Should you buy Tata Elxsi Shares – After hitting the ATH in August 2022, the stock price plummeted and almost lost half its value in the next 7 months.

In the next 5 minutes, I’ll walk you through the most important points about Tata Elxsi, including fundamentals, technicals, analyst ratings, and retail sentiment on Stocktwits, which will help you in your decision-making process.

Often people are confused between Tata Elxsi and Tata Consultancy Services. TCS is a well-known company for all, but only some know Tata Elxsi. There’s a simple formula to understand this; Tata Elxsi can be seen as a small-scale TCS.

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Where TCS provides traditional IT services like software development, consulting etc., On the other hand, Tata Elxsi focuses on modern technologies such as Artificial Intelligence, Machine Learning, Internet of Things. Apart from these, Tata Elxsi’s customer list consists of the world’s top companies like Amazon, Google, Netflix, and Audi. So technically, both companies are related to the IT sector but have different expertise and specialisation.

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Tata Elxsi Analysis:

2022 to 2023 has been nothing less than a roller coaster ride for Tata Elxsi shareholders. After hitting the ATH in August 2022, the stock price plummeted and almost lost half its value in the next 7 months.

The biggest reason behind this is the industry-wide slowdown in the IT sector. If you want to know more about this, please check out our detailed analysis on Infosys.

Tata Elxsi’s sales growth has declined consecutively for the last 4 quarters. 

Should you buy Tata Elxsi Shares - Revenue Growth

Transportation and healthcare are the biggest verticals for this company, and we can notice a significant downturn in back-to-back quarters results. 

Should you buy Tata Elxsi Shares - Image 2
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To be clear, this doesn’t mean that the company is not growing, but it is performing under expectations leading to dissatisfaction in the market. Let’s understand this from an example a company generated sales of 10 Lakhs in the previous year and then achieved 20 lakhs the next year and 40 lakhs a year after that. But in the 4th year, the sales figure was 50 lakhs, So now the YoY growth will fall from 2x to 25%, which is a negative trend. Also, the increase in employee and travel costs has decreased the margins from 31% to 27%.

In light of declining growth and margin pressures, it’s becoming difficult for Tata Elxsi to justify its high valuations.  Considering the FY24 Price to earnings ratio, the stock is currently at 55x, which is very expensive, according to most experts.

Tata Elxsi Fundamentals:

Fundamentally, Tata Elxsi is a strong company. Even after the slowdown in the previous year company’s annual sales were at  ATH of Rs 3,000 cr. In the last 5 years, the company sales and net profit has grown by 18% and 26% CAGR. 

Should you buy Tata Elxsi Shares - CAGR

Return on Equity is between 35%-40%, and the company distributes record dividends to reward the shareholders. 

But as I have highlighted earlier, the valuation is very expensive, which is a significant negative.

Tata Elxsi Technicals:

Technically, the stock is on an uptrend in the short-term charts. From 1 April, we have seen a +30% rally in the stock. 

But the stock is still far from its ATH; technical experts feel 7,900 – 8,000 is a crucial resistance, and once we break out from these levels, we should initiate new positions. 

Tata Elxsi Key Positives:

Having said that, it is not like everything is wrong with the company. Despite the unstable business environment, the company is showing steady growth in winning deals.
5G will play a crucial role in sustaining the growth of this company. Also, the company believes this will help with the margins

Tata Elxsi Analyst Rating:

Tata Elxsi is covered by limited brokerages. Should you buy Tata Elxsi shares? Only 8 analysts track this stock, and 6 out of these give a sell rating and, on average 20% discount from the current price.

While knowing all the above is essential, knowing what retail investors think about Tata Elxsi is also important. To know what retail investors think about Tata Elxsi, remember to download the Stocktwits app. Here are a few views from Sebi registered analysts on Stocktwits:

Now let’s move on to StockTwits Scorecard. As I have mentioned earlier that Tata Elxsi is a fundamentally strong company, but because of global uncertainty, we have mixed technicals and negative analyst ratings. 

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