market. The question is, what the hell could be a risk to such an incredible company?
Well, there are three threads that we could find. The first thread is the constant Rated client base as of December 2020, do Tata technologies get 72.7% of its revenue from just five big clients. And the interesting part is two of them are their own companies, which are Tata Motors and Jaguar Land Rover, which accounted for almost 40% of the total revenues. This is what we call as concentration risk. So if a huge chunk of revenue is coming from only a few clients, it will drastically affect Tata technologies revenue, even if one of these clients goes bankrupt or chooses to start its own in house r&d department.
Secondly, since their biggest revenue stream comes from the automotive sector, if there is an economic slowdown, the automotive sector is going to be one of the first sectors to be hit. Why? Because cars are considered to be luxuries. And people often postpone their decisions of buying a car during an economic slowdown. So if the automotive sector gets hit, then Tata technology will also be hit. This is the reason why Tata tech is actually focusing on different locations such as China, North America and UK in order to diversify its clientele. And the last race that we could find is that talent pool in India.
Although we have a lot of population in India, there is still a very big gap in terms of the skill sets of our workers. And to do this, this data has actually signed a groundbreaking agreement with the government of Karnataka to revamp the 150 industrial training institutes in Karnataka. And Tara Tech has also collaborated with many state governments including Tamil Nadu, Assam and up so soon enough, these IDs will cater to advanced skill requirements of the industry 4.0 revolution and will help prospective employers to back great talents at scale. So, if the Tatas can actually diversify the clientele if the automobile sector is resilient enough to withstand the economic slowdowns, and if the Tatas are able to find a consistent pool of great talent, they will be able to detach themselves from the threats in the market. This is a story of the height of the Tata tech IPO, the business they do, the threats they face, and most importantly, their position and the growth story of India.
But hold your horses, because while most news outlets are just yapping about Tata Tech's financial numbers, we're here to do a deep dive into the real deal - the fundamental business strategy of the Tatas. What makes this IPO such a big deal for investors? What are the most important business verticals within Tata Technologies? What's the secret sauce behind the market conditions that are favoring the Tatas in the 21st century? And of course, what are the biggest threats out there that are challenging Tata Technologies' position in the market? Join us in this exciting episode as we uncover the answers to all these curious questions!
To begin with, the Tata technology IPO is highly anticipated among investors in India due to several reasons. Firstly, apart from the Tata brand and the Evie revolution, the strong financials of the company are a major attraction. Notably, the company's revenues have been growing steadily from INR 80 crores in 2003 to INR 3011 crores in FY 21 to the third quarter of FY 23. Similarly, its profits have increased from INR 239 crores in FY 20 to INR 124.7 crores in the same period.
Additionally, the company has zero debt, meaning it has no debt obligations whatsoever. Furthermore, the company's current ratio is very robust, which measures its ability to pay short-term obligations. Specifically, Tata Tech has a current ratio of 1.87, which implies that for every rupee of short-term liability it owes, it has 1.87 degrees of assets to pay it off. While this is better than Reliance's current ratio of 1.11 and Adani ports' current ratio of 1.29, it is lower than key competitors such as Key IDs' current ratio of 2.51, Tata Alexei's current ratio of 4.13, LNT Technology Services' current ratio of 3.27, and Tata diag's current ratio of 1.87. In general, a current ratio of 1.5 to three is considered very good.
This strategy has given Tata Technologies an edge in the Indian EV industry, which is expected to grow at a CAGR of 44% from 2021 to 2026. The Indian government has also announced a slew of measures to promote EV adoption, including tax incentives, subsidies, and building EV charging infrastructure. These market conditions favor Tata Technologies, and the company has already secured contracts with major automakers like Jaguar Land Rover, Mahindra & Mahindra, and Ashok Leyland.
Hence, the Tata brand, its revenues, profits, and strong financial ratios are the main reasons why Indian investors are eagerly awaiting the Tata technologies IPO.
Tata technologies works in a domain called Engineering Research and Development Services. And if you don't know how an E r&d company works, here's a very, very simple explanation of the same.
Let's say Tesla is releasing their new Evie model called Model X. And they need expertise in designing, developing and testing. And one of their problem statements is the reduction of cost.
Now to do this, Tesla has two options. Number one would be to set up an in house team of scientists, researchers and engineers who can actually do the designing, developing and testing of the product.
