Tata Technologies Vs KPIT Technologies: Have you seen the technological advancements in the cars on the road today? Cars can drive themselves within the white lines on the road, some maintain optimum speed with the traffic, and generally, a car has become a lot smarter than it was a decade ago. So how do you think this is happening?

Today we will look into Tata Technologies Vs KPIT Technologies, two Companies that work to make cars & other automobiles a lot smarter. These Companies create technological products that work with the Auto Components improving today’s mobility.

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Tata Technologies Vs KPIT Technologies

So let us learn about these technological Companies and try getting a deeper overview of the industry. We will also learn about who these companies cater to and then compare their financials before concluding.

KPIT Technologies

KPIT Technologies Logo Image

KPIT Technologies is a software partner pioneer in the automotive & mobility space. It is a global technology company that marries the incumbent mode of transportation with futuristic technology. This involves the use of embedded software, AI, and other digital solutions.

The Company was founded by two Chartered Accountants, Mr. Ravi Pandit and Mr. Kishor Patil. Both CA partners wanted to create a firm with a global reputation. They were later joined in by Shrirish Patwardhan & Sachin Tikekar as Co-Founders.

KPIT was then spun off as an independent Company, away from the CA firm. In 2002, the Company formed a technical collaboration with Cummins Engineering & IT Arm. In 2013, both Companies merged to form KPIT Technologies.

In 2018, KPIT underwent a complex amalgamation with another IT Company Birlasoft. Both companies merged and post-complement of the merger, they again de-merged. In the scheme of arrangements, KPIT became an Automotive Engineering entity while Birlasoft became a Business IT Services Company.

Today, KPIT has become a formidable name in the Engineering Research and development segment with a presence in over 25 countries partnering with 25 Original Equipment Manufacturers (OEMs). 

In its 25 years of existence, the Company owns 68 patents, and its services are used by 1 Crore cars currently on the road. It has also set up engineering centers in India, Europe, USA, Japan, China & Thailand. 

KPIT Technologies – Segments

The Company works on providing software services such as Autonomous Driving and advanced Driver assistance, E-Cockpit & connectivity, Cloud and virtualization, and probably everything that can provide more autonomous & risk-free mobility.

KPIT earns 47% of its revenue from the UK & European markets, it also happens to be the fastest growing market increasing by 61% since the previous year. Americas, which includes, North & South America contributes to 47% of revenue and it grew by 27%.

The Company earns a majority of its revenue from the Feature Development and integration segments, which is about 66%. Middleware and cloud-based services bring in 16% & 18% of the revenue respectively.

KPIT Technologies – Partnerships

During the year, the Company Partnered with Renault Group to build software for seamless scalability in their Software Defined Vehicles (SDVs). Honda has also selected KPIT as a strategic technology partner for their Software Defined mobility initiative. KPIT has dedicated over 2000 engineers to the Honda Project.

Apart from this KPIT is also working with a leading American Car Manufacturer (name remains undisclosed) to develop middleware development & integration in their electric powertrain. The middleware is a software layer that facilitates communication across various components of the Vehicle.

The Company is also collaborating with a German Company ZF, to form a separate Company focused on Automotive middleware. ZF builds software solutions for Autonomous driving and other connected architecture.

Tata Technologies

Tata Technologies Logo

Tata Technologies is an Engineering and product development Company from the house of Tata. The Company has pioneered the Automotive and Aerospace segment providing industry-leading Engineering Research and design services (ER&D).

The Company creates products and digital turnkey solutions for global Original Equipment Manufacturers (OEMs) or their tier-1 suppliers. The Company has domain expertise in Transportation and construction heavy machinery. 

Tata Tech was the brainchild of Mr. Ratan Naval Tata, the Chairman Emeritus of the Tata Group. The Company was born in 1989, as Mr. Tata saw an opportunity in the evolving demand in the Product and engineering space.

In 2005, the Company acquired a UK-based ER&D Company named INCAT International. Later Tata Tech secured funding from Apla TC Holdings and Tata Capital Growth Fund. 

In the ER&D space, Tata Tech is a supplier to 7 of the Top 10 Automotive spenders. The Company’s Marquee list of clients includes Airbus, McLaren, Honda, Ford, and a new energy vehicle Company called VinFast. These anchor clients contribute to 40% of the Company’s revenue.

Apart from ER&D, the Company also provides Digital Enterprise Solutions, Education Offerings, and Software Product Reselling. These segments collectively contribute to another 20% of the Company’s revenue.

