TATATECH - Tata Technologies Limited Share Price

The management of Tata Technologies provided a cautiously optimistic outlook, expecting gradual improvement as market conditions stabilize. Key points include:

1. Growth Drivers: Despite economic uncertainty, Q3 saw 1.7% sequential revenue growth (constant currency). Services grew 1.1%, while Technology Solutions rose 3.7% (55% surge in products business offset Education segment delays). Education is expected to rebound in early 2025 once infrastructure delays resolve.

2. Sector Trends:

   • Automotive: Near-term delays due to regulatory uncertainty (U.S./Europe) and EV demand moderation, but OEMs are expected to diversify investments into EVs, hybrids, and ICE, aligning with Tata's expertise.
   • Aerospace: Robust 39% sequential growth, with strong order momentum anticipated in Q4 and FY26.
   • Industrial Heavy Machinery: Steady demand.

3. Deals & Innovation: Closed 4 strategic deals in digital engineering, smart manufacturing, GenAI, and embedded software. Launched a proprietary AI/GenAI platform for predictive analytics and workflow optimization, already deployed for a North American Tier 1 client. BMW partnership scaling (1,000+ employees targeted by 2025).

4. Margins & Financials: EBITDA margin held at 17.8% despite salary hikes (150 bps impact), aided by cost optimization. Net cash position improved to $154M. Attrition fell to 12.9%, with talent development in emerging tech.

5. Outlook: Policy clarity (post-U.S. elections) and stabilizing markets expected to revive R&D spending. Medium-term EBITDA margin target of 20%+ remains, supported by operational discipline and pipeline strength. Diversification across automotive, aerospace, and industrial sectors underpins resilience.

Question 1:
"My first question is just around the environment for spending on electric vehicle R&D and autonomous vehicle R&D... What are your initial thoughts on emerging US policy changes post-presidential inauguration?"
Answer Summary:
Warren Harris anticipates potential revisions to US EV incentives under the new administration, leading OEMs to diversify investments across EVs, hybrids, and ICE. Tata Technologies' expertise across all three areas positions it to benefit from renewed R&D budgets as policy clarity emerges.

Question 2:
"What is the rough size of the aerospace business as a percentage of total revenues today?"
Answer Summary:
While not disclosing exact figures, Harris highlights aerospace as the fastest-growing vertical due to design authority accreditation and strong demand. It remains a smaller but increasingly material segment, supported by deals in digital manufacturing and aerostructures.

Question 3:
"How is the deferred income from the BMW JV accounted for? Is this recurring?"
Answer Summary:
Savitha Balachandran clarifies that deferred income (INR 8.3 crores) reflects fair value gains from the BMW JV's call/put options and is reported under "other income." This is recurring, alongside the share of profit (INR 56 lakhs), both contributing to operating profit.

Question 4:
"How do regional demand trends (US, Europe, Asia) compare, and which geography will recover first?"
Answer Summary:
Asia remains stable, while the US and Europe face slowdowns. Europe's recovery may lag due to regulatory responses to Chinese competition. Policy clarity in the US is expected to revive investments sooner, with Tata's global footprint offering balanced exposure.

Question 5:
"Does the slowdown in Europe risk BMW JV capacity expansion plans?"
Answer Summary:
No. BMW's strong balance sheet and long-term focus ensure continued investment. The JV is scaling rapidly in India, aiming for 1,000+ employees by 2025-end, unaffected by cyclical challenges.

Question 6:
"How long will the slowdown last, and are OEMs discussing cost-takeout deals?"
Answer Summary:
Harris expects improvement by early FY26. Conversations with OEMs include creative solutions like offshore capability carve-outs and hardware-as-a-service models, though these are not yet factored into forecasts.

Question 7:
"Is Tata Tech insulated from ER&D headwinds due to anchor clients (JLR/Tata Motors)?"
Answer Summary:
Anchor clients remain robust, with no material changes. Global diversification balances exposure, but Tata Tech's automotive focus leverages structural shifts (EVs, software-defined vehicles) for sustained growth.

Question 8:
"What aerospace services are driving growth?"
Answer Summary:
Growth stems from digital manufacturing (e.g., Airbus throughput optimization) and aerostructures (e.g., interiors). MRO is stable, while propulsion engagements are nascent but promising.

Question 9:
"Why did the 10"“15 million client bucket decline sequentially?"
Answer Summary:
The drop reflects the runoff of the large VinFast project. Excluding VinFast, services revenue grew 17% YoY, underscoring underlying business strength.

Question 10:
"Is overdependence on automotive a risk? What diversification progress exists?"
Answer Summary:
While automotive dominates, aerospace and industrial machinery are growing. Cross-sector fungibility (e.g., smart manufacturing) and tech investments (AI/GenAI) mitigate cyclical risks.

Question 11:
"Are growth strategies overly reliant on policy clarity? How is internal readiness prioritized?"
Answer Summary:
Internal investments in AI/GenAI platforms and IP aim to drive growth irrespective of external conditions, enhancing value propositions during budget constraints.

Question 12:
"Could Western auto OEMs face existential collapse, and can they compete with Chinese EVs?"
Answer Summary:
Consolidation is likely, but Western OEMs' innovation and scalability will counter Chinese advantages. Tata Tech sees opportunity in supporting EV cost optimization and tech parity efforts.

Question 13:
"Are clients deferring projects or delaying new deal ramps?"
Answer Summary:
Existing projects continue unaffected. New business delays stem from deferred power-train decisions, expected to resolve with 2025 policy clarity.