Now this will involve a tedious recruitment process payroll processes, HR heads, office infrastructure, giant high tech equipments, and a ton of other procedure work that will cost Tesla both a ton of time and a ton of money. But the second option that they have is to outsource this particular problem to a special company that already has engineers, scientists and researchers, who in fact specialize in this type of problem solving.
For example, aluminum alloys are commonly used to make cars because they are both light and they have a high tensile strength. So it helps keep the overall weight of the car low and improves the fuel efficiency.
So this is where the E r&d company would use computer simulations to actually identify the most efficient shapes and thickness of the aluminum components. Similarly, the scientists will be able to identify which parts could be made using alternate materials like polymers or steel. And the engineers will also analyze the manufacturing process to identify the ways to reduce waste.
Eventually, they'll be able to advise Tesla on where to use steel, where do you use aluminum alloys? Where do you use polymers and how to reduce waste in their manufacturing unit. And when this structure is followed, Tesla may be able to decrease the cost of its car by 4.5%.
This is how an engineering research and development company actually solves the pain points of their clients.
Number one, the client doesn't have to spend time, money and resources into hiring scientists, researchers and engineers. They don't have to buy expensive equipment, set up office infrastructure or even give funding so they can easily reduce a lot of their cost.
Secondly, even at lesser cost, the client still has access to world-class talent with advanced engineering capabilities, research centers, and even skilled scientists.
And lastly, this partnership can be crucial in an automaker's development of innovative Evie technologies. And this could include battery management systems, power trains, and even autonomous driving features. So these clients could innovate faster, better at lesser cost. Eventually, they could bring new products into the market faster.
Now the question over here is if this company was set up in 1989, why is it going IPO now? And what are the market conditions that are actually favoring this company right now? Well, firstly, India has emerged as a favorable distribution for outsourced e r&d spend. Why? Because foreign clients get the major advantage of reduction in cost, they get cheap labor in India. And this is not only because we charge less, but they also get the advantage of exchange rates. And this makes it extremely beneficial for them. Secondly, there is a steep curve in the Evie revolution globally.
And this is something that is quite obvious from this Bloomberg graph. This graph basically says that once a country touches the 5% market share of Evie in the market, the market share of Evie is more likely to explode to touch 25 to 30% in the next five years, and by 2029 48% of the passenger cars in the world are expected to be EVs which means Tata technologies addressable market is about to explode in the next four to five years. And thirdly, to push the Evie revolution further, the Indian government has announced policies in the budget that suggests that the Indian government is extremely bullish on the Evie revolution in the country even promote
Well, there are three threads that we could find. The first thread is the constant Rated client base as of December 2020, do Tata technologies get 72.7% of its revenue from just five big clients. And the interesting part is two of them are their own companies, which are Tata Motors and Jaguar Land Rover, which accounted for almost 40% of the total revenues. This is what we call as concentration risk. So if a huge chunk of revenue is coming from only a few clients, it will drastically affect Tata technologies revenue, even if one of these clients goes bankrupt or chooses to start its own in house r&d department.
Secondly, since their biggest revenue stream comes from the automotive sector, if there is an economic slowdown, the automotive sector is going to be one of the first sectors to be hit. Why? Because cars are considered to be luxuries. And people often postpone their decisions of buying a car during an economic slowdown. So if the automotive sector gets hit, then Tata technology will also be hit. This is the reason why Tata tech is actually focusing on different locations such as China, North America and UK in order to diversify its clientele. And the last race that we could find is that talent pool in India.
Although we have a lot of population in India, there is still a very big gap in terms of the skill sets of our workers. And to do this, this data has actually signed a groundbreaking agreement with the government of Karnataka to revamp the 150 industrial training institutes in Karnataka. And Tara Tech has also collaborated with many state governments including Tamil Nadu, Assam and up so soon enough, these IDs will cater to advanced skill requirements of the industry 4.0 revolution and will help prospective employers to back great talents at scale. So, if the Tatas can actually diversify the clientele if the automobile sector is resilient enough to withstand the economic slowdowns, and if the Tatas are able to find a consistent pool of great talent, they will be able to detach themselves from the threats in the market. This is a story of the height of the Tata tech IPO, the business they do, the threats they face, and most importantly, their position and the growth story of India.
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