Hold Tata Elxsi; target of Rs 7500: Sharekhan

Sharekhan's research report on Tata Elxsi

Tata Elxsi reported constant currency (CC) revenue growth of 1.2% q-o-q and 11.9% y-o-y, missing our estimates of 2.5%. Revenue growth was led by a rise in revenues of industrial design & visualization and transportation divisions (up 41.1%/17% y-o-y in cc terms), respectively. EBIT margins dipped slightly by ~ 20 bps q-o-q to 27.1% in line with estimates despite wage hikes and strong employee additions in the quarter, Net profit was impacted by a higher effective tax rate (ETR). Company won significant new deals including a strategic multi-year multi-million US$ SDV deal with a leading Asian OEM and a multi-country licensing and deployment of connected vehicle platforms.

Outlook

Despite a soft quarter, the company continues to witness good traction and a strong deal pipeline, especially in software defined vehicles and EV and is well positioned to capture opportunities in Industrial design, Medical and other verticals . However, the recent run-up limits the upside with the stock trading at 57.9/50.0x its FY24/FY25E EPS . Hence, we maintain Hold with unchanged price target (PT) of Rs 7500.