JM Financial initiates coverage on Tata Technologies with ‘Buy’ rating; Check target price and key triggers

Education business: The company has bagged agreements from six state governments for upgrading industrial training institutes.

We estimate a 15% EPS CAGR over the same period, aided by a c.100bps EBITDA margin expansion

Being highly optimistic on the prospects of ER&D, or Engineering, Research, and Development, domestic brokerage JM Financial has initiated coverage on Tata Technologies with a target price of Rs 1,360. This implies a potential gain of over 16 per cent from the last closing price of Rs 1,170.9.

The brokerage opines that Tata Technologies is a play on electrification. The brokerage estimates that the company could exploit the huge potential the industry offers, as the electric action theme could drive $35 billion of incremental outsourced auto ER&D spend over 2023–27E.

“It has developed specialised and full vehicle development solutions for both BEV and PhEV. It was responsible for the full vehicle development of Vinfast’s EV models, VF 6 and VF 7. It worked on the ICE-to-EV conversion of the Tata Tigor and Tata Tiago. It has developed lightweight structure expertise, a key requirement for EVs, through its deep engagements with JLR. These are strong reference points for OEMs to engage with Tata Technologies in their EV programmes,” stated the brokerage.

Further, the brokerage highlighted three near-term tailwinds:

Anchor clients’ growth momentum: The company’s plan for the EV model launches, coupled with JLR’s plan in the area, will help the company.

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The company’s empanelment with Airbus will also augur well for the company.

Education business: The company has bagged agreements from six state governments for upgrading industrial training institutes.

“With agreements from six state governments and INR 22.9 billion of contracted revenue in hand already, Tata Technologies is well placed to tap this opportunity,” noted the brokerage.

On the revenue front, the brokerage has estimated revenue to grow at a 13 per cent CAGR over FY23–26E. “We believe growth could bounce back to mid-to-high teens once drag from Vinfast abates. We estimate a 15% EPS CAGR over the same period, aided by a c.100bps EBITDA margin expansion,” added JM Financial.

The brokerage values the stock at 60x (vs. the current 58x FY25E PER). Any correction in the stock should be bought into, the brokerage points out.

Shares of Tata Technologies made a historical listing with jaw-dropping gains of 140 per cent at Rs 1,200 last year. The IPO price was pegged at Rs 500 apiece. The new target price set by the brokerage implies a run-up of 13 per cent from the listing price.

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