Tata Technologies: Should you buy, hold or sell this Tata group stock?

Shares of Tata Technologies Ltd (Tata Tech) are in a bear grip, falling 24 per cent from its recent high of Rs 1,200. But Cholamandalam Securities believes the stock is in for some recovery. It initiated coverage on the Tata stock with a 'Buy' rating and a target price that is derived after applying a 20 per cent discount to its average peer group PE multiple of 55 times. Large tailwinds from the BMW and Agratas tie-ups are expected to start materialising for Tata Tech from FY26, the brokerage said.

As a niche investment play with strategic accumulation over the next decade, Tata Tech presents a compelling opportunity due to tech-led disruption in the auto industry, Cholamandalam Securities said.

The Tata Tech stock is available at a PE of nearly 36 times based on FY27 earnings per share estimates. Average trading PE multiple of the peer group is around 55-56 times on a trailing 12-month basis. Cholamandalam Securities expects earnings of Tata Technologies to grow at a growth rate of 13.5 per cent compounded annually over FY24 to FY27.

It expects operating margins for Tata Tech to stay stable around 18.50 per cent while return ratios like return on equity (ROE) and return on capital employed (ROCE) improving 20 basis points and 60 basis points, respectively.

Tata Technologies offers comprehensive end-to-end vehicle development services unmatched by Indian peers like Tata Elxsi and KPIT Technologies. The company competes with global engineering service providers such as Bertrandt, Magna Steyr, and EDAG Group, thanks to its complete suite of services—from mechanical engineering of chassis, body, and powertrain to software integration of ECUs and embedded systems, Cholamandalam Securities said.

It said Tata Tech has reduced customer concentration and will continue to do so, decreasing revenue dependence on Tata Motors and JLR from 75 per cent in 2014 to 40 per cent in FY23. The dependence though increased to 50 per cent in FY24 due to Vinfast ramp-down, it noted.

"Operational efficiency and margin expansion are significant focus areas, with Ebitda margins at 18–19 per cent and a target to reach 20 per cent through increased offshoring (aiming for 60–65 per cent from the current 45%) and pyramid rationalisation. Leveraging economies of scale as revenue grows, the company is well-positioned to enhance profitability and operational efficiency," Cholamandalam Securities said.