Tata Technologies Shares: Should You Wait for a Better Entry Point?

Tata Technologies Ltd’s second-quarter results fell short of analysts’ estimates as a strategic review of electric vehicle (EV) and hybrid choices caused by polarized politics ahead of the US presidential election led to delays in decision-making. Regulatory issues related to Chinese OEMs and associated tariffs in Europe have added to the problems.

These concerns are leading to reduced demand and smaller deal sizes as clients are wary of large, long-term projects, analysts say, adding that the landscape in the automotive ER&D space is changing.

“This likely reflects a shift from accelerated adoption to protectionism and pricing pressure, which in turn could dampen capex intensity, a key rationale for our downgrade. We maintain our estimates, our target price of Rs 740 and expect better entry valuations,” InCred Equities said.

JM Financial said Tata Tech’s sequential growth fell short of expectations as soft services growth countered better underlying volume growth. The report said offshore earnings increased by 370 bps. compared to the previous quarter as customers pushed for cost savings, which deflated earnings to some extent.

“This is consistent with KPIT’s comment regarding clients’ requests for offshoring. There are two ways to look at this. It is possible to view income deflation caused by offshores as a result of weaker demand, a negative outcome. Or it could be a harbinger of a larger offshoring trend.” which will lead to increased market share for offshore players like TATA Tech and KPIT Tech. We think it’s the latter,” JM said.

However, JM believes weak demand led to longer decision cycles and delays in project launches, which likely resulted in some earnings being deferred to the third quarter.

“This confirms management’s better guidance for the second half of the year, despite seasonality in the third quarter (lower billing days, etc.). The expansion of the BMW joint venture (November 1) is another vector of growth. Additionally, Tata tech continues to leverage group synergies. Cooperation with Air India is the latest example (anchor clients, Agratas, Airbus and others). This is a strong foundation for long-term structural growth,” JM Financial said.

The brokerage maintained a Buy rating with a revised target of Rs 1,290 from Rs 1,300.