Tata Technologies: Prabhudas Lilladher Retains HOLD at Rs 660 Target

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AuthorRiya Kapoor|Published at:
Tata Technologies: Prabhudas Lilladher Retains HOLD at Rs 660 Target
Overview

Prabhudas Lilladher maintains a 'HOLD' recommendation on Tata Technologies, targeting ₹660 per share. The firm revised EBIT margin estimates down for FY27-28, citing ES-Tec integration costs. While Aerospace revenue is expected to hit $40 million by FY26, management's confidence in double-digit growth faces headwinds from a high Q4 base, uncertain auto recovery, and lumpiness in tech solutions.

Revenue Outperforms, Segment Mixed

Tata Technologies reported revenue growth of +2.3% CC QoQ, exceeding Prabhudas Lilladher's estimate of +0.6% CC QoQ. This outperformance was driven by a strong +8.0% QoQ growth in the non-Auto Service segment and lower-than-anticipated ramp-down in a key anchor account. The organic Service business saw a 1.0% QoQ CC increase, while the organic Auto business experienced a de-growth of approximately 4-5% QoQ CC.

Aerospace and JV Provide Long-Term Visibility

The engagement within the Aerospace division is progressing well, moving upstream to complex engineering activities. The company now anticipates Aerospace to contribute USD40 million in revenue by FY26. Furthermore, the BMW joint venture is advancing steadily, with over 1000 employees deployed, offering enhanced visibility for the upcoming year's performance.

Growth Prospects Face Near-Term Hurdles

Management expressed confidence in reversing the Q3 weakness and delivering double-digit growth in Q4, supported by stabilizing operations of its anchor account and ramping up of Auto programs initiated in Q3. The sustained momentum in Aerospace & IHM, securing large programs for full-vehicle development, and early signs of spending recovery in auto OEMs bolster management's outlook for double-digit organic growth in FY27. However, Prabhudas Lilladher identifies incremental risks to achieving this target. These include the high base in Q4 and the inherent lumpiness in Tech Solutions revenue streams, particularly as the automotive recovery remains uncertain.

Margin Pressures and Valuation

Prabhudas Lilladher has revised its organic growth forecasts for FY27 and FY28 upwards to 8.5% and 11.9% YoY CC, respectively, from the earlier projections of 7.5% and 12.9%. However, EBIT margin estimates for FY27E and FY28E have been reduced by 40 basis points each, attributed to higher Depreciation & Amortization following the ES-Tec integration. The brokerage assigns a multiple of 27x to FY28E EPS, translating to a target price of Rs 660, and maintains its 'HOLD' recommendation.

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