TCAI is part of the US-headquartered Tenneco Group, which is a global Tier-I supplier of auto parts, operating in 28 countries
The IPO of auto component supplier Tenneco Clean Air India (TCAI) is live and will remain open for subscription until November 14. The issue is entirely an offer for sale (OFS) where promoter Tenneco Mauritius Holdings Ltd (TMHL) is set to offload a 22.5-per cent stake worth ₹3,600 crore. Post the IPO, promoters’ stake is expected to go down to 74.8 per cent.
TCAI is part of the US-headquartered Tenneco Group, which is a global Tier-I supplier of auto parts, operating in 28 countries. The group made a turnover of about $17 billion in 2024 and is ultimately owned by Apollo Global Management, the PE firm.
Business, valuation
TCAI with its strong parentage is a leading supplier of parts forming part of exhaust and suspension systems of vehicles. It has two broad verticals: A) Clean air and powertrain solutions and B) Advanced ride technologies. Under A, it manufactures products such as catalytic converters, exhaust pipes, mufflers, spark plugs, head gaskets and bearings. Under B, it produces shock absorbers and strut assemblies. TCAI makes about 53 per cent and 47 per cent of revenue from A and B respectively. The end-use wise revenue split is as follows: passenger vehicles 63.5 per cent, commercial vehicles 21.5 per cent, industrials 7 per cent, aftermarket 5.5 per cent and others 2.5 per cent. Exports range between 5 to 8 per cent of revenue.
Being a leading player in exhaust systems, it is a beneficiary of stringent emission regulations globally. It is all set to capitalise on another cycle of stricter regulations such as the upcoming Bharat Stage 7 and the new CAFE (corporate average fuel economy) norms, as the company could work with OEMs to develop more fuel-efficient vehicles.
However, some of the products it offers in vertical A, have a tilt towards diesel powertrains – products such as catalytic converter with diesel oxidation catalyst and diesel particulate filters. With fuel alternatives such as electric powertrains becoming popular, especially in small commercial vehicles, such products might remain relevant only to larger trucks and off-highway vehicles, in the future. This is a risk investors must factor.
Nevertheless, there are other products such as exhaust pipes, mufflers and resonators that can find use in any ICE (internal combustion engine) powertrain, including hybrids, flex fuel and so on. Offerings in vertical B are powertrain agnostic.
TCAI sports solid fundamentals with a debt-free balance sheet. The issue values the company at 28x trailing earnings (29x based on FY25 net profit), which is on par with BSE Auto index’s PE of 29x and less than the average PE of the peer group identified in the RHP at 49x (FY25 basis). TCAI’s valuation is less expensive than direct peers such as Gabriel India’s (suspension parts) PE of 74x and Bosch’s (spark plugs) PE of 55x, but expensive than Sharda Motor Industries’ (exhaust and suspension parts) PE of 19x (all on FY25 basis). Though TCAI and Sharda are on par with each other on metrics such as profit CAGR in FY23-25, profit margin and a debt-free balance sheet, TCAI has a better RoCE (57 per cent vs 38 per cent) and about 1.7 times the size of its rival by revenue.
In March 2025, the company was part of a share swap deal with its promoters, by virtue of which it acquired controlling stake in some companies that were earlier fellow subsidiaries under the same promoter group. These are the companies responsible for products such as shock absorbers and strut assemblies (account for almost all of vertical B), spark plugs, head gaskets and bearings, and were added to TCAI’s portfolio because of the share swap. TCAI largely only had exhaust parts to offer until then. TCAI’s shares were valued at ₹288.85 per piece, based on an independent valuation exercise. The current offer price of ₹397 is higher by 37 per cent. To an extent, part of this premium can be justified by the larger scale and synergies of being a combined company. Some premium may be explained by difference in market conditions.
Considering the company’s strong parentage, solid fundamentals and the cyclical nature of the industry it operates in, in our view, the issue appears to be valued reasonably, though it does not present a highly attractive risk-reward proposition. Thus, there may not be any steep upside to the stock price after listing. Long-term investors bullish on India’s automotive industry and mindful of the above factors can take limited to moderate exposure to TCAI’s shares.
What works
TCAI is the largest supplier of clean air solutions to commercial vehicle OEMs in India with a market share of 57 per cent. It is also the largest supplier of shock absorbers and struts to Indian passenger vehicle OEMs with a market share of 52 per cent.
Over FY23 to FY25, through process efficiencies, vendor negotiations (leveraging global parentage) and others, margins have improved both at gross and EBITDA level. EBITDA and profit have grown at CAGRs of 20 per cent each between FY23 and FY25. Fixed assets turnover ratio is at a healthy 8-9x.
The company is free cash flow positive and has funded capex in FY23-25 out of internal accruals. However, a mere 6 per cent compounded growth in value added revenue is a sore point, which can be attributable to the cyclical nature of the industry.
Note: Value added revenue means gross revenue minus the value of substrates (made of platinum, palladium and rhodium used in catalytic converters). Substrates are supplied to TCAI by Tier-II suppliers at the direction of OEMs and are used as is in the manufacturing process.
Published on November 12, 2025
