In May, the Indian market reversed its three-month upward trend and fell. The change is believed to be due to several factors, including rising US bond yields, continued exodus of foreign investors, and investors' concerns about global uncertainty amid the Lok Sabha elections. .
Amid uncertainty, domestic securities firm ICICI Securities has expressed a bullish view on the two Tata Group stocks, Tata Technologies and Tata Power.
Tata Tech: The brokerage has initiated coverage on the recently listed Tata Tech with a 'buy' call and price target of ₹1,330, implying an upside of almost 27%.
After a spectacular debut, Tata Tech shares are on the decline. The company's shares rose 162.85% from its issue price of £500 to close at £1,314.25 on the day of listing. The stock price is currently more than 20% below the closing price on the day it was listed. As of the beginning of 2024, the stock price has fallen more than 11%.
The brokerage said Tata Tech has outperformed traditional IT services and is well-positioned in the fast-growing automated engineering, research and development (ER&D) sector. Structural factors such as the growing adoption of digital engineering and India's favorable position as an outsourcing destination are supporting Tata Tech's growth prospects, the paper said.
Despite customer-specific ramp-down challenges, ICICI Securities views this as temporary and expects 13%/18% revenue growth and 16%/23% EPS growth in FY25E/26E. The company expects return on equity (RoE) to be 23% to 25%. %. The Tata Group's pedigree strengthens Tata Tech's advantages, especially in the aviation sub-segment.
The report also notes that Tata Tech's flagship ER&D services are growing faster than the broader IT services industry, with NASSCOM forecasting a CAGR of 8 to 8% for ER&D from 2023 to 2030. We predict that it will be 9%. With a growing presence in the aviation sector, the company recorded 30% year-on-year USD revenue growth in FY2024, outperforming Tier 1 IT services companies. However, securities firms warn that risks include a lack of adoption in Europe and the need for other industries to offset VinFast's decline.
Tata Power: For the power stock, the brokerage has resumed coverage with a 'buy' call and price target of ₹490, implying a 12.5% ​​upside. The company's stock has already delivered multibagger returns over the past year, soaring more than 109%. Meanwhile, 2024-to-date, he's up more than 31%.
The brokerage noted that Tata Power has established a leading renewable energy (RE) platform, combining both asset-light and asset-heavy businesses. The company has developed 10GW of renewable assets, 4GW of solar PV manufacturing capacity, a solar EPC division and a rooftop solar PV division. Additionally, the company said it is developing two pumped storage systems and holds a first-mover advantage in the electric vehicle charging market.
Within ICICI's scope, Tata Power stands out as the most comprehensive RE platform. The company aims to double its renewable energy capacity over the next two years, is nearing commissioning of 4GW of cell and module capacity, and holds a 13% market share in the rooftop solar market. ing. He further added that Tata Power is one of India's largest private power distribution companies and is expanding its power transmission business with recent tender wins.
“Tata Power operates 4.5GW of renewable energy assets with an EBITDA of Rs 3,000 crore.In the last two years, our under construction portfolio has grown to 5.5GW. We estimate that EBITDA from 3 years will increase to Rs 6,000 crore in the coming years,'' ICICI said.
ICICI Securities maintains a positive outlook on both Tata Technologies and Tata Power, highlighting their strong growth prospects and strategic positioning in their respective industries.
Disclaimer: The views and recommendations above are those of individual analysts or brokerages and not of Mint. We recommend checking with a certified professional before making any investment decisions.
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