Tata Technologies Bears Brunt Of VinFast Revenue Decline — Should Investors Be Worried?

The company has till date reported three financial results after its listing. While the third quarter of fiscal 2024 was seasonally soft, as mentioned by the management, the fourth quarter was impacted by a decline in the revenue of VinFast, one of its largest clients.

Even though the company reported a 6% increase in the profit for the third quarter, the stock closed marginally lower by 0.5% the day after the results were announced.

In the fourth-quarter earnings call, the company said that the decline in VinFast revenue would affect the first quarter of fiscal 2025 as well, while there would be a marginal impact on the second quarter also.

In the first quarter, the management said the VinFast transition was behind now and the business was expected to pick up from the second quarter.

The company has a lot of client concentration, which could be a key downside, according to JPMorgan.

Tata Technologies is primarily focused on the automotive industry and is currently engaged with seven out of the top 10 automotive engineering, research and development spenders and five of the top 10 prominent new energy engineering, research and development spenders.

The company broadly operates in two segments—services and technology solutions.

The company provides outsourced engineering services and digital transformation services to global manufacturing clients to help them conceive, design, develop and deliver better products.

Its technology solutions segment has two parts: products and education. Through its products business, it sells third-party software applications, primarily product lifecycle management software and solutions. It also provides services such as consulting, implementation, system integration and support. 

Through its education business, it provides 'phygital' education solutions in manufacturing skills, including upskilling and reskilling public and private sector employees in the latest engineering and manufacturing technologies through its iGetIT platform.

Tata Technologies gets around 78% revenue from the services business and balance from the technology segment.

The company's Ebit margin stood at 15.9% in the first quarter of fiscal 2025, compared to 16.2% in the third and fourth quarters of fiscal 2024.

Tata Technologies expects the margins to increase 200 to 250 basis points in the medium term, though a specific timeline was not given.

Tata Technologies stock is listed at Rs 1,200 per share, which is a 140% premium over its issue price band of Rs 475 to Rs 500 per share. It rallied another 17% and took the total gains to 180% over its issue price on the listing day. The IPO was subscribed 69.43 times on its final day.

However, over time, the stock has been volatile. It hit the lowest level of Rs 976 per share on Aug. 5. It has since pared losses, closing at Rs 1,076.40 per share as of Sept. 5. However, this is still below its listing price.