Tata Tech in talks with Morgan Stanley, US funds for IPO investments at $2.5-bn valuation: Report

Tata Technologies is in talks with Morgan Stanley Investment Management, Blackrock and some US hedge funds to invest in its initial public offering at a valuation of $2.5 billion, said a report on Thursday.

Part of conglomerate Tata Group, the company provides engineering services for companies in the auto and aerospace sectors among others. Its IPO will be the first in two decades for a Tata Group company, which has many listed businesses including in the auto and steel sectors.

Ahead of its planned $350-375 million IPO, Tata Technologies is holding talks with US asset managers Ghisallo Capital, Oaktree Capital and Key Square Capital, as well as BlackRock and Morgan Stanley for possible participation in the deal, reported Reuters citing sources.

These funds are eyeing Tata's anchor book, where high-profile institutional investors are allotted shares before the subscription opens for retail and other investors. 

"Big investors are quite excited by the Tata brand, and a profitable company with scale ... that's driving demand," a source told Reuters.

The talks are assessing Tata Technologies' valuation to be $2.5 billion (around Rs 20,750 crore) now, around 25% higher than last month when TPG picked up a 9.9% stake in a pre-IPO fundraising.

Last month, Tata Motors Ltd (TML) had entered into share purchase agreements to sell 9.9% stake in IPO-bound Tata Technologies Ltd (TTL) for Rs 1,613.7 crore to private equity fund TPG Rise Climate SF and an endowment trust belonging to Tata Trusts Chairman Ratan Tata. TPG Rise Climate was the lead investor for this transaction, which ascribed an equity valuation of Rs 16,300 crore for TTL.

The IPO will open for subscriptions around Nov. 21, both sources said, in what could be one of India's biggest IPOs this year after condom-maker Mankind Pharma. The company hopes the stock wil made its trading debut by late November.

For the nine months ended December 31, 2022, Tata Technologies' profit grew 23% to Rs 407.4 crore while its total income grew 15% to Rs 3,050 crore, show its draft IPO papers filed with the market regulator SEBI. 

The initial public offering of Tata Technologies comprises an offer for sale of up to 95,708,984 equity shares, in which Tata Motors will offload up 81,133,706 equity shares, Alpha TC Holdings will sell up to 9,716,853 equity shares and Tata Capital Growth Fund I will release up to 4,858,425 equity shares of the company.

Half of the net offer or 50% shares of Tata Technologies IPO will be reserved for qualified institutional bidders, while non-institutional investors (NIIs) will get not more than 15% of shares. Retail investors will get a chunk of around 35% in this IPO.