The Company has a very diverse & well-balanced geographical presence. It earns 30% of its Revenue from India. Europe & North America each contribute to 22% & 21% of the revenue. The rest of the world contributes to about 26% of total revenue. 

Industry Overview

The automotive sector has now been gradually reviving from one of the most challenging periods, during the Pandemic. Although the demand for Autos is back up, the industry is facing tougher situations primarily driven by chip shortages, global economic slowdowns, price shocks, and so on. 

Despite these roadblocks, the sector is set to witness increased adoption of EVs, the introduction of the Internet of Things (IoT) features in automobiles, and so on.

Players in the ER&D services industry typically focus on the design, development, and maintenance aspects of the product and not on mass manufacturing. Currently, global ER&D spending is estimated at $1,811 billion (Rs.150 Lakh Cr.) as of 2022. Out of the total ER&D market Rs. 67 Lakh Cr. was attributed to digital engineering spending. 

This mainly comprised spending on new-age technologies like the Internet of Things (“IoT”), blockchain, 5G, augmented reality, virtual reality, cloud engineering, and a lot more. Additionally, digital engineering spending. The industry is expected to grow at a CAGR of approximately 16% from 2022 to 2026.

India and China are key locations for offshore ER&D centers, accounting for more than 60% of the total Global Capacity Centres (GCC) spending. More than 85% of the top 50 ER&D spenders have GCCs in India owing to its software engineering maturity and digital talent availability.

Tata Technologies Vs KPIT Technologies – Financials

Note: Since Tata Tech had its IPO in FY23, we have access to its data only from FY21. Hence, we will compare both Companies on their performance in the last three years.

Revenue & Net Profit

KPIT Tech’s revenue grew by 37% in a year, from Rs. 2477 Cr in FY22 to Rs. 3405 Cr in FY23. The rate of KPIT’s revenue growth has been quite aggressive, in the last 5-year period. CAGR growing by 29% since FY21. 

Tata Tech reported FY23 revenue of Rs. 4414 Cr in FY23, which increased by 25% from Rs. 3530 Cr in FY22.  In the last 3 years, the Company has grown at a CAGR of 36%. In terms of revenue growth, Tata Tech looks stronger.

Particulars / Fiscal Year2021202220232 Year CAGR
KPIT Technologies - Revenue₹2,051.50 ₹2,477.19 ₹3,405.23 29%
YoY Growth (%)21%37%
Tata Technologies - Revenue₹2,380.91 ₹3,529.58 ₹4,414.17 36%
YoY Growth (%)48%25%

KPIT reported a Profit after tax of Rs. 387 Cr, which increased by 40% from Rs. 276 Cr in FY22. Since FY21, KPIT has grown at the rate of 62% CAGR. Tata Tech also grew its Net Profits by 43%, from Rs. 437 Cr in FY22 to Rs. 624 Cr in FY23. It grew at the rate of 62% CAGR in the past 3 years.

However, we should take Tata Tech’s Net Profit growth in FY23 with a pinch of salt as it involves a Deferred Tax Income of Rs. 89 Cr. Excluding these one-off gains gives a Net Profit of Rs. 535 Cr, resulting in a Net Profit growth of 22%.

Particulars / Fiscal Year2021202220232 Year CAGR
KPIT Technologies - Net Profit₹147.10 ₹276.24 ₹386.86 62%
YoY Growth (%)88%40%
Tata Technologies - Net Profit₹239.17 ₹436.99 ₹624.03 62%
YoY Growth (%)83%43%

Profit Margins

KPIT Tech & Tata Tech reported FY23 operating margins of 18.81% and 18.44% respectively. Both Companies have a very marginal difference, with KPIT taking the lead with a difference of just 37bps. However, on a 3-year average, Tata Tech takes the lead by 60 Bps.

Net Profit Margins of KPIT Tech & Tata Tech in FY23 were 11.5% and 14.14% respectively. Tata Tech has consistently maintained margins in the double-digit category in the past three years, while KPIT saw single-digit margins in FY21. The 3 3-year average of KPIT & Tata Tech stood at 10.03% and 12.19% respectively. 

