Global brokerage JP Morgan believes that demand deterioration in the IT Sector persists in the June quarter as well and that a quick recovery is unlikely over the next six to nine months. It trimmed its Street-low estimates by 1-3 percentage points for a few IT stocks including Tata Elxsi, to bake in the weakness in the June quarter.
An industry leader in design-led technology services, Tata Elxsi, a Tata Group firm, serves numerous sectors including automotive, media, communications, and healthcare. It provides integrated services from research and strategy to software development, validation, and deployment, as well as mechanical and electronic design.
For the March quarter, the company’s revenue increased by 2.5 percent sequentially to ₹ 837.9 crores. Its revenue growth in constant currency terms stood at 1.6 percent sequentially. Its board recommended a final dividend of ₹ 60.6 per share of face value of ₹ 10 each. This is 42 percent higher than the dividend it announced in the previous year.
JP Morgan has a target of ₹ 4,600 on the company’s stock which suggests a 40.99 percent downside from its closing share price of ₹ 7,794.70 apiece on Thursday. The brokerage said that it is underweight on the stock due to its excessive valuation of 57 times one-year forward P/E when growth is slowing and margins are not likely to expand.
“A reverse DCF on the share price implies a 25 per cent revenue CAGR over the next decade, which we believe is overly optimistic. We note that ER&D spend tends to be more discretionary in nature than IT services and hence is at higher risk from a potential macro slowdown,” JP Morgan said.
Earlier, the brokerage said that the company’s near-term outlook is weak, driven by a pause of research and development (R&D) spending by some clients, delays in deal closures and project deferrals, all of which will impact revenues in the first half of the financial year 2024.
Tata Elxsi is a mid-cap stock with a market capitalization of ₹ 48,264 crores. It has a high return on equity of 40.97 percent and an ideal debt-to-equity ratio of 0.09. The company’s shares were trading at a price-to-earnings ratio (PE) of 63.91, which is almost at par with the industry P/E of 64.74.
The company’s promoters hold a 43.92 percent stake in it, followed by retail investors with 38.86 percent, foreign institution with 13.85 percent, mutual funds with 1.85 percent and other domestic institutions with 1.52 percent.
Written By Simran Bafna
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
