PE Warburg Pincus Cancels Plans to Acquire a 43% Stake in Tata Technologies

/ February 8, 2018/ Aerospace, Automotive, Embedded Systems, India, Mechanical Engineering, PLM, Tata Technologies

Tata Motors has announced that PE Warburg Pincus has cancelled its plans to acquires a 43% stake in Tata Technologies (TTL), for USD 360m. The official reasons for the cancellation are Tata Technologies missing its internal financial performance objectives, as well as delays in regulatory approval. Tata Motors “will continue explore strategic options […] and remains positive on the outlook of the business”

The cancellation is a big surprise. Warburg Pincus has experience with ER&D service firms (it owned a 25% stake in QuEST Global from 2010 to 2016), and surely, a temporary miss in earning from TTL could not have led to such a decision. TTL in FY17 was a solid growth firm, with a CC/CS growth of +11% and with a net margin of USD 52m, on revenues of USD 418m. We estimate that Warburg Pincus was paying on a 16 PER multiple, which by Indian standards seems reasonable. Even more surprisingly, the market conditions for ER&D services remain very favorable in 2018.

This is not to say that TTL does not have challenge: the company is still a captive of Tata Motors and two of its three largest clients are indeed Tata Motors, and Jaguar Land Rover (which is owned by Tata Motors). The company had a low offshoring ratio (with 22% of revenues from offshore), where the standard will be more in the 40%-50% zone.

The Indian press was speculating on an absorption of TTL by TCS. To be followed.

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