Tata Technologies (TATATECH IN) – Q2FY27 Result Update – Growing deal velocity, but all positives are priced in – REDUCE

TATA TECH reported a mixed Q2FY27 performance, with rev. growth of 1.9% QoQ CC in line with our est., while EBITDA margin missed our est. by 70bps QoQ. Margins were impacted by an ~100bps headwind from annual wage hikes, alongside higher subcon costs and investments towards large deal ramp-ups. Deal wins remained healthy, with five large wins in Q2, including a USD138 mn full-vehicle engineering program for a leading European luxury OEM, marking the 2nd consecutive quarter of USD 100 mn+ deal wins. Services delivered strong growth despite continued weakness at ES-Tec, aided by continued strength in organic Auto (grew ~7.5% QoQ) and Aero segment. Management reiterated its aspiration for strong double-digit consol. rev. growth in FY27, aided by ongoing program ramp-ups and healthy pipeline conversion, while ES-Tec weakness is likely to persist in the near term before stabilising in early FY28. We expect the Tenneco deal to reach its full potential in Q3, while the ramp-up of the USD 138 mn auto OEM deal from Q4 should support revenue growth in H2FY27. We are factoring in the large deal ramp up and raise our FY27E/FY28E rev. growth est. to 21.7%/13.0% CC (from 19.6%/9.3% earlier). However, we lower our reported EBITDA margin estimates for FY27E/FY28E/FY29E to 16.6%/17.4%/17.8% (from 17.0%/18.0%/18.5% earlier), factoring in higher subcontracting costs and investments associated with program ramp-ups. We raise our target P/E multiple to 26x (earlier 24x) to Sept. 28 EPS to arrive at a revised TP of INR 670 (earlier INR 630) due to growing large deal velocity and steady revenue conversion. The stock is currently trading at 28x & 24x of FY28E & FY29E earnings leaving no potential upside. Maintain REDUCE.