Ever since the bumper listing, shares of Tata Technologies have remained under pressure. Since the start of the year, the stock has gone down around 10%, but analysts at ICICI Securities see a turnaround ahead.

The Tata Tech Analyst: Ruchi Mukhija-led analyst team ICICI Securities initiated coverage on the stock with a price target of ₹1,330. The target indicates around 26% upside from the stock’s current market price of around ₹1,050.

The Tata Tech Thesis: The analysts said that Tata Technologies has a favourable position within the automotive Engineering Research and Development (ER&D) segment. The brokerage added that the Tata Group company benefits from the rapid growth in ER&D services, outpacing the broader IT services industry. The analysts attributed the growth in the sector to structural drivers such as increasing digital engineering adoption, India’s outsourcing advantage, and the imperative for speed to market.

The brokerage firm said that companies in the automotive ER&D sector, including Tata Technologies, have exhibited robust revenue growth, outperforming tier-1 IT services players. Tata Technologies is strategically positioned to transition from mechanical to electronics and digital services, supported by its ownership relationship with Tata Motors, its largest client. As per the analyst, this affiliation provides a competitive advantage, enabling Tata Technologies to leverage favourable growth dynamics and facilitate digital capability creation amid clients’ digital transformation journeys.

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The analyst also highlighted that Tata Technologies is a strategic vendor for 12 new energy start-ups, enhancing its services portfolio with cutting-edge digital engineering capabilities. The company’s collaboration with these start-ups underscores its commitment to upscaling its offerings, thereby driving future growth and diversification. Overall, Tata Technologies appears well-positioned to capitalize on industry trends and leverage strategic partnerships for sustained growth and innovation.

Compared to its peers, the brokerage firm said that Tata Tech is placed nicely in the middle of the roster including KPIT Tech, LTTS, TATA Elxsi, and Cyient. The analyst said that while the company has a high exposure to the growing automotive sector, unlike KPIT’s 100% reliance on automotive, it still enjoys a degree of risk diversification. Despite its EBIT margin trailing behind some peers, the brokerage pointed out that it has maintained stable and consistent margins over the past four years.

Price Action: Tata Tech’s share price was up 0.21% to trade at ₹1,052.90 on Thursday afternoon.

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