Tenneco Clean Air India Ltd IPO: 42% ROE But Revenue Crashed 11% – What’s Really Happening?

Tenneco Clean Air India Limited is preparing to launch one of the most anticipated initial public offerings in the automotive ancillary sector with a ₹3,000 crore book-built issue. As a wholly-owned subsidiary of Tenneco Inc., a global leader in automotive emission control and ride performance solutions, the company brings substantial pedigree to India’s rapidly evolving automotive component market.

This Tenneco Clean Air India Ltd IPO review provides an in-depth examination of the company’s business fundamentals, financial health, competitive positioning, and investment potential. Operating across two critical segments—Clean Air & Powertrain Solutions and Advanced Ride Technologies—Tenneco serves leading Indian and global original equipment manufacturers (OEMs) in a market driven by stringent emission regulations and growing vehicle production.

What makes this IPO particularly noteworthy is its 100% Offer for Sale (OFS) structure, meaning all proceeds go to existing shareholders rather than the company’s treasury. This fact, combined with impressive profitability metrics and recent revenue trends, warrants careful analysis before making investment decisions.

Tenneco Clean Air India IPO Details

IPO Reservation Structure

Key Observation: The entire ₹3,000 crore proceeds will go to selling shareholders (promoters), with zero fresh capital infusion into the company—a critical factor for long-term investors to consider.

About Tenneco Clean Air India Limited

Company Overview

Incorporated in 2018, Tenneco Clean Air India Limited operates as a strategic subsidiary of Tenneco Inc. (NYSE: TEN), a Fortune 500 company headquartered in the United States. The company specializes in designing, manufacturing, and supplying mission-critical automotive components across two primary business verticals.

Business Segments

1. Clean Air & Powertrain Solutions Division

This segment focuses on emission control technologies essential for meeting India’s Bharat Stage VI (BS-VI) emission norms:

• Catalytic converters for gasoline and diesel engines
• Diesel Particulate Filters (DPFs)
• Selective Catalytic Reduction (SCR) systems
• Exhaust manifolds and pipes
• Mufflers and acoustic systems
• Advanced after-treatment solutions

2. Advanced Ride Technologies Division

This division manufactures ride performance products:

• Shock absorbers for passenger and commercial vehicles
• Struts and suspension components
• Advanced suspension systems
• Damping technologies for varied terrains

Manufacturing Infrastructure

As of March 31, 2025, Tenneco operates an impressive manufacturing footprint comprising:

• 12 manufacturing facilities across seven states and one union territory
• 7 Clean Air & Powertrain Solutions facilities
• 5 Advanced Ride Technology facilities
• Strategically located near major automotive manufacturing hubs
• Integrated supply chain with localized sourcing capabilities

Research & Development Capabilities

The company maintains a dedicated team of 145 employees focused on design, engineering, and R&D activities. This technical workforce leverages Tenneco Group’s global research initiatives to adapt international technologies for Indian market requirements at competitive price points.

Competitive Strengths

Market Leadership: Tenneco has established itself as a preferred supplier to marquee OEMs including Maruti Suzuki, Hyundai, Tata Motors, Mahindra & Mahindra, Honda, Toyota, and Nissan, among others.

Technology Access: Direct access to parent company’s global R&D portfolio enables rapid deployment of proven technologies adapted to Indian specifications and cost structures.

Regulatory Advantage: With emission norms becoming progressively stringent (BS-VI Phase 2 and future standards), Tenneco’s emission control expertise positions it favorably for sustained demand growth.

Operational Flexibility: Automated, flexible manufacturing processes enable quick product changes and customization per OEM requirements, reducing time-to-market.

Financial Performance Analysis

Consolidated Financial Summary (Restated)

Key Performance Indicators (KPIs)

Financial Performance Insights

Revenue Trend Analysis: The most striking observation in Tenneco’s financials is the revenue decline of 11% from ₹5,537 crores (FY24) to ₹4,931 crores (FY25), despite the automotive industry’s overall growth trajectory. This revenue compression requires careful interpretation:

• Could indicate strategic exit from low-margin business segments
• May reflect temporary destocking by OEM customers post-pandemic normalization
• Possible shift in product mix toward higher-value, lower-volume products
• Industry-wide slowdown in specific vehicle categories

Profitability Surge: Contrasting the revenue decline, PAT jumped 33% year-over-year from ₹417 crores to ₹553 crores. This remarkable profit expansion alongside revenue contraction suggests:

• Significant operational efficiency improvements
• Enhanced product mix favoring high-margin emission control systems
• Successful cost optimization initiatives
• Better pricing power with OEMs

Working Capital Efficiency: The company has eliminated all debt (zero borrowings in FY25 and FY24 vs. ₹13.97 crores in FY23), indicating strong cash generation and prudent capital management.

