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Tata Technologies nearly trebled during its trading debut on Thursday, smashing the record for the best-listing day performance for an initial public offering (IPO) of more than Rs 500 crore.
Shares closed at Rs 1,327, up Rs 827, or 2.65 times, over its issue price of Rs 500.
The stock hit a high of Rs 1,400 and a low of Rs 1,200 on the National Stock Exchange, where equity of over Rs 6,000 crore was traded.
At the close, the global engineering research and development player was valued at Rs 53,820 crore, making it the ninth-most valuable listed firm in the salt-to-software Tata Group empire.
The huge gains surprised most on the street as the estimates for the day one pop ranged between 70 per cent and 90 per cent.
Tata Tech’s Rs 3,042-crore IPO, the first by a Tata Group firm in nearly two decades, had garnered nearly 70 times subscription, with bids exceeding Rs 1.5 trillion.
The offering saw a record 7.3 million applications, the most for a domestic IPO. Given the huge subscription, only a lucky few applicants got an allotment. As a result, the demand spilt over to the secondary market, with investors willing to pay huge premiums to gain ownership in a company seen as benefiting from the global transition towards electric and autonomous vehicles.
Tata Tech is a product development and digital solutions provider for auto original equipment manufacturers.
“Tata Tech, deriving 70 per cent revenue from autos vertical, should benefit from this upcycle. Its auto vertical has grown strongly at 44 per cent, 27 per cent and 15 per cent in FY22, FY23 and H1FY24, respectively. Tata Tech has traditionally been strong in body engineering, but it is adding capabilities in high-growth areas like EVs development, connected and autonomous cars, embedded electronics,” said a note by Phillip Capital.
Tata Tech is an arm of Tata Motors, which owns the Jaguar Land Rover brand. Following the IPO, Tata Motors’ stake in the company has dropped from 64.79 per cent to 53.39 per cent.
In October, Tata Motors sold nearly 10 per cent in Tata Tech to investors, led by private equity major TPG, at a valuation of just Rs 16,137 crore.
The more than 150-year-old Tata Group’s last IPO was Tata Consultancy Services (TCS), now the country’s largest software exporter. In July 2004, TCS came up with an IPO of about Rs 5,500 crore, largest by a private firm back then.
The listing-day gain for TCS was relatively modest at just 26 per cent. However, the software giant has delivered annual returns of over 20 per cent since its listing.
Experts say the sharp jump in Tata Tech’s valuations is pricing in lofty growth expectations. The company now trades at 66 times and 57 times its estimated earnings for FY25 and FY26, respectively.
“We believe these valuations are not sustainable, and we would recommend booking profits on the counter over the next couple of weeks. For long-term investors we believe that there would be better entry points in the next five-six months when this stock could be available at cheaper valuations,” said Amit Goel, co-founder and chief global strategist, Pace 360, a portfolio management services firm.
