Higher auto spending, aviation bet will push us to $1 billion: Tata Tech’s Harris

“It's unique because it's been driven by two things. One, the tariffs from the US. I think that has prompted almost every customer to revisit their product portfolio in terms of propulsion system, in terms of supply chain, in terms of where product is built, and so that prompted a delay in investment,” he said.

“We've also seen the tapering of the transition to EVs (electric vehicles), and I think those two things together have prompted this once-in-a-generation pause,” Harris added.

He added that the pause in spending presented an opportunity to get close to the aspirational billion-dollar mark.

JLR exposure grows

“I think what's really exciting for us is that the pause (in tech spending) has prompted a need for our customers to accelerate the development of new products, and that's prompting a greater propensity to outsource,” said Harris, adding that engineering firms have to continue investing in new products or risk “mortgaging the future.”

The company, whose shares have gained 18% this year even as India's largest information technology stocks slumped more than 30%, is also leaning harder into aerospace to offset a slower rebound in its core automotive business, Harris said.

He expects the company to drive double-digit growth in the coming two years.

“When you project from where we were in FY25, we drive double-digit growth this year, and then we drive double-digit growth next year. We think we're going to be very close to that billion-dollar target,” Harris added.

For this, the company would have to grow at a compounded annual growth rate of 27% over the next two years, which is six times the CAGR of 4.3% over the last three years.

Key Takeaways

• Tata Tech must grow 27% annually to hit its billion-dollar FY28 target.
• Revenue grew 1.5% last year as tariffs and the electric vehicle pause hurt demand.
• Jaguar Land Rover remains its largest client despite reduced revenue concentration risks.
• Aerospace is growing faster than automotive and now accounts for a fifth of revenue.
• Operating margins fell to 13.9%, a three-year low, while protecting employee capacity.

Tata Technologies, as the company, gets about four-fifths of its business from car companies. Significantly, the company got a fourth of its revenue from one client, Jaguar Land Rover, which is also its largest client.

Last month, the firm became the first Tata Group firm to increase its exposure to JLR when it sought shareholder approval to raise its business with the car company to about ₹1,750 crore (approximately $180 million) in the current fiscal, accounting for almost a third of its revenue.

In September, JLR was hit by cyberattacks that halted operations and services for existing vehicles. It ended last fiscal with £22.9 billion ($30.5 billion) in revenue, down 21% from the preceding year.

Margins slip to three-year low as company protects headcount

However, the management dismissed plans to focus on one client for revenue, making it prone to risk.

“I think if you look at the last three quarters, you will see not only Jaguar Land Rover, but the Tata Motors Group contribution continues to come down, and I think if you look at the business now, you know it's less than 50%,” said Harris, adding that client concentration is reducing.

He added that the company is now doubling down on growth from aerospace companies.

“We've been growing aerospace specifically at a faster rate than automotive, and whilst we see a bounce back of growth in automotive, we expect the growth in aerospace to continue,” he added.

While the company does not disclose revenue from aerospace companies, it groups it under the ‘non-auto’ segment, which accounts for a fifth of the company’s revenue.

However, the current turnaround for Tata Tech came at a cost to its profitability last year, as the company’s margins fell 220 basis points on a yearly basis to 13.9%, its lowest in at least three years.

The management said it did not cut fixed costs for employees due to the slowdown in demand, which hurt operating margins.

The company is also confident of little impact from the rise of these automation tools, as Harris said the company has ‘certainly not seen any deflationary impact from AI as yet.’

At least one brokerage gave the company's plans a thumbs-up.

“Although automotive growth stands impacted from geopolitical uncertainty, aerospace and IHM are expected to be key growth drivers within the services segment. We remain positive on TATATECH, as it has undertaken timely pivots with renewed focus on aerospace, full vehicle projects and diversification towards non-anchor accounts,” said ICICI Securities analysts Ruchi Mukhija, Seema Nayak, and Aditi Patil, in a note dated 7 July.

Tata Technologies went public in November 2023, a first for the Tata Group in nearly 20 years after TCS’s listing in 2004. On 3 May 2024, the company re-appointed Harris as its chief executive for three-and-a-half years, starting in September. His term is now expected to end on 8 March 2028, days before the company is expected to touch the billion-dollar mark.