Margin Expansion:

• EBITDA margin improved from 11.05% (FY24) to 16.67% (FY25)
• PAT margin expanded from 7.53% to 11.31%

These margin improvements demonstrate operational leverage and pricing discipline despite volume pressures.

Return Ratios: The extraordinary ROE of 42.65% and ROCE of 56.78% place Tenneco in the top quartile of India’s automotive component sector, reflecting superior capital efficiency and asset utilization.

Promoters and Management

Promoter Details

Tenneco Clean Air India Limited is promoted by a consortium of entities within the Tenneco Inc. global structure:

1. Tenneco Mauritius Holdings Limited
2. Tenneco (Mauritius) Limited
3. Federal-Mogul Investments B.V.
4. Federal-Mogul Pty Ltd
5. Tenneco LLC

Promoter Holding Pattern

Critical Gap: The Draft Red Herring Prospectus (DRHP) does not disclose post-IPO promoter holding percentage—a significant information deficit that investors must await before making informed decisions. This raises questions about:

• Extent of promoter dilution
• Whether promoters are retaining meaningful stake post-listing
• Long-term commitment to Indian operations

Management Credibility

Tenneco Inc., the parent organization, brings over 130 years of automotive expertise globally. The company is listed on the New York Stock Exchange (NYSE: TEN) and operates in over 100 countries, providing credibility and governance standards.

However, investors should note that 100% OFS structures often signal that promoters are de-risking or rebalancing their portfolio rather than expressing confidence in near-term growth prospects.

Objects of the Issue

Fund Utilization

Offer for Sale: ₹3,000 Crores (100%)

Since this IPO is entirely an Offer for Sale, no proceeds will accrue to the company. All funds raised will go directly to the selling shareholders (promoters). This means:

✗ No capital for business expansion
✗ No debt repayment (already debt-free)
✗ No working capital augmentation
✗ No technology investments
✗ No new facility setup

Why OFS-Only Structure Matters

For long-term investors, the absence of fresh capital raise presents concerns:

1. Growth Funding: The company must rely solely on internal accruals for expansion, limiting aggressive growth strategies.
2. Promoter Confidence Signal: When promoters choose to sell rather than dilute alongside fresh capital, it may indicate their assessment that the business has limited near-term upside or that they’re optimizing their portfolio.
3. Value Creation: Shareholders purchasing in the IPO are essentially buying out existing investors at current valuations without the company receiving growth capital.

Investor Takeaway: This structure benefits existing shareholders (promoters) rather than the company’s future prospects—a red flag for conservative investors but potentially irrelevant for traders seeking listing gains.

Peer Comparison and Industry Analysis

Listed Peer Comparison

Note: Peer data represents approximate FY24 figures and market cap as of recent trading

Comparative Analysis

Superior Profitability: Tenneco’s 11.31% PAT margin significantly exceeds industry averages (6-9%), indicating either premium product positioning or exceptional cost management.

Outstanding Returns: The 42.65% ROE dwarfs peers (11-22%), suggesting highly efficient capital deployment and minimal equity base relative to profits generated.

Revenue Scale: While mid-sized compared to diversified players like Endurance Technologies, Tenneco’s focused strategy in emission control and suspension systems allows specialization advantages.

Industry Dynamics

Emission Control Segment:

• BS-VI norms mandate sophisticated after-treatment systems
• BS-VI Phase 2 (stricter on-road emissions) to drive upgrade cycles
• Electric vehicle transition poses long-term threat but medium-term opportunity as ICE vehicles remain dominant (90%+ market share through 2030)

Suspension Systems Segment:

• Growing preference for premium ride quality
• Increasing SUV and crossover segment driving higher ASP products
• Replacement market opportunity with aging vehicle parc

Market Growth Drivers:

• India’s automobile production expected to reach 45 million units by 2030
• Localization push by global OEMs benefits domestic suppliers
• Export opportunities to ASEAN and Middle East markets

IPO Valuation and Pricing Analysis

Valuation Framework

Important Limitation: Without the announced price band, precise valuation cannot be assessed. However, we can establish benchmarks for evaluation once pricing is disclosed.

Expected Valuation Parameters

Scenario Analysis (Illustrative):

Assuming the IPO is priced to raise ₹3,000 crores through OFS:

Based on FY25 PAT of ₹553.14 crores and Net Worth of ₹1,255.09 crores

Valuation Comparison Benchmarks

Price-to-Earnings (P/E) Basis:

• Peer average P/E: 27-30x
• Tenneco’s superior profitability (42.65% ROE) could justify 20-25x P/E
• Below 20x P/E would be attractive; above 28x would be expensive

Price-to-Book (P/B) Basis:

• Given ROE of 42.65%, P/B of 5-8x would be reasonable
• Peer average: 3-5x (but with lower ROEs)

EV/EBITDA Basis:

