Shares of Tata Elxsi, a Tata group firm, fell 8.65% in the early trade on Monday after the company's Q2 earnings fell below market expectations. The stock opened lower at ₹8,000 against the previous close of ₹8,465.55 and dropped further to hit an intraday low of ₹7,735. At current levels, the stock is trading near its three-month low.
On Friday, post-market hours, the company reported a 39% rise in its standalone net profit to ₹174.3 crore as against ₹125.3 crore in the same quarter of the previous fiscal. However, sequentially, the net profit was down 5.63%. Revenue from operations increased 30.77% to ₹781.8 crore during the quarter, compared to ₹597.8 crore in the corresponding quarter of previous fiscal. Further, Tata Elxsi EBITDA margin dropped to 29.68% year on year from 30.85%, down by almost 117 (bps).
In FY22, the company delivered the highest annual growth in its history, with full-year operating revenues increasing by 35.3 per cent to ₹2,515 crore and profit after tax (PAT) increasing by 49.3 per cent to ₹549.7 crore, crossing the ₹500 crore threshold for the first time.
Post the Q2 results, domestic brokerage firm ICICI Securities has given a 'sell' call on the stock with a target price of ₹5,173/share. The brokerage lowered its EPS estimates by 4% and 3% due to the lowering of USD revenue estimates and the decrease in margin estimates.
ICICI said that the company's EBITDA margins came in below their estimates. The brokerage expects EBITDA margins to remain at 29.30% due to the return of discretionary expenses, facility costs, and investments in talent in H2FY23 and it estimates 30.5% and 30% EBITDA margins for FY23E and FY24E, respectively.
"In Q2FY23, TELX faced supply-side challenges, especially at mid and senior management levels, given large deal inflows and stretched utilisation levels in the past few quarters. Overall LTM attrition declined by 30bps QoQ to 18.7%, but the company witnessed "heightened onsite attrition," the brokerage said.
The brokerage said it is bullish on the stock but has reduced its target price due to the stock's expensive valuation. ICICI Securities noted that the company has superior operating metrics compared to its peers. The brokerage stated Deferred spending by clients amidst recession fears is the key downside risk.
YTD, the stock has risen from around ₹5,868 to ₹8,465 levels, representing a 44.65% increase. This IT stock delivered a multi-bagger return of 1,000% in the last three years and 823.3% in the last five years.
The stock traded at a price-to-earnings (P/E) multiple of 72.48, while the price-to-book value ratio stood at 32.93. The return on equity (ROE) was at 34.33 per cent in FY22.
Tata Elxsi provides product design and engineering services to the consumer electronics, communications, and transportation industries, as well as systems integration and support services for enterprise customers. It provides digital content creation for the media and entertainment industries.
The promoters owned 44.08% of the shares, while foreign portfolio investors and domestic institutional investors each owned 15.2% and 4.2% respectively. Regular shareholders own 36.7 per cent.
An average of 07 analysts polled by MintGenie have a strong 'sell' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.