The Q2 results by Tata Technologies Ltd missed analyst estimates, as the strategic consideration between electric vehicles (EVs) and hybrids led by polarised policy positioning, ahead of the US presidential elections, led to decision-making delays. The regulatory concerns related to Chinese OEMs and associated tariff in the Europe added to the woes. These concerns are leading to tapering of demand and smaller deal sizes, as customers are cautious to committing larger, long-term projects, analysts said adding that the narrative is changing in the automotive ER&D space.
"This likely reflects a shift from accelerated adoption to protectionism and pricing pressure, which in-turn could moderate capex intensity, a key rationale for our Reduce rating. We retain our estimates, our target price of Rs 740 and await a better entry valuation," said InCred Equities.
JM Financial said Tata Tech's sequential growth missed its estimates, as Soft Services growth belied better underlying volume growth. There was 370 bps QoQ increase in offshore revenues, as clients pushed for cost savings, deflating revenues to an extent, it said.
"This aligns with KPIT’s commentary on clients’ offshoring ask. There are two ways to view this. One can see offshore-led revenue deflation as an outcome of weaker demand, a negative. Or, this can be a precursor to higher offshoring trend, leading to market share gains for offshore players such as TATA Tech and KPIT Tech. We think it’s the latter," JM said.
That said, JM believes a weak demand environment caused elongated decision cycle and delays in project starts, likely pushing out some revenues to Q3.
"That informs management’s better 2H outlook, despite 3Q seasonality (lower billing days etc.). Ramp-up of BMW JV (1st Nov) is another growth vector. Besides, Tata tech continues to leverage group synergies. Collaboration with Air India is the latest example (Anchor clients, Agratas, Airbus are few others). These are strong underpinning for a long-term structural growth," JM Financial said.
This brokerage retained its 'Buy' with a revised target of Rs 1,290 from Rs 1,300.