Particulars / Fiscal Year2021202220233 Year Avg
KPIT Technologies - Operating Margins15.09%17.57%18.81%17.15%
Tata Technologies - Operating Margins13.98%17.25%18.44%16.56%
KPIT Technologies - Net Profit Margins7.23%11.36%11.50%10.03%
Tata Technologies - Net Profit Margins10.05%12.38%14.14%12.19%

Return Ratios

KPIT Tech & Tata Tech reported a Return on Equity of 26.55% and 20.87 respectively in FY23. The reason behind Tata Tech’s drastically lower returns, despite higher margins, is due to the higher reserves of Tata Tech.

In terms of Return on Capital Employed, KPIT Tech, and Tata Tech reported 35.12% and 30.9% respectively. Tata Tech again falls behind KPIT as a result of higher reserves & debt on its balance sheet.

Particulars / Fiscal Year2021202220233 Year Avg
KPIT Technologies - RoE13.15%22.26%26.55%20.65%
Tata Technologies - RoE11.17%19.16%20.87%17.07%
KPIT Tehcnologies - RoCE16.82%28.86%35.12%26.93%
Tata Technologies - RoCE16.67%27.53%30.90%25.03%

Debt Analysis

KPIT Tech & Tata Tech have a debt-to-equity ratio of 0.03x and 0.08x respectively. Since both Companies operate in an asset-light industry, the need for fresh capital remains low.

In terms of Interest Coverage Ratio, KPIT & Tata Tech are in the safe range of 16.37x and 45.28x respectively. ICR above 1.5x is considered a safe measure and both Companies are in the comfortable position.

Particulars / Fiscal Year2021202220233 Year Avg
KPIT Technologies - Debt to Equity0.000.000.030.01
Tata Technologies - Debt to Equity0.120.110.080.10
KPIT Technologies - Interest Coverage11.3018.7616.3715.48
Tata Technologies - Interest Coverage18.8527.8045.2830.64

Tata Technologies Vs KPIT Technologies – Future Plans

KPIT Technologies

  1. The Company aims to achieve international product leadership in EV Architecture, Middleware Consulting, Autonomous Drive, and Cloud Based Connected Services.
  2. KPIT will explore opportunities in the off-road vertical, railways as well as aero-vertical take-off
  3. The Management states that it is working closely with semiconductor Companies and developing competencies in hydrogen fuel 
  4. Its partnership with ZF has led to the formation of a new Company, Qorix. KPIT will invest EUR 5 million initially and invest an additional EUR 5 million over 12-18 months.
  5. KPIT wants to work on its complex & critical programs to perfection, thereby delivering a Zero Defect Product to its clients.

Tata Technologies

  1. The Company looks to scale its presence in the Software Defined Vehicle (SDV) space, thereby building turnkey products for its clients in the EV space.
  2. It has built partnerships with Microsoft Azure, Logility, and Siemens and these partnerships are expected to allow Tata to scale across other verticals & geographies.
  3. Tata Tech expects greater demand for its services shortly, as Automotive OEMs are cutting costs by outsourcing ER&D services to other specialized Companies. 
  4. The Company is working with multiple new energy vehicle manufacturers and expects a greater percentage of its revenue from the segment.
  5. The Company will continue to deepen its relationship with its biggest clients taking up more increasing their outsourcing spending.

Key Metrics

We have now understood both the Companies’ business as well as taken a good comparative look at their financials. Now let us look at a few Key Metrics.

ParticularsKPIT TechTata Tech
CMP₹1,547.8₹1,140.65
Market Cap (Cr.)₹41,575 ₹48,104
EPS₹14.10 ₹15.38
Stock P/E 82.1477.09
RoE26.55%20.87%
Book Value₹68.60 ₹73.91
Price to Book Value21.5016.1
Promoter Holding39.47%55.39%

Conclusion

Tata Technologies and KPIT Tech, are both significant contenders in the ER&D space. The segment is currently witnessing increased demand due to Automotive OEMs choosing to outsource Product Lifecycle Management (PLM), Enterprise Resource Planning, and Digital Enterprise Solutions (DES).

This puts both Companies in a bright spot, and in terms of financials, both Companies are so closely matched. Both companies have a large market to explore as India develops as an ER&D outsourcing market for the world.

However, we believe that being a subsidiary of Tata Motors Ltd, Tata Tech does have an unfair benefit arising in the form of long-term contracts from the TML & JLR divisions. However, KPIT also enjoys partnerships with global OEMs like Honda, Renault & ZF which should make up for this advantage.

So, which ER&D Company are you more interested in? Let us know in the comments below.

Written by Nasir Hussain

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