• Peer range: 12-18x
• Tenneco’s debt-free status and higher margins justify 14-20x range

Key Valuation Considerations

Positive Factors:

• Exceptional profitability metrics (ROE, ROCE, margins)
• Debt-free balance sheet
• Stable cash flows and working capital efficiency
• Regulatory tailwinds from emission norms

Negative Factors:

• Revenue decline trend (11% YoY)
• 100% OFS structure with no fresh capital
• Uncertain post-IPO promoter commitment
• Automotive sector cyclicality

Investment Strategy:

• Below ₹220 per share: Strong buy for long-term investors
• ₹220-280 per share: Moderate risk-reward; suitable for listing gains
• Above ₹280 per share: Overvalued; avoid unless exceptional fundamentals justify premium

Strengths and Risks

Key Business Strengths

✓ Market Leadership: Established supplier to top Indian and global automotive OEMs with long-term contracts

✓ Technology Moat: Access to Tenneco Group’s global R&D portfolio providing competitive advantages in emission control technologies

✓ Regulatory Tailwinds: BS-VI Phase 2 and future emission standards ensure sustained demand for advanced after-treatment systems

✓ Exceptional Profitability: Industry-leading ROE (42.65%), ROCE (56.78%), and PAT margins (11.31%)

✓ Debt-Free Operations: Zero borrowings provide financial flexibility and reduce financial risk

✓ Diversified Product Portfolio: Dual revenue streams (emission control + suspension) reduce dependency on single segment

✓ Manufacturing Scale: 12 strategically located facilities enable proximity to customers and logistical efficiency

✓ Localized Supply Chain: Reduces import dependency, controls costs, and improves responsiveness

Critical Risk Factors

⚠ Revenue Decline Concerns: 11% drop in FY25 revenue despite industry growth requires explanation; sustainability of margins under volume pressure unclear

⚠ 100% OFS Structure: No fresh capital for growth initiatives; all proceeds benefit promoters, not the company

⚠ Promoter Exit Uncertainty: Undisclosed post-IPO holding percentage raises concerns about long-term commitment

⚠ OEM Concentration Risk: Heavy reliance on limited number of large OEMs; loss of major customer could significantly impact revenues

⚠ Electric Vehicle Disruption: Long-term structural threat as EVs don’t require emission control systems; suspension business partially cushions this risk

⚠ Commodity Price Volatility: Raw material costs (platinum group metals, steel) impact margins; limited ability to pass through costs immediately

⚠ Automotive Sector Cyclicality: Vehicle production sensitive to economic cycles, interest rates, and consumer sentiment

⚠ Parent Company Financial Health: Tenneco Inc. has faced financial challenges globally; potential impact on Indian subsidiary through technology support or ownership changes

⚠ Pricing Power Constraints: OEMs exert significant pressure on component suppliers; intense competition limits margin expansion

⚠ Regulatory Compliance: Stringent environmental and labor regulations increase operational complexity and costs

Grey Market Premium (GMP) and Subscription Trends

Grey Market Premium Analysis

Current Status: As the IPO dates and price band are not yet announced, Grey Market Premium (GMP) data is unavailable.

What to Watch: Once the price band is announced, monitor GMP trends closely:

• GMP > 20%: Strong market appetite; indicates positive listing gains potential
• GMP 10-20%: Moderate interest; proceed with caution
• GMP < 10%: Weak sentiment; consider avoiding unless fundamentals are exceptional
• Negative GMP: Red flag; high probability of listing losses

Subscription Data (To Be Updated)

Subscription trends across investor categories will be crucial indicators:

Red Flags:

• QIB subscription below 1x (weak institutional interest)
• Overall subscription below 2x (lukewarm response)
• Significant difference between categories (indicates segment-specific concerns)

Market Sentiment Factors

Positive Catalysts:

• Strong automobile sales data in recent months
• Government’s PLI scheme for auto components
• Increasing localization by global OEMs

Negative Headwinds:

• Rising interest rates impacting auto financing
• Geopolitical uncertainties affecting supply chains
• Recent corrections in mid-cap and small-cap segments

Expert Review and Investment Rating

Comprehensive Investment Assessment

After thorough analysis of Tenneco Clean Air India’s business model, financials, market positioning, and IPO structure, here’s our detailed investment recommendation:

Investment Rating: ⚠️ NEUTRAL TO CAUTIOUS SUBSCRIBE

Rating Rationale:

For Long-Term Investors (3-5 years horizon): CONDITIONAL SUBSCRIBE – Only if the following conditions are met:

1. IPO pricing at P/E below 22x (approximately ₹220 per share)
2. Post-IPO promoter holding disclosed at minimum 51%
3. Satisfactory explanation for FY25 revenue decline in DRHP
4. Allocation of at least 30% of portfolio to high-quality stocks

For Short-Term Investors (Listing Gains): SELECTIVE SUBSCRIBE – Consider applying if:

