Tata Group’s IT firm, Tata Elxsi’s shares tumbled on Monday’s early trades after the company reported a sequential decline in its net profit. At 11:35 AM, its shares were trading at ₹ 7800.00 apiece, down 8 per cent. In comparison, the BSE midcap index gained 0.05% on Monday.
Tata Elxsi delivered steady growth in the September quarter (Q2FY23). Its revenue from operations stood at ₹ 763.2 crores, up 5.1% quarter-on-quarter (QoQ) and up 28.2% year-on-year (YoY). It reported an industry-leading EBITDA margin of 29.7%. Further, its profit after tax grew by 39.1% YoY to ₹174.3 crores. The company’s EPS grew 39.0% YoY to ₹ 27.98.
In an exchange filing, the company said that its growth was primarily volume-led, with all three segments of embedded product design, industrial design and visualisation and SIS showing robust growth of 3.8%, 13.5% and 26.2% QoQ respectively.
The company’s earnings, however, failed to cheer D-Street. Here are a few targets given by brokerages:
JP Morgan
The brokerage has maintained an ‘underweight’ stance on Tata Elxsi with a target price of ₹ 4300. This translates to a downside of 44.87% compared to its current share price.
JP Morgan said that project deferrals and supply issues impact revenues and margins. It added that challenges remain and the growth momentum also shows signs of slowing down.
ICICI Securities
ICICI Securities has a ‘sell’ call on the shares of Tata Elxsi with a target price of ₹ 5173. This implies a downside of 33.33% compared to the current share price. The time period given by the analyst is one year, during which the target is achievable.
The brokerage said that it is reducing EPS estimates due to the lowering of USD revenue, as there are macro headwinds in the MCE vertical. It added that the company has superior operating metrics as compared to its peers. These include the lowest cost of delivery, the highest offshore mix, reduced client concentration and superior client-mining capabilities.
However, ICICI Securities said that the company’s super-premium valuation of 65x on FY24 EPS (123% /77% premium to LTTS/KPIT) drives a SELL rating. It values Tata Elxsi at a target multiple of 40x FY24E earnings to arrive at a fair value of ₹ 5,173.
Tata Elxsi is a large-cap stock with a market capitalization of ₹ 52,720 crores. It has an excellent return on equity of 37.23%. Currently, its shares are trading at a price-to-equity
(PE) the ratio of 84.89, which is higher than the industry PE of 72.50. Therefore, the stock might be overvalued as of now.
“We are seeing strong and sustained growth in the automotive and adjacent segments, led by our electric vehicle and digital capabilities, ” said Manoj Raghavan, the MD & CEO of the company.
Tata Elxsi is a subsidiary of Tata Sons, which is the holding company of the Tata Group. It is a leading provider of design and technology services across a spectrum of industries including automotive, broadcast, communications, healthcare and transportation.
Written by Simran Bafna
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