Tata Elxsi shares tumble 8% on weak Q3; Morgan Stanley downgrades stock, cuts target price

Over the past 3 months, shares of Tata Elxsi dropped over 15 percent

Shares of Tata Elxsi tumbled 8 percent to Rs 5,935 per share January 10 after the company reported disappointing results for the October-December quarter (Q3FY25), missing Street estimates. As a result, analysts at Morgan Stanley have downgraded the stock to an "underweight" rating and reduced their target price to Rs 6,000 per share from Rs 6,500.

With Q3 results falling short of expectations and weakness seen in European transportation, media, and healthcare sectors, the brokerage firm anticipates limited growth prospects for the company moving forward and expects the stock to underperform. Morgan Stanley noted that the limited growth visibility and high valuations led to a reduction in consensus estimates.

Tata Elxsi's net profit for Q3FY25 declined 3.5 percent year-on-year (YoY), dropping to Rs 199 crore from Rs 206 crore in the same period last year. Revenue from core operations increased by 3 percent YoY to Rs 939 crore. However, the company’s total expenses rose 7 percent YoY to Rs 723 crore, driven by higher employee benefit costs and increased material expenses.

ALSO READ: Tata Elxsi reports 3.6% decline in net profit on-year to Rs 199 crore, revenue rises 2.7%

On a segment basis, revenue from development and services grew by 3.3 percent YoY, while revenue from system integration and support services fell by 18.2 percent YoY in Q3FY25.

Despite the ongoing challenges, the management expressed confidence in navigating geopolitical uncertainties in the coming quarters.

Manoj Raghavan, CEO and Managing Director of Tata Elxsi, stated, "During the quarter, our revenue from India grew by 21.9 percent YoY, while Japan and emerging markets saw a growth of 66.8 percent YoY. This strong performance will support us in the coming quarters, even as we navigate geopolitical uncertainty."

Over the past 3 months, shares of Tata Elxsi dropped over 15 percent, as compared to benchmark Nifty 50's 4 percent decline. Earlier, Tata Elxsi shares had hit 52-week low of Rs 6,285 apiece on November 18, 2024.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.