The fall meant that the PE, which was around 80 levels in highs, also corrected significantly to around 40 currently.
In its latest note, PL upgraded the stock from Sell to Reduce but maintained a cautious tone, citing limited valuation comfort despite a turnaround in business momentum. The brokerage raised its target price to Rs 640 from Rs 540 earlier, implying modest downside from current levels.
Q2 performance: Non-auto drives growth
Tata Technologies reported revenue of $150.9 million, up 4.5% sequentially in constant currency terms, led by strong growth in the aerospace and industrial heavy machinery (IHM) segments, which rose 14.8% quarter-on-quarter. The auto vertical, which contributes 81% of the services mix, grew 0.3% QoQ, showing resilience despite temporary disruptions at its top client following a cybersecurity incident.
The technology solutions portfolio — which includes education projects and product engineering — expanded 7.6% QoQ, benefiting from seasonal uptick and improved execution. Offshore revenue accounted for nearly 50% of total sales, up 5.9% QoQ, while EBIT margin came in at 13.4%, 80 bps above estimates, aided by better revenue mix.
Profit after tax for Q2 stood at Rs 1,655 crore, slightly above analyst expectations of Rs 1,500 crore.
Management outlook: Cautious Q3, stronger H2
The management guided for a temporary slowdown in the auto business in Q3 due to client-specific issues but expects a rebound in Q4 as operations normalize. Demand conditions are improving across auto, aerospace and industrial machinery verticals, with deferred investments now resuming.
Tata Technologies also closed three large deals in Q2, including one with a Tier-1 auto supplier, a Scandinavian OEM, and a German OEM. The BMW joint venture continues to perform strongly, now employing over 1,000 engineers and contributing steadily to profits.
The upcoming ES-Tec acquisition, expected to be completed in Q3, will strengthen the company’s access to European OEMs such as Volkswagen and enhance its embedded software and ADAS capabilities.
Valuation and stock view
PL expects USD revenue and earnings CAGR of 7.5% and 15.2% respectively over FY25-28. While the brokerage acknowledges a “turnaround taking shape,” it warns that the stock’s valuation at 32x FY27 earnings leaves little room for error. Margins are likely to remain under pressure in Q3 due to wage hikes and one-off costs, with a recovery expected from Q4 onwards.
The company’s robust balance sheet and improving non-auto portfolio offer long-term comfort, but the near-term risk-reward remains unfavorable following the post-listing rally and subsequent correction.
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Tata Technologies shares have declined 35–40% over the past year, underperforming the Nifty IT index. Analysts say valuations need to cool further for investors to see meaningful upside, even as the company positions itself for long-term growth in digital engineering and EV-led automotive transformation.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)