1. Grey Market Premium exceeds 15% before issue closing
2. QIB and HNI subscription crosses 3x on Day 2
3. Market sentiment remains positive during IPO period
4. You’re comfortable with high-risk, high-reward plays

For Conservative Investors: AVOID – Due to:

1. 100% OFS structure with zero fresh capital raise
2. Uncertain promoter commitment post-IPO
3. Revenue decline trend without clear recovery signals
4. Better opportunities available in primary markets

Investment Thesis

Bull Case (40% probability):

• Emission control demand accelerates with Phase 2 BS-VI norms
• Revenue decline was temporary due to destocking; FY26 shows strong recovery
• Margin expansion continues through operational leverage
• Company becomes acquisition target for larger players at premium valuations
• EV transition slower than expected, extending ICE vehicle lifecycle

Base Case (45% probability):

• Revenue stabilizes at ₹4,800-5,200 crore range over next 2 years
• Margins maintained at 16-17% EBITDA levels
• Stock trades at 18-22x P/E, delivering moderate returns (8-12% CAGR)
• Promoters retain 40-50% post-IPO, providing partial confidence
• Company continues as stable dividend payer with limited growth

Bear Case (15% probability):

• Revenue decline accelerates due to OEM customer losses
• Margin compression if volumes fall further (operating leverage reverses)
• Promoters exit completely post lock-in, causing stock overhang
• EV adoption faster than expected, impacting emission control segment
• Listing at significant discount; negative returns for IPO investors

Risk-Reward Assessment

Potential Upside: 25-40% over 2 years (if priced attractively and fundamentals improve)

Potential Downside: 15-25% (if business deterioration continues or overpriced)

Risk-Reward Ratio: 1:1.5 (Moderate; not compelling)

Who Should Apply?

✓ Suitable For:

• Experienced investors who understand automotive sector dynamics
• Portfolios with existing diversification and capacity for moderate risk
• Investors who can wait for DRHP to make informed decisions
• Those seeking exposure to India’s emission control technology space
• Traders with exit strategy planned (listing day or within weeks)

✗ Not Suitable For:

• First-time IPO investors seeking safety
• Investors requiring companies to use IPO funds for growth
• Conservative portfolios focused on capital preservation
• Those uncomfortable with promoter exit scenarios
• Long-only fundamental investors preferring growth stories

Final Verdict

Tenneco Clean Air India presents a mixed bag: exceptional profitability metrics and market positioning contrast sharply with revenue concerns and OFS-only structure. The company operates in a strategically important sector with regulatory tailwinds, but the lack of growth capital and uncertain promoter commitment reduce long-term conviction.

Our Recommendation:

• Wait for complete information (price band, post-IPO holding, DRHP)
• Apply only if priced reasonably (P/E below 22x)
• Allocate conservatively (not more than 2-3% of equity portfolio)
• Monitor listing performance before adding in secondary market

This IPO requires investor discretion and thorough due diligence rather than blind application based on brand name or sector tailwinds.

Frequently Asked Questions (FAQs)

Conclusion and Call-to-Action

Tenneco Clean Air India Ltd IPO presents a nuanced investment opportunity in India’s critical automotive component sector. While the company demonstrates exceptional profitability and operates in a strategically important emission control space, the 100% Offer for Sale structure and recent revenue trends require careful consideration.

Key Takeaways:

• Extraordinary profitability ratios (42.65% ROE, 56.78% ROCE)
• Debt-free operations with strong cash generation
• Regulatory tailwinds from emission norms
• BUT: Revenue decline, no fresh capital, uncertain promoter retention

Investment Action Plan:

1. Wait for price band announcement
2. Download and study DRHP thoroughly
3. Monitor Grey Market Premium trends
4. Check subscription status (especially QIB interest)
5. Evaluate final valuation against peers
6. Apply selectively based on your risk profile

💬 Share Your Thoughts

What’s your view on Tenneco Clean Air India IPO? Are you considering applying? Do you have questions about the company’s business model or financials? Share your thoughts in the comments below, and let’s discuss!

Have specific questions? Drop them in the comments, and our team will respond with detailed analysis.

⚠️ Investment Disclaimer

This Tenneco Clean Air India Ltd IPO review is for educational and informational purposes only. It should not be construed as investment advice or a recommendation to buy, sell, or hold securities.

• Past performance does not guarantee future results
• IPO investments carry significant risks including total loss of capital
• Information provided is based on publicly available documents; accuracy not guaranteed
• Investors should conduct independent research and consult SEBI-registered investment advisors
• The author/publisher is not responsible for any investment decisions or outcomes
• Stock market investments are subject to market risks; read all scheme-related documents carefully

Always invest according to your financial goals, risk appetite, and after thorough due diligence.

Information Source – SEBI Public Issues