JPMorgan has maintained its underweight rating on Tata Technologies with a target price of ₹570 after the company announced the acquisition of German auto ER&D firm ES-Tec, which specialises in advanced driver-assistance systems (ADAS), connected driving, and digital engineering. Tata Tech will acquire ES-Tec for €75 million ($88 million), valuing the deal at 2.1 times EV/revenues.
ES-Tec reported revenues of €36 million ($42 million) in CY24, with high revenues per employee at $142,000, implying a high on-site nature of work and therefore potentially lower margins. However, management has guided that the acquisition will be earnings accretive from the first year itself, adding 2% to FY26 revenues and 5% to FY27 revenues. JPMorgan described the deal as strategically sound, giving Tata Tech access to the German market and the Volkswagen account, with ES-Tec having grown at a healthy 20% CAGR between CY22 and CY24.
Despite this, the brokerage retained its underweight view, expecting Tata Tech’s revenues to decline 4.6% in constant currency and margins to fall 100 basis points in FY26. At 37 times one-year forward P/E, JPMorgan said the current valuation does not justify the earnings trajectory.
Disclaimer: The views and recommendations made in this article are those of JPMorgan. This article does not constitute investment advice. Investors should consult their financial advisors before making any investment decisions.
