Global private equity fund Warburg Pincus is set to pick up 43 per cent stake in Tata Technologies for USD 360 million, in a deal that will see part-exit by Tata Motors in the engineering outsourcer.
The deal will also see Tata Capital fully exiting the company by divesting its 13 per cent stake held through Tata Growth Fund and Alpha TC Holdings, while Tata Motors will sell 30 per cent to get its holding down to 43 per cent, the same as the new investor.
The deal comes after the Tata Group has reportedly decided to bring down cross-holdings in the group so that these companies can focus more on their core businesses as well as unlock shareholder value. According to reports, various group companies own shares worth tens of thousands of crores in each other and this was one of the charges that the ousted chairman Cyrus Mistry had made against Tata Sons' management.
Tata Technologies is a global engineering services and product development IT company which employs over 8,500 in 23 countries. It provides services for advanced engineering, R&D, and connected IT solutions.
The company had revenue of USD 423 million in fiscal 2017 and is targeting for a 16-20 per cent topline growth over the next three-five years, managing director and chief executive Warren Harris told PTI.
Its pre-tax had stood at USD 73 million in last financial year, while net profit was USD 53 million, he said.
Harris denied any plans of listing, saying Warburg typically stays invested in a company for five to seven years. But he clarified that Warburg's involvement will be more than a financial investor, saying it will guide the company in its next phase of growth through its two board positions.
"The partial divestment is part of Tata Motors' plan to strategically monetise part of the value created while also inducting a valuable partner, together with whom the company can excel in its next phase of growth," Tata Motors group chief financial officer C Ramakrishnan said.
Harris said the deal needs to be approved by the Competition Commission, which will take about two months.
The focus of the company at present is to increase the non-Tata group revenue to beyond the current 50 per cent, and also the contribution of offshoring or the work done in the country to beyond the current 27 per cent.
At present, the auto industry accounts for 70 per cent of its revenues, followed by around 12 percent from the industrial and machinery sector and 9 percent from the aerospace sector.
Harris said the company is also looking at bidding for defence projects. It is also looking at more acquisitions, he said, adding one such deal was sealed earlier this year.
Following the transaction, Tata Motors and its affiliates will continue to hold 43 per cent in Tata Technologies with the remaining ownership being held by the management team and other shareholders.
Warburg Pincus India managing director and co-head Vishal Mahadevia said the company is looking forward to back management team at Tata Technologies and leveraging Warburg Pincus' global network to help grow the business.
The Tata Motors scrip shed 0.70 per cent to close at Rs 448.45 on the BSE as against a 0.26 per cent correction in the benchmark Sensex. The deal was announced after the market hours.
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