Midcap IT firm Tata Elxsi has given robust returns to its investors in the last 5 years, surging nearly 850 percent in this period. In the last 1 year, as well, the stock has advanced 87 percent while it added around 40 percent in 2022 so far, despite massive correction witnessed in the IT stocks and overall domestic markets.
The firm outperformed most of its peers as well as the benchmarks in the last 1 year. The Nifty IT index lost around 10 percent while the benchmark Nifty was flat (up less than 1 percent) in this period. Apart from Tata Elxsi, only Mindtree gave positive returns in the IT sector in the last 1 year, up 7 percent. Wipro fell the most, down 30 percent followed by Coforge, down 24 percent in this period. Meanwhile, the other IT stocks including HCL Tech, Tech Mahindra, Mphasis, L&T Tech, and L&T Infotech were down between 5-10 percent. Bluechips Infosys and TCS were also in the green but fell less than 5 percent in the past 1 year.
However, even after the strong performance, brokerage house HDFC Securities has retained its 'sell' call on the stock. It has a target price of ₹6,530 for the stock, indicating a downside of nearly 20 percent in the next 12 months.
Even though Tata Elxsi announce a strong set of numbers in the June quarter (Q1FY23), the brokerage believes that it is already priced in by the markets.
The brokerage said that the firm posted in-line revenue and slightly better margin performance in Q1. Its revenue growth of 6.5 percent QoQ CC (constant currency) remains at the top-end within peers and was its eighth consecutive quarter of over 6 percent CC growth, lifting the quarterly revenue rate by 75 percent and doubling its earnings in two years, it added.
The brokerage further noted that the growth in Q1 was broad-based and was mainly led by transportation and medical & healthcare verticals.
"Commentary on demand, acceleration in vertical adjacencies and FY23E hiring outlook points to near-term momentum. We expect a 28 percent EPS CAGR over FY22-24E and a doubling of EPS in three years (revenue-led), with margins at 32.3 percent and 31.1 percent for FY23/24E. Yet, these base case assumptions seem adequately priced in and there’s a low margin of safety at 55x FY24E; the implied dollar revenue growth rate over FY22-32E is 22 percent CAGR at the current valuation," analysed the brokerage.
In the June quarter, Tata Elxsi reported a 63 percent YoY rise in its net profit to ₹184 crore and a 30 percent YoY rise in its revenue to ₹725 crore.
Its net profit and revenue in the same period last year came in at ₹113 crore and ₹558 crore, respectively.
Speaking post the Q1FY23 numbers, Manoj Raghavan, CEO and Managing Director at Tata Elxsi said, "We are starting FY23 on a strong note with 6.5 percent QoQ revenue growth in constant currency. This was all volume-led and supported by robust growth across divisions, verticals, and key markets. We continue to maintain and expand our margins with our EBITDA growing at 58.8 percent YoY and PAT growing at 62.9 percent YoY."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.