Sell Tata Elxsi ; target of Rs 4750: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Elxsi

The revenue de-growth was in line with our estimates, largely attributed to M&C and H&L, while Transportation business reported flat QoQ CC vs -9.7% QoQ CC in Q4. The transportation business growth is negatively impacted by Tier-1 suppliers, otherwise the deal ramp ups on the Auto OEMs have improved of late and compensating the weakness against Tier-1. The management sounded optimistic to drive growth within Transportation from Q2, while M&C would recover from Q3 led by large deal ramp up. The timely ramp ups of the automotive deals and continued engagement with OEMs on the new-age offerings, give confidence to the management to drive growth within Transportation. However, the structural demand for M&C and H&L remains weak due to business consolidation and tariff impact on medical devices, leading to pullback on R&D and discretionary spending. The reported margins were below our estimates by 100bps due to lower employee utilization and continued investments for future growth. We are adjusting our margins by 110 and 130bps due to Q1 miss for FY26E/FY27E.

Outlook

We expect CC revenue to decline by 3.5% in FY26E and growth of 9.1% YoY in FY27E, while expect EBIT margin of 19.9% and 21.8% in FY26E and FY27E respectively. We are assigning 33x PE to FY27E, translating a TP of 4,750. Maintain SELL.

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