Tata Technologies, a prominent automotive and engineering, research and development (ER&D) services firm, disclosed a sequential constant currency revenue growth of 1.9% to $154.8 million. Simultaneously, the net profit witnessed a 6.1% sequential rise. Despite these positive figures, Warren Harris, the Managing Director and CEO, expressed caution in a post-earnings interview with Mint, indicating a potentially subdued conclusion to the ongoing financial year.
Performance Overview and Short-Term Challenges
Harris noted that the quarterly performance was in line with expectations, with some moderation in the growth rate attributed to the softness typically observed in Q3 due to festivals and holidays. He highlighted the completion of an engagement with a south-east Asian OEM, impacting resources and hindering the growth recorded over the last few years. However, he anticipates a more robust performance in Q1FY25.
Future Outlook and Strategic Alliances
Harris conveyed optimism for FY25, citing key deal signings and strategic partnerships, including collaborations with Agratas on battery technology, and Intel and Arm on electric and software-driven vehicle (SDV) propositions. Despite ongoing challenges in Q4, he foresees a return to stronger sequential growth in the next fiscal year.
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Market Position and IPO Performance of Tata Technologies
Tata Technologies, having become the first Tata group company to list on a public exchange since 2004, experienced a successful IPO on November 30. Although the shares opened at ₹1,200, marking a 2.4x rise from the IPO price of ₹500, they closed at ₹1,144.20 on Thursday, down from a high of ₹1,400 post-listing.
Dependency and Growth Strategies
Addressing concerns about dependence on the parent group, Harris clarified that they presently draw under 33% of operating revenue from Tata Motors and Jaguar-Land Rover, with plans for a short-term increase due to Tata Motors’ electrification initiatives. However, he expects a decrease in the medium to long term. Emphasizing customer retention, he stated that 98% of annual revenue comes from existing clients.
Analyst Perspectives
Analysts express mixed views, with one suggesting steady growth if client distribution improves, while another sees potential for sustained growth in the automotive and ER&D sectors. The latter analyst notes strong spending in these sectors, driven by large contracts and software demand from auto OEMs.
Market Competition and Unique Value Proposition
Harris acknowledges the entry of large IT services firms into the automotive and ER&D space but asserts the significance of Tata Technologies’ domain knowledge as a factor that will matter to the market and clients in the long run.