Buy Tata Technologies shares for 22% potential upside, says ICICI Securities. Here's why

ICICI Securities is betting on the incubating battery solution capabilities of Tata Technologies Ltd and values the stock at one-year forward PE of 56 times, which is in line with its lifetime median or average valuation multiples. 

Tata Technologies is in exclusive partnership with Agratas for development and industrialisation of battery solutions, which ICICI Secuirties said gives it strong foothold in electric vehicle (EV) domain. Tata Tech recently started engineering battery solutions for 2-3 wheelers and the domestic brokerage feels the battery solution capabilities may serve as key competitive advantage in the cost engineering segment for Tata Tech, as battery accounts for 50 per cent of electric vehicle cost today. 

The brokerage said Tata Tech has added marquee names to its client roster to limit the downside from VinFast ramp-down and recommended a 'Buy' rating on the Tata group stock with an unchanged target price of Rs 1,290. The target suggests a potential 22 per cent upside over Tata Tech's intraday price of Rs 1,058.05 today.

"Due to its previous project of converting Tigor and Tiago from ICE to EV (which is more complex than designing born EVs), Tata Tech has gained robust skillsets in EV domain. Its capabilities include converting ICE to EV 1) without any changes in the existing model look and feel, 2) doing so in record time and without exceeding much on the cost side, 3) managing the weight of the vehicle upon transition, 4) adding cooling systems, 5) powertrain installation," ICICI Securities said.

This positions Tata Tech favourably to engineer-born EVs, it said.

ICICI Securities said this is primarily the norm in India and South Asian countries while manufacturing born EV vehicles are trend all across the world. Commercial and industrial heavy vehicles are undergoing ICE to EV conversion and Tata Tech is well positioned for this opportunity, it said.

"Moreover, value engineering, teardown benchmarking, cost engineering, sourcing and dynamic benchmarking services are driving growth traction for the company," it said.

Earlier, JM Financial said Tata Technologies Ltd is now the cheapest stock among the three auto-focused ER&D players in terms of valuations -- the other two being KPIT Technologies Ltd Tata Elxsi Ltd. With Vinfast (customer) decline behind and new deal ramps in BMW-JV and Agratas ahead, JM Financial believes the current Tata Technologies levels offer a good entry point to play the broadening total addressable market (TAM) led growth narrative.