20 May Hold Tata Elxsi; target of Rs 7500: Sharekhan
hold
Sharekhan’s research report on Tata Elxsi
The company reported constant currency revenue growth of 1.6% q-o-q and 17.9% y-o-y, missing our estimates of 2.5% cc revenue growth due to muted sequential growth in Embedded Product Design (EPD) and Industrial Design & Visualization (IDV). EBITDA margin fell by ~40bps q-o-q to 29.8%, missing our estimates of 30.7% due to higher employee expenses. Net profit of Rs. 201.5 crore (up 3.5% q-o-q and 25.9% y-o-y) was 3.7% ahead of our estimates aided by higher other income. The company believes that growth in the transportation vertical over the years will continue in FY24. In the Media and Healthcare verticals, there are positive signs of growth returning, although it is still in the early stages. The emergence of 5G opportunities and deals further strengthens the management’s belief that growth will pick up in the latter half of Q1 and Q2.
Outlook
We upgrade Tata Elxsi to Hold (from Reduce)with a revised PT of Rs7500 (increase in PT reflects rollover of PE multiple to FY25E EPS) as the upcoming IPO of group company Tata Technologies and healthy deal wins would support valuation. At the CMP the stock trades at 54.7/45.1x its FY24/25 E Eps.
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