Tata Technologies vs Tata Elxsi: How these 2 Tata group firms differ from each other

The initial public offer (IPO) by Tata Technologies Ltd kicked off on Wednesday, with many potential investors wondering the key differences between Tata Technologies and Tata Elxsi Ltd, two of over two dozen listed Tata group firms.

Tata Technologies, in its IPO red herring prospectus noted that Tata Elxsi is engaged, to a limited extent, in a similar line of business. But, to a limited extend.

Tata Technologies is a pureplay engineering, research and development, and digital solutions specialist offering end-to-end solutions across the value chain with a focus on manufacturing led verticals. Tata Elxsi, on the other hand, is a design specialist focused on software and digital engineering services.

The Tata group's flagship Tata Consultancy Services Ltd (TCS), meanwhile, is the largest IT service provider and offers end-to-end IT solutions across verticals.

There are some similarities between Tata Technologies and Tata Elxsi, as the former generated about 88 per cent of its revenues from the auto vertical in the first half of the ongoing financial year while the latter generated 46 per cent of its revenue from the auto vertical during the same period. But Tata Elxsi also generates significant revenues from Healthcare & Life Sciences and Media & Communication verticals. In that context, KPIT Technologies Ltd is more of a peer for Tata Technologies with 96 per cent revenues coming in from auto vertical.

Tata Technologies' onshore: offshore mix stood at 49:51 at the end of H1 against 26:74 for Tata Elxsi.

In terms of financials, Tata Elxsi logged 25 per cent revenue growth compounded annually over FY20-23 against 15.7 per cent annual growth for Tata Technologies. Ebitda for Tata Elxsi grew 43.2 per cent compounded annually in the period mentioned against Tata Technologies' 25.1 per cent growth, Emkay Global suggested in a note. Profit CAGR for Tata Exlsi at 43.4 per cent YoY too was higher than Tata Technologies' 35.4 per cent during the last three years. The growth outperformance by Tata Elxsi over Tata Technologies was also seen during FY16-23 period.

In FY23, Tata Technologies clocked sales of Rs 4,414 crore for FY23, which was higher than Tata Elxsi's Rs 3,145 crore but its profit at Rs 624 crore was lesser than Tata Elxsi's Rs 755 crore. Net margin for Tata Technologies stood at 14.1 per cent in FY23 against 24 per cent for Tata Elxsi. Here is the comparison between the financials of the two companies and the listed peers of Tata Technologies:

Valuation wise, Tata Technologies is asking for a valuation multiple of 32.5 times at the upper limit of the price band i.e. Rs 500. Tata Elxsi, on the other hand, commands a valuation of 68.5 times.

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