Target: ₹490
CMP: ₹661.35
Tata Technologies’ Q3 revenue was aided by non-auto services, while margins were impacted by wage hike and a cybersecurity incident at JLR. The company is aiming for sequential growth of 10 per cent in Q4 in the services segment, led by normalisation of revenues at JLR, integration of ES-TEC numbers and continued growth in non-auto services revenues, which should not be challenging in our view.
We maintain our view that in the medium term, due to planned scaling down of product investments by its anchor clients, JLR and Tata Motors, auto services revenue may come under pressure. We raise our USD revenue estimates for FY27E-28E by 1-4 per cent on integration of ES-TEC as well as strong growth in non-auto services revenues.
The mix of non-auto services revenues (catering to ER&D need of Aerospace and Industrial heavy machinery clients) has increased from 9 to 15 per cent and this segment has been growing at over 5 per cent CQGR in the past few quarters. This with ES-TEC acquisition has helped pare dependency on anchor clients, TML and JLR. However, as per our view, the contribution of anchor clients is still around 50 per cent and this segment may continue to be weak. We thus retain Sell with a lower TP of ₹490 from ₹515, based on 22x (unchanged) FY28E P/E.
Recovery in anchor client spend and higher-than-expected contribution from BMW JV are key risks to our call.