Warren Harris, Chief Executive Officer and Managing Director, Tata Technologies Limited

17 Nov 2023 , 12:33 PM

Tata Technologies is an ER&D company. That is also what Tata Elxsi does. So what is the go-to-market strategy? 

We are in the same space. Certainly there are some areas of overlap in the automotive sector. But, Tata Technologies is independent of Tata Elxsi, we do not talk to each other. The global ER&D market is about USD 2 trillion, and the addressable space for engineering service providers is about USD 100 billion and it is growing at over 10% year-on-year. So, there is more than enough opportunity for individual companies to continue to grow and flourish. Our proposition and that is where we are focusing on, extends to the coverage of the entire automotive industry and more recently aerospace and transport, construction and heavy machinery. We are focused on helping our customers create great products and we do that through a balanced offshore-onshore proposition. We are not an India out company. Our capabilities extend all the way through the turnkey outsourcing of the complete product. Most of our competitors and certainly all of our competitors based in India (L&T Technology Services, Cyient, KPIT, Quest, Elxsi and also the IT services companies) provide services to our customers. They use those services as a compliment to the work that they themselves are doing. They do not take responsibility for the delivery of the vehicle. And that is how we differentiate ourselves. 

From an investors perspective, how do you then stand out from your peers. And also why should they invest in Tata Technologies versus investing in any other peer company.

If you look at full turnkey product development capabilities, in the past it has really been the preserve of the German, French and to some extent the North American engineering service providers. India has not been a region of companies that have challenged this status quo, until recently. Tata Technologies cultivated its capabilities with Tata Motors and JLR. We are able to demonstrate our capabilities at JLR at scale that we could compete with the Germans, that we could compete with the French. The first ever demonstration of that was when we did the Discovery Sport in 2014. We engineered everything that one can see and touch in that vehicle. That was the first time that not just we but India demonstrated that it was going to be relevant right at the top end of the market. And then, we built on it. We have got a portfolio of vehicles that we have developed for our customers which are running around on the roads today. As electrification has become more and more pervasive, the skills that we have in those areas have become more and more relevant. And those are the tailwinds driving our growth prospects.

Help us understand the key growth strategies of the company.

As the automotive industry pivots around the move to autonomous, electrification, connected and shared; there are a plethora of opportunities opening up for us. In aerospace, we have recently been empanelled into Airbus and we are in an incredible position to take advantage of what is going on in aerospace. Not just because of the overall market growth. The number of aircraft that are in service today are likely to double in the next 20 years. Much of the demand is going to come from India and Asia. There is going to be a massive infrastructure play here. The investment that the Tata group is making in Air India, we are ideally positioned to take full advantage of that. Transport, construction and heavy machinery which is the mining equipment space, the farm equipment space and the construction equipment space. That typically follows automotive by 3-5 years. What happens in automotive from a technology perspective follows in that space. We think that we are in a great position in all three of these areas.

In terms of the specific strategy, we want to engage deeper and wider with our existing customers. 98% of our business is repeat business from our existing customers.  We are targeting top R&D spenders in terms of the new logos that we want to bring into the organization. We want companies that can grow with the ambition that we have got for our company. And we are investing in skills like embedded electronics and software which are increasingly the pre-requisite for smart products. That is an important part of our business. One of the things again that differentiates us is that instead of just having Indian delivery centers, we have got 19 delivery centers around the world. We are invested in connecting those delivery centers so that we can unify our proposition in a global way. We have recently done 2 electric vehicles for VinFast the Vietnamese OEM. We had teams from 7 different countries that contributed in real time to the development of those products. So we are building an infrastructure which will increasingly enable such collaboration. 

From a business perspective, there are two key risks on the top of the minds of investors. One is the high client concentration and second is around foreign currency risks. How are you managing both these risks?

The forex risk is relatively easy for us. Unlike a lot of our competitors, our onshore-offshore mix is 50-50. So, we have a natural hedge. All our other costs are contained in the country in which we operate. So our costs and our revenue are matched. And where it makes sense, we do some creative things to offset the risk but it has never been a material issue for us.

In terms of client concentration, one thing which is not always obvious about our company is that the type of relationships that we have with our customers are very strategic not just for us but also for them. When they entrust us with next generation products, they are trusting us with the family jewels of their company. What that typically means is that there is presence of real trust and commitment on both the sides. That informs scale. If you look at what is happening with JLR or Tata Motors, these are USD 100 million relationships. They are incredibly important to both the organizations. We are looking to replicate that outside of the Tata Group. Which means we are not ever going to have the number of customers that some of our competitors have. Because you cannot build that type of relationships with that many customers. So we will always focus on partnerships which are strategic in nature for both sides, which provides a level of protection that is not always there in an industry that is somewhat transactional.

Recently there was some noise around visa issues in some of the countries where Indians were not given visas. What are you doing to make sure that business continues as usual despite all these developments?

One of the principles around which we have grown our company is that 75% of the resources in any one country is local to that country. We have done that to drive diversity and the type of connection with our customers that we think is important because of the strategic nature of what we do. So, we do not have many deputed Indian nationals in our offices around the globe. 

Talking about human resources, attrition has been an industry wide issue. How is Tata Technologies dealing with this issue?

Just to give you a couple of numbers. For us, attrition remained around 13-14% before COVID. It spiked up to 24% in the post-COVID phase when everybody went through the “Great resignations”. That has come down not to about 17% and we expect to bring it down to 13-14% within the next 12 months. We do the standard things such as L&D, niche skills, bonuses. There are a couple of things that we have done differently. We have rolled out an AI platform to measure employee engagement in very surgical ways around the company. That has allowed us to affect interventions where we have felt that there was risk. The primary thing that I think underpins our employee experience proposition is the fact that we are involved in complex stuff. Engineers want to work on the latest and greatest product challenges. And because we operate at that level, that is why people join our company. There are very few places to work for in the Indian market to work on next generation electric vehicles. We offer that opportunity.

Tata Group has always performed very high on the parameters of environment, social and governance. What in particular is the ESG strategy of Tata Technologies?

Everything that we do, every product today has to be safer and cleaner and much more sustainable in terms of the reuse of materials. So we are doing a lot of work with our customers to address the challenge of climate change. In terms of our offices, we have LEED certified buildings all over the world and we take our own carbon footprint very seriously. We have just brought in TPG – the Rise Climate fund. They did an aggressive due diligence to understand our commitment to ESG. In terms of social, we embrace the values that the Tata Group stands for. ESG has become fashionable over the last few years, but Tata Group has been doing it for over 150 years. It is a part of our DNA and our purpose. 

Help us understand the bigger picture in terms of the Tata Group’s stake and stake of existing institutional investors.

I cannot comment on the new investors, but I can say with certainty that the Tata Motors group will continue to be the majority owner of our company. That is unlikely to change. We are providing support to Tata Motors who is looking to address their balance sheet issues. We have also provided a relatively generous return for Tata Capital and they have been great partners to our company since 2011. They will continue to retain a shareholding position in our company. 

Is there a dividend payout policy in place?

We have had a track record of delivering value to our shareholders every single year. Either through dividends, which has been more often than not, or through buybacks, which we did for a couple of years. We have returned capital to the shareholders. We expect to do that in the future as well. The dividend distribution policy of our company was approved and adopted by our Board on February 21, 2023, which will be streamlined by the Board from time to time.