War­burg Set to Log into Tata Tech

In ad­vanced ne­go­ti­a­tions to buy up to 40% stake for .₹ 2,300 crore

The Economic Times - - Front Page -

Mo­hit Bhalla & Ari­jit Bar­man

New Delhi | Mumbai: Pri­vate eq­uity firm War­burg Pin­cus is in ad­vanced ne­go­ti­a­tions to ac­quire a sig­nif­i­cant mi­nor­ity stake of up to 40% in Tata Tech­nolo­gies for around .₹ 2,300 crore, end­ing months of talks, said sev­eral peo­ple with knowl­edge of the mat­ter.

The en­gi­neer­ing de­sign ser­vices com­pany has been look­ing to off­load 26-40% of eq­uity at a val­u­a­tion of .₹ 5,400 crore ($800 mil­lion) for al­most a year and a half, said the peo­ple cited above. It had & IT ser­vices co for auto, aero­space & de­fence cos

cen­tres in US, UK, Thai­land, Ro­ma­nia 2015-16 rev­enue:

2,714 cr PAT: 382 cr Share­hold­ers: Tata Mo­tors: 70%, Tata Group cos & ex­ec­u­tives: 17%, fi­nan­cial in­vestors: 13%

also con­sid­ered sell­ing a ma­jor­ity stake to in­vestors and an ini­tial pub­lic of­fer­ing, they said.

“War­burg is the only in­vestor with whom the Tatas are cur- rently en­gaged,” said one of the per­sons. “It will be in­ter­est­ing to see if Tatas give a rev­enue com­mit­ment for the fu­ture. The worry is the in­dus­try still looks at the com­pany as a quasi-cap­tive unit.” A for­mal an­nounce­ment is said to be im­mi­nent.

The Sin­ga­pore-head­quar­tered com­pany was founded in1989 as a sub­sidiary of Tata Mo­tors be­fore be­com­ing a stand­alone en­tity. Tata Mo­tors still owns around 70% of the com­pany.

Tata Group en­ti­ties such as Tata Cap­i­tal and se­nior ex­ec­u­tives own 17% while the rest is held by out­side fi­nan­cial in­vestors. If a deal takes place, the new in­vestor will likely be­come the sec­ond-largest share­holder af­ter Tata Mo­tors while ex­ist­ing ones like Tata Cap­i­tal are likely to cash out, ei­ther in part or fully, said the peo­ple cited above.

The com­pany says it’s a leader in “en­gi­neer­ing ser­vices out­sourc­ing and prod­uct devel­op­ment IT ser­vices to the global man­u­fac­tur­ing in­dus­try” and looks to “ap­ply cut­ting-edge tech­nol­ogy to pro­vide a com­pet­i­tive ad­van­tage to cus­tomers in the man­u­fac­tur­ing sec­tor”, ac­cord­ing to its web­site.

More than half its turnover and a big­ger share of profit come from Tata units, par­tic­u­larly Tata Mo­tors and its Jaguar Land Rover (JLR) divi­sion.

A third of its rev­enue comes from North Amer­ica, Europe and the Asia-Pa­cific. Nearly 65% of its busi­ness comes from the au­to­mo­tive sec­tor,12% from aero­space and the rest from in­dus­trial ma­chin­ery and other busi­nesses. The com­pany has been try­ing to in­crease its aero­space port­fo­lio, es­pe­cially in de­fence, as a de-risk­ing strat­egy. Grow­ing at a com­pounded an­nual growth rate of 16%, the com­pany is tar­get­ing $800 mil­lion (around .₹ 5,300 crore) in rev­enue by 2020, $200 mil­lion of that through ac­qui­si­tions. In 2015-16, its con­sol­i­dated reve- nue was .₹ 2,714 crore and profit af­ter tax was .₹ 382 crore. A War­burg spokesper­son de­clined to com­ment.

“As stated be­fore, from time to time, we re­view the per­for­mance of our non-core as­sets and com­pa­nies and see how we can mon­e­tise them,” a Tata Mo­tors spokesper­son said. “We do not have any ad­di­tional com­ment to of­fer at this point of time.” Tata Mo­tors has al­ready an­nounced an­nual cap­i­tal ex­pen­di­ture plans of .₹ 3,500-4,000 crore for the next three years, mainly to spruce up and strengthen its pas­sen­ger car range. JLR is to spend 3.5-4 bil­lion pounds on capex. There was no re­sponse to emails sent to Tata Tech­nolo­gies CEO War­ren Har­ris or the com­pany’s spokesper­son.


Car­lyle, Apax Part­ners, the Canada Pen­sion Plan In­vest­ment Board (CPPIB), Gov­ern­ment of Sin­ga­pore In­vest­ment Cor­po­ra­tion (GIC) were all said to have pre­vi­ously eval­u­ated the com­pany but even­tu­ally opted out. The ini­tial val­u­a­tion ex­pec­ta­tion of $1 bil­lion was also a spoiler for most. The Tata Group had man­dated Citi to find a strate­gic part­ner for the com­pany.

“There is grow­ing in­ter­est for busi­nesses that pro­vide solutions to the aero­space and de­fence sec­tors both from strate­gic in­vestors as well as fi­nan­cial spon­sors,” said San­jeev Kr­is­han, part­ner at Price­wa­ter­house­Coop­ers. “As au­to­ma­tion in­creases, the need for tech­nol­ogy solutions will in­crease lead­ing to the at­trac­tive­ness of such busi­nesses from an in­vestor’s stand­point.” War­burg, among the ear­li­est PE in­vestors in In­dia, suc­cess­fully ex­ited its in­vest­ment in QuEST Global Ser­vices Pte, an­other en­gi­neer­ing solutions provider, last Fe­bru­ary. Bain Cap­i­tal, GIC and Ad­vent In­ter­na­tional cu­mu­la­tively in­vested $350 mil­lion to pick up mi­nor­ity stakes. War­burg, which has de­ployed $3.8 bil­lion in 51 com­pa­nies in In­dia since 1997, is look­ing to deepen its in­volve­ment, co-chief ex­ec­u­tives Charles R Kaye and Joseph P Landy told ET in a re­cent in­ter­view. It plans to in­vest $8 bil­lion in In­dia over the next 10 years — twice what it did in two decades — as the New York-head­quar­tered firm ex­tends its long-term bet on one of its “most im­por­tant mar­kets in the world”. Last month it in­vested .₹ 840 crore in PVR for a 14% stake.

Tata Mo­tors’ third-quar­ter profit plunged 96% to .₹ 112 crore from the year ear­lier be­cause of losses in the do­mes­tic busi­ness and op­er­a­tional weak­ness in JLR.


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