Tata Technologies

Stock Analysis & Valuation
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Tata Tech has announced JV with BMW

What perplexes me is why a company (BMW) which operates in same segment like Tata Motors (parent of tata tech) are joining hands.

Technically the 50 day DMA looks like a resistance for the stock.

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Don’t see any problem with that. If IP violation is an issue, TCS, owned by Tata Sons (which owns Tata Motors and in turn Tata Tech also), serves many automobile customers and so does Tata Elxi, another Tata Sons company. Also tie up with BMW doesn’t stop Tata Tech from signing up with other Auto OEMs who could also be BMW’s competitors.

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Tata Technologies Limited Q4 FY’24 Results Conference Call Transcript May 03, 2024

Automotive Sector

  • We closed a total of 12 large deals in fiscal '24, which included one $50 million plus deal and 5 deals in the $15 million to $25 million range.

  • We signed a strategic agreement with BMW to establish a JV in India that will be focused on developing next-generation automotive software and digital technologies that will further enable BMW to optimize how they manage their global enterprise.

  • Our customer pyramid has continued to improve with 2 customers added in the $10 million to $50 million category, two in the $5 million to $10 million category, and three in the $1 million to $5 million category.

  • Our services business, which formed 77% of our total revenue was flat sequentially, driven by the anticipated ramp-down at VinFast.

  • The rest of our services and businesses continued to show very healthy momentum with industry-leading sequential growth of 10.4% and full-year growth of 30%.

  • Our margin performance has remained resilient with operating EBITDA coming in at 18.4%.

Aerospace Sector

  • Our aerospace vertical continues to scale with opportunities opening up in North America, Europe, and here in India.

  • Whilst demand for high-end embedded and cybersecurity solutions has largely informed the growth that we see in the industrial heavy machinery sector.

  • We had two milestone wins in the quarter, which included the strategic partnership with BMW and a $30 million deal in the Education segment with the government of Telangana to modernize 65 state-owned ITIs.

  • We are currently providing to enable Tata Motors to develop an all-new battery electric vehicle for the Indian market using JLR’s EMA platform.

  • We are making good progress in deploying GenAI solutions for our customers in engineering, manufacturing, and various aspects of the customer experience value chain.

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Disc: invested at current levels

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Tata Technologies Q1 FY 2025 Earnings Call Summary

Revenue:

  • Overall revenue declined by 2.5% sequentially.
  • This was due to seasonality in the value-added product reseller business and the completion of the ramp down at VinFast.
  • Technology Solutions revenue (which includes the value-added product reseller business) declined by 7.4% sequentially.
  • Services revenue declined by 1% sequentially due to short-term phasing of a few large programs.

Profit:

  • Despite the decline in revenue, net profit increased by 3.1% sequentially.
  • Operating margin remained resilient at 18.2% compared to 18.4% in the previous quarter.

Growth Outlook:

  • The company expects sequential revenue growth to pick up from Q2 onwards.
  • This is supported by a healthy deal pipeline and order book.
  • Growth is expected to be range-bound across the remaining quarters.

Other Key Points:

  • The company won three large deals in Q1:
    • A multi-million dollar, multi-year award for battery and pack design services for a global EV battery manufacturer.
    • A turnkey development project for a new cab for a North American commercial vehicle manufacturer.
    • A large deal from a European Aerospace Tier 1 to develop first and business class seats for commercial airlines.
  • The company is confident in the long-term growth prospects of the engineering services sector driven by trends like electrification, autonomous vehicles, and connected and shared mobility.
  • The company is making significant investments in Gen AI (Generative AI) and training programs to capitalize on this growing market.
  • The company maintains a strong balance sheet with healthy cash flow and liquidity.

Analyst Questions and Answers:

  • The isolated cases of weakness in client demand were attributed to specific customer-related issues and not broader trends in the EV market.

  • The phasing issues with large projects are expected to be resolved in Q2.

  • The BMW joint venture is expected to launch in the second half of the fiscal year.

  • The services business (excluding VinFast) grew by 26% year-over-year.

  • The company sees an opportunity for increased contribution from the commercial vehicle segment in FY 25, but did not provide specific figures.

  • Semiconductor Business: The company sees an opportunity in smart manufacturing and is in discussions with some customers to leverage products from Tata Electronics.

  • Airbus: The company expects continued growth from Airbus in Q2 and H2 FY 25. They are also looking for additional opportunities beyond the current order book.

  • Margins: The company aims to maintain margins for FY 25, targeting the higher margin between Q1 and FY 24 exit margin.

  • Utilization Rate: The company is close to the optimal utilization level and will focus on improving onshore utilization. They will also continue hiring strategically while focusing on capability building.

  • Growth Opportunity: Among key sectors (aerospace, education, industrial, automotive), aerospace has the highest percentage growth potential due to a smaller base and recent investments. However, automotive remains the core business, driven by R&D in areas like autonomous driving and electric vehicles.

  • VinFast: The company has completed work on the two VinFast vehicles and expects a modest level of support going forward. They anticipate future opportunities if VinFast expands their portfolio.

I hope this is helpful!

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